-----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, IaR3+R7x+qH7KmGGnlcrY19IzdO0WoZhemShRDor0OHdvHhXH7vDj5hp89RzP6Hf 6RSa1mqHHLfVhpREGsNBbA== 0000912057-01-505993.txt : 20010409 0000912057-01-505993.hdr.sgml : 20010409 ACCESSION NUMBER: 0000912057-01-505993 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDISON MISSION ENERGY CENTRAL INDEX KEY: 0000930835 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 954031807 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-24890 FILM NUMBER: 1588957 BUSINESS ADDRESS: STREET 1: 18101 VON KARMAN AVE STREET 2: STE 1700 CITY: IRVINE STATE: CA ZIP: 92612 BUSINESS PHONE: 9497525588 MAIL ADDRESS: STREET 1: 18101 VON KARMAN AVE STREET 2: STE 1700 CITY: IRVINE STATE: CA ZIP: 92612 FORMER COMPANY: FORMER CONFORMED NAME: MISSION ENERGY CO DATE OF NAME CHANGE: 19941003 10-K 1 a2042986z10-k.txt 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 1-13434 ------------------------ EDISON MISSION ENERGY (Exact name of registrant as specified in its charter) CALIFORNIA 95-4031807 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 18101 VON KARMAN AVENUE IRVINE, CALIFORNIA 92612 (Address of principal executive (Zip Code) offices)
Registrant's telephone number, including area code: (949) 752-5588 Securities registered pursuant to Section 12(b) of the Act: 9 7/8% CUMULATIVE MONTHLY INCOME PREFERRED SECURITIES, SERIES A* NEW YORK STOCK EXCHANGE - ----------------------------------------------- ----------------------------------------------- (Title of Class) (name of each exchange on which registered) 8 1/2% CUMULATIVE MONTHLY INCOME PREFERRED SECURITIES, SERIES B* NEW YORK STOCK EXCHANGE - ----------------------------------------------- ----------------------------------------------- (Title of Class) (name of each exchange on which registered)
Securities registered pursuant to section 12(g) of the Act: COMMON STOCK, NO PAR VALUE (Title of Class) * Issued by Mission Capital, L.P., a limited partnership in which Edison Mission Energy is the sole general partner. The payments of distributions on the preferred securities and payments on liquidation or redemption are guaranteed by Edison Mission Energy. ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant as of March 30, 2001: $0. Number of shares outstanding of the registrant's Common Stock as of March 30, 2001: 100 shares (all shares held by an affiliate of the registrant). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ------------ PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 36 Item 3. Legal Proceedings........................................... 37 Item 4. Submission of Matters to a Vote of Security Holders......... 38 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................... 39 Item 6. Selected Financial Data..................................... 42 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition........................ 43 Item 7a. Quantitative and Qualitative Disclosures about Market Risk...................................................... 72 Item 8. Financial Statements and Supplementary Data................. 73 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 73 PART III Item 10. Directors and Executive Officers of the Registrant.......... 123 Item 11. Executive Compensation...................................... 126 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 136 Item 13. Certain Relationships and Related Transactions.............. 137 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................. 138 Signatures.................................................. 171
i PART I ITEM 1. BUSINESS THE COMPANY We are an independent power producer engaged in the business of developing, acquiring, owning or leasing and operating electric power generation facilities worldwide. We also conduct energy trading and price risk management activities in power markets open to competition. Edison International is our ultimate parent company. Edison International also owns Southern California Edison Company, one of the largest electric utilities in the United States. We were formed in 1986 with two domestic operating projects. As of December 31, 2000, we owned interests in 33 domestic and 40 international operating power projects with an aggregate generating capacity of 28,036 megawatts (MW), of which our share was 22,759 MW. At that date, one domestic and one international project, totaling 603 MW of generating capacity, of which our anticipated share will be approximately 462 MW, were in construction. At December 31, 2000, we had consolidated assets of $15.0 billion and total shareholder's equity of $2.9 billion. We are incorporated under the laws of the State of California. Our headquarters and principal executive offices are located at 18101 Von Karman Avenue, Suite 1700, Irvine, California 92612, and our telephone number is (949) 752-5588. Unless indicated otherwise or the context otherwise requires, references in this Annual Report on Form 10-K are with respect to Edison Mission Energy and its consolidated subsidiaries and the partnerships or limited liability entities through which Edison Mission Energy and its partners own and manage their project investments. FORWARD-LOOKING STATEMENTS This annual report includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events based upon our knowledge of facts as of the date of this annual report and our assumptions about future events. These forward-looking statements are subject to various risks and uncertainties that may be outside our control, including, among other things: - the direct and indirect effects of the current California power crisis on us and our investments, as well as the measures adopted and being contemplated by federal and state authorities to address the crisis; - general political, economic and business conditions in the countries in which we do business; - governmental, statutory, regulatory or administrative changes or initiatives affecting us or the electricity industry generally; - political and business risks of international projects, including uncertainties associated with currency exchange rates, currency repatriation, expropriation, political instability, privatization efforts and other issues; - supply, demand and price for electric capacity and energy in the markets served by our generating units; - competition from other power plants, including new plants and technologies that may be developed in the future; - operating risks, including equipment failure, dispatch levels, availability, heat rate and output; - the cost, availability and pricing of fuel and fuel transportation services for our generating units; - our ability to complete the development or acquisition of current and future projects; 1 - our ability to maintain an investment grade rating; and - our ability to refinance short-term debt or raise additional financing for our future cash requirements. We use words like "believe," "expect," "anticipate," "will," "estimate," "project," "plan" and similar expressions to help identify forward-looking statements in this annual report. For additional factors that could affect the validity of our forward-looking statements, you should read "--Project Development--Risk Factors Associated with the California Power Crisis," "--Project Development--Risk Factors Associated with our Liquidity," "--Project Development--Risk Factors Associated with Project Development, Finance and Operation," "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the "Notes to Consolidated Financial Statements" contained in Part II, Item 8. The information contained in this report is subject to change without notice. Readers should review future reports filed by us with the Securities and Exchange Commission. 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 annual report or may not occur. We have no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. SEGMENT INFORMATION We operate predominantly in one line of business, electric power generation, with reportable segments organized by geographic region: Americas, Asia Pacific and Europe, Central Asia, Middle East and Africa. Our plants are located in different geographic areas, which mitigate the effects of regional markets, economic downturns or unusual weather conditions. These regions take advantage of the increasing globalization of the independent power market. See "Edison Mission Energy and Subsidiaries Notes to Consolidated Financial Statements, Note 17. Business Segments." DESCRIPTION OF BUSINESS GENERAL OVERVIEW We are an independent power producer engaged in the business of developing, acquiring, owning or leasing and operating electric power generation facilities worldwide. We also conduct energy trading and price risk management activities in power markets open to competition. Edison International is our ultimate parent company. Edison International also owns Southern California Edison Company, one of the largest electric utilities in the United States. We were formed in 1986 with two domestic operating projects. As of December 31, 2000, we owned interests in 33 domestic and 40 international operating power projects with an aggregate generating capacity of 28,036 MW, of which our share was 22,759 MW. One domestic and one international project totaling 603 MW of generating capacity, of which our anticipated share was approximately 462 MW, were then in construction stage. At December 31, 2000, we had consolidated assets of $15.0 billion and total shareholder's equity of $2.9 billion. Until the enactment of the Public Utility Regulatory Policies Act of 1978, utilities were the only producers of bulk electric power intended for sale to third parties in the United States. The Public Utility Regulatory Policies Act encouraged the development of independent power by removing regulatory constraints relating to the production and sale of electric energy by certain non-utilities and requiring electric utilities to buy electricity from certain types of non-utility power producers, qualifying facilities, under certain conditions. The passage of the Energy Policy Act of 1992 further encouraged the development of independent power by significantly expanding the options available to independent power producers with respect to their regulatory status and by liberalizing transmission access. As a result, a significant market for electric power produced by independent power producers, such as us, has developed in the United States since the enactment of the Public Utility Regulatory Policies Act. In 2 1998, utility deregulation in several states led utilities to divest generating assets, which has created new opportunities for growth of independent power in the United States. The movement toward privatization of existing power generation capacity in many foreign countries and the growing need for new capacity in developing countries have also led to the development of significant new markets for independent power producers outside the United States. We believe that we are well-positioned to continue to realize opportunities in these new foreign markets. See "--Strategic Overview". RECENT DEVELOPMENTS THE CALIFORNIA POWER CRISIS Edison International, our ultimate parent company, is a holding company. Edison International is also the corporate parent of Southern California Edison Company, an electric utility that buys and sells power in California. In the past year, various market conditions and other factors have resulted in higher wholesale power prices to California utilities. At the same time, two of the three major utilities, Southern California Edison and Pacific Gas and Electric Co., have operated under a retail rate freeze. As a result, there has been a significant under recovery of costs by Southern California Edison and Pacific Gas and Electric, and each of these companies has failed to make payments due to power suppliers and others. Given these and other payment defaults, creditors of Southern California Edison and Pacific Gas and Electric could file involuntary bankruptcy petitions against these companies. For more information on the current regulatory situation in California, see "--Regulatory Matters-- California Deregulation." For more information on how the current California power crisis affects our investments in energy projects in California, see "--Project Development--Risk Factors Associated with the California Power Crisis." Southern California Edison's current financial condition has had, and may continue to have, an adverse impact on Edison International's credit quality and, as previously reported by Edison International, has resulted in cross-defaults under Edison International's credit facilities. Both Standard & Poor's Ratings Services and Moody's Investors Service, Inc. have lowered the credit ratings of Edison International and Southern California Edison to substantially below investment grade levels. The ratings remain under review for potential downgrade by both Standard & Poor's and Moody's. We have taken measures to isolate ourselves from the credit downgrades of Edison International and Southern California Edison, and to facilitate our ability and the ability of our subsidiaries to maintain their respective investment grade ratings. For more information on our actions, see "Management's Discussion and Analysis of Results of Operations and Financial Conditions--Credit Ratings." STRATEGIC OVERVIEW Our business goal is to be one of the leading owners and operators of electric generating assets in the world. We play an active role, as a long-term owner, in all phases of power generation, from planning and development through construction and commercial operation. We believe that this involvement allows us to better ensure, with our experienced personnel, that our projects are well-planned, structured and managed, thus maximizing value creation. We have separate strategies for developed and developing countries. In developed countries, our strategy focuses on enhancing the value of existing assets, expanding plant capacity at existing sites and developing new projects in locations where we have an established position or otherwise determine that attractive financial performance can be realized. In addition, because a number of our projects in developed countries, known as merchant plants, sell power into markets without the certainty of long-term contracts, we conduct power marketing, trading, and risk 3 management activities to stabilize and enhance the financial performance of these projects. We also recognize that our principal customers are regulated utilities. We therefore strive to understand the regulatory and economic environment in which the utilities operate so that we may continue to create mutually beneficial relationships and business dealings. In developing countries, our strategy focuses on investing with strategic partners, securing limited recourse financing based upon long-term power purchase agreements with state owned utilities and securing government financial support from organizations such as the Export-Import Bank of the United States, the U.S. Overseas Private Investment Corporation and the Japan Bank for International Cooperation. In addition, for some projects, we have obtained political risk insurance from private companies. In making investment decisions, we evaluate potential project returns against our internally generated rate of return guidelines. We establish these guidelines by identifying a base rate of return and adjusting the base rate by potential risk factors, such as risks associated with project location and stage of project development. We endeavor to mitigate these risks by (i) evaluating all projects and the markets in which they operate, (ii) selecting strategic partners with complementary skills and local experience, (iii) structuring investments through subsidiaries, (iv) managing up front development costs, (v) utilizing limited recourse financing and (vi) linking revenue and expense components where appropriate. In response to the increasing globalization of the independent power market, we have organized our operation and development activities into three geographic regions: (i) Americas, (ii) Asia Pacific and (iii) Europe, Central Asia, Middle East and Africa. Each region is served by one or more teams consisting of business development, operations, finance and legal personnel, and each team is responsible for all our activities within a particular geographic region. Also, we mobilize personnel from outside a particular region when needed in order to assist in the development of specified projects. Below is a brief discussion of the current strategy for each of the three regions and a summary of our projects that are currently in the construction or early operations stage and other significant operating projects in each of the regions. For further information regarding our 33 domestic operating projects, see "--Our Operating Projects--Description of Domestic Operating Projects." For further information regarding our 40 international operating projects, see "--Our Operating Projects--Description of International Operating Projects." AMERICAS Our Americas region is headquartered in Irvine, California with additional offices located in Chicago, Illinois; Boston, Massachusetts; and Washington, D.C. The strategy for the Americas region is (i) to manage our interest in operating and construction phase projects located throughout the United States, (ii) to expand our generation at existing sites, sometimes referred to as "brownfield" development, (iii) to pursue the development of new power projects throughout the region, sometimes referred to as "greenfield" development and (iv) to a lesser extent than we had in the past, to pursue the acquisition and development of existing generating assets from utilities, industrial companies and other independent power producers throughout the region. We currently have 33 operating projects in this region, all of which are presently located in the United States and its territories. In March 1999, we acquired 100% of the 1,884 MW Homer City Electric Generating Station for approximately $1.8 billion. This facility is a coal fired plant in the mid-Atlantic region of the United States and has direct, high voltage interconnections to both the New York Independent System Operator, which controls the transmission grid and energy and capacity markets for New York State and is commonly known as the NYISO, and the Pennsylvania-New Jersey-Maryland Power Pool, which is commonly known as the PJM. We operate the plant, which we believe is one of the lowest-cost generation facilities in the region. 4 In December 1999, we acquired the fossil-fuel generating plants of Commonwealth Edison, a subsidiary of Exelon Corporation, which are collectively referred to as the Illinois Plants, totaling 6,841 MW of generating capacity, for approximately $4.1 billion. We operate these plants, which provide access to the Mid-America Interconnected Network and the East Central Area Reliability Council. In connection with this transaction, we entered into power purchase agreements with Commonwealth Edison with a term of up to five years. Subsequently, Commonwealth Edison assigned its rights and obligations under these power purchase agreements to Exelon Generation Company, LLC. Concurrently with this acquisition, we assigned our right to purchase the Collins Station, a 2,698 MW gas and oil-fired generating station located in Illinois, to third party lessors. After this assignment, we entered into a lease of the Collins Station with a term of 33.75 years. The aggregate megawatts either purchased or leased as a result of these transactions is 9,539 MW. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Acquisitions, Dispositions and Sale-Leaseback Transactions--Sale-Leaseback Transactions" for a description of the Powerton and Joliet sale-leaseback transactions. In September 2000, we completed a transaction with P&L Coal Holdings Corporation and Gold Fields Mining Corporation (Peabody) to acquire the trading operations of Citizens Power LLC and a minority interest in structured transaction investments relating to long-term power purchase agreements. As a result of this acquisition, we have expanded our trading operations beyond the traditional marketing of our electric power. By the end of the third quarter of 2000, we merged our own marketing operations with the Citizens trading operations under Edison Mission Marketing & Trading, Inc. In November 2000, we completed a transaction with Texaco Inc. to purchase a proposed 560 MW gas fired combined cycle project to be located in Kern County, California, referred to as the Sunrise Project. The acquisition includes all rights, title and interest held by Texaco in the Sunrise Project, except that Texaco has an option to repurchase a 50% interest in the project prior to its commercial operation. As part of this transaction, we also: (i) acquired from Texaco an option to purchase two gas turbines which we plan to utilize in the project, (ii) provided Texaco an option to purchase two of the turbines available to us under the Edison Mission Energy Master Turbine Lease and (iii) granted Texaco an option to acquire a 50% interest in 1,000 MW of future power plant projects we designate. For more information on the Edison Mission Energy Master Turbine Lease, see "Management's Discussion and Analysis of Results of Operations and Financial Condition--Commitments and Contingencies--Edison Mission Energy Master Turbine Lease." The Sunrise Project consists of two phases, with Phase I, construction of a single-cycle gas fired facility (320 MW), currently scheduled to be completed in August 2001, and Phase II, conversion to a combined-cycle gas fired facility (560 MW), currently scheduled to be completed in June 2003. In December 2000, we received the Energy Commission Certification and a permit to construct the Sunrise plant, which allowed us to commence construction of Phase I. We are negotiating with the California Department of Water Resources the detailed terms and conditions of a long-term, cost-based-type rate power purchase agreement. We cannot assure you that we will be successful in reaching a final agreement. ASIA PACIFIC Our Asia Pacific region is headquartered in Singapore with additional offices located in Australia, Indonesia and the Philippines. The strategy for this region is (i) to pursue projects in countries where there exist strong political commitment and the structural framework necessary for private power, (ii) to seek opportunities to employ indigenous fuels and (iii) to seek strategic, complimentary alliances with partners who bring value to a project by providing fuel, equipment and construction services. We currently have 14 operating projects in this region that are located in Australia, Indonesia, Thailand and New Zealand. 5 The Paiton project is a 1,230 MW coal fired power plant in operation in East Java, Indonesia. Our wholly-owned subsidiary owns a 40% interest and had a $490 million investment in the Paiton project at December 31, 2000. The project's tariff under the power purchase agreement with PT PLN is higher in the early years and steps down over time. The tariff for the Paiton project includes costs relating to infrastructure to be used in common by other units at the Paiton complex. The plant's output is fully contracted with the state-owned electric company, PT PLN. Payments are in Indonesian Rupiah, with the portion of the payments intended to cover non-Rupiah project costs, including returns to investors, adjusted to account for exchange rate fluctuations between the Indonesian Rupiah and the U.S. dollar. The project received substantial finance and insurance support from the Export-Import Bank of the United States, the Japan Bank for International Cooperation, the U.S. Overseas Private Investment Corporation and the Ministry of Economy, Trade and Industry of Japan. PT PLN's payment obligations are supported by the Government of Indonesia. The projected rate of growth of the Indonesian economy and the exchange rate of Indonesian Rupiah into U.S. dollars have deteriorated significantly since the Paiton project was contracted, approved and financed. The Paiton project's senior debt ratings have been reduced from investment grade to speculative grade based on the rating agencies' determination that there is increased risk that PT PLN might not be able to honor the power purchase agreement with P.T. Paiton Energy, the project company. The Government of Indonesia has arranged to reschedule sovereign debt owed to foreign governments and has entered into discussions about rescheduling sovereign debt owed to private lenders. In May 1999, Paiton Energy notified PT PLN that the first 615 MW unit of the Paiton project had achieved commercial operation under the terms of the power purchase agreement and, in July 1999, that the second 615 MW unit of the plant had similarly achieved commercial operation. Because of the economic downturn, PT PLN was then experiencing low electricity demand and PT PLN, through February 2000, dispatched the Paiton plant to zero. In addition, PT PLN filed a lawsuit contesting the validity of its agreement to purchase electricity from the project. The lawsuit was withdrawn by PT PLN on January 20, 2000, and in connection with this withdrawal, the parties entered into an interim agreement for the period through December 31, 2000, under which dispatch levels and fixed and energy payment amounts were agreed. As of December 31, 2000, PT PLN had made all fixed payments due under the interim agreement totaling $115 million and all payments due for energy delivered by the plant to PT PLN. As part of the continuing negotiations on a long-term restructuring of the tariff, Paiton Energy and PT PLN agreed in January 2001 on a Phase I Agreement for the period from January 1, 2001 through June 30, 2001. This agreement provides for fixed monthly payments aggregating $108 million over its six month duration and for the payment for energy delivered to PT PLN from the plant during this period. Paiton Energy and PT PLN intend to complete the negotiations of the further phases of a new long-term tariff during the six month duration of the Phase I Agreement. To date, PT PLN has made all fixed and energy payments due under the Phase I Agreement. Events, including those discussed above, have occurred which may mature into defaults of the project's debt agreements following the passage of time, notice or lapse of waivers granted by the project's lenders. On October 15, 1999, the project entered into an interim agreement with its lenders pursuant to which the lenders waived defaults during the term of the agreement and effectively agreed to defer payments of principal until July 31, 2000. In July, the lenders agreed to extend the term of the lender interim agreement through December 31, 2000. In December 2000, the lenders agreed to an additional extension of the lender interim agreement through December 31, 2001. Paiton Energy has received lender approval of the Phase I Agreement. Under the terms of the power purchase agreement, PT PLN has been required to pay for capacity and fixed operating costs once each unit and the plant achieved commercial operation. As of December 31, 2000, PT PLN had not paid invoices amounting to $814 million for capacity charges and 6 fixed operating costs under the power purchase agreement. All arrears under the power purchase agreement continue to accrue, minus the fixed monthly payments actually made under the year 2000 interim agreement and under the recently agreed Phase I Agreement, with the payment of these arrears to be dealt with in connection with the overall tariff long-term restructuring of the tariff. In this regard, under the Phase I Agreement, Paiton Energy has agreed that, so long as the Phase I Agreement is complied with, it will seek to recoup no more than $590 million of the above arrears, the payment of which is to be dealt with in connection with the overall tariff restructuring. Any material modifications of the power purchase agreement could require a renegotiation of the Paiton project's debt agreements. The impact of any renegotiations with PT PLN, the Government of Indonesia or the project's creditors on our expected return on our investment in Paiton Energy is uncertain at this time; however, we believe that we will ultimately recover our investment in the project. In May 1999, we completed a transaction with the government of New Zealand to acquire 40% of the shares of Contact Energy Limited. The remaining 60% of Contact Energy's shares were sold in an overseas public offering resulting in widespread ownership among the citizens of New Zealand and offshore investors. These shares are publicly traded on stock exchanges in New Zealand and Australia. During 2000, we increased our share of ownership in Contact Energy to 42%. Contact Energy owns and operates hydroelectric, geothermal and natural gas fired power generating plants primarily in New Zealand with a total current generating capacity of 2,449 MW, of which our share is 940 MW. In addition, Contact Energy has expanded into the retail electricity and gas markets in New Zealand since 1998 through acquisition of regional electricity supply and retail gas supply businesses. See "--Regulatory Matters--Recent Foreign Regulatory Matters." In February 2001, we completed the acquisition of a 50% interest in CBK Power Co. Ltd. in exchange for $20 million. CBK Power has entered into a 25-year build-rehabilitate-transfer-and-operate agreement with National Power Corporation related to the 726 MW Caliraya-Botocan-Kalayaan (CBK) hydroelectric project located in the Philippines. Financing for this $460 million project has been completed with equity contributions of $117 million (our 50% share is $58.5 million) required to be made upon completion of the rehabilitation and expansion, currently scheduled in 2003, and debt financing has been arranged for the remainder of the cost for this project. EUROPE, CENTRAL ASIA, MIDDLE EAST AND AFRICA Our Europe, Central Asia, Middle East and Africa region is headquartered in London, England with additional offices located in Italy, Spain and Turkey. The London office was established in 1989. The region is characterized by a blend of both mature and developing markets. Our strategy for the region is to pursue the development and acquisition of medium to large scale power and cogeneration facilities with diversified fuel sources and generation technology. We currently have 26 operating projects in this region that are located in the U.K., Turkey, Spain and Italy. In July 1999, we acquired 100% of the Ferrybridge and Fiddler's Ferry coal fired power plants located in the U.K. with a total generating capacity of 3,984 MW from PowerGen UK plc for approximately $2.0 billion. Ferrybridge, located in West Yorkshire, and Fiddler's Ferry, located in Warrington, are in the middle of the order in which plants are called upon to dispatch electric power. The plants complement the pumped-storage hydroelectric power plants we already own in the U.K. The current electricity trading mechanism in the U.K. is in the process of being abolished and replaced with trading arrangements using bilateral contracts. The current system provides for the sale of energy to a pool. Under the new trading arrangements, our U.K. subsidiary, Edison First Power Limited, is required to contract with specific purchasers for the sales of energy produced by its Ferrybridge and Fiddler's Ferry stations. Under the new system, a generator must deliver, and a consumer must take delivery, in accordance with their contracted agreements or face the volatility of 7 market prices. Edison First Power believes that a consequence of this will be to increase greatly the motivation of parties to contract in advance in order to lock in an agreed upon price for, and quantity of, energy. The U.K. Utilities Act, which was approved on July 28, 2000, allows for implementation of the new trading arrangements, which are to commence on March 27, 2001. As a result of the introduction of the new electricity trading arrangements, forecasts of future electricity prices in the markets into which Edison First Power sells its power vary significantly. Recent experience by Edison First Power has shown that this arrangement has placed significant downward pressure on prices to be paid by purchasers of energy in the future, although it is uncertain how the new trading arrangements will affect prices in the long-term. The financial performance of the Fiddler's Ferry and Ferrybridge power plants has not matched our expectations, largely due to lower energy prices resulting primarily from increased competition, warmer-than-average weather and uncertainty surrounding the new electricity trading arrangements discussed above. As a result, Edison First Power has decided to defer some environmental capital expenditures originally planned to increase plant utilization and therefore is currently in breach of milestone requirements for the implementation of the capital expenditures program set forth in the financing documents relating to the acquisition of the plants. In addition, due to this reduced financial performance, Edison First Power's debt service coverage ratio during 2000 declined below the threshold set forth in the financing documents. Edison First Power is currently in discussions with the relevant financing parties to revise the required capital expenditure program, to waive: (i) the breach of the financial ratio covenant for 2000, (ii) a technical breach of requirements for the provision of information that was delayed due to uncertainty regarding capital expenditures, and (iii) other related technical defaults. Edison First Power is in the process of requesting the necessary waivers and consents to amendments from the financing parties. We cannot assure you that waivers and consents to amendments will be forthcoming. The financing documents stipulate that a breach of the financial ratio covenant constitutes an immediate event of default and, if the event of default is not waived, the financing parties are entitled to enforce their security over Edison First Power's assets, including the Fiddler's Ferry and Ferrybridge plants. Despite the breaches under the financing documents, Edison First Power's debt service coverage ratio for 2000 exceeded 1:1. Due to the timing of its cash flows and debt service payments, Edison First Power utilized L37 million from its debt service reserve to meet its debt service requirements in 2000. Our net investment in our subsidiary that holds the Ferrybridge and Fiddler's Ferry power plants and related debt was $918 million at December 31, 2000. Another of our subsidiaries, EME Finance UK Limited, is the borrower under the facility made available for the purposes of funding coal and capital expenditures related to the Fiddler's Ferry and Ferrybridge power plants. At December 31, 2000, L58 million was outstanding for coal purchases and zero was outstanding to fund capital expenditures under this facility. EME Finance UK Limited on-lends any drawings under this facility to Edison First Power. The financing parties of this facility have also issued letters of credit directly to Edison First Power to support their obligations to lend to EME Finance UK Limited. EME Finance UK Limited's obligations under this facility are separate and apart from the obligations of Edison First Power under the financing documents related to the acquisition of these plants. We have guaranteed the obligations of EME Finance UK Limited under this facility, including any letters of credit issued to Edison First Power under the facility, for the amount of L359 million, and our guarantee remains in force notwithstanding any breaches under Edison First Power's acquisition financing documents. In addition, Edison Mission Energy may provide guarantees in support of bilateral contracts entered into by Edison First Power under the new electricity trading arrangements. Edison Mission Energy has provided guarantees totaling L19 million relating to these contracts at March 20, 2001. 8 During October 1999, we completed the acquisition of the remaining 20% of the 220 MW natural gas fired Roosecote project located in England. Consideration for the remaining 20% consisted of a cash payment of approximately $16.0 million, or 9.6 million pounds sterling. In March 2000, we completed a transaction with UPC International Partnership CV II to acquire Edison Mission Wind Power Italy B.V., formerly known as Italian Vento Power Corporation Energy 5 B.V., which owns a 50% interest in a series of power projects that are in operation or under development in Italy. All the projects use wind to generate electricity from turbines. The electricity is sold under fixed price, long-term tariffs. Assuming all the projects under development are completed, currently scheduled for 2002, the total capacity of these projects will be 283 MW. The total purchase price was 90 billion Italian Lira (approximately $44 million at December 31, 2000), with equity contribution obligations of up to 33 billion Italian Lira (approximately $16 million at December 31, 2000), depending on the number of projects that are ultimately developed. As of December 31, 2000, our payments in respect of these projects included $27 million toward the purchase price and $13 million in equity contributions. PROJECT DEVELOPMENT The development of power generation projects, whether through new construction or the acquisition of existing assets, involves numerous elements, including evaluating and selecting development opportunities, evaluating regulatory and market risks, designing and engineering the project, acquiring necessary land rights, permits and fuel resources, obtaining financing, managing construction and, in some cases, obtaining power and steam sales agreements. We initially evaluate and select potential development projects based on a variety of factors, including the reliability of technology, the strength of the potential partners, the feasibility of the project, the likelihood of obtaining a long term power purchase agreement or profitably selling power without this agreement, the probability of obtaining required licenses and permits and the projected economic return. During the development process, we monitor the viability of our projects and make business judgments concerning expenditures for both internal and external development costs. Completion of the financing arrangements for a project is generally an indication that business development activities are substantially complete. PROJECT TYPE The selection of power generation technology for a particular project is influenced by various factors, including regulatory requirements, availability of fuel and anticipated economic advantages for a particular application. We have ownership interests in operating projects that employ gas fired combustion turbine technology, predominantly through an application known as cogeneration. Cogeneration facilities sequentially produce two or more useful forms of energy, such as electricity and steam, from a single primary source of fuel, such as natural gas or coal. Many of our cogeneration projects are located near large, industrial steam users or in oil fields that inject steam underground to enhance recovery of heavy oil. The regulatory advantages for cogeneration facilities under the Public Utility Regulatory Policies Act of 1978, as amended, have become somewhat less significant because of other federal regulatory exemptions made available to independent power producers under the Energy Policy Act. Accordingly, we expect that the majority of our future projects will generate power without selling steam to industrial users. We also have ownership interests in projects that use renewable resources like hydroelectric energy and geothermal energy. Our hydroelectric projects, excluding First Hydro's plants, use run-of-the-river technology to generate electricity. The First Hydro plant utilizes pumped-storage stations that consume electricity when it is comparatively less expensive in order to pump water for storage in an upper 9 reservoir. Water is then allowed to flow back through turbines in order to generate electricity when its market value is higher. This type of generation is characterized by its speed of response, its ability to work efficiently at wide variations of load and the basic reliance of revenue on the difference between the peak and trough prices of electricity during the day. Our geothermal projects included as part of our Contact Energy investment use technologies that convert the heat from geothermal fluids and underground steam into electricity. We also have domestic and international ownership interests in operating projects and projects under construction and advanced development which are large scale, coal fired projects using pulverized coal and coal fired generation technology. In the United States, we have developed and acquired coal and waste coal fired projects that employ traditional pulverized coal and circulating fluidized bed technology, which allows for the use of lower quality coal and the direct removal of sulfur from the coal. We also have acquired ownership interests in gas-fired projects and have purchased gas-fired turbines for combined cycle gas turbines (commonly referred to as "F" technology), which are designed to increase efficiency of power generation due to higher firing temperatures. LONG-TERM POWER AND STEAM SALES CONTRACTS Many of our operating projects in the United States sell power and steam to domestic electric utilities and industrial steam users under long-term contracts. Electric power generated by several of our international projects is sold under long term contracts to electric utilities located in the country where the power project is located. These projects' revenues from power purchase agreements usually consist of two components: energy payments and capacity payments. Energy payments are made based on actual deliveries of electric energy, such as kilowatt hours, to the purchaser. Energy payments are usually indexed to specified variable costs that the purchaser avoids by purchasing this electric energy from our projects opposed to operating its own power plants to produce the same amount of electric energy. The variable components typically include fuel costs and selected operation and maintenance expenses. These costs may be indexed to the utility's cost of fuel and/or selected inflation indices. Capacity payments are based on a project's proven capability to reliably make electric capacity available, whether or not the project is called to deliver electric energy. Capacity payments compensate a project for specified fixed costs that are incurred independent of the amount of energy sold by the project. Such fixed costs include taxes, debt service and distributions to the project's owners. To receive capacity payments, there are typically minimum performance standards that must be met, and often there is a performance range that further influences the amount of capacity payments. Steam produced from our cogeneration facilities is sold to industrial steam users, such as petroleum refineries or companies involved in the enhanced recovery of oil through steam flooding of oil fields, under long term steam sales contracts. Steam payments are generally based on formulas that reflect the cost of water, fuel and capital to us. In some cases, we have provided steam purchasers with discounts from their previous costs for producing this steam and/or have partially indexed steam payments to other indices including specified oil prices. SALE OF POWER FROM MERCHANT PLANTS During 1999, we acquired a number of merchant plants, which sell capacity, energy and, in some cases, other services on a competitive basis under bilateral arrangements or through centralized power pools that provide an institutional framework for price setting, dispatch and settlement procedures. Electric power generated at the Homer City plant is sold under bilateral arrangements with utilities and power marketers under short term contracts with terms of two years or less, or to the PJM or the NYISO. These pools have short term markets, which establish an hourly clearing price. The Homer City plant is situated in the PJM control area and is physically connected to high voltage 10 transmission lines serving both the PJM and NYISO markets. The Homer City plant can also transmit power to the midwestern United States. The majority of electric power generated at the Illinois Plants is sold under power purchase agreements with Exelon Generation Company in which Exelon Generation Company purchases capacity and has the right to purchase energy generated by the Illinois Plants. The agreements, which began on December 15, 1999, and have a term of up to five years, provide for Exelon Generation Company to make a capacity payment for the plants under contract and an energy payment for the electricity produced by these plants. The capacity payments provide the Illinois Plants revenue for fixed charges, and the energy payments compensate the Illinois Plants for variable costs of production. If Exelon Generation Company does not fully dispatch the plants under contract, the Illinois Plants may sell, subject to specified conditions, the excess energy at market prices to neighboring utilities, municipalities, third party electric retailers, large consumers and power marketers on a spot basis. A bilateral trading infrastructure already exists with access to the Mid-America Interconnected Network and the East Central Area Reliability Council. Our plants in the U.K. currently sell their electrical energy and capacity through a centralized electricity pool, which establishes a half-hourly clearing price, also referred to as the pool price, for electrical energy. The pool price is extremely volatile and can vary by as much as a factor of ten or more over the course of a few hours, due to the large differentials in demand according to the time of day. The pricing arrangements include provision for capacity payments to be added to the basic pool price at times of capacity shortage. The First Hydro, Ferrybridge and Fiddler's Ferry plants have the opportunity to mitigate a portion of the market risk of the pool by entering into contracts for differences, which are electricity rate swap agreements related to either the selling or purchasing price of power. These contracts specify a price at which the electricity will be traded, and the parties to the agreement make payments based on the difference between the price in the contract and the pool price for the element of power under contract. These contracts are sold in various structures and act to stabilize revenues or purchasing costs by removing an element of net exposure to pool price volatility. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Market Risk Exposures--United Kingdom." The Loy Yang B plant sells its electrical energy through a centralized electricity pool, which provides for a system of generator bidding, central dispatch and a settlements system based on a clearing market for each half-hour of every day. The National Electricity Market Management Company, operator and administrator of the pool, determines a system marginal price each half-hour. To mitigate exposure to price volatility of the electricity traded into the pool, the Loy Yang B plant has entered into a number of financial hedges. From May 8, 1997 to December 31, 2000, approximately 53% to 64% of the plant output sold was hedged under vesting contracts, with the remainder of the plant capacity hedged under the State Hedge. The State Hedge agreement with the State Electricity Commission of Victoria is a long-term contractual arrangement based upon a fixed price commencing May 8, 1997 and terminating October 31, 2016. The State Government of Victoria, Australia guarantees the State Electricity Commission of Victoria's obligations under the State Hedge. From January 2001 to July 2014, approximately 77% of the plant output sold is hedged under the State Hedge. From August 2014 to October 2016, approximately 56% of the plant output sold is hedged under the State Hedge. Additionally, the Loy Yang B plant has entered into a number of fixed forward electricity contracts with terms of up to two years, and which will further mitigate against the price volatility of the electricity pool. POWER MARKETING AND TRADING ACTIVITIES When making sales under negotiated contracts, it is our policy to deal with investment grade counterparties or counterparties that provide equivalent credit support. Exceptions to the policy are granted only after thorough review and scrutiny by our Risk Management Committee. Most entities 11 that have received exceptions are organized power pools and quasi-governmental agencies. We hedge a portion of the electric output of our merchant plants in order to stabilize and enhance the operating revenues from merchant plants. When appropriate, we manage the "spark spread," or margin, which is the spread between electric prices and fuel prices and use forward contracts, swaps, futures, or options contracts to achieve those objectives. Our power marketing and trading organization, Edison Mission Marketing & Trading, is divided into front-, middle-, and back-office segments, with specified duties segregated for control purposes. The personnel of Edison Mission Marketing & Trading have a high level of knowledge of utility operations, fuel procurement, energy marketing and futures and options trading. We have systems in place which monitor real time spot and forward pricing and perform option valuations. We also have a wholesale power scheduling group that operates on a 24 hour basis. Edison Mission Marketing & Trading markets and trades electric power and energy related commodity products, including forwards, futures, options and swaps. It also provides services and price risk management capabilities to the electric power industry. Price risk management activities include the restructuring of power sales and power supply agreements. We generally balance forward sales and purchase contracts to mitigate market risk and secure cash flow streams. Energy trading and price risk management activities give rise to commodity price risk, which represents the potential loss that can be caused by a change in the market value of a particular commodity. Commodity price risks are actively monitored to ensure compliance with our risk management policies. Policies are in place which limit the amount of total net exposure we may enter into at any point in time. Procedures exist which allow for monitoring of all commitments and positions with daily reporting to senior management. We perform a "value at risk" analysis in our daily business to measure, monitor and control our overall market risk exposure. The use of value at risk allows management to aggregate overall risk, compare risk on a consistent basis and identify the drivers of the risk. Value at risk measures the worst expected loss over a given time interval, under normal market conditions, at a given confidence level. Given the inherent limitations of value at risk and relying on a single risk measurement tool, we supplement this approach with industry "best practice" techniques including the use of stress testing and worst-case scenario analysis, as well as stop limits and counterparty credit exposure limits. FUEL SUPPLY CONTRACTS We seek to enter into long term contracts to mitigate the risks of fluctuations in prices for coal, oil, gas and fuel transportation. We believe, however, that our financial condition will not be substantially adversely affected by these fluctuations for our non-merchant plants because our long term contracts to sell power and steam typically are structured so that fluctuations in fuel costs will produce similar fluctuations in electric energy and/or steam revenues. The degree of linkage between these revenues and expenses varies from project to project, but generally permits the projects with long term contracts to operate profitably under a wide array of potential price scenarios. PROJECT FINANCING Each project we develop requires a substantial capital investment. Permanent project financing is often arranged immediately prior to the construction of the project. With limited exceptions, this debt financing is for approximately 50% to 80% of each project's costs and is structured on a basis that is non-recourse to us and our other projects. In addition, the collateral security for each project's financing generally has been limited to the physical assets, contracts and cash flow of that project and our ownership interests in that project. In general, each of our direct or indirect subsidiaries is organized as a legal entity separate and apart from us and our other subsidiaries. Any asset of any of these subsidiaries may not be available to 12 satisfy our obligations or those of any of our other subsidiaries. However, unrestricted cash or other assets that are available for distribution by a subsidiary may, subject to applicable law and the terms of financing arrangements of these subsidiaries, be advanced, loaned, paid as dividends or otherwise distributed or contributed to us. The ability to arrange project financing and the cost of such financing are dependent upon numerous factors, including general economic and capital market conditions, the credit attributes of a project, conditions in energy markets, regulatory developments, credit availability from banks or other lenders, investor confidence in the industry, us and other project participants, the continued success of our other projects, and provisions of tax and securities laws that are conducive to raising capital. Our financial exposure in any equity investment is generally limited by contractual arrangement to our equity commitment, which is usually about 20% to 50% of our share of the aggregate project cost. In some cases, we provide additional credit support to projects in the form of debt service reserves, contingent equity commitments, revenue shortfall support or other arrangements designed to provide limited support. PERMITS AND APPROVALS Because the process for obtaining initial environmental, siting and other governmental permits and approvals is complicated and lengthy, often taking a year or longer, we seek to obtain all permits, licenses and other approvals required for the construction and operation of a project, including siting, construction and environmental permits, rights of way and planning approvals, early in the development process for a project. See "--Regulatory Matters--General." Emission allowances were acquired by us as part of the acquisition of the Illinois Plants and the Homer City plant. Emission allowances are required by our facilities in order to be certified by the local environmental authorities and are required to be maintained throughout the period of operation of those facilities located in Pennsylvania and Illinois. We purchase additional emission allowances when necessary to meet the environmental regulations. We also use forward sales and purchases of emission allowances, together with options, to achieve our objective of stabilizing and enhancing the operations from these merchant plants. CONSTRUCTION, OPERATIONS & MAINTENANCE AND MANAGEMENT In the project implementation stage, we often provide construction management, start up and testing services. The detailed engineering and construction of the projects typically are performed by outside contractors under fixed price, turnkey contracts. Under these contracts, the contractor generally is required to pay liquidated damages to us in the event of cost overruns, schedule delays or the project's failure to meet specified capacity, efficiency and emission standards. As a project goes into operation, operation and maintenance services are provided to the project by one of our operation and maintenance subsidiaries or another operation and maintenance contractor. The projects that we operated in 2000 achieved an average 82% availability. Availability is a measure of the weighted average number of hours each generator is available for generation as a percentage of the total number of hours in a year. An executive director generally manages the day-to-day administration of each project. Management committees comprised of the project's partners generally meet monthly or quarterly to review and manage the operating performance of the project. RISK FACTORS ASSOCIATED WITH THE CALIFORNIA POWER CRISIS Edison International, our ultimate parent company, is a holding company. Edison International is also the corporate parent of Southern California Edison Company, an electric utility that buys and sells power in California. In the past year, various market conditions and other factors have resulted in 13 higher wholesale power prices to California utilities. At the same time, two of the three major utilities, Southern California Edison and Pacific Gas and Electric Co., have operated under a retail rate freeze. As a result, there has been a significant under recovery of costs by Southern California Edison and Pacific Gas and Electric, and each of these companies has failed to make payments due to power suppliers and others. Given these and other payment defaults, creditors of Southern California Edison and Pacific Gas and Electric could file involuntary bankruptcy petitions against these companies. Southern California Edison's current financial condition has had, and may continue to have, an adverse impact on Edison International's credit quality and, as previously reported by Edison International, has resulted in cross-defaults under Edison International's credit facilities. Both Standard & Poor's Ratings Services and Moody's Investors Service, Inc. have lowered the credit ratings of Edison International and Southern California Edison to substantially below investment grade levels. The credit ratings remain under review for potential downgrade by both Standard & Poor's and Moody's. To isolate ourselves from the credit downgrades and potential bankruptcies of Edison International and Southern California Edison, and to facilitate our ability and the ability of our subsidiaries to maintain their respective investment grade credit ratings, on January 17, 2001, we amended our articles of incorporation and our bylaws to include so-called "ring-fencing" provisions. These ring-fencing provisions are intended to preserve us as a stand-alone investment grade rated entity despite the current credit difficulties of Edison International and Southern California Edison. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Credit Ratings." We cannot assure you that these measures will effectively isolate us from the credit downgrades or the potential bankruptcies of Edison International and Southern California Edison. In January 2001, Standard & Poor's and Moody's lowered our credit ratings. Our senior unsecured credit ratings were downgraded to "BBB-" from "A-" by Standard & Poor's and to "Baa3" from "Baa1" by Moody's. Our credit ratings remain investment grade. Both Standard & Poor's and Moody's have indicated that the credit ratings outlook for us is stable. A downgrade in our credit ratings below investment grade could increase our cost of capital, make efforts to raise capital more difficult and could have an adverse impact on us and our subsidiaries. On March 15, 2001, the California Public Utilities Commission released a draft of a proposed order instituting an investigation into whether California's investor-owned utilities, including Southern California Edison, have complied with past Commission decisions authorizing the formation of their holding companies and governing affiliate transactions, as well as applicable statutes. Action on this agenda item repeatedly has been deferred, including at the Commission meeting on March 27, 2001, and the item has continued to appear on the agendas for subsequent Commission meetings. The proposed order would reopen the past holding company decisions and initiate an investigation into the following matters: - whether the holding companies, including Edison International, violated requirements to give priority to the capital needs of their respective utility subsidiaries; - whether the ring-fencing actions by Edison International and PG&E Corporation and their respective nonutility affiliates also violated the requirements to give priority to the capital needs of their utility subsidiaries; - whether the payment of dividends by the utilities violated requirements that the utilities maintain dividend policies as though they were comparable stand-alone utility companies; - any additional suspected violations of laws or Commission rules and decisions; and - whether additional rules, conditions, or other changes to the holding company decisions are necessary. 14 We cannot predict whether the Commission will institute this investigation or what effects any investigation or subsequent actions by the Commission may have on Edison International or indirectly on us. We have partnership interests in eight partnerships which own power plants in California which have power purchase contracts with Pacific Gas and Electric and/or Southern California Edison. Three of these partnerships have a contract with Southern California Edison, four of them have a contract with Pacific Gas and Electric, and one of them has contracts with both. In 2000, our share of earnings before taxes from these partnerships was $168 million, which represented 20% of our operating income. Our investment in these partnerships at December 31, 2000 was $345 million. As a result of Southern California Edison's and Pacific Gas and Electric's current liquidity crisis, each of these utilities has failed to make payments to qualifying facilities supplying them power. These qualifying facilities include the eight power plants which are owned by partnerships in which we have a partnership interest. Southern California Edison did not pay any of the amounts due to the partnerships in January, February and March of 2001 and may continue to miss future payments. Pacific Gas and Electric made its January payment in full but thus far has paid only a small portion of the amounts due to the partnerships in February and March and may not pay all or a portion of its future payments. On March 27, 2001, the California Public Utilities Commission issued a decision that ordered the three California investor owned utilities, including Southern California Edison and Pacific Gas and Electric, to commence payment for power generated from qualifying facilities beginning in April 2001. In addition, the decision modified the pricing formula for determining short run avoided costs for qualifying facilities subject to these provisions. Depending on how the utilities react to this order, the immediate impact of this decision may be to commence payment in April 2001 at significantly reduced prices for power to qualifying facilities subject to this pricing adjustment. Furthermore, this decision called for further study of the pricing formula tied to short run avoided costs and, accordingly, may be subject to more changes in the future. Finally, this decision is subject to challenge before the Commission, the Federal Energy Regulatory Commission and, potentially, state or federal courts. Although it is premature to assess the full effect of this recent decision, it could have a material adverse effect on our investment in the California partnerships, depending on how it is implemented and future changes in the relationship between the pricing formula and the actual cost of natural gas procured by our California partnerships. This decision did not address payment to the qualifying facilities for amounts due prior to April 2001. The California utilities' failure to pay has adversely affected the operations of our eight California qualifying facilities. Continuing failures to pay similarly could have an adverse impact on the operations of our California qualifying facilities. Provisions in the partnership agreements stipulate that partnership actions concerning contracts with affiliates are to be taken through the non-affiliated partner in the partnership. Therefore, partnership actions concerning the enforcement of rights under each qualifying facility's power purchase agreement with Southern California Edison in response to Southern California Edison's suspension of payments under that power purchase agreement are to be taken through the non-Edison Mission Energy affiliated partner in the partnership. Some of the partnerships have sought to minimize their exposure to Southern California Edison by reducing deliveries under their power purchase agreements. It is unclear at this time what additional actions, if any, the partnerships will take in regard to the utilities' suspension of payments due to the qualifying facilities. As a result of the utilities' failure to make payments due under these power purchase agreements, the partnerships have called on the partners to provide additional capital to fund operating costs of the power plants. From January 1, 2001 through March 20, 2001, subsidiaries of ours have made equity contributions totaling approximately $103 million to meet capital calls by the partnerships. Our subsidiaries and the other partners may be required to make additional capital contributions to the partnerships. 15 Southern California Edison has stated that it is attempting to avoid bankruptcy and, subject to the outcome of regulatory and legal proceedings and negotiations regarding purchased power costs, it intends to pay all its obligations once a permanent solution to the current energy and liquidity crisis has been reached. Pacific Gas and Electric has taken a different approach and is seeking to invoke force majeure provisions under its power purchase agreements to excuse its failure to pay. In either case, it is possible that the utilities will not pay all their obligations in full. In addition, it is possible that Southern California Edison and/or Pacific Gas and Electric could be forced into bankruptcy proceedings. If this were to occur, payments to the qualifying facilities, including those owned by partnerships in which we have a partnership interest, could be subject to significant delays associated with the lengthy bankruptcy court process and may not be paid in full. At February 28, 2001, accounts receivable due to these partnerships from Southern California Edison and Pacific Gas & Electric were $437 million; our share of these receivables was $217 million. Furthermore, Southern California Edison's and Pacific Gas and Electric's power purchase agreements with the qualifying facilities could be subject to review by a bankruptcy court. While we believe that the generation of electricity by the qualifying facilities, including those owned by partnerships in which we have a partnership interest, is needed to meet California's power needs, we cannot assure you either that these partnerships will continue to generate electricity without payment by the purchasing utility, or that the power purchase agreements will not be adversely affected by a bankruptcy or contract renegotiation as a result of the current power crisis. A number of federal and state, legislative and regulatory initiatives addressing the issues of the California electric power industry have been proposed, including wholesale rate caps, retail rate increases, acceleration of power plant permitting and state entry into the power market. Many of these activities are ongoing. These activities may result in a restructuring of the California power market. At this time, these activities are in their preliminary stages, and it is not possible to estimate their likely ultimate outcome. The situation in California changes on an almost daily basis. You should monitor developments in California for the most up to date information. For more information on the current regulatory situation in California, see "--Regulatory Matters--California Deregulation." RISK FACTORS ASSOCIATED WITH OUR LIQUIDITY As of December 31, 2000, we had $2.1 billion of debt which is recourse to Edison Mission Energy and $5.9 billion of debt which is non-recourse to Edison Mission Energy but is recourse to our subsidiaries appearing on our consolidated balance sheet. Edison Mission Energy has a substantial amount of short-term debt that will need to be extended or refinanced. Edison Mission Energy has two credit facilities, in a total amount of $1 billion, that are scheduled to expire in May 2001 and one credit facility, in the amount of $500 million, that is scheduled to expire in October 2001. We cannot assure you that we will be able to extend our existing credit facilities or obtain new credit facilities to finance our needs, or that any new credit facility can be obtained under similar terms and rates as our existing credit facilities. If we cannot extend our existing credit facilities or obtain new credit facilities to finance our needs on similar terms and rates as our existing credit facilities, this could have a negative impact on our liquidity. Our substantial amount of debt and financial obligations presents the risk that we might not have sufficient cash to service our indebtedness and that our existing corporate and project debt could limit our ability to finance the acquisition and development of additional projects, to compete effectively or to operate successfully under adverse economic conditions. 16 We cannot assure you that Standard & Poor's and Moody's will not downgrade us below investment grade, whether as a result of the California power crisis or otherwise. If we are downgraded, we could be required to, among other things: - provide additional guarantees, collateral, letters of credit or cash for the benefit of counterparties in our trading activities, - post a letter of credit or cash collateral to support our $58.5 million equity contribution obligation in connection with our acquisition in February 2001 of a 50% interest in the CBK project in the Philippines, and - repay a portion of the preferred shares issued by our subsidiary in connection with our 1999 acquisition of a 40% interest in Contact Energy Limited, a New Zealand power company, which, based on their value at March 20, 2001, would require a payment of approximately $19 million. Our downgrade could result in a downgrade of Edison Mission Midwest Holdings Co., our indirect subsidiary. In the event of a downgrade of Edison Mission Midwest Holdings below its current credit rating, provisions in the agreements binding on its subsidiary, Midwest Generation, LLC, limit the ability of Midwest Generation to use excess cash flow to make distributions. A downgrade in our credit rating below investment grade could increase our cost of capital, increase our credit support obligations, make efforts to raise capital more difficult and could have an adverse impact on us and our subsidiaries. Because substantially all our operations are conducted by our subsidiaries, our cash flow and ability to service our indebtedness or otherwise meet our financial obligations are dependent upon the ability of our subsidiaries to pay dividends and make distributions to us. As mentioned above, the California power crisis has had, and may continue to have, an adverse impact on our California partnership investments and may adversely affect their ability to make distributions to us. In addition, financing agreements of our subsidiaries and affiliates generally place limitations on the ability of those subsidiaries and affiliates to pay dividends, make distributions or otherwise transfer funds to us. Financing agreements for our operating subsidiaries and affiliates are generally secured and contain representations, warranties, covenants and other agreements on our part that, if not met, could lead to a default under those agreements. If there is a default under a project financing for any reason, project lenders could exercise rights and remedies typically granted to secured parties, including the ability to take control of the project's assets and/or our ownership interest in the project company. In addition, we own a minority interest in some of our projects, and so are unable unilaterally to cause dividends or distributions to be made to us from those projects. Lastly, many of our projects are located overseas and, therefore, distributions from foreign operations could be subject to additional taxes in the United States upon repatriation. Any right of ours to receive any assets of any of our subsidiaries upon any liquidation or reorganization of a subsidiary will be effectively subordinated to the claims of the subsidiary's creditors, including trade creditors and holders of debt incurred by the subsidiary. One of our subsidiaries, Edison First Power, has defaulted on its financing documents related to the acquisition of the Fiddler's Ferry and Ferrybridge power plants. Edison First Power is currently in the process of requesting the necessary waivers and consents to amendments from the financing parties. We cannot assure you that these waivers and consents to amendments will be forthcoming. The financing documents stipulate that a breach of the financial ratio covenant constitutes an immediate event of default and, if the event of default is not waived, the financing parties are entitled to enforce their security over Edison First Power's assets, including the Fiddler's Ferry and Ferrybridge plants. Due to the timing of its cash flows and debt service payments, Edison First Power utilized L37 million from its debt service reserve to meet its debt service requirements in 2000. Our net investment in our subsidiary that holds the Ferrybridge and Fiddlers' Ferry power plants and related debt was 17 $918 million at December 31, 2000. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Financing Plans." RISK FACTORS ASSOCIATED WITH PROJECT DEVELOPMENT, FINANCE AND OPERATION Some of our projects do not have long-term power purchase agreements. Also, projects which we may acquire or develop in the future may not have long-term power purchase agreements. Because their output is not committed to be sold under long-term contracts, these projects are subject to market forces which determine the amount and price of power that they sell. We cannot assure you that these plants will be successful in selling power into their markets. If they are unsuccessful, they may not be able to generate enough cash to service their own debt or to make distributions to us. In 2000, 33% of our electric revenues were derived under power purchase agreements with Exelon Generation Company, a subsidiary of Exelon Corporation, entered into in connection with our December 1999 acquisition of the Illinois Plants. Exelon Corporation is the holding company of Commonwealth Edison and PECO Energy Company, major utilities located in Illinois and Pennsylvania. Electric revenues attributable to sales to Exelon Generating Company are earned from capacity and energy provided by the Illinois Plants under three five-year power purchase agreements. If Exelon Generation were to fail or become unable to fulfill its obligations under these power purchase agreements, we may not be able to find another customer on similar terms for the output of our power generation assets. Any material failure by Exelon Generation Company to make payments under these power purchase agreements could adversely affect our results of operations and liquidity. Our international projects are subject to political and business risks, including uncertainties associated with currency exchange rates, currency repatriation, expropriation, political instability and other issues that have the potential to impair the projects from making dividends or other distributions to us and against which we may not be fully capable of insuring. In particular, fluctuations in currency exchange rates can affect, on a U.S. dollar equivalent basis, the amount of our equity contributions to, and distributions from, our international projects. At times, we have hedged a portion of our exposure to fluctuations in currency exchange rates. However, hedge contracts may involve risks, including default by the other party to the contract, and we cannot assure you that fluctuations in currency exchange rates will be fully offset by these hedges. Generally, the uncertainty of the legal structure in some foreign countries in which we may develop or acquire projects could make it more difficult to enforce our rights under agreements relating to the projects. In addition, the laws and regulations of some countries may limit our ability to hold a majority interest in some of the projects that we may develop or acquire. The economic crisis in Indonesia has raised concerns over the ability of PT PLN, the state owned utility, to meet its obligations under its power purchase agreement with our Paiton project and has negatively affected and may continue to negatively affect that project's dividends to us. See "Management's Discussion and Analysis of Results of Operations and Financial Condition-- Commitments and Contingencies--Paiton." The global independent power industry is characterized by numerous strong and capable competitors, some of which may have more extensive operating experience in the acquisition and development of power projects, larger staffs and greater financial resources than we do. Further, in recent years some power markets have been characterized by strong and increasing competition as a result of regulatory changes and other factors which have contributed to a reduction in market prices for power. These regulatory and other changes may continue to increase competitive pressures in the markets where we operate. Increased competition for new project investment opportunities may adversely affect our ability to develop or acquire projects on economically favorable terms. Our operations are subject to extensive regulation by governmental agencies in each of the countries in which we conduct operations. See "--Regulatory Matters." Our domestic projects are 18 subject to energy, environmental and other governmental laws and regulations at the federal, state and local levels in connection with the development, ownership and operation of the projects. Our projects are also subject to federal, state and local laws and regulations that govern the geographical location, zoning and land use of or with respect to a project. Our international projects are subject to the energy, environmental and other laws and regulations of the foreign jurisdictions in which these projects are located. The degree of regulation varies according to each country and may be materially different from the regulatory regimes in the United States. We cannot assure you that the introduction of new laws or other future regulatory developments in countries in which we conduct business will not have a material adverse effect on our business, results of operations or financial condition, nor can we assure you that we will be able to obtain and comply with all necessary licenses, permits and approvals for our proposed energy projects. If we cannot comply with all applicable regulations, our business, results of operations and financial condition could be adversely affected. In addition, if any of our projects were to lose its status as a qualifying facility, eligible facility or foreign utility company under U.S. federal regulations, we could become subject to regulation as a "holding company" under the Public Utility Holding Company Act of 1935. If that were to occur, we would be required to divest all operations not functionally related to the operation of a single integrated utility system and would be required to obtain approval of the Securities and Exchange Commission for various actions. See "--Regulatory Matters--U.S. Federal Energy Regulation." The operation of power generating plants involves many risks, including start-up problems, the breakdown or failure of equipment or processes, performance below expected levels of output, the inability to meet expected efficiency standards, operator errors, strikes, work stoppages or labor disputes and catastrophic events such as earthquakes, landslides, fires, floods, explosions or similar calamities. The occurrence of any of these events could significantly reduce revenues generated by our projects or increase their generating expenses, thus diminishing distributions by the projects to us. Equipment and plant warranties and insurance obtained by us may not be adequate to cover lost revenues or increased expenses and, as a result, a project may be unable to fund principal and interest payments under its financing obligations and may operate at a loss. A default under a financing obligation of a project subsidiary could cause us to lose our interest in the project. Our strategy includes the development and acquisition of electric power generation facilities. The development projects and acquisitions in which we have invested, or in which we may invest in the future, may be large and complex, and we may not be able to complete the development or acquisition of any particular project. The development of a power project may require us to expend significant sums for preliminary engineering, permitting, legal and other expenses before we can determine whether we will win a competitive bid, or whether a project is feasible, economically attractive or financeable. Moreover, our access to capital for future projects is uncertain. Furthermore, due to the effects of the California power crisis on Edison International, we do not expect to receive capital contributions from Edison International in the near future. We cannot assure you that we will be successful in obtaining financing for our projects or that we will obtain sufficient additional equity capital, project cash flow or additional borrowings to enable us to fund the equity commitments required for future projects. OUR OPERATING PROJECTS DOMESTIC OVERVIEW We currently own interests in 32 domestic operating projects in eight states and one project in the Commonwealth of Puerto Rico. These operating projects consist of 12 natural gas fired cogeneration projects, one coal fired cogeneration project, seven coal fired exempt wholesale generator projects, one waste coal project, one liquefied natural gas combined cycle cogeneration project and 11 gas fired exempt wholesale generator projects. All our domestic cogeneration projects, as well as the waste coal 19 project, are qualifying facilities under the Public Utility Regulatory Policies Act. Our domestic operating projects have total generating capacity of 15,257 MW, of which our net ownership share is 13,231 MW. The primary power sales contracts for four of our operating projects in 2000 and 1999 and five of our operating projects in 1998 are with Southern California Edison Company. See "--Recent Developments--The California Power Crisis" for further discussion of these projects. Our share of equity in earnings from these projects accounted for 5% in 2000, 8% in 1999 and 13% in 1998 of our consolidated revenues. The failure of Southern California Edison to fulfill its contractual obligations could have a negative impact on a source of our revenues. Under the terms of an agreement between Southern California Edison and the Office of Ratepayer Advocates, the consumer advocacy branch of the California Public Utilities Commission, Southern California Edison is prohibited from entering into future power sales contracts with us or our affiliates without Office of Ratepayer Advocates' and the California Public Utilities Commission's consent. The terms of the agreement, however, do not affect the terms of the existing power sales contracts between us and Southern California Edison. Fuel supply for our projects generally is arranged through third party suppliers and transporters. In September 1998, the California Public Utilities Commission issued an order which approved an agreement entered into between an operating cogeneration project in which we have a 30% partnership interest and Southern California Edison to terminate a power sales agreement. The termination agreement became effective in February 1999. 20 DESCRIPTION OF DOMESTIC OPERATING PROJECTS We have ownership or leasehold interests in the following domestic operating projects:
ELECTRIC PRIMARY OWNERSHIP/ CAPACITY ELECTRIC TYPE OF LEASEHOLD PROJECT LOCATION (IN MW) PURCHASER(2) FACILITY(3) INTEREST - ------- ------------- -------- ------------ ------------------ ---------- American Bituminous(1)........ West Virginia 80 MPC Waste Coal 50% Brooklyn Navy Yard............ New York 286 CE Cogeneration/EWG 50% Coalinga(1)................... California 38 PG&E Cogeneration 50% Commonwealth Atlantic......... Virginia 340 VEPCO EWG 50% EcoElectrica(1)............... Puerto Rico 540 PREPA Cogeneration 50% Gordonsville(1)............... Virginia 240 VEPCO Cogeneration/EWG 50% Harbor(1)..................... California 80 Pool EWG 30% Homer City(1)................. Pennsylvania 1,884 Pool EWG 100% Hopewell...................... Virginia 356 VEPCO Cogeneration 25% Illinois Plants (12 projects)(1)............ Illinois 9,539 EG EWG 100% James River................... Virginia 110 VEPCO Cogeneration 50% Kern River(1)................. California 300 SCE Cogeneration 50% March Point 1................. Washington 80 PSE Cogeneration 50% March Point 2................. Washington 60 PSE Cogeneration 50% Mid-Set(1).................... California 38 PG&E Cogeneration 50% Midway-Sunset(1).............. California 225 SCE Cogeneration 50% Nevada Sun-Peak............... Nevada 210 SPR EWG 50% Saguaro(1).................... Nevada 90 SPR Cogeneration 50% Salinas River(1).............. California 38 PG&E Cogeneration 50% Sargent Canyon(1)............. California 38 PG&E Cogeneration 50% Sycamore(1)................... California 300 SCE Cogeneration 50% Watson........................ California 385 SCE Cogeneration 49%
- ------------------------ (1) Operated by subsidiaries or affiliates of Edison Mission Energy; all other projects are operated by unaffiliated third parties. (2) Electric purchaser abbreviations are as follows: CE Consolidated Edison Company of New York, Inc. EG Exelon Generation Company MPC Monongahela Power Company Pool Regional electricity trading market PG&E Pacific Gas & Electric Company PREPA Puerto Rico Electric Power Authority PSE Puget Sound Enery, Inc. SCE Southern California Edison Company SPR Sierra Pacific Resources VEPCO Virginia Electric & Power Company
21 (3) All the cogeneration projects are gas fired facilities, except for the James River project, which uses coal. All the exempt wholesale generator (EWG) projects are gas fired facilities, except for the Homer City plant and six of the Illinois Plants, which use coal. INTERNATIONAL OVERVIEW We own interests in 40 operating projects outside the United States. The total generating capacity of these facilities is 12,779 MW, of which our net ownership share is 9,528 MW. DESCRIPTION OF INTERNATIONAL OPERATING PROJECTS We have ownership interests in the following international operating projects:
ELECTRIC PRIMARY CAPACITY ELECTRIC OWNERSHIP PROJECT LOCATION (IN MW) PURCHASER(2) INTEREST - ------- --------------- -------- ------------ --------- Contact (10 projects)..................... New Zealand(6) 2,449 Pool 42% Derwent(1)................................ England 214 SE(3) 33% Doga(1)................................... Turkey 180 TEAS 80% Ferrybridge............................... England 1,989 Pool 100% Fiddler's Ferry........................... England 1,995 Pool 100% First Hydro (2 projects).................. Wales 2,088 Pool 100% Iberian Hy-Power I (5 projects)........... Spain 43 FECSA 100%(7) Iberian Hy-Power II (13 projects)......... Spain 43 FECSA 100% ISAB...................................... Italy 512 GRTN 49% Kwinana(1)................................ Australia 116 WP 70% Loy Yang B................................ Australia 1,000 Pool(4) 100% Paiton(1)................................. Indonesia 1,230 PLN 40% Roosecote................................. England 220 NORWEB(5) 100% TriEnergy................................. Thailand 700 EGAT 25%
- ------------------------ (1) Operated by subsidiaries or affiliates of Edison Mission Energy; all other projects are operated by unaffiliated third parties. (2) Electric purchaser abbreviations are as follows: GRTN Gestore Rete Transmissione Nazionale EGAT Electricity Generating Authority of Thailand FECSA Fuerzas Electricas de Cataluma, S.A. NORWEB North Western Electricity Board WP Western Power Pool Electricity trading market for England,Wales, Australia and New Zealand PLN PT PLN SE Southern Electric plc. TEAS Turkiye Elektrik Urehm A.S.
(3) Sells to the pool with a long-term contract with SE. (4) Sells to the pool with a long-term contract with the State Electricity Commission of Victoria. (5) Sells to the pool with a long-term contract with NORWEB. 22 (6) Minority interest in one project in Australia. (7) Minority interest are owned by third parties in three of the projects. OIL AND GAS INVESTMENTS In 1988, we formed a wholly-owned subsidiary, Mission Energy Fuel Company, to develop and invest in fuel interests. Since that time, Mission Energy Fuel has invested in a number of oil and gas properties and a production company. Oil and gas produced from the properties are generally sold at spot or short term market prices. FOUR STAR As of December 31, 2000, we owned 36% of the stock of Four Star Oil & Gas Company, a subsidiary of Texaco Inc. The underlying value of Four Star is attributable to the production of oil and gas from nine producing properties. Our proportionate interest in net quantities of proved reserves at December 31, 2000 totaled 180.6 billion cubic feet of natural gas and 10.4 million barrels of oil. In November 1999, we completed the sale of a portion of our interest in Four Star to a company in which we hold a 50% interest. Net proceeds from the sale were $20.5 million. We recorded an after-tax gain on the sale of our investment of approximately $30 million. Our net ownership interest in Four Star was reduced from 50% at December 31, 1998 to 34% as a result of the transaction. In December 1999 and May and July 2000, we purchased additional shares of stock of Four Star, increasing our ownership interest to 38%. On December 31, 2000, shares of convertible preferred shares were converted to common shares, reducing our net ownership interest to 36%. COMPETITION We compete with many other companies, including multinational development groups, equipment suppliers and other independent power producers, including affiliates of utilities, in selling electric power and steam. We also compete with electric utilities in obtaining the right to install new generating capacity. Over the past decade, obtaining a power sales contract with a utility has generally become a progressively more difficult, expensive and competitive process. Many power sales contracts are now awarded by competitive bidding, which both increases the costs of obtaining these contracts and decreases the chances of obtaining these contracts. We evaluate each potential project in an effort to determine when the probability of success is high enough to justify expenditures in developing a proposal or bid for the project. Amendments to the Public Utility Holding Company Act of 1935 made by the Energy Policy Act have increased the number of competitors in the domestic independent power industry by reducing restrictions applicable to projects that are not qualifying facilities under the Public Utility Regulatory Policies Act. Retail wheeling of power, which is the offering by utilities of unbundled retail distribution service, could also lead to increased competition in the independent power market. See "--Regulatory Matters--Retail Competition." TAX SHARING AGREEMENTS We are included in the consolidated federal income tax and combined state franchise tax returns of Edison International. We calculate our income tax provision on a separate company basis under a tax sharing arrangement with The Mission Group, which in turn has an agreement with Edison International. Tax benefits generated by us and used in the Edison International consolidated tax return are recognized by us without regard to separate company limitations. 23 SEASONALITY Due to warmer weather during the summer months, electric revenues generated from the Homer City plant and the Illinois Plants are usually higher during the third quarter of each year. In addition, our third quarter revenues from energy projects are materially higher than other quarters of the year due to a significant number of our domestic energy projects located on the West Coast of the United States, which generally have power sales contracts that provide for higher payments during summer months. The First Hydro plants, Ferrybridge and Fiddler's Ferry plants and the Iberian Hy-Power plants provide for higher electric revenues during the winter months. EMPLOYEES AND OFFICES At December 31, 2000, we employed 3,391 people, all of whom were full time employees and approximately 639, 146 and 1,294 of whom were covered by collective bargaining agreements in the United Kingdom, Australia and the United States, respectively. We have never experienced a work stoppage or strike. We believe we have good relations with our employees. However, the term of the collective bargaining agreement covering our employees at the Illinois Plants is currently in dispute, with the union maintaining that the agreement's term could expire as early as March 31, 2001 and we maintaining that the agreement remains in effect until June 2002. Although we cannot predict the outcome of this dispute, we believe that the impact on the operations of the Illinois Plants will not be material. We lease our corporate headquarters in Irvine, California and our principal regional offices in London, Melbourne and Singapore. We also lease other smaller offices in the United States and certain foreign countries. REGULATORY MATTERS GENERAL Our operations are subject to extensive regulation by governmental agencies in each of the countries in which we conduct operations. Our domestic projects are subject to energy, environmental and other governmental laws and regulations at the federal, state and local levels in connection with the development, ownership and operation of, and use of electric energy, capacity and related products, including ancillary services from, our projects. Federal laws and regulations govern, among other things, transactions by and with purchasers of power, including utility companies, the operations of a project and the ownership of a project. Under limited circumstances where exclusive federal jurisdiction is not applicable or specific exemptions or waivers from state or federal laws or regulations are otherwise unavailable, federal and/or state utility regulatory commissions may have broad jurisdiction over non-utility owned electric power plants. Energy producing projects are also subject to federal, state and local laws and regulations that govern the geographical location, zoning, land use and operation of a project. Federal, state and local environmental requirements generally require that a wide variety of permits and other approvals be obtained before the commencement of construction or operation of an energy producing facility and that the facility then operate in compliance with these permits and approvals. While we believe the requisite approvals for our existing projects have been obtained and that our business is operated in substantial compliance with applicable laws, we remain subject to a varied and complex body of laws and regulations that both public officials and private parties may seek to enforce. Regulatory compliance for the construction of new facilities is a costly and time consuming process. Intricate and changing environmental and other regulatory requirements may necessitate substantial expenditures and may create a significant risk of expensive delays or significant loss of value in a project if the project is unable to function as planned due to changing requirements or local opposition. 24 Furthermore, each of our international projects is subject to the energy and environmental laws and regulations of the foreign country in which this project is located. The degree of regulation varies according to each country and may be materially different from the regulatory regime in the United States. U.S. FEDERAL ENERGY REGULATION The Federal Energy Regulatory Commission has ratemaking jurisdiction and other authority with respect to interstate sales and transmission of electric energy under the Federal Power Act and with respect to certain interstate sales, transportation and storage of natural gas under the Natural Gas Act of 1938. The Securities and Exchange Commission has regulatory powers with respect to upstream owners of electric and natural gas utilities under the Public Utility Holding Company Act of 1935. The enactment of the Public Utility Regulatory Policies Act of 1978 and the adoption of regulations thereunder by the Federal Energy Regulatory Commission provided incentives for the development of cogeneration facilities and small power production facilities using alternative or renewable fuels by establishing certain exemptions from the Federal Power Act and the Public Utility Holding Company Act for the owners of qualifying facilities. The passage of the Energy Policy Act in 1992 further encouraged independent power production by providing additional exemptions from the Public Utility Holding Company Act for exempt wholesale generators and foreign utility companies. A "QUALIFYING FACILITY" under the Public Utility Regulatory Policies Act is a cogeneration facility or a small power production facility that satisfies criteria adopted by the Federal Energy Regulatory Commission. In order to be a qualifying facility, a cogeneration facility must (i) sequentially produce both useful thermal energy, such as steam, and electric energy, (ii) meet specified operating standards, and energy efficiency standards when oil or natural gas is used as a fuel source and (iii) not be controlled, or more than 50% owned by one or more electric utilities (where "electric utility" is interpreted with reference to the Public Utility Holding Company Act definition of an "electric utility company"), electric utility holding companies (defined by reference to the Public Utility Holding Company Act definitions of "electric utility company" and "holding company") or affiliates of such entities. A small power production facility seeking to be a qualifying facility must produce power from renewable energy sources, such as geothermal energy, waste sources of fuel, such as waste coal, or any combination thereof and must meet the ownership restrictions discussed above. Before 1990, a small power production facility seeking to be a qualifying facility was subject to 30 MW or 80 MW size limits, depending upon its fuel source. In 1990, these limits were lifted for solar, wind, waste, and geothermal qualifying facilities, provided that applications for or notices of qualifying facility status were filed with the Federal Energy Regulatory Commission for these facilities on or before December 31, 1994, and provided, in the case of new facilities, the construction of these facilities commenced on or before December 31, 1999. An "EXEMPT WHOLESALE GENERATOR" under the Public Utility Holding Company Act is an entity determined by the Federal Energy Regulatory Commission to be exclusively engaged, directly or indirectly, in the business of owning and/or operating specified eligible facilities and selling electric energy at wholesale or, if located in a foreign country, at wholesale or retail. A "FOREIGN UTILITY COMPANY" under the Public Utility Holding Company Act is, in general, an entity located outside the United States that owns or operates facilities used for the generation, distribution or transmission of electric energy for sale or the distribution at retail of natural or manufactured gas, but that derives none of its income, directly or indirectly, from such activities within the United States. FEDERAL POWER ACT. The Federal Power Act grants the Federal Energy Regulatory Commission exclusive ratemaking jurisdiction over wholesale sales of electricity in interstate commerce, including ongoing, as well as initial, rate jurisdiction. This jurisdiction allows the Federal Energy Regulatory Commission to revoke or modify previously approved rates. These rates may be based on a 25 cost-of-service approach or, in geographic and product markets determined by Federal Energy Regulatory Commission to be workably competitive, may be market-based. As noted, most qualifying facilities are exempt from the ratemaking and several other provisions of the Federal Power Act. Exempt wholesale generators and other non-qualifying facility independent power projects are subject to the Federal Power Act and to the ratemaking jurisdiction of the Federal Energy Regulatory Commission thereunder, but the Federal Energy Regulatory Commission typically grants exempt wholesale generators the authority to charge market-based rates as long as the absence of market power is shown. In addition, the Federal Power Act grants the Federal Energy Regulatory Commission jurisdiction over the sale or transfer of jurisdictional facilities, including wholesale power sales contracts, and in some cases, jurisdiction over the issuance of securities or the assumption of specified liabilities and some interlocking directorates. In granting authority to make sales at market-based rates, the Federal Energy Regulatory Commission typically also grants blanket approval for the issuance of securities and partial waiver of the restrictions on interlocking directorates. Currently, in addition to the facilities owned or operated by us, a number of our operating projects, including the Homer City plant, the Illinois Plants, the Nevada Sun-Peak, Brooklyn Navy Yard, Commonwealth Atlantic and Harbor facilities, are subject to the Federal Energy Regulatory Commission ratemaking regulation under the Federal Power Act. Our future domestic non-qualifying facility independent power projects will also be subject to Federal Energy Regulatory Commission jurisdiction on rates. THE PUBLIC UTILITY HOLDING COMPANY ACT. Unless exempt or found not to be a holding company by the Securities and Exchange Commission, a company that falls within the definition of a holding company must register with the Securities and Exchange Commission and become subject to Securities and Exchange Commission regulation as a registered holding company under the Public Utility Holding Company Act. "HOLDING COMPANY" is defined in Section 2(a)(7) of the Public Utility Holding Company Act to include, among other things, any company that owns 10% or more of the voting securities of an electric utility company. "ELECTRIC UTILITY COMPANY" is defined in Section 2(a)(3) of the Public Utility Holding Company Act to include any company that owns facilities used for generation, transmission or distribution of electric energy for resale. Exempt wholesale generators and foreign utility companies are not deemed to be electric utility companies and qualifying facilities are not considered facilities used for the generation, transmission or distribution of electric energy for resale. Securities and Exchange Commission precedent also indicates that it does not consider "paper facilities," such as contracts and tariffs used to make power sales, to be facilities used for the generation, transmission or distribution of electric energy for resale, and power marketing activities will not, therefore, result in an entity being deemed to be an electric utility company. A registered holding company is required to limit its utility operations to a single integrated utility system and to divest any other operations not functionally related to the operation of that utility system. In addition, a registered holding company will require Securities and Exchange Commission approval for the issuance of securities, other major financial or business transactions (such as mergers) and transactions between and among the holding company and holding company subsidiaries. Because it owns Southern California Edison, an electric utility company, Edison International, our parent company, is a holding company. Edison International is, however, exempt from registration pursuant to Section 3(a)(1) of the Public Utility Holding Company Act, because the public utility operations of the holding company system are predominantly intrastate in character. Consequently, we are not a subsidiary of a registered holding company, so long as Edison International continues to be exempt from registration pursuant to Section 3(a)(1) or another of the exemptions enumerated in Section 3(a). Nor are we a holding company under the Public Utility Holding Company Act, because our interests in power generation facilities are exclusively in qualifying facilities, exempt wholesale generators and foreign utility companies. All international projects and specified U.S. projects that we are currently developing or proposing to acquire will be non-qualifying facility independent power 26 projects. We intend for each project to qualify as an exempt wholesale generator or as a foreign utility company. Loss of exempt wholesale generator, qualifying facility or foreign utility company status for one or more projects could result in our becoming a holding company subject to registration and regulation under the Public Utility Holding Company Act and could trigger defaults under the covenants in our project agreements. Becoming a holding company could, on a retroactive basis, lead to, among other things, fines and penalties and could cause certain of our project agreements and other contracts to be voidable. PUBLIC UTILITY REGULATORY POLICIES ACT OF 1978 The Public Utility Regulatory Policies Act provides two primary benefits to qualifying facilities. First, as discussed above, ownership of qualifying facilities will not result in a company's being deemed an electric utility company for purposes of the Public Utility Holding Company Act. In addition, all cogeneration facilities and all small production facilities that generate power from sources other than geothermal and whose capacity exceeds 30 MWs that are qualifying facilities are exempt from most provisions of the Federal Power Act and regulations of the Federal Energy Regulatory Commission thereunder. Second, the Federal Energy Regulatory Commission regulations promulgated under the Public Utility Regulatory Policies Act require that electric utilities purchase electricity generated by qualifying facilities at a price based on the purchasing utility's avoided cost, and that the utilities sell back up power to the qualifying facility on a non discriminatory basis. The Federal Energy Regulatory Commission's regulations define "avoided cost" as the incremental cost to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, the utility would generate itself or purchase from another source. The Federal Energy Regulatory Commission's regulations also permit qualifying facilities and utilities to negotiate agreements for utility purchases of power at prices different than the utility's avoided costs. While it has been common for utilities to enter into long term contracts with qualifying facilities in order, among other things, to facilitate project financing of independent power facilities and to reflect the deferral by the utility of capital costs for new plant additions, increasing competition and the development of new power markets have resulted in a trend toward shorter term power contracts that would place greater risk on the project owner. If one of the projects in which we have an interest were to lose its status as a qualifying facility, the project would no longer be entitled to the qualifying facility-related exemptions from regulation under the Public Utility Holding Company Act and the Federal Power Act. As a result, the project could become subject to rate regulation by the Federal Energy Regulatory Commission under the Federal Power Act, and we could inadvertently become a holding company under the Public Utility Holding Company Act. Under Section 26(b) of the Public Utility Holding Company Act, any project contracts that are entered into in violation of the Public Utility Holding Company Act, including contracts entered into during any period of non-compliance with the registration requirement, could be determined by the courts or the Securities and Exchange Commission to be void. If a project were to lose its qualifying facility status, we could attempt to avoid holding company status on a prospective basis by qualifying the project owner as an exempt wholesale generator. However, assuming this changed status would be permissible under the terms of the applicable power sales agreement, rate approval from the Federal Energy Regulatory Commission would be required. In addition, the project would be required to cease selling electricity to any retail customers, in order to qualify for exempt wholesale generator status, and could become subject to additional state regulation. Loss of qualifying facility status by one project could also potentially cause other projects with the same partners to lose their qualifying facility status to the extent those partners became electric utilities, electric utility holding companies or affiliates of such companies for purposes of the ownership criteria applicable to qualifying facilities. Loss of qualifying facility status could also trigger defaults under covenants to maintain qualifying facility status in the project's power sales agreements, steam sales agreements and financing agreements and result in termination, penalties or acceleration of indebtedness under such 27 agreements. If a power purchaser were to cease taking and paying for electricity or were to seek to obtain refunds of past amounts paid because of the loss of qualifying facility status, we cannot assure you that the costs incurred in connection with the project could be recovered through sales to other purchasers. Moreover, our business and financial condition could be adversely affected if regulations or legislation were modified or enacted that changed the standards for maintaining qualifying facility status or that eliminated or reduced the benefits, such as the mandatory purchase provisions of the Public Utility Regulatory Policies Act and exemptions currently enjoyed by qualifying facilities. Loss of qualifying facility status on a retroactive basis could lead to, among other things, fines and penalties being levied against us, or claims by a utility customer for the refund of payments previously made. We endeavor to develop our qualifying facility projects, monitor regulatory compliance by these projects and choose our customers in a manner that minimizes the risks of losing these projects' qualifying facility status. However, some factors necessary to maintain qualifying facility status are subject to risks of events outside of our control. For example, loss of a thermal energy customer or failure of a thermal energy customer to take required amounts of thermal energy from a cogeneration facility that is a qualifying facility could cause a facility to fail to meet the requirements regarding the minimum level of useful thermal energy output. Upon the occurrence of this type of event, we would seek to replace the thermal energy customer or find another use for the thermal energy that meets the requirements of the Public Utility Regulatory Policies Act. NATURAL GAS ACT Twenty-four of the domestic operating facilities that we own, operate or have investments in use natural gas as their primary fuel. Under the Natural Gas Act, the Federal Energy Regulatory Commission has jurisdiction over certain sales of natural gas and over transportation and storage of natural gas in interstate commerce. The Federal Energy Regulatory Commission has granted blanket authority to all persons to make sales of natural gas without restriction but continues to exercise significant oversight with respect to transportation and storage of natural gas services in interstate commerce. STATE ENERGY REGULATION State public utility commissions have broad jurisdiction over non-qualifying facility independent power projects, including exempt wholesale generators, which are considered public utilities in many states. This jurisdiction often includes the issuance of certificates of public convenience and necessity and/or other certifications to construct, own and operate a facility, as well as the regulation of organizational, accounting, financial and other corporate matters on an ongoing basis. Qualifying facilities may also be required to obtain these certificates of public convenience and necessity in some states. Some states that have restructured their electric industries require generators to register to provide electric service to customers. Many states are currently undergoing significant changes in their electric statutory and regulatory frameworks that result from restructuring the electric industries that may affect generators in those states. Although the Federal Energy Regulatory Commission generally has exclusive jurisdiction over the rates charged by a non-qualifying facility independent power project to its wholesale customers, a state's public utility commission has the ability, in practice, to influence the establishment of these rates by asserting jurisdiction over the purchasing utility's ability to pass through the resulting cost of purchased power to its retail customers. A state's public utility commission also has the authority to determine avoided costs for qualifying facilities and to regulate the retail rates charged by qualifying facilities. In addition, states may assert jurisdiction over the siting and construction of independent power projects and, among other things, the issuance of securities, related party transactions and the sale or other transfer of assets by these facilities. The actual scope of jurisdiction over independent power projects by state public utility commissions varies from state to state. 28 In addition, state public utility commissions may seek to modify, suspend or terminate a qualifying facility's power sales contract under specified circumstances. This could occur if the state public utility commission were to determine that the pricing mechanism of the power sales contract is unfairly high in light of the current prevailing market cost of power for the utility purchasing the power. In this instance, the state public utility commission could attempt to alter the terms of the power sales contract to reflect more accurately market conditions for the prevailing cost of power. While we believe that these attempts are not common, and that the state public utility commission may not have any jurisdiction to modify the terms of the wholesale power sales, we cannot assure you that the power sales contracts of our projects will not be subject to adverse regulatory actions. The California Public Utilities Commission has authorized the electric utilities in California to "monitor" compliance by qualifying facilities with the Public Utility Regulatory Policies Act rules and regulations. However, the United States Court of Appeals for the Ninth Circuit found in 1994 that a California Public Utilities Commission program was preempted by the Public Utility Regulatory Policies Act, to the extent it authorized utilities to determine that a qualifying facility was not in compliance with the Public Utility Regulatory Policies Act rules and regulations, to then pay a reduced avoided cost rate and to take other action contrary to a facility's status as a qualifying facility. The court did, however, uphold reasonable monitoring of qualifying facility operating data. Other states, like New York and Virginia, have also instituted qualifying facility monitoring programs. We buy and transport the natural gas used at our domestic facilities through local distribution companies. State public utility commissions have jurisdiction over the transportation of natural gas by local distribution companies. Each state's regulatory laws are somewhat different. However, all generally require the local distribution companies to obtain approval from the relevant public utility commission for the construction of facilities and transportation services if the local distribution company's generally applicable tariffs do not cover the proposed transaction. Local distribution companies' rates are usually subject to continuing public utility commission oversight. CALIFORNIA DEREGULATION DEREGULATION PLAN. Efforts to restructure the California electric industry began in 1994 in response to high electricity prices. A final restructuring order was issued by the California Public Utility Commission in December 1995, which led to the unanimous enactment of Assembly Bill 1890, the Restructuring Legislation, in September 1996 and its signature by the Governor of California at the time. The main points of this legislation included the following: - the creation of the California System Operator and California Power Exchange by January 1998 and simultaneous initiation of direct access between electricity suppliers and end use customers; - the creation of the California Electricity Oversight Board; and - the adoption of a Competitive Transition Charge for the recovery of stranded costs. The state's utilities were authorized to divest much of their generation assets and apply the proceeds to their stranded costs resulting from deregulation of the retail markets. The restructuring also required that California investor-owned utilities sell into and purchase most of their power requirements from the California Power Exchange but did not permit them to hedge their risk through long-term forward contracts. Through this mechanism, a spot market was created that set the purchase price for power by establishing the highest bid as the market clearing price for all bidders. Additionally, the legislation provided for a limited transition period ending March 31, 2002, or an earlier date at which it is determined that a utility has recovered its stranded costs. During the transition period, there is a rate reduction of no less than 10% for residential and small commercial ratepayers. The rate reduction was financed through the issuance of rate reduction bonds. The rate reduction scheme capped retail electric rates at 1996 levels. The retail rate cap and bond offering were 29 intended to assist utilities in the recovery of stranded costs incurred by their investments made prior to deregulation. At the conclusion of the transition period, the legislation anticipated that residential and small business purchasers of electricity would pay 20% less for electricity due to effective implementation of Assembly Bill 1890. THE CURRENT POWER CRISIS IN CALIFORNIA. Wholesale power prices rose significantly in California during 2000 and early 2001, we believe primarily as a result of supply shortages, high natural gas and petroleum prices and a variety of other factors. Unregulated wholesale rates rose above the fixed retail rates the California utilities were permitted to charge their customers. The inability of utilities to recover the full amount of wholesale prices has led to billions of dollars in unrecovered costs by the California utilities and to their current liquidity crisis. Ongoing legislative and regulatory efforts seek to address both market structure and supply problems. In September 2000, legislation was enacted in California seeking to accelerate the power plant siting approval process. Other initiatives may seek to stimulate entry into the market of new power generation capacity. In December 2000, the Federal Energy Regulatory Commission issued an order permitting California utilities to negotiate long-term supply contracts, and establishing a "soft-cap" limiting the wholesale price that could be charged without additional cost justification, as opposed to allowing the highest bid price to set the market clearing price for all generators. At that time the Federal Energy Regulatory Commission refused to set a regional price cap for wholesale power prices as sought by state officials. On January 4, 2001, the California Public Utilities Commission authorized an interim surcharge on customers' bills, subject to refund, which is to be applied only to ongoing power procurement costs and will result in rate increases of 7-15% during a 90-day period. This interim surcharge does not otherwise affect the retail rate freeze which has been in effect since deregulation began in 1998. On March 27, 2001, the California Public Utilities Commission authorized a rate increase of three cents per kilowatt-hour, or approximately 50%, but kept the retail rate freeze in effect for Southern California Edison and Pacific Gas and Electric. On February 1, 2001, legislation was enacted in California that, among other things: authorized the California Department of Water Resources to enter into long-term power purchase contracts; authorized the Department of Water Resources to sell revenue bonds to finance electricity purchases; provided for rate recovery of the Department of Water Resources' costs through rate increases, subject to specified limits; authorized the Department of Water Resources to sell power at its costs to retail customers and, with specified exceptions, to local publicly owned electric utilities; appropriated a total of $500 million toward additional spot market power purchases; and provided for suspension of the ability of customers to choose alternative energy providers while the Department of Water Resources is procuring power. Executive Orders promoting energy conservation measures were also signed by the Governor of California, including a mandatory requirement that retail businesses reduce outdoor retail lighting during non-business hours or face fines. In addition, on February 21, 2001, the California Senate approved formation of a California state power authority, which (if formed) will have the power to own and operate generation and transmission facilities in the state. The formation of the state power authority has not yet been approved by the California Assembly. The Governor of California has also proposed that the state acquire the transmission assets of the investor-owned utilities, including Southern California Edison, and that the proceeds from such sales be applied against the utilities' existing debts. As part of an investigation that the Federal Energy Regulatory Commission has been conducting on wholesale power prices in the California market, the Federal Energy Regulatory Commission ordered a number of power generators, not including Edison Mission Energy, to justify charges to California utilities during the months of January and February 2001 or refund such charges. The Federal Energy Regulatory Commission has further required a power generator and a marketer to justify their decision to bring plants off-line or refund to the California utilities the increased costs resulting from such shutdowns. Also, the Governor of California and other western states have 30 petitioned the Federal Energy Regulatory Commission and the United States Congress for "cost-based" price caps for wholesale power rates on the spot market, permitting power generators to recover all their costs with a small level of profit. Further actions are anticipated as both the Federal and California state governments have intervened to address the short- and long-term issues associated with the power crisis. A recent Federal Energy Regulatory Commission report estimates that it could take up to 24 months to address these issues. On March 15, 2001, the California Public Utilities Commission released a draft of a proposed order instituting an investigation into whether California's investor-owned utilities, including Southern California Edison, have complied with past Commission decisions authorizing the formation of their holding companies and governing affiliate transactions, as well as applicable statutes. Action on this agenda item repeatedly has been deferred, including at the Commission meeting on March 27, 2001, and the item has continued to appear on the agendas for subsequent Commission meetings. The proposed order would reopen the past holding company decisions and initiate an investigation into the following matters: - whether the holding companies, including Edison International, violated requirements to give priority to the capital needs of their respective utility subsidiaries; - whether the ring-fencing actions by Edison International and PG&E Corporation and their respective non-utility affiliates also violated the requirements to give priority to the capital needs of their utility subsidiaries; - whether the payment of dividends by the utilities violated requirements that the utilities maintain dividend policies as though they were comparable stand-alone utility companies; - any additional suspected violations of laws or Commission rules and decisions; and - whether additional rules, conditions, or other changes to the holding company decisions are necessary. We cannot predict whether the Commission will institute this investigation or what effects any investigation or subsequent actions by the Commission may have on Edison International or indirectly on us. On March 27, 2001, the California Public Utilities Commission issued a decision that ordered the three California investor owned utilities, including Southern California Edison and Pacific Gas and Electric, to commence payment for power generated from qualifying facilities beginning in April 2001. In addition, the decision modified the pricing formula for determining short run avoided costs for qualifying facilities subject to these provisions. Depending on how the utilities react to this order, the immediate impact of this decision may be to commence payment in April 2001 at significantly reduced prices for power to qualifying facilities subject to this pricing adjustment. Furthermore, this decision called for further study of the pricing formula tied to short run avoided costs and, accordingly, may be subject to more changes in the future. Finally, this decision is subject to challenge before the Commission, the Federal Energy Regulatory Commission and, potentially, state or federal courts. Although it is premature to assess the full effect of this recent decision, it could have a material adverse effect on our investment in the California partnerships, depending on how it is implemented and future changes in the relationship between the pricing formula and the actual cost of natural gas procured by our California partnerships. This decision did not address payment to the qualifying facilities for amounts due prior to April 2001. RECENT FOREIGN REGULATORY MATTERS UNITED KINGDOM. The U.K.'s new electricity trading arrangements are the direct result of an October 1997 request by the Minister for Science, Energy and Industry who asked the U.K. Director 31 General of Electricity Supply to review the operation of the pool pricing system. In July 1998 the Director General proposed that the current structure of contracts for differences and compulsory trading via the pool at half-hourly clearing prices bid a day ahead be abolished. The U.K. Government accepted the proposals in October 1998 subject to reservations. Following this, further proposals were published by the Government and the Director General in July and October 1999. The proposals include, among other things, the establishment of a spot market or voluntary short-term power exchanges operating from 24 to 3 1/2-hours before a trading period; a balancing mechanism to enable the system operator to balance generation and demand and resolve any transmission constraints; a mandatory settlement process for recovering imbalances between contracted and metered volumes with strong incentives for being in balance; and a Balancing and Settlement Code Panel to oversee governance of the balancing mechanism. Contracting over time periods longer than the day-ahead market are not directly affected by the proposals. Physical bilateral contracts will replace the current contracts for differences, but will function in a similar manner. However, it remains difficult to evaluate the future impact of the proposals. A key feature of the new electricity trading arrangements is to require firm physical delivery which means that a generator must deliver, and a consumer must take delivery, against their contracted positions or face assessment of energy imbalance penalty charges by the system operator. A consequence of this should be to increase greatly the motivation of parties to contract in advance and develop forwards and futures markets of greater liquidity than at present. Recent experience has been that the new electricity trading arrangements have placed a significant downward pressure on forward contract prices. Furthermore, another consequence may be that counterparties may require additional credit support, including parent company guarantees or letters of credit. Legislation in the form of the Utilities Act, which was approved July 28, 2000, allows for the implementation of new electricity trading arrangements and the necessary amendments to generators' licenses. Various key documents were designated by the Secretary of State and signed by participants on August 14, 2000 (the Go-Active Date); however, due to difficulties encountered during testing, implementation of the new electricity trading arrangements has been delayed from November 21, 2000 until March 27, 2001. A warmer-than-average winter (January to March 2000), the entry of new operations into the generation market, the impending introduction of the new electricity trading arrangements coupled with uncertainties surrounding the new Utilities Act and action by the Director General to control abuse of market power, discussed below, contributed to a drop in the energy component of pool prices throughout the year (time weighted average System Marginal Price dropped from L22.39/MWh in 1999 to L18.75/MWh in 2000) and depressed forward prices for winter 2000/2001. We have entered into contracts for differences for the majority of our forecasted generation through the winter 2000/2001, and accordingly, have mitigated the downside risks to further decreases in energy prices. Despite improvement in capacity prices during August, September and early October 2000, and a slight firming of forward prices, the short-term prices for energy continue to be below prior years. As a result of the foregoing, we continue to expect lower revenues from our Ferrybridge and Fiddler's Ferry plants. The Utilities Act sets a principal objective for the Government and the Director General to "protect the interests of consumers. .. where appropriate by promoting competition. .. ". This represents a shift in emphasis toward the consumer interest. But this is qualified by a recognition that license holders should be able to finance their activities. The Act also contains new powers for the Government to issue guidance to the Director General on social and environmental matters, changes to the procedures for modifying licenses and a new power for the Director General to impose financial penalties on companies for breach of license conditions. We will be monitoring the operation of these new provisions. NEW ZEALAND. The New Zealand Government has been undergoing a steady process of electric industry deregulation since 1987. Reform in the distribution and retail supply sector began in 1992 with legislation that deregulated electricity distribution and provided for competition in the retail electric 32 supply function. The New Zealand Energy Market, established in 1996, is a voluntary competitive wholesale market which allows for the trading of physical energy on a half-hourly basis. The Electricity Industry Reform Act, which was passed in July 1998, was designed to increase competition at the wholesale generation level by splitting up Electricity Company of New Zealand Limited, the large state-owned generator, into three separate generation companies. The Electricity Industry Reform Act also prohibits the ownership of both generation and distribution assets by the same entity. The New Zealand Government commissioned an inquiry into the electricity industry in February 2000. This Inquiry Board's report was presented to the government in mid 2000. The main focus of the report was on the monopoly segments of the industry, transmission and distribution, with substantial limitations being recommended in the way in which these segments price their services in order to limit their monopoly power. Recommendations were also made with respect to the retail customer in order to reduce barriers to customers switching. In addition, the Board made recommendations in relation to the wholesale market's governance arrangements with the purpose of streamlining them. The recommended changes are now being progressively implemented. TRANSMISSION OF WHOLESALE POWER Generally, projects that sell power to wholesale purchasers other than the local utility to which the project is interconnected require the transmission of electricity over power lines owned by others, also known as wheeling. The prices and other terms and conditions of transmission contracts are regulated by the Federal Energy Regulatory Commission, when the entity providing the wheeling service is a jurisdictional public utility under the Federal Power Act. Until 1992, the Federal Energy Regulatory Commission's ability to compel wheeling was very limited, and the availability of voluntary wheeling service could be a significant factor in determining whether a site was viable for project development. The Federal Energy Regulatory Commission's authority under the Federal Power Act to require electric utilities to provide transmission service on a case by case basis to qualifying facilities, exempt wholesale generators, and other power generators was expanded substantially by the Energy Policy Act. Furthermore, in 1996 the Federal Energy Regulatory Commission issued a rulemaking order, Order 888, in which the Federal Energy Regulatory Commission asserted the power, under its authority to eliminate undue discrimination in transmission, to compel all jurisdictional public utilities under the Federal Power Act to file open access transmission tariffs consistent with a pro forma tariff drafted by the Federal Energy Regulatory Commission. The Federal Energy Regulatory Commission subsequently issued Orders 888-A, 888-B and 888-C to clarify the terms that jurisdictional transmitting utilities are required to include in their open access transmission tariffs. The Federal Energy Regulatory Commission also issued Order 889, which required those transmitting utilities to abide by specified standards of conduct when using their own transmission systems to make wholesale sales of power, and to post specified transmission information, including information about transmission requests and availability, on a publicly available computer bulletin board. Although the pro forma tariff does not cover the pricing of transmission service, Order 888 and the subsequently issued regional transmission organization rulemaking are expected to improve transmission access for independent power producers like us. A 1999 decision by the United States Court of Appeals for the Eighth Circuit has cast doubt on the extent of the Federal Energy Regulatory Commission's authority to require specified curtailment policies in the pro forma tariff. The United States Court of Appeals for the D.C. Circuit issued an opinion on June 30, 2000 that affirmed the Federal Energy Regulatory Commission's Order 888 et seq. in all material respects. RETAIL COMPETITION In response to pressure from retail electric customers, particularly large industrial users, the state commissions or state legislatures of most states are considering, or have considered, whether to open the retail electric power market to competition. Retail competition is possible when a customer's local 33 utility agrees, or is required, to "unbundle" its distribution service (for example, the delivery of electric power through its local distribution lines) from its transmission and generation service (for example, the provision of electric power from the utility's generating facilities or wholesale power purchases). Several state commissions and legislatures have issued orders or passed legislation requiring utilities to offer unbundled retail distribution service, which is called retail wheeling, and phasing in retail wheeling over the next several years. The competitive pricing environment that will result from retail competition may cause utilities to experience revenue shortfalls and deteriorating creditworthiness. However, we expect that most, if not all, state plans will insure that utilities receive sufficient revenues, through a distribution surcharge if necessary, to pay their obligations under existing long-term power purchase contracts with qualifying facilities and exempt wholesale generators. On the other hand, qualifying facilities and exempt wholesale generators may be subject to pressure to lower their contract prices in an effort to reduce the stranded investment costs of their utility customers. We believe that, as a predominantly low cost producer of electricity, we will ultimately benefit from any increased competition that may arise from the opening of the retail market. Although our exempt wholesale generators are forbidden under the Public Utility Holding Company Act from selling electric power in the retail market, our exempt wholesale generators can sell at wholesale to a power marketer which could resell at retail. Furthermore, qualifying facilities are permitted to market power directly to large industrial users that could not previously be served, because of local franchise laws or the inability to obtain retail wheeling. We also believe we will compete effectively as a wholesale supplier to power marketers serving the newly-open retail markets. ENVIRONMENTAL REGULATION We are subject to environmental regulation by federal, state and local authorities in the United States and foreign regulatory authorities with jurisdiction over projects located outside the United States. We believe that we are in substantial compliance with environmental regulatory requirements and that maintaining compliance with current requirements will not materially affect our financial position or results of operations. However, possible future developments, such as the promulgation of more stringent environmental laws and regulations, and future proceedings which may be taken by environmental authorities, could affect the costs and the manner in which we conduct our business and could cause us to make substantial additional capital expenditures. We cannot assure you that we would be able to recover these increased costs from our customers or that our financial position and results of operations would not be materially adversely affected. Typically, environmental laws require a lengthy and complex process for obtaining licenses, permits and approvals prior to construction and operation of a project. Meeting all the necessary requirements can delay or sometimes prevent the completion of a proposed project as well as require extensive modifications to existing projects, which may involve significant capital expenditures. The Clean Air Act provides the statutory framework to implement a program for achieving national ambient air quality standards in areas exceeding such standards and provides for maintenance of air quality in areas already meeting such standards. Among other requirements, it also restricts the emission of toxic air contaminants and provides for the reduction of sulfur dioxide emissions to address acid deposition. In 1990, Congress passed amendments to the Clean Air Act that greatly expanded the scope of federal regulations in several significant respects. We expect to spend approximately $67 million in 2001 to install upgrades to the environmental controls at the Homer City plant to control sulfur dioxide and nitrogen oxide emissions. Similarly, we anticipate upgrades to the environmental controls at the Illinois Plants to control nitrogen oxide emissions to result in expenditures of approximately $61 million, $67 million, $130 million, $123 million and $57 million for 2001, 2002, 2003, 2004 and 2005, respectively. Provisions related to nonattainment, air toxins, permitting of new and 34 existing units, enforcement and acid rain may affect our domestic plants; however, final details of all these programs have not been issued by the United States Environmental Protection Agency and state agencies. In addition, at the Ferrybridge and Fiddler's Ferry plants we anticipate environmental costs arising from plant modification of approximately $52 million for the 2001-2005 period. We own an indirect 50% interest in EcoElectrica, L.P., a limited partnership which owns and operates a liquified natural gas import terminal and cogeneration project at Penuelas, Puerto Rico. In 2000, the U.S. Environmental Protection Agency issued to EcoElectrica a notice of violation and a compliance order alleging violations of the Federal Clean Air Act primarily related to start-up activities. Representatives of EcoElectrica have met with the Environmental Protection Agency to discuss the notice of violations and compliance order. To date, EcoElectrica has not been informed of the commencement of any formal enforcement proceedings. It is premature to assess what, if any, action will be taken by the Environmental Protection Agency. On November 3, 1999, the United States Department of Justice filed suit against a number of electric utilities for alleged violations of the Clean Air Act's "new source review" requirements related to modifications of air emissions sources at electric generating stations located in the southern and midwestern regions of the United States. Several states have joined these lawsuits. In addition, the United States Environmental Protection Agency has also issued administrative notices of violation alleging similar violations at additional power plants owned by some of the same utilities named as defendants in the Department of Justice lawsuit, as well as other utilities, and also issued an administrative order to the Tennessee Valley Authority for similar violations at certain of its power plants. The Environmental Protection Agency has also issued requests for information pursuant to the Clean Air Act to numerous other electric utilities seeking to determine whether these utilities also engaged in activities that may have been in violation of the Clean Air Act's new source review requirements. To date, one utility, the Tampa Electric Company, has reached a formal agreement with the United States to resolve alleged new source review violations. Two other utilities, the Virginia Electric & Power Company and Cinergy Corp., have reached agreements in principle with the Environmental Protection Agency. In each case, the settling party has agreed to incur over $1 billion in expenditures over several years for the installation of additional pollution control, the retirement or repowering of coal fired generating units, supplemental environmental projects and civil penalties. These agreements provide for a phased approach to achieving required emission reductions over the next 10-15 years. The settling utilities have also agreed to pay civil penalties ranging from $3.5 million to $8.5 million. Prior to our purchase of the Homer City plant, the Environmental Protection Agency requested information from the prior owners of the plant concerning physical changes at the plant. Other than with respect to the Homer City plant, no proceedings have been initiated or requests for information issued with respect to any of our United States facilities. However, we have been in informal voluntary discussions with the Environmental Protection Agency relating to these facilities, which may result in the payment of civil fines. We cannot assure you that we will reach a satisfactory agreement or that these facilities will not be subject to proceedings in the future. Depending on the outcome of the proceedings, we could be required to invest in additional pollution control requirements, over and above the upgrades we are planning to install, and could be subject to fines and penalties. A new ambient air quality standard was adopted by the Environmental Protection Agency in July 1997 to address emissions of fine particulate matter. It is widely understood that attainment of the fine particulate matter standard may require reductions in nitrogen oxides and sulfur dioxides, although under the time schedule announced by the Environmental Protection Agency 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. In May 1999, the United States Court of Appeals for the District of Columbia Circuit held that Section 109(b)(1) of the Clean Air Act, 35 the section of the Clean Air Act requiring the promulgation of national ambient air quality standards, as interpreted by the Environmental Protection Agency, was an unconstitutional delegation of legislative power. The Court of Appeals remanded both the fine particulate matter standard and the revised ozone standard to allow the EPA to determine whether it could articulate a constitutional application of Section 109(b)(1). On February 27, 2001, the Supreme Court, in WHITMAN V. AMERICAN TRUCKING ASSOCIATIONS, INC., reversed the Circuit Court's judgment on this issue and remanded the case back to the Court of Appeals to dispose of any other preserved challenges to the particulate matter and ozone standards. Accordingly, as the final application of the revised particulate matter ambient air quality standard is potentially subject to further judicial proceedings, the impact of this standard on our facilities is uncertain at this time. On December 20, 2000, the Environmental Protection Agency issued a regulatory finding that it is "necessary and appropriate" to regulate emissions of mercury and other hazardous air pollutants from coal-fired power plants. The agency has added coal-fired power plants to the list of source categories under Section 112(c) of the Clean Air Act for which "maximum available control technology" standards will be developed. Eventually, unless overturned or reconsidered, the Environmental Protection Agency will issue technology-based standards that will apply to every coal-fired unit owned by us or our affiliates in the United States. This section of the Clean Air Act provides only for technology-based standards, and does not permit market trading options. Until the standards are actually promulgated, the potential cost of these control technologies cannot be estimated, and we cannot evaluate the potential impact on the operations of our facilities. Since the adoption of the United Nations Framework on Climate Change in 1992, there has been worldwide attention with respect to greenhouse gas emissions. In December 1997, the Clinton Administration 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 required, by 2008-2012, to reduce its greenhouse gas emissions by 7% from 1990 levels. However, because of opposition to the treaty in the United States Senate, the Kyoto Protocol has not been submitted to the Senate for ratification. Although legislative developments at the federal and state level related to controlling greenhouse gas emissions are beginning, we are not aware of any state legislative developments in the states in which we operate. If the United States ratifies the Kyoto Protocol or we otherwise become subject to limitations on emissions of carbon dioxide from its plants, these requirements could have a significant impact on our operations. The Comprehensive Environmental Response, Compensation, and Liability Act, which is also known as CERCLA, and similar state statutes, require the cleanup of sites from which there has been a release or threatened release of hazardous substances. We are not aware of any material liabilities under this act; however, we cannot assure you that we will not incur CERCLA liability or similar state law liability in the future. ITEM 2. PROPERTIES We lease our principal office in Irvine, California. This lease is approximately 142,000 square feet. The term of the lease for approximately 65,500 square feet expires on December 31, 2004 with two five-year options to extend. The term of the lease for the balance of approximately 76,500 square feet expires on December 31, 2004 with no options to extend. We also lease office space in Chicago, Illinois, Chantilly, Virginia, Boston, Massachusetts, Fairfax, Virginia and Washington, D.C. The Chicago lease is approximately 41,000 square feet and expires on December 31, 2009. The Chantilly lease is approximately 30,000 square feet and expires on October 31, 2009. The Boston lease is approximately 27,000 square feet and expires on June 30, 2007. Both the Fairfax and the Washington, D.C. leases are immaterial. At December 31, 2000, approximately 34% of above space was either available for sublease or subleased. Our subsidiaries in the Asia Pacific region lease office space in Manila, Philippines; Melbourne, Australia; Jakarta, Indonesia; and Singapore. Our subsidiaries in the Europe, Central Asia, 36 Middle East and Africa region lease office space in Barcelona, Spain; Esenyurt, Turkey; London, England; and Rome, Italy. These subsidiary leases are immaterial. The following table shows the material properties owned or leased by us or our investments. Each property represents at least five percent of our income before tax or is one in which we have an investment balance greater than $50 million. All these properties are subject to mortgages or other liens or encumbrances granted to the lenders providing financing for the plant or project. DESCRIPTION OF PROPERTIES
BUSINESS INTEREST PLANT OR PROJECT SEGMENT LOCATION IN LAND PLANT DESCRIPTION - ---------------- ------------ ------------------------------ ------------- ------------------------------ Brooklyn Navy Yard... Americas Brooklyn, New York Leased Natural gas-turbine cogeneration facility Doga................. Europe Esenyurt, Turkey Owned Combined cycle generation technology EcoElectrica......... Americas Penuelas, Puerto Rico Owned Liquefied natural gas cogeneration facility Ferrybridge.......... Europe Knottingley, West Yorkshire, Leased Coal fired generation facility UK Fiddler's Ferry...... Europe Warrington, Cheshire, UK Leased Coal fired generation facility First Hydro.......... Europe Dinorwig, Wales Owned Pumped-storage electric power facility First Hydro.......... Europe Ffestiniog, Wales Owned Pumped-storage electric power facility Homer City........... Americas Pittsburgh, Pennsylvania Owned Coal fired generation facility Illinois Plants...... Americas Northeast Illinois Owned/Leased Coal, oil/gas fired generation facilities Kern River........... Americas Oildale, California Leased Natural gas-turbine cogeneration facility Loy Yang B........... Asia Pacific Victoria, Australia Owned Coal fired generation facility Midway-Sunset........ Americas Fellows, California Leased Natural gas-turbine cogeneration facility Paiton............... Asia Pacific East Java, Indonesia Leased Coal fired generation facility Roosecote............ Europe Barrow-in-Furness, Cumbria, UK Owned Combined cycle generation technology Sycamore............. Americas Oildale, California Leased Natural gas-turbine cogeneration facility Watson............... Americas Carson, California Leased Natural gas-turbine cogeneration facility
ITEM 3. LEGAL PROCEEDINGS PMNC LITIGATION In February 1997, a civil action was commenced in the Superior Court of the State of California, Orange County, entitled THE PARSONS CORPORATION AND PMNC V. BROOKLYN NAVY YARD COGENERATION PARTNERS, L.P., MISSION ENERGY NEW YORK, INC. AND B-41 ASSOCIATES, L.P., Case No. 774980, in which the plaintiffs asserted general monetary claims under the Construction Turnkey Agreement in the amount of $136.8 million. Brooklyn Navy Yard has also filed an action entitled BROOKLYN NAVY YARD COGENERATION PARTNERS, L.P. V. PMNC, PARSONS MAIN OF NEW YORK, INC., NAB CONSTRUCTION CORPORATION, L.K. COMSTOCK & CO., INC. AND THE PARSONS CORPORATION, in the Supreme Court of the State of New York, Kings County, Index No. 5966/97 asserting general monetary claims in excess of $13 million under the Construction 37 Turnkey Agreement. On March 26, 1998, the Superior Court in the California action granted PMNC's motion for attachment in the amount of $43 million against Brooklyn Navy Yard and attached a Brooklyn Navy Yard bank account in the amount of $0.5 million. Brooklyn Navy Yard is appealing the attachment order. On the same day, the court stayed all proceedings in the California action pending the New York action. PMNC's motion to dismiss the New York action was denied by the New York Supreme Court and further denied on appeal in September 1998. On March 9, 1999, Brooklyn Navy Yard filed a motion for partial summary judgment in the New York action. The motion was denied and Brooklyn Navy Yard has appealed. The appeal and the commencement of discovery were suspended until June 2000 to allow for voluntary mediation between the parties. The mediation ended unsuccessfully on March 23, 2000. On November 13, 2000, a New York appellate court issued a ruling granting summary judgment in favor of Brooklyn Navy Yard, striking PMNC's cause of action for quantum meruit, and limiting PMNC to its claims under the construction contract. Discovery is continuing. We agreed to indemnify Brooklyn Navy Yard and our partner in the venture from all claims and costs arising from or in connection with this litigation. We believe that the outcome of this litigation will not have a material adverse effect on our consolidated financial position or results of operations. ECOELECTRICA POTENTIAL ENVIRONMENTAL PROCEEDING We own an indirect 50% interest in EcoElectrica, L.P., a limited partnership which owns and operates a liquified natural gas import terminal and cogeneration project at Penuelas, Puerto Rico. In 2000, the U.S. Environmental Protection Agency issued to EcoElectrica a notice of violation and a compliance order alleging violations of the federal Clean Air Act primarily related to start-up activities. Representatives of EcoElectrica have met with the Environmental Protection Agency to discuss the notice of violations and compliance order. To date, EcoElectrica has not been informed of the commencement of any formal enforcement proceedings. It is premature to assess what, if any, action will be taken by the Environmental Protection Agency. At December 31, 2001, no loss accrual had been recorded by EcoElectrica. We do not believe the outcome of this matter will have a material adverse effect on our consolidated financial position or results of operations. We experience other routine litigation in the normal course of our business. None of our pending litigation is expected to have a material adverse effect on our consolidated financial position or results of operations. See "Business--Regulatory Matters--Environmental Regulation." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Inapplicable. 38 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS All the outstanding Common Stock of Edison Mission Energy is, as of the date hereof, owned by The Mission Group, which is a wholly-owned subsidiary of Edison International. There is no market for the Common Stock. Dividends on the Common Stock will be paid when declared by our Board of Directors. We made cash dividend payments to The Mission Group totaling $88 million in 2000. In February 2001, we made a $32.5 million cash dividend payment to The Mission Group. Our articles of incorporation and bylaws contain restrictions on our ability to declare or pay dividends or distributions. These restrictions require the unanimous approval of our board of directors, including at least one independent director, before we can declare or pay dividends or distributions, unless either of the following are true: - we then have an investment grade rating and receive rating agency confirmation that the dividend or distribution will not result in a downgrade; or - the dividends do not exceed $32.5 million in any fiscal quarter and we then meet an interest coverage ratio of not less than 2.2 to 1 for the immediately preceding four fiscal quarters. We currently meet this interest coverage ratio. For more information on these restrictions, see "Management's Discussion and Analysis of Results of Operations and Financial Condition--Credit Ratings." COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF PARTNERSHIP HOLDING SOLELY PARENT DEBENTURES. In November 1994, Mission Capital, L.P., a limited partnership of which Edison Mission Energy is the sole general partner, issued 3.5 million of 9.875% Cumulative Monthly Income Preferred Securities, Series A at a price of $25 per security. These securities are redeemable at the option of Mission Capital, in whole or in part, with mandatory redemption in 2024 at a redemption price of $25 per security, plus accrued and unpaid distributions. None of these securities have been redeemed as of December 31, 2000. During August 1995, Mission Capital issued 2.5 million of 8.5% Cumulative Monthly Income Preferred Securities, Series B at a price of $25 per security. These securities are redeemable at the option of Mission Capital, in whole or in part, with mandatory redemption in 2025 at a redemption price of $25 per security, plus accrued and unpaid distributions. None of these securities were redeemed as of December 31, 2000. We have guarantees in favor of the holders of the preferred securities, which guarantee the payments of distributions declared on the preferred securities, payments upon a liquidation of Mission Capital and payments on redemption with respect to our preferred securities called for redemption by Mission Capital. So long as any preferred securities remain outstanding, we will not be able to declare or pay, directly or indirectly, any dividend on, or purchase, acquire or make a distribution or liquidation payment with respect to, any of our common stock if at such time (i) we shall be in default with respect to our payment obligations under the guarantees, (ii) there shall have occurred any event of default under the subordinated indenture, or (iii) we shall have given notice of our selection of an extended interest payment period as provided in the indenture and such period, or any extension thereof, shall be continuing. NOT SUBJECT TO MANDATORY REDEMPTION. In connection with the 40% acquisition of Contact Energy in May 1999, Edison Mission Energy Global Management, Inc., an indirect, wholly-owned affiliate of Edison Mission Energy, issued $120 million of Flexible Money Market Cumulative Preferred Stock. The stock issuance consisted of (1) 600 Series A shares and (2) 600 Series B shares, both with liquidation preference of $100,000 per share and a dividend rate of 5.74% until May 2004. On December 20, 2000, Edison Mission Energy Global Management, Inc. was dissolved and its $120 million of Flexible Money Market Cumulative Preferred Stock was redeemed. The 600 Series A 39 and 600 Series B shares were redeemed at their liquidation preference of $100,000 per share, together with a liquidation premium of $3,785 per share, and all accrued and unpaid dividends. The redemption of Edison Mission Energy Global Management's preferred shares was funded by return of capital from Edison Mission Energy Taupo Limited. Edison Mission Energy Taupo Limited sold its entire interest in Contact Energy Limited to EME Pacific Holdings, an indirect, wholly-owned subsidiary of Edison Mission Energy, to permit Edison Mission Energy Taupo to make the necessary distribution to Edison Mission Energy Global Management. In connection with the transfer of ownership of Contact, Edison Mission Energy entered into a further Deed of Covenant in favor of the institutional subscriber of 160 million New Zealand dollars of the preferred stock issued by Edison Mission Energy Taupo in June 1999, discussed below. This further Deed of Covenant requires Edison Mission Energy to compensate the institutional preferred stock subscriber in the event that a private binding ruling issued to it by the New Zealand Inland Revenue Department ceases to apply as a direct result of the transfer. The amount of any compensation that may become payable by Edison Mission Energy under the further Deed of Covenant is limited to that necessary to keep the preferred stock subscriber in the same position that it would have been had the private binding ruling continued to apply. The support agreement between Edison Mission Energy and Edison Mission Energy Global Management, which required Edison Mission Energy to make capital contributions to Edison Mission Energy Global Management, was terminated immediately following the dissolution of Edison Mission Energy Global Management and the redemption of the preferred shares as described above. SUBJECT TO MANDATORY REDEMPTION. During June 1999, Edison Mission Energy Taupo Limited, a New Zealand corporation, an indirect, wholly-owned affiliate of Edison Mission Energy, issued $84 million of Class A Redeemable Preferred Shares (16,000 shares at a price of 10,000 New Zealand dollars per share) to an institutional investor. The dividend rate ranges from 6.19% to 6.86%. The shares are mandatorily redeemable in June 2003 at 10,000 New Zealand dollars per share, plus accrued and unpaid dividends. If an event of default occurs at any time, without prejudice to any other remedies which the redeemable preferred share subscriber may have, the redeemable preferred share subscriber may, by notice to the issuer, require redemption of, and the issuer must redeem, the redeemable preferred shares on the date specified in that notice. Each dividend will rank for payment in priority to the rights in respect of dividends and the rights, if any, in respect of interest on arrears thereof of all holders of other classes of shares of Edison Mission Energy Taupo other than redeemable preferred shares issued by Edison Mission Energy Taupo. Edison Mission Energy Taupo shall not pay or make, or allow to be paid or made, any distribution, other than dividends or the redemption amount or similar amounts payable in respect of the retail redeemable preferred shares described below, if an event of default or potential event of default has occurred, which remains unremedied, unless the redeemable preferred share subscriber has given its prior written consent which may be given on such conditions as the redeemable preferred share subscriber deems reasonable. From July through November 1999, Edison Mission Energy Taupo issued $125 million of retail redeemable preferred shares (240 million shares at a price of one New Zealand dollar per share). The dividend rate ranges from 5.00% to 6.37%. The shares are redeemable at one New Zealand dollar per share in June 2001 (64 million), June 2002 (43 million), and June 2003 (133 million), plus accrued and unpaid dividends. Edison Contact Finance is a special purpose company established to raise funds by the issuance of retail redeemable preferred shares to assist Edison Mission Energy Taupo to refinance in part the funding used by it for its acquisition of 40% of the ordinary shares in Contact Energy. Edison Contact Finance and Edison Mission Energy Taupo are parties to a subscription and indemnity agreement, which contains the terms of subscription by Edison Contact Finance for Edison Mission Energy Taupo retail shares. Edison Contact Finance will subscribe for Edison Mission Energy Taupo retail shares as and when Edison Contact Finance issues retail shares. The principal terms of issuance of Edison Mission Energy Taupo retail shares are set out in the Subscription Agreement and are substantially the same as the terms of issue of the Class A Redeemable Preferred Shares. If an event of 40 default occurs at any time, under the terms of issue of the retail shares, early redemption of the shares may be required by the holders of the shares by special resolution, by 15% of the holders of shares, in instances of non-payment, by written notice to Edison Contact Finance, or Edison Contact Finance by written notice to the holders of shares. If only part of the retail shares are redeemed earlier than their scheduled redemption date, in some cases, a minimum number of retail shares must be redeemed, and unless the redemption occurs on a dividend payment date, Edison Mission Energy Taupo must redeem all Edison Mission Energy Taupo shares in any class, with the same scheduled redemption date and fixed dividend rate. Edison Contact Finance will redeem the same shares of a class corresponding to the redeemed Edison Mission Energy Taupo shares. Not all classes of shares need be affected by a partial redemption of Edison Mission Energy Taupo retail shares. Redemption of retail shares can be accelerated if Edison Mission Energy Taupo exercises its option under the terms of the subscription and indemnity agreement to redeem any of the Edison Mission Energy Taupo retail shares at its discretion. Edison Contact Finance will pay fully imputed dividends, in arrears, to the holder of each retail share on the record date. Edison Contact Finance may change the annual dividend rates, which will attach to the shares at any time before acceptance by Edison Contact Finance of an application for those shares. In connection with the preferred shares issued by Edison Mission Energy Taupo Limited to partially finance the acquisition of the 40% interest in Contact Energy, Edison Mission Energy provided a guaranty of Edison Mission Energy Taupo Limited's obligation to pay a minimum level of non-cumulative dividends on the preferred shares through June 30, 2002, including NZ$12.9 million during 2001 and NZ$4.6 million during the six months ending June 30, 2002. In addition, Edison Mission Energy has agreed to pay amounts required to ensure that Edison Misison Energy Taupo Limited will satisfy two financial ratio covenants on specified dates. The first financial ratio, called a dividends to outgoings ratio, is to be calculated as of June 30, 2002, and is based on historical and projected dividends received from Contact Energy and the dividends payable to preferred shareholders. The second financial ratio, called a debt to valuation ratio, is to be calculated as of May 14, 2001, and is based on the fair value of our Contact Energy shares and the outstanding preferred shares. If, however, Edison Mission Energy's senior unsecured credit rating by Standard & Poor's were downgraded below BBB-, Edison Mission Energy may be called to perform on its guaranty of Edison Mission Energy Taupo Limited's financial covenants before the specified calculation dates. Based on the fair value of our ownership in Contact Energy at March 20, 2001, had Edison Mission Energy been required to perform on its guarantee of the debt to valuation ratio as of that date, Edison Mission Energy's obligation would have been approximately $19 million. EDISON MISSION ENERGY TAUPO PREFERRED STOCK REDEMPTION REQUIREMENTS (TRANSLATED AT DECEMBER 31, 2000 EXCHANGE RATES)
2001 2002 2003 2004 2005 ----------- ----------- ------------ -------- -------- Edison Mission Energy Taupo Limited Class A Redeemable Preferred Shares........... $ 0 $ 0 $ 70,704,000 $0 $0 Edison Mission Energy Taupo Limited Retail Redeemable Preference Shares............ 28,339,931 18,813,451 58,902,619 0 0 ----------- ----------- ------------ -- -- Total..................................... $28,339,931 $18,813,451 $129,606,619 $0 $0 =========== =========== ============ == ==
41 ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (IN MILLIONS) INCOME STATEMENT DATA Operating revenues............................. $3,241.0 $1,635.9 $ 893.8 $ 975.0 $ 843.6 Operating expenses............................. 2,410.2 1,209.5 543.3 581.1 476.5 -------- -------- ------- ------- ------- Operating income............................... 830.8 426.4 350.5 393.9 367.1 Interest expense............................... (721.5) (375.5) (196.1) (223.5) (164.2) Interest and other income...................... 74.0 55.8 50.9 53.9 40.7 Minority interest.............................. (3.2) (3.0) (2.8) (38.8) (69.5) -------- -------- ------- ------- ------- Income before income taxes..................... 180.1 103.7 202.5 185.5 174.1 Provision (benefit) for income taxes........... 72.5 (40.4) 70.4 57.4 82.0 -------- -------- ------- ------- ------- Income before accounting change and extraordinary loss........................... 107.6 144.1 132.1 128.1 92.1 Cumulative effect on prior years of change in accounting for major maintenance costs, net of tax....................................... 17.7 -- -- -- -- Cumulative effect on prior years of change in accounting for start-up costs, net of tax.... -- (13.8) -- -- -- Extraordinary loss on early extinguishment of debt, net of income tax benefit.............. -- -- -- (13.1) -- -------- -------- ------- ------- ------- Net income..................................... $ 125.3 $ 130.3 $ 132.1 $ 115.0 $ 92.1 ======== ======== ======= ======= =======
AS OF DECEMBER 31, ------------------------------------------------------ 2000 1999 1998 1997 1996 --------- --------- -------- -------- -------- (IN MILLIONS) BALANCE SHEET DATA Assets..................................... $15,017.1 $15,534.2 $5,158.1 $4,985.1 $5,152.5 Current liabilities........................ 3,911.0 1,772.8 358.7 339.8 270.9 Long-term obligations...................... 5,334.8 7,439.3 2,396.4 2,532.1 2,419.9 Preferred securities of subsidiaries....... 326.8 476.9 150.0 150.0 150.0 Shareholder's equity....................... 2,948.2 3,068.5 957.6 826.6 1,019.9
YEARS ENDED DECEMBER 31, ----------------------------------------------------- 2000 1999 1998 1997 1996 -------- --------- -------- -------- -------- (IN MILLIONS) CASH FLOW DATA Cash provided by operating activities........... $ 665.2 $ 417.2 $ 266.6 $259.5 $ 294.5 Cash provided by (used in) financing activities.................................... (783.0) 8,363.5 17.9 55.4 184.9 Cash provided by (used in) investing activities.................................... 718.1 (8,837.8) (408.2) (91.4) (246.3)
42 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE BASED ON OUR CURRENT PLANS AND EXPECTATIONS AND INVOLVE RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL FUTURE ACTIVITIES AND RESULTS OF OPERATIONS TO BE MATERIALLY DIFFERENT FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER INCLUDE RISKS SET FORTH IN "BUSINESS--PROJECT DEVELOPMENT--RISK FACTORS." UNLESS OTHERWISE INDICATED, THE INFORMATION PRESENTED IN THIS SECTION IS WITH RESPECT TO EDISON MISSION ENERGY AND OUR CONSOLIDATED SUBSIDIARIES. GENERAL We are an independent power producer engaged in the business of developing, acquiring, owning or leasing and operating electric power generation facilities worldwide. We also conduct energy trading and price risk management activities in power markets open to competition. Edison International is our ultimate parent company. Edison International also owns Southern California Edison Company, one of the largest electric utilities in the United States. We were formed in 1986 with two domestic operating projects. As of December 31, 2000, we owned interests in 33 domestic and 40 international operating power projects with an aggregate generating capacity of 28,036 MW, of which our share was 22,759 MW. At that date, one domestic and one international project, totaling 603 MW of generating capacity, of which our anticipated share will be approximately 462 MW, were in construction. At December 31, 2000, we had consolidated assets of $15.0 billion and total shareholder's equity of $2.9 billion. Our operating revenues are derived primarily from electric revenues and equity in income from power projects. Electric revenues accounted for 91%, 83% and 74% of our total operating revenues during 2000, 1999 and 1998, respectively. Our consolidated operating revenues during those years also include equity in income from oil and gas investments, net losses from energy trading and price risk management activities and revenues attributable to operation and maintenance services. ACQUISITIONS, DISPOSITIONS AND SALE-LEASEBACK TRANSACTIONS ACQUISITION OF SUNRISE PROJECT On November 17, 2000, we completed a transaction with Texaco Inc. to purchase a proposed 560 MW gas fired combined cycle project to be located in Kern County, California, referred to as the Sunrise Project. The acquisition included all rights, title and interest held by Texaco in the Sunrise Project, except that Texaco has an option to repurchase a 50% interest in the project prior to its commercial operation. As part of this transaction, we also: (i) acquired from Texaco an option to purchase two gas turbines which we plan to utilize in the project, (ii) provided Texaco an option to purchase two of the turbines available to us under the Edison Mission Energy Master Turbine Lease and (iii) granted Texaco an option to acquire a 50% interest in 1,000 MW of future power plant projects we designate. For more information on the Edison Mission Energy Master Turbine Lease, see "--Commitments and Contingencies--Edison Mission Energy Master Turbine Lease." The Sunrise Project consists of two phases, with Phase I, construction of a single-cycle gas fired facility (320 MW), currently scheduled to be completed in August 2001, and Phase II, conversion to a combined-cycle gas fired facility (560 MW), currently scheduled to be completed in June 2003. In December 2000, we received the Energy Commission Certification and a permit to construct the Sunrise plant, which allowed us to commence construction of Phase I. We are negotiating with the California Department of Water Resources the detailed terms and conditions of a long-term cost-based-type rate power purchase agreement. We cannot assure you that we will be successful in reaching a final agreement. The total purchase price of the Sunrise Project was $27 million. We funded the purchase with cash. The total estimated construction cost of this project is approximately $400 million. As of December 31, 2000, we had spent $17.8 million on construction costs for the Sunrise Project. 43 ACQUISITION OF TRADING OPERATIONS OF CITIZENS POWER LLC On September 1, 2000, we completed a transaction with P&L Coal Holdings Corporation and Gold Fields Mining Corporation (Peabody) to acquire the trading operations of Citizens Power LLC and a minority interest in structured transaction investments relating to long-term power purchase agreements. The purchase price of $44.9 million was based on the sum of: (a) fair market value of the trading portfolio and the structured transaction investments at the date of the acquisition and (b) $25 million. The acquisition was funded with cash. As a result of this acquisition, we have expanded our trading operations beyond the traditional marketing of our electric power. By the end of the third quarter of 2000, the Citizens trading operations were merged into our own marketing operations under Edison Mission Marketing & Trading, Inc. ACQUISITION OF INTEREST IN ITALIAN WIND On March 15, 2000, we completed a transaction with UPC International Partnership CV II to acquire Edison Mission Wind Power Italy B.V., formerly known as Italian Vento Power Corporation Energy 5 B.V., which owns a 50% interest in a series of power projects that are in operation or under development in Italy. All the projects use wind to generate electricity from turbines which is sold under fixed-price, long-term tariffs. Assuming all the projects under development are completed, currently scheduled for 2002, the total capacity of these projects will be 283 MW. The total purchase price is 90 billion Italian Lira (approximately $44 million at December 31, 2000), with equity contribution obligations of up to 33 billion Italian Lira (approximately $16 million at December 31, 2000), depending on the number of projects that are ultimately developed. As of December 31, 2000, our payments in respect of these projects included $27 million toward the purchase price and $13 million in equity contributions. ACQUISITION OF ILLINOIS PLANTS On December 15, 1999, we completed a transaction with Commonwealth Edison, a subsidiary of Exelon Corporation, to acquire Commonwealth Edison's fossil-fuel power generating plants located in Illinois, which are collectively referred to as the Illinois Plants. These plants provide access to Mid-America Interconnected Network and the East Central Area Reliability Council. In connection with this transaction, we entered into power purchase agreements with Commonwealth Edison with terms of up to five years, pursuant to which Commonwealth Edison purchases capacity and has the right to purchase energy generated by the plants. Subsequently, Commonwealth Edison assigned its rights and obligations under these power purchase agreements to Exelon Generation Company, LLC. Concurrently with the acquisition of the Illinois Plants, we assigned our right to purchase the Collins Station, a 2,698 MW gas and oil-fired generating station located in Illinois, to third party lessors. After this assignment, we entered into leases of the Collins Station with terms of 33.75 years. The aggregate megawatts either purchased or leased as a result of these transactions with Commonwealth Edison and the third party lessors is 9,539 MW. Consideration for the Illinois Plants, excluding $860 million paid by the third party lessors to acquire the Collins Station, consisted of a cash payment of approximately $4.1 billion. The acquisition was funded primarily with a combination of approximately $1.6 billion of non-recourse debt secured by a pledge of the stock of specified subsidiaries, $1.3 billion of Edison Mission Energy's debt and $1.2 billion in equity contributions to us from Edison International. ACQUISITION OF FERRYBRIDGE AND FIDDLER'S FERRY PLANTS On July 19, 1999, we completed a transaction with PowerGen UK plc to acquire the Ferrybridge and Fiddler's Ferry coal fired electric generating plants located in the U.K. Ferrybridge, located in West 44 Yorkshire, and Fiddler's Ferry, located in Warrington, each has a generating capacity of approximately 2,000 MW. Consideration for the purchase of the Ferrybridge and Fiddler's Ferry plants by our indirect subsidiary, Edison First Power, consisted of an aggregate of approximately $2.0 billion (L1.3 billion sterling at the time of the acquisition) for the two plants. The acquisition was funded primarily with a combination of net proceeds of L1.15 billion from the Edison First Power Limited Guaranteed Secured Variable Rate Bonds due 2019, a $500 million equity contribution to us from Edison International and cash. The Edison First Power Bonds were issued to a special purpose entity formed by Merrill Lynch International. Merrill Lynch International sold the variable rate coupons portion of the bonds to a special purpose entity that borrowed $1.3 billion (830 million pounds sterling at the time of the acquisition) under a term loan facility due 2012 to finance the purchase. ACQUISITION OF INTEREST IN CONTACT ENERGY On May 14, 1999, we completed a transaction with the New Zealand government to acquire 40% of the shares of Contact Energy Limited. The remaining 60% of Contact Energy's shares were sold in an overseas public offering resulting in widespread ownership among the citizens of New Zealand and offshore investors. These shares are publicly traded on stock exchanges in New Zealand and Australia. During 2000, we increased our share of ownership in Contact Energy to 42%. Contact Energy owns and operates hydroelectric, geothermal and natural gas fired power generating plants primarily in New Zealand with a total current generating capacity of 2,449 MW. Consideration for Contact Energy consisted of a cash payment of approximately $635 million (1.2 billion New Zealand dollars at the time of the acquisition), which was financed by $120 million of preferred securities, a $214 million (400 million New Zealand dollars at the time of the acquisition) credit facility, a $300 million equity contribution to us from Edison International and cash. The credit facility was subsequently paid off with proceeds from the issuance of additional preferred securities. ACQUISITION OF HOMER CITY PLANT On March 18, 1999, we completed a transaction with GPU, Inc., New York State Electric & Gas Corporation and their respective affiliates to acquire the 1,884 MW Homer City Electric Generating Station. This facility is a coal fired plant in the mid-Atlantic region of the United States and has direct, high voltage interconnections to both the New York Independent System Operator, which controls the transmission grid and energy and capacity markets for New York State and is commonly known as the NYISO, and the Pennsylvania-New Jersey-Maryland Power Pool, which is commonly known as the PJM. Consideration for the Homer City plant consisted of a cash payment of approximately $1.8 billion, which was partially financed by $1.5 billion of new loans, combined with our revolver borrowings and cash. ACQUISITION OF INTEREST IN ECOELECTRICA In December 1998, we acquired 50% of the 540 MW EcoElectrica liquefied natural gas combined-cycle cogeneration facility under construction in Penuelas, Puerto Rico for approximately $243 million. The project also includes a desalination plant and liquefied natural gas storage and vaporization facilities. Commercial operation commenced in March 2000. ACCOUNTING TREATMENT OF ACQUISITIONS Each of the acquisitions described above has been accounted for utilizing the purchase method. The purchase price was allocated to the assets acquired and liabilities assumed based on their 45 respective fair market values. Amounts in excess of the fair value of the net assets acquired have been assigned to goodwill. Our consolidated statement of income reflects the operations of Citizens beginning September 1, 2000, Italian Wind beginning April 1, 2000, EcoElectrica beginning March 1, 2000, the Homer City plant beginning March 18, 1999, Contact Energy beginning May 1, 1999, the Ferrybridge and Fiddler's Ferry plants beginning July 19, 1999, and the Illinois Plants beginning December 15, 1999. DISPOSITIONS On August 16, 2000, we completed the sale of 30% of our interest in the Kwinana cogeneration plant to SembCorp Energy. We retain the remaining 70% ownership interest in the plant. Proceeds from the sale were $12 million. We recorded a gain on the sale of $8.5 million ($7.7 million after tax). On June 30, 2000, we completed the sale of our 50% interest in the Auburndale project to the existing partner. Proceeds from the sale were $22 million. We recorded a gain on the sale of $17 million ($10.5 million after tax). SALE-LEASEBACK TRANSACTIONS On August 24, 2000, we entered into a sale-leaseback transaction for the Powerton and Joliet power facilities located in Illinois to third party lessors for an aggregate purchase price of $1.367 billion. Under the terms of the leases (33.75 years for Powerton and 30 years for Joliet), our subsidiary makes semi-annual lease payments on each January 2 and July 2, beginning January 2, 2001. Edison Mission Energy guarantees the subsidiary's payments under the leases. If a lessor intends to sell its interest in the Powerton or Joliet power facility, we have a right of first refusal to acquire the interest at fair market value. Minimum lease payments during the next five years are $83.3 million for 2001, $97.3 million for 2002, $97.3 million for 2003, $97.3 million for 2004, and $141.1 million for 2005. At December 31, 2000, the total remaining minimum lease payments are $2.4 billion. Lease costs of these power facilities will be levelized over the terms of the respective leases. The gain recognized on the sale of the power facilities has been deferred and is being amortized over the term of the leases. On July 10, 2000, one of our subsidiaries entered into a sale-leaseback of equipment, primarily Illinois peaker power units, to a third party lessor for $300 million. Under the terms of the 5-year lease, we have a fixed price purchase option at the end of the lease term of $300 million. We guarantee the monthly payments under the lease. In connection with the sale-leaseback, a subsidiary of ours purchased $255 million of notes issued by the lessor which accrue interest at LIBOR plus 0.65% to 0.95%, depending on our credit rating. The notes are due and payable in five years. The gain recognized on the sale of equipment has been deferred and is being amortized over the term of the lease. RESULTS OF OPERATIONS We operate predominantly in one line of business, electric power generation, with reportable segments organized by geographic region: Americas, Asia Pacific, and Europe, Central Asia, Middle East and Africa. Operating revenues are derived from our majority-owned domestic and international entities. Equity in income from investments relates to energy projects where our ownership interest is 50% or less in the projects. The equity method of accounting is generally used to account for the operating results of entities over which we have a significant influence but in which we do not have a controlling interest. With respect to entities accounted for under the equity method, we recognize our proportional share of the income or loss of such entities. 46 AMERICAS
YEARS ENDED DECEMBER 31, ------------------------------------ 2000 1999 1998 -------- -------- -------- (IN MILLIONS) Operating revenues............................ $1,571.0 $378.6 $ 29.9 Net losses from energy trading and price risk management.................................. (17.3) (6.4) -- Equity in income from investments............. 257.2 224.8 184.6 -------- ------ ------ Total operating revenues.................... 1,810.9 597.0 214.5 Fuel and plant operations..................... 1,131.6 237.7 22.2 Depreciation and amortization................. 191.2 52.5 9.8 Administrative and general.................... 21.1 -- -- -------- ------ ------ Operating Income.............................. $ 467.0 $306.8 $182.5 ======== ====== ======
OPERATING REVENUES Operating revenues increased $1.2 billion in 2000 compared to 1999, and increased $348.7 million in 1999 compared to 1998. The 2000 increase resulted from a full-year of electric revenues from the Illinois Plants acquired in December 1999 and the Homer City plant acquired in March 1999. The 1999 increase resulted from electric revenues from the Homer City plant. There were no comparable electric revenues for the Homer City plant for 1998. Electric power generated at the Illinois Plants is sold under three five-year power purchase agreements with Exelon Generation Company, terminating in December 2004. Exelon Generation is obligated to make capacity payments for the plants under contract and an energy payment for electricity produced by these plants. Our revenues under these power purchase agreements were $1.1 billion for the year ended December 31, 2000. This represented 33% of our consolidated operating revenues in 2000. On September 1, 2000, we acquired the trading operations of Citizens Power LLC. As a result of this acquisition, we have expanded our trading operations beyond the traditional marketing of our electric power. Our energy trading activities are accounted for using the fair value method under EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." Net gains from energy trading activities since the date of this acquisition were $62.2 million. Our price risk management activities included economic hedge transactions that required mark to market accounting. Total losses from price risk management activities were $79.5 million and $6.4 million in 2000 and 1999, respectively. The increase in losses was primarily due to realized and unrealized losses for a gas swap entered into as an economic hedge of a portion of our gas price risk related to our share of gas production in Four Star (an oil and gas company in which we have a minority interest and which we account for under the equity method). Although we believe the gas swap hedges our gas price risk, hedge accounting is not permitted for our investments accounted for on the equity method. Partially offsetting this loss in 2000 was a gain realized for calendar year 2001 financial options entered into beginning August 2000 as a hedge of our price risk associated with expected natural gas purchases at the Illinois Plants. During the fourth quarter, we determined that it was no longer probable that we would purchase natural gas at the Illinois Plants during 2001. This decision resulted from sustained gas prices far greater than were contemplated when we originally projected our 2001 gas needs and the fact that we can use fuel oil interchangeably with natural gas at some of the Illinois Plants. At the time we made our revised determination, the fair value of our financial option was $38 million. This gain is being deferred as required by hedge accounting and will be recognized upon either purchasing natural gas in 2001 or determining that it is probable we will not purchase natural gas 47 in 2001. Subsequent to our revised determination, we settled the option for a $56 million gain. Accordingly, $18 million of gain was recognized in the fourth quarter. Concurrent with our revised determination of our 2001 natural gas requirements at the Illinois Plants, we entered into some additional fuel contracts to offset our financial option and economically hedge the price risk associated with fuel oil. We recognized a $12 million loss at December 31, 2000 on these additional fuel contracts. Equity in income from investments rose 14% in 2000 over 1999, and 22% in 1999 over 1998. The 2000 increase was primarily the result of higher revenues from cogeneration projects due to higher energy pricing and higher revenues from oil and gas investments due to higher oil and gas prices. The 1999 increase was primarily the result of higher revenues from several cogeneration projects due to a final settlement on energy prices tied to short-run avoided cost with the applicable public utilities and, second, from one cogeneration project as a result of a gain on termination of a power sales agreement. In addition, the 1999 increase resulted from higher revenues from oil and gas investments primarily due to higher oil and gas prices. Many of the domestic energy projects in which our ownership interest is 50% or less rely on one power sales contract with a single electric utility customer for the majority, and in some cases all, of their power sales revenues over the life of the power sales contract. The primary power sales contracts for four of our operating projects in 2000 and 1999 and five of our operating projects in 1998 are with Southern California Edison. Our share of equity in earnings from these projects accounted for 5% in 2000, 8% in 1999 and 13% in 1998 of our consolidated revenues for the respective years. For more information on these projects and other projects in California, see "--Commitments and Contingencies--California Power Crisis." Due to warmer weather during the summer months, electric revenues generated from the Homer City plant and the Illinois Plants are usually higher during the third quarter of each year. In addition, our third quarter equity in income from investments in energy projects is materially higher than other quarters of the year due to higher summer pricing for our West Coast power investments. OPERATING EXPENSES Fuel and plant operations increased $893.9 million in 2000 compared to 1999, and increased $215.5 million in 1999 compared to 1998. The 2000 increase resulted from a full year of expenses at the Illinois Plants and the Homer City plant. The 1999 increase in fuel and plant operations resulted from having no comparable expenses for the Homer City plant and the Illinois Plants for 1998. Depreciation and amortization expense increased $138.7 million in 2000 compared to 1999, and increased $42.7 million in 1999 compared to 1998. The 2000 increase was primarily due to a full year of depreciation and amortization expense related to the Illinois Plants. The 1999 increase in depreciation and amortization compared to 1998 resulted primarily from the 1999 acquisition of the Homer City plant. Administrative and general expenses for 2000 consist of administrative and general expenses incurred at our trading operations in Boston, Massachusetts from September 1, 2000, the acquisition date of Citizens Power LLC, through December 31, 2000. Prior to September 1, 2000, administrative and general expenses incurred by our own marketing operations were reflected in Corporate/Other administrative and general expenses. OPERATING INCOME Operating income increased $160.2 million in 2000 compared to 1999, and increased $124.3 million in 1999 compared to 1998. The 2000 increase was primarily due to operating income from the Illinois Plants, the Homer City plant and equity in income from investments in oil and gas. The 1999 increase 48 resulted from operating income from the Homer City plant and equity in income from investments in energy projects. ASIA PACIFIC
YEARS ENDED DECEMBER 31, ------------------------------------ 2000 1999 1998 -------- -------- -------- (IN MILLIONS) Operating revenues............................. $184.2 $213.6 $205.1 Equity in income from investments.............. 14.6 18.1 1.3 ------ ------ ------ Total operating revenues..................... 198.8 231.7 206.4 Fuel and plant operations...................... 61.5 73.8 69.6 Depreciation and amortization.................. 35.0 40.5 31.6 ------ ------ ------ Operating Income............................... $102.3 $117.4 $105.2 ====== ====== ======
OPERATING REVENUES Operating revenues decreased $29.4 million in 2000 compared to 1999, and increased $8.5 million in 1999 compared to 1998. The 2000 decrease was attributable to lower electric revenues from our Loy Yang B plant. During May 2000, we experienced a major outage due to damage to the generator at one of our two 500 MW units at the Loy Yang B power plant complex in Australia. The unit was restored to operation in September 2000. Under our insurance program, we are obligated for the property damage insurance deductible of $2 million and for loss of profits during the first 15 days following the insurable event. The repair costs in excess of the deductible amount together with the loss of profits after the first 15 days and until the unit was back in operation were partially recovered from insurance as of December 31, 2000. The 1999 increase was primarily due to higher electric revenues from the Loy Yang B plant due to increased generation in 1999; as compared to 1998, when the plant experienced longer planned outages. Equity in income from investments decreased $3.5 million in 2000 compared to 1999, and increased $16.8 million in 1999 compared to 1998. The 2000 decrease is primarily due to lower profitability of our interest in Contact Energy resulting from lower electricity prices caused by milder winter weather conditions. The 1999 increase reflects the purchase of our 40% ownership interest in Contact Energy in May 1999. OPERATING EXPENSES Fuel and plant operations decreased $12.3 million in 2000 compared to 1999, and increased $4.2 million in 1999 compared to 1998. The 2000 decrease resulted primarily from lower fuel costs at the Loy Yang B plant due to the major outage at one of its two 500 MW units. The 1999 increase in fuel expense and plant operations resulted from higher fuel costs from the Loy Yang B plant due to increased production in 1999; as compared to 1998, when the plant had lower fuel expenses and longer planned outages. Depreciation and amortization expense decreased $5.5 million in 2000 compared to 1999, and increased $8.9 million in 1999 compared to 1998. The 2000 decrease was primarily due to favorable changes in foreign exchange rates. The 1999 increase in depreciation and amortization expense related to the acquisition of our interest in 1999 in the Contact Energy project. 49 OPERATING INCOME Operating income decreased $15.1 million in 2000 compared to 1999, and increased $12.2 million in 1999 compared to 1998. The 2000 decrease was due to lower operating income from the Loy Yang B plant resulting from the major outage at one of its two 500 MW units and a decrease in the value of the Australian dollar compared to the U.S. dollar. We recorded pre-tax losses of $8.4 million in 2000 related to this outage. The 1999 increase resulted from the acquisition of Contact Energy. EUROPE, CENTRAL ASIA, MIDDLE EAST AND AFRICA
YEARS ENDED DECEMBER 31, ------------------------------------ 2000 1999 1998 -------- -------- -------- (IN MILLIONS) Operating revenues............................ $1,236.3 $805.8 $469.4 Equity in income (loss) from investments...... (5.0) 1.4 3.5 -------- ------ ------ Total operating revenues.................. 1,231.3 807.2 472.9 Fuel and plant operations..................... 730.1 456.6 241.3 Depreciation and amortization................. 144.8 88.3 40.3 -------- ------ ------ Operating Income.............................. $ 356.4 $262.3 $191.3 ======== ====== ======
OPERATING REVENUES Operating revenues increased $430.5 million in 2000 compared to 1999, and increased $336.4 million in 1999 compared to 1998. The 2000 increase resulted from a full year of electric revenues from the Ferrybridge and Fiddler's Ferry plants acquired in July 1999 and the Doga project, which commenced commercial operation in May 1999. Despite the overall increase in operating revenues in 2000 which resulted from the inclusion of a full year of operations of these projects, electric revenues from Ferrybridge and Fiddler's Ferry in 2000 were adversely affected by lower energy prices during the year, primarily due to increased competition, warmer-than-average weather and uncertainty surrounding planned changes in electricity trading arrangements described under "--Market Risk Exposures--United Kingdom." The time weighted average System Marginal Price dropped from L22.39/MWh in 1999 to L18.75/MWh in 2000. We have entered into electricity rate price swaps for the majority of our forecasted generation through the winter 2000/2001, and accordingly, have mitigated the downside risks to further decreases in energy prices during this period. Despite improvement in capacity prices during August, September and early October 2000, and a slight firming of forward prices, the short-term prices for energy continue to be below the prices in prior years. As a result of the foregoing, we continue to expect lower revenues from our Ferrybridge and Fiddler's Ferry plants in 2001. The 1999 increase as compared to 1998 was primarily due to inclusion of electric revenues from the Ferrybridge and Fiddler's Ferry plants and the Doga project. There were no comparable electric revenues for the Ferrybridge and Fiddler's Ferry plants and the Doga project for 1998. The First Hydro plants, Ferrybridge and Fiddler's Ferry plants and the Iberian Hy-Power plants are expected to provide for higher electric revenues during the winter months. Equity in income from investments decreased $6.4 million in 2000 compared to 1999, and decreased $2.1 million in 1999 compared to 1998. The 2000 decrease reflects losses from initial commercial operation of the ISAB project in April 2000. We had no comparable results for the ISAB project in 1999. OPERATING EXPENSES Fuel and plant operations increased $273.5 million in 2000 compared to 1999, and increased $215.3 million in 1999 compared to 1998. The 2000 increase resulted from a full year of expenses at the 50 Ferrybridge and Fiddler's Ferry plants and the Doga project, partially offset by lower fuel expense at the First Hydro plant. Fuel expense at First Hydro decreased primarily due to a drop in energy prices throughout the year and lower pumping costs. The 1999 increase in fuel expense and plant operations resulted from having no comparable expenses for the Ferrybridge and Fiddler's Ferry plants and the Doga project for 1998. Depreciation and amortization expense increased $56.5 million in 2000 compared to 1999, and increased $48 million in 1999 compared to 1998. The 2000 increase was primarily due to a full year of depreciation and amortization expense associated with the Ferrybridge and Fiddler's Ferry plants. The 1999 increase in depreciation and amortization resulted primarily from the 1999 acquisition of the Ferrybridge and Fiddler's Ferry plants. OPERATING INCOME Operating income increased $94.1 million in 2000 compared to 1999, and increased $71 million in 1999 compared to 1998. The 2000 increase was primarily due to operating income from the Ferrybridge and Fiddler's Ferry plants, the Doga project and higher operating income from the First Hydro plant. The 1999 increase resulted from the inclusion of operating income from the Ferrybridge and Fiddler's Ferry plants and the Doga project. CORPORATE/OTHER
YEARS ENDED DECEMBER 31, ------------------------------------ 2000 1999 1998 -------- -------- -------- (IN MILLIONS) Depreciation and amortization................. $ 11.1 $ 8.9 $ 5.6 Long-term incentive compensation.............. (56.0) 136.3 39.0 Administrative and general.................... 139.8 114.9 83.9 ------ ------- ------- Operating Loss................................ $(94.9) $(260.1) $(128.5) ====== ======= =======
Long-term incentive compensation expense consists of charges related to our now terminated phantom option plan. Long-term incentive compensation expenses decreased $192.3 million in 2000 compared to 1999, and increased $97.3 million in 1999 compared to 1998. The 2000 decrease was due to the absence of new accruals, as the plan had been terminated, and to a reduction in the liability for previously accrued incentive compensation by approximately $60 million. This decrease resulted from the lower valuation implicit in the August 2000 exchange offer pursuant to which the phantom option plan was terminated compared to the value previously accrued. The 1999 increase was primarily due to the impact of the 1999 acquisitions of the Illinois Plants, the Ferrybridge and Fiddler's Ferry plants, the Homer City plant and a 40% interest in Contact Energy. No further phantom option plan grants were made in 2000 and, since the plan and all of the outstanding phantom stock options have been terminated, no further phantom stock options will be granted or exercised. Administrative and general expenses increased $24.9 million in 2000 compared to 1999, and increased $31 million in 1999 compared to 1998. The increases in both periods were primarily due to additional salaries and facilities costs incurred to support the 1999 acquisitions. We recorded a pretax charge of approximately $9 million against earnings for severance and other related costs, which contributed to the 2000 increase. The charge resulted from a series of actions undertaken by us designed to reduce administrative and general operating costs, including reductions in management and administrative personnel. 51 OTHER INCOME (EXPENSE) On August 16, 2000, we completed the sale of 30% of our interest in the Kwinana cogeneration plant to SembCorp Energy. We retain the other 70% ownership interest in the plant. Proceeds from the sale were $12 million. We recorded a gain on the sale of $8.5 million ($7.7 million after tax). On June 30, 2000, we completed the sale of our 50% interest in the Auburndale project to the existing partner. Proceeds from the sale were $22 million. We recorded a gain on the sale of $17 million ($10.5 million after tax). During the fourth quarter of 1999, we completed the sale of 31.5% of our 50.1% interest in Four Star Oil & Gas for $34.2 million in cash and a 50% interest in the acquirer, Four Star Holdings. Four Star Holdings financed the purchase of the interest in Four Star Oil & Gas from $27.5 million in loans from affiliates, including $13.7 million from us, and $13.7 million from cash. Upon completion of the sale, we continue to own an 18.6% direct interest in Four Star Oil & Gas and an indirect interest of 15.75% which is held through Four Star Holdings. As a result of this transaction, our total interest in Four Star Oil & Gas has decreased from 50.1% to 34.35%. Cash proceeds from the sale were $34.2 million ($20.5 million net of the loan to Four Star Holdings). The gain on the sale of the 31.5% interest in Four Star Oil & Gas was $11.5 million of which we deferred 50%, or $5.6 million, due to our equity interest in Four Star Holdings. The after-tax gain on the sale was approximately $30 million. Interest expense increased $336.2 million in 2000 compared to 1999, and increased $170.3 million in 1999 compared to 1998. The 2000 increase was primarily the result of additional debt financing associated with the acquisitions of the Illinois Plants, Ferrybridge and Fiddler's Ferry plants and the Homer City plant. The 1999 increase was also the result of debt financing of the Homer City plant, Ferrybridge and Fiddler's Ferry plants and the Illinois Plants acquisition. Dividends on mandatorily redeemable preferred securities increased $9.7 million in 2000 compared to 1999 and increased $9.2 million in 1999 compared to 1998. The 2000 and 1999 increases reflect the issuance of preferred securities in connection with the Contact Energy acquisition. PROVISION (BENEFIT) FOR INCOME TAXES We had effective tax provision (benefit) rates of 40.3%, (39.0)% and 34.8% in 2000, 1999 and 1998, respectively. Income taxes increased in 2000 principally due to a higher foreign income tax expense compared to 1999, nonrecurring 1999 tax benefits discussed below and higher state income taxes due to the Homer City plant and Illinois Plants. Income taxes decreased in 1999, principally due to lower pre-tax income and income tax benefits. In 1999, we recorded tax benefits associated with a capital loss attributable to the sale of a portion of our interest in Four Star Oil & Gas Company, refunds of advanced corporation tax payments from the United Kingdom and a reduction in deferred taxes in Australia as a result of a decrease in statutory rates. In addition, our effective tax rate has decreased as a result of lower foreign income taxes that result from the permanent reinvestment of earnings from foreign affiliates located in different foreign tax jurisdictions. The Australian corporate tax rate decreased from 36% to 34% effective in July 2000, and is scheduled to decrease from 34% to 30% effective in July 2001. The 1998 tax provision reflects a benefit from reductions in the U.K corporate tax rate from 33% to 31% effective in April 1997, and from 31% to 30% effective in April 1999. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," the reductions in the Australia and U.K. income tax rates resulted in reductions in income tax expense of approximately $5.9 million and $11 million in 1999 and 1998, respectively. We are, and may in the future be, under examination by tax authorities in varying tax jurisdictions with respect to positions we take in connection with the filing of our tax returns. Matters raised upon audit may involve substantial amounts, which, if resolved unfavorably, an event not currently 52 anticipated, could possibly be material. However, in our opinion, it is unlikely that the resolution of any such matters will have material adverse effect upon our financial condition or results of operations. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE Through December 31, 1999, we accrued for major maintenance costs incurred during the period between turnarounds (referred to as the "accrue in advance" accounting method). The accounting policy has been widely used by independent power producers as well as several other industries. In March 2000, the Securities and Exchange Commission issued a letter to the Accounting Standards Executive Committee, stating its position that the Securities and Exchange Commission staff does not believe it is appropriate to use an "accrue in advance" method for major maintenance costs. The Accounting Standards Executive Committee agreed to add accounting for major maintenance costs as part of an existing project and to issue authoritative guidance by August 2001. Due to the position taken by the Securities and Exchange Commission staff, we voluntarily decided to change our accounting policy to record major maintenance costs as an expense as incurred. Such change in accounting policy is considered preferable based on the recent guidance provided by the Securities and Exchange Commission. In accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," we have recorded a $17.7 million, after tax, increase to net income, as a cumulative change in the accounting for major maintenance costs during the quarter ended March 31, 2000. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," which became effective in January 1999. The Statement requires that specified costs related to start-up activities be expensed as incurred and that specified previously capitalized costs be expensed and reported as a cumulative change in accounting principle. The reduction to our net income that resulted from adopting SOP 98-5 was $13.8 million, after tax. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, we had cash and cash equivalents of $962.9 million and had available a total of $41 million of borrowing capacity under a $500 million revolving credit facility that expires on October 11, 2001 and a $300 million senior credit facility that expires on May 29, 2001. We also had available $127.3 million of borrowing capacity under a $700 million senior credit facility that is now scheduled to expire on May 29, 2001. The revolving credit facility provides credit available in the form of cash advances or letters of credit, and bears interest on advances under the London Interbank Offered Rate, LIBOR, which was 6.66% at December 31, 2000, plus the applicable margin as determined by our long-term credit ratings (0.175% margin at December 31, 2000). In addition to the interest component described above, we pay a facility fee as determined by our long-term credit ratings (0.09% at December 31, 2000) on the entire credit facility independent of the level of borrowings. Net working capital at December 31, 2000 was ($1,703.9) million compared to ($815.5) million at December 31, 1999. The decrease reflects the reclassification to current maturities of long-term obligations from long-term obligations at December 31, 2000 of indebtedness under the financing documents entered into to finance the acquisition of the Ferrybridge and Fiddler's Ferry plants in 1999. See "--Financing Plans" for further discussion. Cash provided by operating activities is derived primarily from operations of the Illinois Plants and the Homer City plant, distributions from energy projects and dividends from investments in oil and gas. Net cash provided by operating activities increased $248.1 million in 2000 compared to 1999 and $150.6 million in 1999 compared to 1998. The 2000 increase primarily reflects higher pre-tax earnings from projects acquired in 1999 and higher dividends from oil and gas investments. The 1999 increase was primarily due to higher distributions from energy projects and higher dividends from oil and gas investments. 53 Net cash used in financing activities totaled $783 million in 2000, compared to net cash provided by financing activities of $8,363.5 million and $17.9 million in 1999 and 1998, respectively. Payments made on our credit facilities totaling $1.4 billion, a $500 million payment on our floating rate notes and the redemption of the Flexible Money Market Cumulative Preferred Stock for $124.7 million were the primary contributors of the net cash used in financing activities during 2000. Edison Mission Energy used the proceeds from the August 2000 Powerton and Joliet sale-leaseback transaction for a significant portion of those payments on the credit facilities, commercial paper facilities and the floating rate notes. We also paid dividends of $88 million to Edison International. In 2000, we also had borrowings of $1.2 billion under our credit facilities and commercial paper facilities. In February 2000, Edison Mission Midwest Holdings Co. issued $1.7 billion of commercial paper under its credit facility and repaid a similar amount of its outstanding bank borrowings for the Illinois Plants. Subsequently, Edison Mission Midwest Holdings Co. repaid $769.3 million of commercial paper under its credit facility and issued a similar amount of its bank borrowings for the Illinois Plants in December 2000. In January 2000, one of our foreign subsidiaries borrowed $242.7 million from Edison Capital, an indirect affiliate. In 1999, financings related to the acquisition of four new projects in 1999 contributed to net cash provided by financing activities. A term loan facility of $1.3 billion related to the Ferrybridge and Fiddler's Ferry plants, senior secured bonds totaling $830 million related to the Homer City plant, $120 million Flexible Money Market Cumulative Preferred Stock and $125 million Retail Redeemable Preference Shares and $84 million Class A Redeemable Preferred Shares related to Contact Energy and credit facilities totaling $1.7 billion related to the Illinois Plants. In addition, our financings in connection with the aforementioned acquisitions consisted of floating rate notes of $500 million, borrowings of $215 million under our revolving credit facility and commercial paper facilities totaling $1.2 billion. In addition, we also received $2 billion in equity contributions from Edison International, which amount was 100% financed in the capital markets, to finance our 1999 acquisitions. In June 1999, we issued $600 million of 7.73% Senior Notes due 2009. As of December 31, 2000, we had recourse debt of $2.1 billion, with an additional $5.9 billion of non-recourse debt (debt which is recourse to specific assets or subsidiaries, but not to Edison Mission Energy) on our consolidated balance sheet. Net cash provided by investing activities totaled $718.1 million in 2000, compared to net cash used in investing activities of $8,837.8 million and $408.2 million in 1999 and 1998, respectively. In 2000, net cash provided by investing activities was primarily due to proceeds of $1.367 billion and $300 million received from the sale leaseback transactions with respect to the Powerton and Joliet power facilities in August 2000 and the Illinois peaker power units in July 2000, respectively. In connection with the Illinois peaker power units transaction, we purchased $255 million of notes issued by the lessor. In 2000, $27 million was paid toward the purchase price and $13 million in equity contributions for the Italian Wind projects, $44.9 million for the Citizens trading operations and structured transaction investments, and $27 million for the acquisition of the Sunrise project. In addition, $33.5 million, $21.2 million and $20 million was made in equity contributions for the EcoElectrica project (June 2000), the Tri Energy project (July 2000) and the ISAB project (September 2000), respectively. In 1999, cash used in investing activities was primarily due to the purchase of the Homer City plant, Ferrybridge and Fiddler's Ferry generating facilities, the Illinois Plants and the 40% interest in Contact Energy. We invested $352.3 million, $216.4 million and $73.4 million in 2000, 1999 and 1998, respectively, in new plant and equipment principally related to the Homer City plant and Illinois Plants in 2000, the Homer City plant and Ferrybridge and Fiddler's Ferry plants in 1999, and the Doga project in 1998. CREDIT RATINGS On January 17, 2001, we amended our articles of incorporation and our bylaws to include so-called "ring-fencing" provisions to isolate ourselves from the credit downgrades and potential bankruptcies of Edison International and Southern California Edison and to facilitate our ability and the ability of our 54 subsidiaries to maintain their respective investment grade ratings. These ring-fencing provisions are intended to preserve us as a stand-alone investment grade rated entity despite the current credit difficulties of Edison International and Southern California Edison. These provisions require the unanimous approval of our board of directors, including at least one independent director, before we can do any of the following: - declare or pay dividends or distributions unless: - we then have an investment grade rating and receive rating agency confirmation that the dividend or distribution will not result in a downgrade; or - the dividends do not exceed $32.5 million in any fiscal quarter and we meet an interest coverage ratio of not less than 2.2 to 1 for the immediately preceding four fiscal quarters. We currently meet this interest coverage ratio; - institute or consent to bankruptcy, insolvency or similar proceedings or actions; or - consolidate or merge with any entity or transfer substantially all our assets to any entity, except to an entity that is subject to similar restrictions. We cannot assure you that these measures will effectively isolate us from the credit downgrades or the potential bankruptcies of Edison International and Southern California Edison. In January 2001, Standard & Poor's and Moody's lowered our credit ratings. Our senior unsecured credit ratings were downgraded to "BBB-" from "A-" by Standard & Poor's and to "Baa3" from "Baa1" by Moody's. Our credit ratings remain investment grade. Both Standard & Poor's and Moody's have indicated that the credit ratings outlook for us is stable. We cannot assure you that Standard & Poor's and Moody's will not downgrade us below investment grade, whether as a result of the California power crisis or otherwise. If we are downgraded, we could be required to, among other things: - provide additional guarantees, collateral, letters of credit or cash for the benefit of counterparties in our trading activities, - post a letter of credit or cash collateral to support our $58.5 million equity contribution obligation in connection with our acquisition in February 2001 of a 50% interest in the CBK project in the Philippines, and - repay a portion of the preferred shares issued by our subsidiary in connection with our 1999 acquisition of a 40% interest in Contact Energy Limited, a New Zealand power company, which, based on their value at March 20, 2001, would require a payment of approximately $19 million. Our downgrade could result in a downgrade of Edison Mission Midwest Holdings Co., our indirect subsidiary. In the event of a downgrade of Edison Mission Midwest Holdings below its current credit rating, provisions in the agreements binding on its subsidiary, Midwest Generation, LLC, limit the ability of Midwest Generation to use excess cash flow to make distributions. On March 15, 2001, the California Public Utilities Commission released a draft of a proposed order instituting an investigation into whether California's investor-owned utilities, including Southern California Edison, have complied with past Commission decisions authorizing the formation of their holding companies and governing affiliate transactions, as well as applicable statutes. Action on this agenda item repeatedly has been deferred, including at the Commission meeting on March 27, 2001, and the item has continued to appear on the agendas for subsequent Commission meetings. The proposed order would reopen the past holding company decisions and initiate an investigation into the following matters: - whether the holding companies, including Edison International, violated requirements to give priority to the capital needs of their respective utility subsidiaries; 55 - whether the ring-fencing actions by Edison International and PG&E Corporation and their respective nonutility affiliates also violated the requirements to give priority to the capital needs of their utility subsidiaries; - whether the payment of dividends by the utilities violated requirements that the utilities maintain dividend policies as though they were comparable stand-alone utility companies; - any additional suspected violations of laws or Commission rules and decisions; and - whether additional rules, conditions, or other changes to the holding company decisions are necessary. We cannot predict whether the Commission will institute this investigation or what effects any investigation or subsequent actions by the Commission may have on Edison International or indirectly on us. A downgrade in our credit rating below investment grade could increase our cost of capital, increase our credit support obligations, make efforts to raise capital more difficult and could have an adverse impact on us and our subsidiaries. RESTRICTED ASSETS OF SUBSIDIARIES Each of our direct or indirect subsidiaries is organized as a legal entity separate and apart from us and our other subsidiaries. Assets of our subsidiaries may not be available to satisfy our obligations or the obligations of any of our other subsidiaries. However, unrestricted cash or other assets which are available for distribution may, subject to applicable law and the terms of financing arrangements of the parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to us or to an affiliate of ours. FINANCING PLANS CORPORATE FINANCING PLANS We have three corporate credit facilities that are scheduled to expire in May 2001 (in a total amount of $1 billion) and October 2001 (in an amount of $500 million). As of March 16, 2001, we have borrowed or issued letters of credit aggregating $1.49 billion under these credit facilities and have an unused capacity of approximately $10 million. We plan to refinance these credit facilities through modifications to our existing credit facilities or by entering into new short-term facilities prior to their expiration. Our corporate cash requirements in 2001 are expected to exceed cash distributions from our subsidiaries. Our corporate cash requirements in 2001 include: - debt service under our senior notes and intercompany notes resulting from sale-leaseback transactions which aggregate $149 million; - capital requirements for projects in development and under construction of $251 million; and - development costs, general and administrative expenses. We plan to finance these activities through new short-term facilities and through the use of project or subsidiary financings or capital markets debt, depending on market conditions. However, while we cannot assure you that we will be able to enter into modifications to our existing credit facilities or obtain additional debt to finance our needs or that the credit facilities can be modified or obtained under similar terms and rates as our agreements, we believe our corporate financing plans will be successful in meeting our cash requirements in 2001. In addition, to reduce debt and to provide additional liquidity, we may sell our interest in individual projects in our project portfolio. Under one of our credit facilities, we are required to use 50% of the net proceeds from the sale of assets and 75% of the net proceeds from the issuance of capital markets debt to repay senior bank indebtedness, in 56 each case in excess of $300 million in the aggregate. There is no assurance that we will be able to sell assets on favorable terms or that the sale of individual assets will not result in a loss. SUBSIDIARY FINANCING PLANS During 2001, the estimated capital expenditures of our subsidiaries is $262 million, including environmental expenditures disclosed under "--Environmental Matters and Regulations." These capital expenditures are planned to be financed by existing subsidiary credit agreements and cash generated from their operations. Other than as described under "--Commitments and Contingencies," we do not plan to make additional capital contributions to our subsidiaries. One of our subsidiaries, Edison First Power, has defaulted on its financing documents related to the acquisition of the Fiddler's Ferry and Ferrybridge power plants. The financial performance of the Fiddler's Ferry and Ferrybridge power plants has not matched our expectations, largely due to lower energy power prices resulting primarily from increased competition, warmer-than-average weather and uncertainty surrounding the new electricity trading arrangements. See "--Market Risk Exposures--United Kingdom." As a result, Edison First Power has decided to defer some environmental capital expenditures originally planned to increase plant utilization and therefore is currently in breach of milestone requirements for the implementation of the capital expenditures program set forth in the financing documents relating to the acquisition of these plants. In addition, due to this reduced financial performance, Edison First Power's debt service coverage ratio during 2000 declined below the threshold set forth in the financing documents. Edison First Power is currently in discussions with the relevant financing parties to revise the required capital expenditure program, to waive (i) the breach of the financial ratio covenant for 2000, (ii) a technical breach of requirements for the provision of information that was delayed due to uncertainty regarding capital expenditures, and (iii) other related technical defaults. Edison First Power is in the process of requesting the necessary waivers and consents to amendments from the financing parties. We cannot assure you that waivers and consents to amendments will be forthcoming. The financing documents stipulate that a breach of the financial ratio covenant constitutes an immediate event of default and, if the event of default is not waived, the financing parties are entitled to enforce their security over Edison First Power's assets, including the Fiddler's Ferry and Ferrybridge plants. Despite the breaches under the financing documents, Edison First Power's debt service coverage ratio for 2000 exceeded 1:1. Due to the timing of its cash flows and debt service payments, Edison First Power utilized L37 million from its debt service reserve to meet its debt service requirements in 2000. Another of our subsidiaries, EME Finance UK Limited, is the borrower under the facility made available for the purposes of funding coal and capital expenditures related to the Fiddler's Ferry and Ferrybridge power plants. At December 31, 2000, L58 million was outstanding for coal purchases and zero was outstanding to fund capital expenditures under this facility. EME Finance UK Limited on-lends any drawings under this facility to Edison First Power. The financing parties of this facility have also issued letters of credit directly to Edison First Power to support their obligations to lend to EME Finance UK Limited. EME Finance UK Limited's obligations under this facility are separate and apart from the obligations of Edison First Power under the financing documents related to the acquisition of these plants. We have guaranteed the obligations of EME Finance UK Limited under this facility, including any letters of credit issued to Edison First Power under the facility, for the amount of L359 million, and our guarantee remains in force notwithstanding any breaches under Edison First Power's acquisition financing documents. In addition, Edison Mission Energy may provide guarantees in support of bilateral contracts entered into by Edison First Power under the new electricity trading arrangements. Edison Mission Energy has provided guarantees totalling L19 million relating to these contracts at March 20, 2001. In accordance with SFAS No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED", we have evaluated impairment of the Ferrybridge and Fiddler's Ferry 57 power plants. The undiscounted projected cash flow from these power plants exceeds the net book value at December 31, 2000, and, accordingly, no impairment of these power plants is permitted under SFAS No. 121. As a result of the change in the prices of power in the U.K., we are considering the sale of Ferrybridge and Fiddler's Ferry power plants. Management has not made a decision whether or not the sale of these power plants will ultimately occur and, accordingly, these assets are not classified as held for sale. However, if a decision to sell the Ferrybridge and Fiddler's Ferry power plants were made, it is likely that the fair value of the assets would be substantially below their book value at December 31, 2000. Our net investment in our subsidiary that holds the Ferrybridge and Fiddler's Ferry power plants and related debt was $918 million at December 31, 2000. COMMITMENTS AND CONTINGENCIES CAPITAL COMMITMENTS The following table summarizes our consolidated capital commitments as of December 31, 2000. Details regarding these capital commitments are discussed in the sections referenced.
U.S. TYPE OF COMMITMENT ESTIMATED TIME PERIOD DISCUSSED UNDER - ------------------ ------------- ----------- ---------------------------------- (IN MILLIONS) New Gas-Fired Generation.......... $250 by 2003 Illinois Plants--Power Purchase Agreements New Gas-Fired Generation.......... 346 2001-2003 Acquisition of Sunrise Project New Gas-Fired Generation.......... 986* 2001-2004 Edison Mission Energy Master Turbine Lease Environmental Improvements at our Project Subsidiaries............ 557 2001-2005 Environmental Matters and Regulations Project Acquisition for the Italian Wind.................... 17 2001-2002 Firm Commitment for Asset Purchase Equity Contribution for the Italian Wind.................... 3 2001-2002 Firm Commitments to Contribute Project Equity
- ------------------------ * Represents the total estimated costs related to four projects using the Siemens Westinghouse turbines procured under the Edison Mission Energy Master Turbine Lease. One of these projects may be used to meet the new gas fired generation commitments resulting from the acquisition of the Illinois Plants. See "--Illinois Plants--Power Purchase Agreements." In addition, in February 2001, we purchased a 50% interest in the CBK project for $20 million. Financing for this $460 million project will require equity contributions of $117 million, of which our share is $58.5 million. See "--Recent Developments." CALIFORNIA POWER CRISIS We have partnership interests in eight partnerships which own power plants in California which have power purchase contracts with Pacific Gas and Electric and/or Southern California Edison. Three of these partnerships have a contract with Southern California Edison, four of them have a contract with Pacific Gas and Electric, and one of them has contracts with both. In 2000, our share of earnings before taxes from these partnerships was $168 million, which represented 20% of our operating income. Our investment in these partnerships at December 31, 2000 was $345 million. 58 As a result of Southern California Edison's and Pacific Gas and Electric's current liquidity crisis, each of these utilities has failed to make payments to qualifying facilities supplying them power. These qualifying facilities include the eight power plants which are owned by partnerships in which we have a partnership interest. Southern California Edison did not pay any of the amounts due to the partnerships in January, February and March of 2001 and may continue to miss future payments. Pacific Gas and Electric made its January payment in full but thus far has paid only a small portion of the amounts due to the partnerships in February and March and may not pay all or a portion of its future payments. On March 27, 2001, the California Public Utilities Commission issued a decision that ordered the three California investor owned utilities, including Southern California Edison and Pacific Gas and Electric, to commence payment for power generated from qualifying facilities beginning in April 2001. In addition, the decision modified the pricing formula for determining short run avoided costs for qualifying facilities subject to these provisions. Depending on how the utilities react to this order, the immediate impact of this decision may be to commence payment in April 2001 at significantly reduced prices for power to qualifying facilities subject to this pricing adjustment. Furthermore, this decision called for further study of the pricing formula tied to short run avoided costs and, accordingly, may be subject to more changes in the future. Finally, this decision is subject to challenge before the Commission, the Federal Energy Regulatory Commission and, potentially, state or federal courts. Although it is premature to assess the full effect of this recent decision, it could have a material adverse effect on our investment in the California partnerships, depending on how it is implemented and future changes in the relationship between the pricing formula and the actual cost of natural gas procured by our California partnerships. This decision did not address payment to the qualifying facilities for amounts due prior to April 2001. The California utilities' failure to pay has adversely affected the operations of our eight California qualifying facilities. Continuing failures to pay similarly could have an adverse impact on the operations of our California qualifying facilities. Provisions in the partnership agreements stipulate that partnership actions concerning contracts with affiliates are to be taken through the non-affiliated partner in the partnership. Therefore, partnership actions concerning the enforcement of rights under each qualifying facility's power purchase agreement with Southern California Edison in response to Southern California Edison's suspension of payments under that power purchase agreement are to be taken through the non-Edison Mission Energy affiliated partner in the partnership. Some of the partnerships have sought to minimize their exposure to Southern California Edison by reducing deliveries under their power purchase agreements. It is unclear at this time what additional actions, if any, the partnerships will take in regard to the utilities' suspension of payments due to the qualifying facilities. As a result of the utilities' failure to make payments due under these power purchase agreements, the partnerships have called on the partners to provide additional capital to fund operating costs of the power plants. From January 1, 2001 through March 20, 2001, subsidiaries of ours have made equity contributions totaling approximately $103 million to meet capital calls by the partnerships. Our subsidiaries and the other partners may be required to make additional capital contributions to the partnerships. Southern California Edison has stated that it is attempting to avoid bankruptcy and, subject to the outcome of regulatory and legal proceedings and negotiations regarding purchased power costs, it intends to pay all its obligations once a permanent solution to the current energy and liquidity crisis has been reached. Pacific Gas and Electric has taken a different approach and is seeking to invoke force majeure provisions under its power purchase agreements to excuse its failure to pay. In either case, it is possible that the utilities will not pay all their obligations in full. In addition, it is possible that Southern California Edison and/or Pacific Gas and Electric could be forced into bankruptcy proceedings. If this were to occur, payments to the qualifying facilities, including those owned by partnerships in which we have a partnership interest, could be subject to significant delays associated with the lengthy bankruptcy court process and may not be paid in full. At February 28, 2001, accounts receivable due to these partnerships from Southern California Edison and Pacific Gas & Electric were 59 $437 million; our share of these receivables was $217 million. Furthermore, Southern California Edison's and Pacific Gas and Electric's power purchase agreements with the qualifying facilities could be subject to review by a bankruptcy court. While we believe that the generation of electricity by the qualifying facilities, including those owned by partnerships in which we have a partnership interest, is needed to meet California's power needs, we cannot assure you either that these partnerships will continue to generate electricity without payment by the purchasing utility, or that the power purchase agreements will not be adversely affected by a bankruptcy or contract renegotiation as a result of the current power crisis. A number of federal and state, legislative and regulatory initiatives addressing the issues of the California electric power industry have been proposed, including wholesale rate caps, retail rate increases, acceleration of power plant permitting and state entry into the power market. Many of these activities are ongoing. These activities may result in a restructuring of the California power market. At this time, these activities are in their preliminary stages, and it is not possible to estimate their likely ultimate outcome. The situation in California changes on an almost daily basis. You should monitor developments in California for the most up to date information. For more information on the current regulatory situation in California, see "Business--Regulatory Matters--California Deregulation." CREDIT SUPPORT FOR TRADING AND PRICE RISK MANAGEMENT ACTIVITIES Our trading and price risk management activities are conducted through our subsidiary, Edison Mission Marketing & Trading, Inc., which is currently rated investment grade ("BBB-" by Standard and Poor's). As part of obtaining an investment grade rating for this subsidiary, we have entered into a support agreement, which commits us to contribute up to $300 million in equity to Edison Mission Marketing & Trading, if needed to meet cash requirements. An investment grade rating is an important benchmark used by third parties when deciding whether or not to enter into master contracts and trades with us. The majority of Edison Mission Marketing & Trading's contracts have various standards of creditworthiness, including the maintenance of specified credit ratings. If Edison Mission Marketing & Trading does not maintain its investment grade rating or if other events adversely affect its financial position, a third party could request Edison Mission Marketing & Trading to provide adequate assurance. Adequate assurance could take the form of supplying additional financial information, additional guarantees, collateral, letters of credit or cash. Failure to provide adequate assurance could result in a counterparty liquidating an open position and filing a claim against Edison Mission Marketing & Trading for any losses. The California power crisis has adversely affected the liquidity of West Coast trading markets, and to a lesser extent, other regions in the United States. Our trading and price risk management activity has been reduced as a result of these market conditions and uncertainty regarding the effect of the power crisis on our affiliate, Southern California Edison. It is not certain that resolution of the California power crisis will occur in 2001 or that, if resolved, we will be able to conduct trading and price risk management activities in a manner that will be favorable to us. PAITON The Paiton project is a 1,230 MW coal fired power plant in operation in East Java, Indonesia. Our wholly-owned subsidiary owns a 40% interest and had a $490 million investment in the project at December 31, 2000. The project's tariff under the power purchase agreement with PT PLN is higher in the early years and steps down over time. The tariff for the Paiton project includes costs relating to infrastructure to be used in common by other units at the Paiton complex. The plant's output is fully contracted with the state-owned electricity company, PT PLN. Payments are in Indonesian Rupiah, with the portion of the payments intended to cover non-Rupiah project costs, including returns to investors, adjusted to account for exchange rate fluctuations between the Indonesian Rupiah and the U.S. dollar. The project received substantial finance and insurance support from the Export-Import Bank of the United States, the Japan Bank for International Cooperation (formerly known as The Export-Import Bank of Japan), the U.S. Overseas Private Investment Corporation and the Ministry of Economy, Trade and Industry of Japan (formerly known as the Ministry of International Trade and Industry). PT PLN's payment obligations are supported by the Government of Indonesia. 60 The projected rate of growth of the Indonesian economy and the exchange rate of Indonesian Rupiah into U.S. dollars have deteriorated significantly since the Paiton project was contracted, approved and financed. The Paiton project's senior debt ratings have been reduced from investment grade to speculative grade based on the rating agencies' determination that there is increased risk that PT PLN might not be able to honor the power purchase agreement with P.T. Paiton Energy, the project company. The Government of Indonesia has arranged to reschedule sovereign debt owed to foreign governments and has entered into discussions about rescheduling sovereign debt owed to private lenders. In May 1999, Paiton Energy notified PT PLN that the first 615 MW unit of the Paiton project had achieved commercial operation under the terms of the power purchase agreement and, in July 1999, that the second 615 MW unit of the plant had similarly achieved commercial operation. Because of the economic downturn, PT PLN was then experiencing low electricity demand and PT PLN, through February 2000, dispatched the Paiton plant to zero. In addition, PT PLN filed a lawsuit contesting the validity of its agreement to purchase electricity from the project. The lawsuit was withdrawn by PT PLN on January 20, 2000, and in connection with this withdrawal, the parties entered into an interim agreement for the period through December 31, 2000, under which dispatch levels and fixed and energy payment amounts were agreed. As of December 31, 2000, PT PLN had made all fixed payments due under the interim agreement totaling $115 million and all payments due for energy delivered by the plant to PT PLN. As part of the continuing negotiations on a long-term restructuring of the tariff, Paiton Energy and PT PLN agreed in January 2001 on a Phase I Agreement for the period from January 1, 2001 through June 30, 2001. This agreement provides for fixed monthly payments aggregating $108 million over its six month duration and for the payment for energy delivered to PT PLN from the plant during this period. Paiton Energy and PT PLN intend to complete the negotiations of the future phases of a new long-term tariff during the six month duration of the Phase I Agreement. To date, PT PLN has made all fixed and energy payments due under the Phase I Agreement. Events, including those discussed above, have occurred which may mature into defaults of the project's debt agreements following the passage of time, notice or lapse of waivers granted by the project's lenders. On October 15, 1999, the project entered into an interim agreement with its lenders pursuant to which the lenders waived defaults during the term of the agreement and effectively agreed to defer payments of principal until July 31, 2000. In July, the lenders agreed to extend the term of the lender interim agreement through December 31, 2000. In December 2000, the lenders agreed to an additional extension of the lender interim agreement through December 31, 2001. Paiton Energy has received lender approval of the Phase I Agreement. Under the terms of the power purchase agreement, PT PLN has been required to pay for capacity and fixed operating costs once each unit and the plant achieved commercial operation. As of December 31, 2000, PT PLN had not paid invoices amounting to $814 million for capacity charges and fixed operating costs under the power purchase agreement. All arrears under the power purchase agreement continue to accrue, minus the fixed monthly payments actually made under the year 2000 interim agreement and under the recently agreed Phase I Agreement, with the payment of these arrears to be dealt with in connection with the overall long-term restructuring of the tariff. In this regard, under the Phase I Agreement, Paiton Energy has agreed that, so long as the Phase I Agreement is complied with, it will seek to recoup no more than $590 million of the above arrears, the payment of which is to be dealt with in connection with the overall tariff restructuring. Any material modifications of the power purchase agreement resulting from the continuing negotiation of a new long-term tariff could require a renegotiation of the Paiton project's debt agreements. The impact of any such renegotiations with PT PLN, the Government of Indonesia or the project's creditors on our expected return on our investment in Paiton Energy is uncertain at this time; however, we believe that we will ultimately recover our investment in the project. 61 BROOKLYN NAVY YARD Brooklyn Navy Yard is a 286 MW gas fired cogeneration power plant in Brooklyn, New York. Our wholly-owned subsidiary owns 50% of the project. In February 1997, the construction contractor asserted general monetary claims under the turnkey agreement against Brooklyn Navy Yard Cogeneration Partners, L.P. for damages in the amount of $136.8 million. Brooklyn Navy Yard Cogeneration Partners has asserted general monetary claims against the contractor. In connection with a $407 million non-recourse project refinancing in 1997, we agreed to indemnify Brooklyn Navy Yard Cogeneration Partners and its partner from all claims and costs arising from or in connection with the contractor litigation, which indemnity has been assigned to Brooklyn Navy Yard Cogeneration Partners' lenders. At this time, we cannot reasonably estimate the amount that would be due, if any, related to this litigation. Additional amounts, if any, which would be due to the contractor with respect to completion of construction of the power plant would be accounted for as an additional part of its power plant investment. Furthermore, our partner has executed a reimbursement agreement with us that provides recovery of up to $10 million over an initial amount, including legal fees, payable from its management and royalty fees. At December 31, 2000, no accrual had been recorded in connection with this litigation. We believe that the outcome of this litigation will not have a material adverse effect on our consolidated financial position or results of operations. HOMER CITY Edison Mission Energy has guaranteed to the bondholders, banks and other secured parties which financed the acquisition of the Homer City plant the performance and payment when due by Edison Mission Holdings Co. of its obligations in respect of specified senior debt, up to $42 million. This guarantee will be available until December 31, 2001, after which time Edison Mission Energy will have no further obligations under this guarantee. To satisfy the requirements under the Edison Mission Holdings Co. bond financing to have a debt service reserve account balance in an amount equal to six months' debt service projected to be due following the payment of a distribution, Edison Mission Energy agreed to guarantee the payment and performance of the obligations of Edison Mission Holdings, in the amount of approximately $35 million, pursuant to a debt service reserve guarantee. In addition, Edison Mission Energy provides a guarantee of Edison Mission Holdings' obligations in the amount of $3 million to the lenders involved in the bank financing. As a result of Edison Mission Energy's downgrade in January 2001, Edison Mission Holdings is in the process of finalizing the arrangement of a letter of credit of approximately $35 million to replace the bond debt service reserve guarantee. PREFERRED SHARES OF EDISON MISSION ENERGY TAUPO LIMITED In connection with the preferred shares issued by Edison Mission Energy Taupo Limited to partially finance the acquisition of the 40% interest in Contact Energy, Edison Mission Energy provided a guaranty of Edison Mission Energy Taupo Limited's obligation to pay a minimum level of non-cumulative dividends on the preferred shares through June 30, 2002, including NZ$12.9 million during 2001 and NZ$4.6 million during the six months ending June 30, 2002. In addition, Edison Mission Energy has agreed to pay amounts required to ensure that Edison Misison Energy Taupo Limited will satisfy two financial ratio covenants on specified dates. The first financial ratio, called a dividends to outgoings ratio, is to be calculated as of June 30, 2002, and is based on historical and projected dividends received from Contact Energy and the dividends payable to preferred shareholders. The second financial ratio, called a debt to valuation ratio, is to be calculated as of May 14, 2001, and is based on the fair value of our Contact Energy shares and the outstanding preferred shares. If, however, Edison Mission Energy's senior unsecured credit rating by Standard & Poor's were downgraded below BBB-, Edison Mission Energy may be called to perform on its guaranty of Edison Mission Energy Taupo Limited's financial covenants before the specified calculation dates. Based on 62 the fair value of our ownership in Contact Energy at March 20, 2001, had Edison Mission Energy been required to perform on its guarantee of the debt to valuation ratio as of that date, Edison Mission Energy's obligation would have been approximately $19 million. EDISON MISSION ENERGY MASTER TURBINE LEASE In December 2000, we entered into a master lease and other agreements for the construction of new projects using nine turbines that are being procured from Siemens Westinghouse. The aggregate total construction cost of these projects is estimated to be approximately $986 million. Under the terms of the master lease, the lessor, as owner of the projects, is responsible for the development and construction costs of the new projects using these turbines. We have agreed to supervise the development and construction of the projects as the agent of the lessor. Upon completion of construction of each project, we have agreed to lease the projects from the lessor. In connection with the lease, we have provided a residual value guarantee to the lessor at the end of the lease term. We are required to deposit treasury notes equal to 103% of the construction costs as collateral for the lessor which can only be used under circumstances involving our default of the obligations we have agreed to perform during the construction of each project. Lease payments are scheduled to begin in November 2003. Minimum lease payments under this agreement are $3.1 million in 2003, $27.7 million in 2004, and $50.2 million in 2005. The term of the master lease ends in 2010. The master lease grants us, as lessee, a purchase option based on the lease balance which can be exercised at any time during the term. SALE-LEASEBACK COMMITMENTS At December 31, 2000, we had minimum lease payments related to purchased power generation assets from Commonwealth Edison that were leased back to us in three separate transactions. In connection with the 1999 acquisition of the Illinois Plants, we assigned the right to purchase the Collins gas and oil-fired power plant to third party lessors. The third party lessors purchased the Collins Station for $860 million and leased the plant to us. During 2000, we entered into sale-leaseback transactions for equipment, primarily the Illinois peaker power units, and for two power facilities, the Powerton and Joliet coal fired stations located in Illinois, to third party lessors. Total minimum lease payments during the next five years are $146.6 million in 2001, $168.6 million in 2002, $168.6 million in 2003, $168.8 million in 2004, and $191.4 million in 2005. At December 31, 2000, the total remaining minimum lease payments were $3.9 billion. ILLINOIS PLANTS-POWER PURCHASE AGREEMENTS During 2000, 33% of our electric revenues were derived under power purchase agreements with Exelon Generation Company, a subsidiary of Exelon Corporation, entered into in connection with our December 1999 acquisition of the Illinois Plants. Exelon Corporation is the holding company of Commonwealth Edison and PECO Energy Company, major utilities located in Illinois and Pennsylvania. Electric revenues attributable to sales to Exelon Generating Company are earned from capacity and energy provided by the Illinois Plants under three five-year power purchase agreements. If Exelon Generation were to fail to or became unable to fulfill its obligations under these power purchase agreements, we may not be able to find another customer on similar terms for the output of our power generating assets. Any material failure by Exelon Generation to make payments under these power purchase agreements could adversely affect our results of operations and liquidity. Pursuant to the acquisition documents for the purchase of generating assets from Commonwealth Edison, our subsidiary committed to install one or more gas-fired power plants having an additional gross dependable capacity of 500 MWs at existing or adjacent power plant site in Chicago. The acquisition documents require that commercial operations of this project be completed by 63 December 15, 2003. The estimated cost to complete the construction of this 500 MW gas-fired power plant is approximately $250 million. FUEL SUPPLY CONTRACTS At December 31, 2000, we had contractual commitments to purchase and/or transport coal and fuel oil. Based on the contract provisions, which consist of fixed prices, subject to adjustment clauses in some cases, these minimum commitments are currently estimated to aggregate $2.4 billion in the next five years summarized as follows: 2001--$838 million; 2002--$653 million; 2003--$386 million; 2004--$308 million; 2005--$241 million. FIRM COMMITMENT FOR ASSET PURCHASE
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS) - -------- ----------------------- -------------------- Italian Wind Projects(1)............... 36 billion Italian Lira $17
- ------------------------ (1) The Italian Wind Projects are a series of power projects that are in operation or under development in Italy. A wholly-owned subsidiary of Edison Mission Energy owns a 50% interest. Purchase payments will continue through 2002, depending on the number of projects that are ultimately developed. FIRM COMMITMENTS TO CONTRIBUTE PROJECT EQUITY
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS) - -------- ---------------------- -------------------- Italian Wind Projects(1)................ 6 billion Italian Lira $3
- ------------------------ (1) The Italian Wind Projects are a series of power projects that are in operation or under development in Italy. A wholly-owned subsidiary of Edison Mission Energy owns a 50% interest. Equity will be contributed depending on the number of projects that are ultimately developed. Firm commitments to contribute project equity could be accelerated due to certain events of default as defined in the non-recourse project financing facilities. Management does not believe that these events of default will occur to require acceleration of the firm commitments. CONTINGENT OBLIGATIONS TO CONTRIBUTE PROJECT EQUITY
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS) - -------- ----------------------- -------------------- Paiton(1).............................. -- $39 ISAB(2)................................ 90 billion Italian Lira 44
- ------------------------ (1) Contingent obligations to contribute additional project equity will be based on events principally related to insufficient cash flow to cover interest on project debt and operating expenses, project cost overruns during plant construction, specified partner obligations or events of default. Our obligation to contribute contingent equity will not exceed $141 million, of which $102 million has been contributed as of December 31, 2000. As of March 16, 2001, $5 million of this amount remains to be funded. For more information on the Paiton project, see "--Paiton" above. (2) ISAB is a 512 MW integrated gasification combined cycle power plant near Siracusa in Sicily, Italy. A wholly-owned subsidiary of Edison Mission Energy owns a 49% interest. Commercial operations 64 commenced in April 2000. Contingent obligations to contribute additional equity to the project relate specifically to an agreement to provide equity assurances to the project's lenders depending on the outcome of the contractor claim arbitration. We are not aware of any other significant contingent obligations or obligations to contribute project equity other than as noted above and equity contributions to be made by us to meet capital calls by partnerships who own qualifying facilities that have power purchase agreements with Southern California Edison and Pacific Gas and Electric. See "--California Power Crisis" for further discussion. SUBSIDIARY INDEMNIFICATION AGREEMENTS Some of our subsidiaries have entered into indemnification agreements, under which the subsidiaries agreed to repay capacity payments to the projects' power purchasers in the event the projects unilaterally terminate their performance or reduce their electric power producing capability during the term of the power contracts. Obligations under these indemnification agreements as of December 31, 2000, if payment were required, would be $256 million. We have no reason to believe that the projects will either terminate their performance or reduce their electric power producing capability during the term of the power contracts. OTHER In support of the businesses of our subsidiaries, we have made, from time to time, guarantees, and have entered into indemnity agreements with respect to our subsidiaries' obligations like those for debt service, fuel supply or the delivery of power, and have entered into reimbursement agreements with respect to letters of credit issued to third parties to support our subsidiaries' obligations. We may incur additional guaranty, indemnification, and reimbursement obligations, as well as obligations to make equity and other contributions to projects in the future. MARKET RISK EXPOSURES Our primary market risk exposures arise from changes in interest rates, changes in oil and gas prices and electricity pool pricing and fluctuations in foreign currency exchange rates. We manage these risks in part by using derivative financial instruments in accordance with established policies and procedures. INTEREST RATE RISK Interest rate changes affect the cost of capital needed to finance the construction and operation of our projects. We have mitigated the risk of interest rate fluctuations by arranging for fixed rate financing or variable rate financing with interest rate swaps or other hedging mechanisms for a number of our project financings. Interest expense included $16.1 million, $25.2 million and $22.8 million for the years 2000, 1999 and 1998, respectively, as a result of interest rate hedging mechanisms. We have entered into several interest rate swap agreements under which the maturity date of the swaps occurs prior to the final maturity of the underlying debt. A 10% increase in market interest rates at December 31, 2000 would result in a $17.2 million increase in the fair value of our interest rate hedge agreements. A 10% decrease in market interest rates at December 31, 2000 would result in a $17.1 million decline in the fair value of our interest rate hedge agreements. We had short-term obligations of $883.4 million consisting of commercial paper and bank borrowings at December 31, 2000. The fair values of these obligations approximated their carrying values at December 31, 2000, and would not have been materially affected by changes in market interest rates. The fair market value of long-term fixed interest rate obligations are subject to interest rate risk. The fair market value of our total long-term obligations (including current portion) was $6,999.8 million at December 31, 2000. A 10% increase in market interest rates at December 31, 2000 65 would result in a decrease in the fair value of total long-term obligations by approximately $96 million. A 10% decrease in market interest rates at December 31, 2000 would result in an increase in the fair value of total long-term obligations by approximately $104 million. COMMODITY PRICE RISK Electric power generated at our uncontracted plants is generally sold under bilateral arrangements with utilities and power marketers under short-term contracts with terms of two years or less, or, in the case of the Homer City plant, to the PJM or the NYISO. We have developed risk management policies and procedures which, among other things, address credit risk. When making sales under negotiated bilateral contracts, it is our policy to deal with investment grade counterparties or counterparties that provide equivalent credit support. Exceptions to the policy are granted only after thorough review and scrutiny by Edison Mission Energy's Risk Management Committee. Most entities that have received exceptions are organized power pools and quasi-governmental agencies. We hedge a portion of the electric output of our merchant plants, whose output is not committed to be sold under long-term contracts, in order to lock in desirable outcomes. When appropriate, we manage the spread between electric prices and fuel prices, and use forward contracts, swaps, futures, or options contracts to achieve those objectives. Our electric revenues were increased by $47.5 million, $60.9 million and $108.4 million in 2000, 1999 and 1998, respectively, as a result of electricity rate swap agreements and other hedging mechanisms. A 10% increase in pool prices would result in a $130.8 million decrease in the fair market value of electricity rate swap agreements. A 10% decrease in pool prices would result in a $130.5 million increase in the fair market value of electricity rate swap agreements. An electricity rate swap agreement is an exchange of a fixed price of electricity for a floating price. As a seller of power, we receive the fixed price in exchange for a floating price, like the index price associated with electricity pools. A 10% increase in electricity prices at December 31, 2000 would result in a $1.8 million decrease in the fair market value of forward contracts entered into by the Loy Yang B plant. A 10% decrease in electricity prices at December 31, 2000 would result in a $1.8 million increase in the fair market value of forward contracts entered into by Loy Yang B plant. A 10% increase in fuel oil, natural gas and electricity forward prices at December 31, 2000 would result in a $15.7 million decrease in the fair market value of energy contracts utilized by our domestic trading operations in energy trading and price risk management activities. A 10% decrease in fuel oil, natural gas and electricity forward prices at December 31, 2000 would result in a $15.7 million increase in the fair market value of energy contracts utilized by our domestic trading operations in energy trading and price risk management activities. AMERICAS On September 1, 2000, we acquired the trading operations of Citizens Power LLC. As a result of this acquisition, we have expanded our trading operations beyond the traditional marketing of our electric power. Our energy trading and price risk management activities give rise to market risk, which represents the potential loss that can be caused by a change in the market value of a particular commitment. Market risks are actively monitored to ensure compliance with the risk management policies of Edison Mission Energy. Policies are in place which limit the amount of total net exposure we may enter into at any point in time. Procedures exist which allow for monitoring of all commitments and positions with daily reporting to senior management. We perform a "value at risk" analysis in our daily business to measure, monitor and control our overall market risk exposure. The use of value at risk allows management to aggregate overall risk, compare risk on a consistent basis and identify the reasons for the risk. Value at risk measures the worst expected loss over a given time interval, under normal market conditions, at a given confidence level. Given the inherent limitations of value at risk and relying on a single risk measurement tool, we supplement this approach with industry "best 66 practice" techniques including the use of stress testing and worst-case scenario analysis, as well as stop limits and counterparty credit exposure limits. Electric power generated at the Homer City plant is sold under bilateral arrangements with domestic utilities and power marketers under short-term contracts with terms of two years or less, or to the PJM or the NYISO. These pools have short-term markets, which establish an hourly clearing price. The Homer City plant is situated in the PJM control area and is physically connected to high-voltage transmission lines serving both the PJM and NYISO markets. The Homer City plant can also transmit power to the midwestern United States. Electric power generated at the Illinois Plants is sold under power purchase agreements with Exelon Generation Company, in which Exelon Generation Company purchases capacity and has the right to purchase energy generated by the Illinois Plants. The agreements, which began on December 15, 1999 and have a term of up to five years, provide for Exelon Generation Company to make capacity payments for the plants under contract and energy payments for the electricity produced by these plants and taken by Exelon Generation Company. The capacity payments provide the Illinois Plants revenue for fixed charges, and the energy payments compensate the Illinois Plants for variable costs of production. If Exelon Generation Company does not fully dispatch the plants under contract, the Illinois Plants may sell, subject to specified conditions, the excess energy at market prices to neighboring utilities, municipalities, third party electric retailers, large consumers and power marketers on a spot basis. A bilateral trading infrastructure already exists with access to the Mid-America Interconnected Network and the East Central Area Reliability Council. UNITED KINGDOM Our plants in the U.K. currently sell their electrical energy and capacity through a centralized electricity pool, which establishes a half-hourly clearing price, also referred to as the pool price, for electrical energy. This system has been in place since 1989 but is due to be replaced on March 27, 2001 with a bilateral physical trading system referred to as the new electricity trading arrangements. The new electricity trading arrangements are the direct result of an October 1997 request by the Minister for Science, Energy and Industry who asked the U.K. Director General of Electricity Supply to review the operation of the pool pricing system. In July 1998 the Director General proposed that the current structure of contracts for differences and compulsory trading via the pool at half-hourly clearing prices bid a day ahead be abolished. The U.K. Government accepted the proposals in October 1998 subject to reservations. Following this, further proposals were published by the Government and the Director General in July and October 1999. The proposals include, among other things, the establishment of a spot market or voluntary short-term power exchanges operating from 24 to 3 1/2-hours before a trading period; a balancing mechanism to enable the system operator to balance generation and demand and resolve any transmission constraints; a mandatory settlement process for recovering imbalances between contracted and metered volumes with strong incentives for being in balance; and a Balancing and Settlement Code Panel to oversee governance of the balancing mechanism. Contracting over time periods longer than the day-ahead market are not directly affected by the proposals. Physical bilateral contracts will replace the current contracts for differences, but will function in a similar manner. However, it remains difficult to evaluate the future impact of the proposals. A key feature of the new electricity trading arrangements is to require firm physical delivery, which means that a generator must deliver, and a consumer must take delivery, against their contracted positions or face assessment of energy imbalance penalty charges by the system operator. A consequence of this should be to increase greatly the motivation of parties to contract in advance and develop forwards and futures markets of greater liquidity than at present. Recent experience has been that the new electricity trading arrangements have placed a significant downward pressure on forward contract prices. Furthermore, another consequence may be that counterparties may require additional credit support, including parent company guarantees or letters of credit. Legislation in the form of the Utilities Act, which was 67 approved July 28, 2000, allows for the implementation of new electricity trading arrangements and the necessary amendments to generators' licenses. Various key documents were designated by the Secretary of State and signed by participants on August 14, 2000 (the Go-Active Date); however, due to difficulties encountered during testing, implementation of the new electricity trading arrangements has been delayed from November 21, 2000 until March 27, 2001. The Utilities Act sets a principal objective for the Government and the Director General to "protect the interests of consumers.... where appropriate by promoting competition....". This represents a shift in emphasis toward the consumer interest. But this is qualified by a recognition that license holders should be able to finance their activities. The Act also contains new powers for the Government to issue guidance to the Director General on social and environmental matters, changes to the procedures for modifying licenses and a new power for the Director General to impose financial penalties on companies for breach of license conditions. We will be monitoring the operation of these new provisions. See "--Financing Plans." ASIA PACIFIC AUSTRALIA. The Loy Yang B plant sells its electrical energy through a centralized electricity pool, which provides for a system of generator bidding, central dispatch and a settlements system based on a clearing market for each half-hour of every day. The National Electricity Market Management Company, operator and administrator of the pool, determines a system marginal price each half-hour. To mitigate exposure to price volatility of the electricity traded into the pool, the Loy Yang B plant has entered into a number of financial hedges. From May 8, 1997 to December 31, 2000, approximately 53% to 64% of the plant output sold was hedged under vesting contracts, with the remainder of the plant capacity hedged under the State Hedge described below. Vesting contracts were put into place by the State Government of Victoria, Australia, between each generator and each distributor, prior to the privatization of electric power distributors in order to provide more predictable pricing for those electricity customers that were unable to choose their electricity retailer. Vesting contracts set base strike prices at which the electricity will be traded. The parties to the vesting contracts make payments, which are calculated based on the difference between the price in the contract and the half-hourly pool clearing price for the element of power under contract. Vesting contracts were sold in various structures and accounted for as electricity rate swap agreements. The State Hedge agreement with the State Electricity Commission of Victoria is a long-term contractual arrangement based upon a fixed price commencing May 8, 1997 and terminating October 31, 2016. The State Government of Victoria, Australia guarantees the State Electricity Commission of Victoria's obligations under the State Hedge. From January 2001 to July 2014, approximately 77% of the plant output sold is hedged under the State Hedge. From August 2014 to October 2016, approximately 56% of the plant output sold is hedged under the State Hedge. Additionally, the Loy Yang B plant entered into a number of fixed forward electricity contracts commencing January 1, 2001, which expire either on January 1, 2002 or January 1, 2003, and which will further mitigate against the price volatility of the electricity pool. NEW ZEALAND. The New Zealand Government has been undergoing a steady process of electric industry deregulation since 1987. Reform in the distribution and retail supply sector began in 1992 with legislation that deregulated electricity distribution and provided for competition in the retail electric supply function. The New Zealand Energy Market, established in 1996, is a voluntary competitive wholesale market which allows for the trading of physical electricity on a half-hourly basis. The Electricity Industry Reform Act, which was passed in July 1998, was designed to increase competition at the wholesale generation level by splitting up Electricity Company of New Zealand Limited, the large state-owned generator, into three separate generation companies. The Electricity Industry Reform Act also prohibits the ownership of both generation and distribution assets by the same entity. The New Zealand Government commissioned an inquiry into the electricity industry in February 2000. This Inquiry Board's report was presented to the government in mid 2000. The main 68 focus of the report was on the monopoly segments of the industry, transmission and distribution, with substantial limitations being recommended in the way in which these segments price their services in order to limit their monopoly power. Recommendations were also made with respect to the retail customer in order to reduce barriers to customers switching. In addition, the Board made recommendations in relation to the wholesale market's governance arrangements with the purpose of streamlining them. The recommended changes are now being progressively implemented. FOREIGN EXCHANGE RATE RISK Fluctuations in foreign currency exchange rates can affect, on a United States dollar equivalent basis, the amount of our equity contributions to, and distributions from, our international projects. As we continue to expand into foreign markets, fluctuations in foreign currency exchange rates can be expected to have a greater impact on our results of operations in the future. At times, we have hedged a portion of our current exposure to fluctuations in foreign exchange rates through financial derivatives, offsetting obligations denominated in foreign currencies, and indexing underlying project agreements to United States dollars or other indices reasonably expected to correlate with foreign exchange movements. In addition, we have used statistical forecasting techniques to help assess foreign exchange risk and the probabilities of various outcomes. We cannot assure you, however, that fluctuations in exchange rates will be fully offset by hedges or that currency movements and the relationship between certain macro economic variables will behave in a manner that is consistent with historical or forecasted relationships. Foreign exchange considerations for three major international projects, other than Paiton which was discussed earlier, are discussed below. The First Hydro, Ferrybridge and Fiddler's Ferry plants in the U.K. and the Loy Yang B plant in Australia have been financed in their local currency, pounds sterling and Australian dollars, respectively, thus hedging the majority of their acquisition costs against foreign exchange fluctuations. Furthermore, we have evaluated the return on the remaining equity portion of these investments with regard to the likelihood of various foreign exchange scenarios. These analyses use market derived volatilities, statistical correlations between specified variables, and long-term forecasts to predict ranges of expected returns. Foreign currencies in the U.K., Australia and New Zealand decreased in value compared to the U.S. dollar by 7%, 15% and 15%, respectively (determined by the change in the exchange rates from December 31, 1999 to December 31, 2000). The decrease in value of these currencies was the primary reason for the foreign currency translation loss of $157.3 million during 2000. A 10% increase or decrease in the exchange rate at December 31, 2000 would result in foreign currency translation gains or losses of $196.7 million. In December 2000, we entered into foreign currency forward exchange contracts in the ordinary course of business to protect ourselves from adverse currency rate fluctuations on anticipated foreign currency commitments with varying maturities ranging from January 2001 to July 2002. The periods of the forward exchange contracts correspond to the periods of the hedged transactions. At December 31, 2000, the outstanding notional amount of the contracts totaled $91 million, consisting of contracts to exchange U.S. dollars to pound sterling. A 10% fluctuation in exchange rates would change the fair value of the contracts at December 31, 2000 by approximately $6 million. We will continue to monitor our foreign exchange exposure and analyze the effectiveness and efficiency of hedging strategies in the future. OTHER The electric power generated by some of our investments in domestic operating projects, excluding the Homer City plant and the Illinois Plants, is sold to electric utilities under long-term contracts, typically with terms of 15 to 30-years. We structure our long-term contracts so that fluctuations in fuel 69 costs will produce similar fluctuations in electric and/or steam revenues and enter into long-term fuel supply and transportation agreements. The degree of linkage between these revenues and expenses varies from project to project, but generally permits the projects to operate profitably under a wide array of potential price fluctuation scenarios. ENVIRONMENTAL MATTERS AND REGULATIONS We are subject to environmental regulation by federal, state and local authorities in the United States and foreign regulatory authorities with jurisdiction over projects located outside the United States. We believe that we are in substantial compliance with environmental regulatory requirements and that maintaining compliance with current requirements will not materially affect our financial position or results of operation. However, possible future developments, such as the promulgation of more stringent environmental laws and regulations, and future proceedings which may be taken by environmental authorities, could affect the costs and the manner in which we conduct our business and could cause us to make substantial additional capital expenditures. We cannot assure you that we would be able to recover these increased costs from our customers or that our financial position and results of operations would not be materially adversely affected. Typically, environmental laws require a lengthy and complex process for obtaining licenses, permits and approvals prior to construction and operation of a project. Meeting all the necessary requirements can delay or sometimes prevent the completion of a proposed project as well as require extensive modifications to existing projects, which may involve significant capital expenditures. We expect that compliance with the Clean Air Act and the regulations and revised State Implementation Plans developed as a consequence of the Act will result in increased capital expenditures and operating expenses. For example, we expect to spend approximately $67 million in 2001 to install upgrades to the environmental controls at the Homer City plant to control sulfur dioxide and nitrogen oxide emissions. Similarly, we anticipate upgrades to the environmental controls at the Illinois Plants to control nitrogen oxide emissions to result in expenditures of approximately $61 million, $67 million, $130 million, $123 million and $57 million for 2001, 2002, 2003, 2004 and 2005, respectively. Provisions related to nonattainment, air toxins, permitting of new and existing units, enforcement and acid rain may affect our domestic plants; however, final details of all these programs have not been issued by the United States Environmental Protection Agency and state agencies. In addition, at the Ferrybridge and Fiddler's Ferry plants we anticipate environmental costs arising from plant modification of approximately $52 million for the 2001-2005 period. We own an indirect 50% interest in EcoElectrica, L.P., a limited partnership which owns and operates a liquified natural gas import terminal and cogeneration project at Penuelas, Puerto Rico. In 2000, the U.S. Environmental Protection Agency issued to EcoElectrica a notice of violation and a compliance order alleging violations of the federal Clean Air Act primarily related to start-up activities. Representatives of EcoElectrica have met with the Environmental Protection Agency to discuss the notice of violations and compliance order. To date, EcoElectrica has not been informed of the commencement of any formal enforcement proceedings. It is premature to assess what, if any, action will be taken by the Environmental Protection Agency. On November 3, 1999, the United States Department of Justice filed suit against a number of electric utilities for alleged violations of the Clean Air Act's "new source review" requirements related to modifications of air emissions sources at electric generating stations located in the southern and midwestern regions of the United States. Several states have joined these lawsuits. In addition, the United States Environmental Protection Agency has also issued administrative notices of violation alleging similar violations at additional power plants owned by some of the same utilities named as defendants in the Department of Justice lawsuit, as well as other utilities, and also issued an administrative order to the Tennessee Valley Authority for similar violations at certain of its power plants. The Environmental Protection Agency has also issued requests for information pursuant to the 70 Clean Air Act to numerous other electric utilities seeking to determine whether these utilities also engaged in activities that may have been in violation of the Clean Air Act's new source review requirements. To date, one utility, the Tampa Electric Company, has reached a formal agreement with the United States to resolve alleged new source review violations. Two other utilities, the Virginia Electric & Power Company and Cinergy Corp., have reached agreements in principle with the Environmental Protection Agency. In each case, the settling party has agreed to incur over $1 billion in expenditures over several years for the installation of additional pollution control, the retirement or repowering of coal fired generating units, supplemental environmental projects and civil penalties. These agreements provide for a phased approach to achieving required emission reductions over the next 10-15 years. The settling utilities have also agreed to pay civil penalties ranging from $3.5 million to $8.5 million. Prior to our purchase of the Homer City plant, the Environmental Protection Agency requested information from the prior owners of the plant concerning physical changes at the plant. Other than with respect to the Homer City plant, no proceedings have been initiated or requests for information issued with respect to any of our United States facilities. However, we have been in informal voluntary discussions with the Environmental Protection Agency relating to these facilities, which may result in the payment of civil fines. We cannot assure you that we will reach a satisfactory agreement or that these facilities will not be subject to proceedings in the future. Depending on the outcome of the proceedings, we could be required to invest in additional pollution control requirements, over and above the upgrades we are planning to install, and could be subject to fines and penalties. A new ambient air quality standard was adopted by the Environmental Protection Agency in July 1997 to address emissions of fine particulate matter. It is widely understood that attainment of the fine particulate matter standard may require reductions in nitrogen oxides and sulfur dioxides, although under the time schedule announced by the Environmental Protection Agency 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. In May 1999, the United States Court of Appeals for the District of Columbia Circuit held that Section 109(b)(1) of the Clean Air Act, the section of the Clean Air Act requiring the promulgation of national ambient air quality standards, as interpreted by the Environmental Protection Agency, was an unconstitutional delegation of legislative power. The Court of Appeals remanded both the fine particulate matter standard and the revised ozone standard to allow the EPA to determine whether it could articulate a constitutional application of Section 109(b)(1). On February 27, 2001, the Supreme Court, in Whitman v. American Trucking Associations, Inc., reversed the Circuit Court's judgment on this issue and remanded the case back to the Court of Appeals to dispose of any other preserved challenges to the particulate matter and ozone standards. Accordingly, as the final application of the revised particulate matter ambient air quality standard is potentially subject to further judicial proceedings, the impact of this standard on our facilities is uncertain at this time. On December 20, 2000, the Environmental Protection Agency issued a regulatory finding that it is "necessary and appropriate" to regulate emissions of mercury and other hazardous air pollutants from coal-fired power plants. The agency has added coal-fired power plants to the list of source categories under Section 112(c) of the Clean Air Act for which "maximum available control technology" standards will be developed. Eventually, unless overturned or reconsidered, the Environmental Protection Agency will issue technology-based standards that will apply to every coal-fired unit owned by us or our affiliates in the United States. This section of the Clean Air Act provides only for technology-based standards, and does not permit market trading options. Until the standards are actually promulgated, the potential cost of these control technologies cannot be estimated, and we cannot evaluate the potential impact on the operations of our facilities. Since the adoption of the United Nations Framework on Climate Change in 1992, there has been worldwide attention with respect to greenhouse gas emissions. In December 1997, the Clinton 71 Administration 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 required, by 2008-2012, to reduce its greenhouse gas emissions by 7% from 1990 levels. However, because of opposition to the treaty in the United States Senate, the Kyoto Protocol has not been submitted to the Senate for ratification. Although legislative developments at the federal and state level related to controlling greenhouse gas emissions are beginning, we are not aware of any state legislative developments in the states in which we operate. If the United States ratifies the Kyoto Protocol or we otherwise become subject to limitations on emissions of carbon dioxide from our plants, these requirements could have a significant impact on our operations. The Comprehensive Environmental Response, Compensation, and Liability Act, which is also known as CERCLA, and similar state statutes, require the cleanup of sites from which there has been a release or threatened release of hazardous substances. We are unaware of any material liabilities under this act; however, we can not assure you that we will not incur CERCLA liability or similar state law liability in the future. NEW ACCOUNTING STANDARDS Effective January 1, 2001, Edison Mission Energy adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For derivatives that qualify for hedge accounting, depending on the nature of the hedge, changes in fair value are either offset by changes in the fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. Effective January 1, 2001, we will record all derivatives at fair value unless the derivatives qualify for the normal sales and purchases exception. We expect that the portion of our business activities related to physical sales and purchases of power or fuel and those similar business activities of our affiliates will qualify for this exception. We expect the majority of our risk management activities will qualify for treatment under SFAS No. 133 as cash flow hedges with appropriate adjustments made to other comprehensive income. In the United Kingdom, we expect that the majority of our activities related to the Fiddler's Ferry, Ferrybridge and First Hydro power plants will not qualify for either the normal purchases and sales exception or as cash flow hedges. Accordingly, we expect the majority of these contracts will be recorded at fair value, with subsequent changes in fair value recorded through the income statement. As a result of the adoption of SFAS No. 133, we expect our quarterly earnings will be more volatile than earnings reported under our prior accounting policy. The cumulative effect on prior years' net income resulting from the change in accounting for derivatives in accordance with SFAS No. 133 is expected to be less than $10 million, net of tax. RECENT DEVELOPMENTS In February 2001, we completed the acquisition of a 50% interest in CBK Power Co. Ltd. in exchange for $20 million. CBK Power has entered into a 25-year build-rehabilitate-transfer-and-operate agreement with National Power Corporation related to the 726 MW Caliraya-Botocan-Kalayaan (CBK) hydroelectric project located in the Philippines. Financing for this $460 million project has been completed with equity contributions of $117 million (our 50% share is $58.5 million) required to be made upon completion of the rehabilitation and expansion, currently scheduled for 2003, and debt financing has been arranged for the remainder of the cost for this project. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information responding to Item 7A is filed with this report under Item 7. "Management's Discussion and Analysis of Results of Operations and Financial Condition." 72 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements: Report of Independent Public Accountants................ 74 Consolidated Statements of Income for the years ended 75 December 31, 2000, 1999 and 1998....................... Consolidated Balance Sheets at December 31, 2000 and 76-77 1999................................................... Consolidated Statements of Shareholder's Equity for the 78 years ended December 31, 2000, 1999, and 1998.......... Consolidated Statements of Cash Flows for the years 79 ended December 31, 2000, 1999 and 1998................. Notes to Consolidated Financial Statements.............. 80
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 73 EDISON MISSION ENERGY AND SUBSIDIARIES REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Edison Mission Energy: We have audited the accompanying consolidated balance sheets of Edison Mission Energy (a California corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholder's equity and cash flows for each of the three years in the period ended December 31, 2000. These consolidated 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. 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Edison Mission Energy and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index of financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Orange County, California March 28, 2001 74 EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ---------------------------------- 2000 1999 1998 ---------- ---------- -------- OPERATING REVENUES Electric revenues........................................ $2,951,038 $1,360,039 $664,055 Equity in income from energy projects.................... 221,819 218,058 171,819 Equity in income from oil and gas investments............ 45,057 26,286 17,613 Net losses from energy trading and price risk management............................................. (17,339) (6,413) -- Operation and maintenance services....................... 40,459 37,969 40,293 ---------- ---------- -------- Total operating revenues............................. 3,241,034 1,635,939 893,780 ---------- ---------- -------- OPERATING EXPENSES Fuel..................................................... 1,081,817 449,137 176,954 Plant operations......................................... 813,198 291,463 127,711 Operation and maintenance services....................... 28,135 27,501 28,386 Depreciation and amortization............................ 382,130 190,219 87,339 Long-term incentive compensation......................... (55,952) 136,316 39,000 Administrative and general............................... 160,879 114,849 83,925 ---------- ---------- -------- Total operating expenses............................. 2,410,207 1,209,485 543,315 ---------- ---------- -------- Operating income......................................... 830,827 426,454 350,465 ---------- ---------- -------- OTHER INCOME (EXPENSE) Interest and other income................................ 44,987 45,153 47,016 Gain on sale of assets................................... 25,756 7,627 1,148 Interest expense......................................... (689,397) (353,154) (182,901) Dividends on preferred securities........................ (32,075) (22,375) (13,149) ---------- ---------- -------- Total other income (expense)......................... (650,729) (322,749) (147,886) ---------- ---------- -------- Income before income taxes............................... 180,098 103,705 202,579 Provision (benefit) for income taxes..................... 72,536 (40,412) 70,445 ---------- ---------- -------- INCOME BEFORE ACCOUNTING CHANGE............................ 107,562 144,117 132,134 ---------- ---------- -------- Cumulative effect on prior years of change in accounting for major maintenance costs, net of tax.................. 17,690 -- -- Cumulative effect on prior years of change in accounting for start-up costs, net of tax........................... -- (13,840) -- ---------- ---------- -------- NET INCOME................................................. $ 125,252 $ 130,277 $132,134 ========== ========== ========
The accompanying notes are an integral part of these consolidated financial statements. 75 EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ------------------------- 2000 1999 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents................................. $ 962,865 $ 398,695 Accounts receivable--trade, net of allowance of $1,126 in 2000 and 1999........................................... 506,936 254,538 Accounts receivable--affiliates........................... 156,862 9,597 Assets under energy trading and price risk management..... 251,524 -- Inventory................................................. 279,864 258,864 Prepaid expenses and other................................ 49,004 35,665 ----------- ----------- Total current assets.................................... 2,207,055 957,359 ----------- ----------- INVESTMENTS Energy projects........................................... 2,044,043 1,891,703 Oil and gas............................................... 43,549 49,173 ----------- ----------- Total investments....................................... 2,087,592 1,940,876 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT............................... 10,585,710 12,533,413 Less accumulated depreciation and amortization............ 721,586 411,079 ----------- ----------- Net property, plant and equipment....................... 9,864,124 12,122,334 ----------- ----------- OTHER ASSETS Long-term receivables..................................... 267,599 7,767 Goodwill.................................................. 289,146 290,695 Deferred financing costs.................................. 113,652 133,948 Long-term assets under energy trading and price risk management.............................................. 56,695 -- Restricted cash and other................................. 131,228 81,242 ----------- ----------- Total other assets...................................... 858,320 513,652 ----------- ----------- TOTAL ASSETS................................................ $15,017,091 $15,534,221 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 76 EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ------------------------- 2000 1999 ----------- ----------- LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable--affiliates.............................. $ 25,489 $ 7,772 Accounts payable and accrued liabilities.................. 736,213 328,057 Liabilities under energy trading and price risk management.............................................. 281,657 -- Interest payable.......................................... 123,354 89,272 Short-term obligations.................................... 883,389 1,122,067 Current portion of long-term incentive compensation....... 93,000 -- Current maturities of long-term obligations............... 1,767,898 225,679 ----------- ----------- Total current liabilities............................... 3,911,000 1,772,847 ----------- ----------- LONG-TERM OBLIGATIONS NET OF CURRENT MATURITIES............. 5,334,789 7,439,308 ----------- ----------- LONG-TERM DEFERRED LIABILITIES Deferred taxes and tax credits............................ 1,611,485 1,520,490 Deferred revenue.......................................... 460,481 534,531 Long-term incentive compensation.......................... 51,766 253,513 Long-term liabilities under energy trading and price risk management.............................................. 58,016 -- Other..................................................... 314,610 468,161 ----------- ----------- Total long-term deferred liabilities.................... 2,496,358 2,776,695 ----------- ----------- TOTAL LIABILITIES........................................... 11,742,147 11,988,850 ----------- ----------- PREFERRED SECURITIES OF SUBSIDIARIES Company-obligated mandatorily redeemable security of partnership holding solely parent debentures............ 150,000 150,000 Subject to mandatory redemption........................... 176,760 208,840 Not subject to mandatory redemption....................... -- 118,054 ----------- ----------- Total preferred securities of subsidiaries................ 326,760 476,894 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Notes 7, 8, 13 and 14) SHAREHOLDER'S EQUITY Common stock, no par value; 10,000 shares authorized; 100 shares issued and outstanding........................... 64,130 64,130 Additional paid-in capital................................ 2,629,406 2,629,406 Retained earnings......................................... 401,396 364,434 Accumulated other comprehensive income (loss)............. (146,748) 10,507 ----------- ----------- TOTAL SHAREHOLDER'S EQUITY.................................. 2,948,184 3,068,477 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................. $15,017,091 $15,534,221 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 77 EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (IN THOUSANDS)
ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE SHAREHOLDER'S STOCK CAPITAL EARNINGS INCOME INCOME EQUITY -------- ---------- -------- ------------- ------------- ------------- BALANCE AT DECEMBER 31, 1997 $64,130 $ 629,406 $102,620 $ 30,446 $ 826,602 Comprehensive income........... Net income................... 132,134 $ 132,134 132,134 Other comprehensive income... Foreign currency translation adjustment net of income tax provision of $52......... (767) (767) (767) --------- Total Comprehensive income... 131,367 Stock option price appreciation on options exercised......... (409) (409) ------- ---------- -------- --------- ---------- BALANCE AT DECEMBER 31, 1998 64,130 629,406 234,345 29,679 957,560 Comprehensive income........... Net income................... 130,277 130,277 130,277 Other comprehensive income... Foreign currency translation adjustment net of income tax benefit of $1,678................ (19,172) (19,172) (19,172) --------- Total comprehensive income... 111,105 Contributions................ 2,000,000 2,000,000 Stock option price appreciation on options exercised.................. (188) (188) ------- ---------- -------- --------- ---------- BALANCE AT DECEMBER 31, 1999 64,130 2,629,406 364,434 10,507 3,068,477 Comprehensive income........... Net income................... 125,252 125,252 125,252 Other comprehensive income... Foreign currency translation adjustment net of income tax benefit of $3,934................ (157,255) (157,255) (157,255) --------- Total comprehensive income..... $ (32,003) ========= Cash dividends to parent....... (88,000) (88,000) Stock option price appreciation on options exercised......... (290) (290) ------- ---------- -------- --------- ---------- BALANCE AT DECEMBER 31, 2000 $64,130 $2,629,406 $401,396 $(146,748) $2,948,184 ======= ========== ======== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. 78 EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 ---------- ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................ $ 125,252 $ 130,277 $ 132,134 Adjustments to reconcile net income to net cash provided by operating activities Equity in income from energy projects................... (221,819) (218,058) (171,819) Equity in income from oil and gas investments........... (45,057) (26,286) (17,613) Distributions from energy projects...................... 188,741 188,040 165,206 Dividends from oil and gas.............................. 37,480 23,423 19,812 Depreciation and amortization........................... 382,130 190,219 87,339 Amortization of discount on short-term obligations...... 66,376 15,649 -- Deferred taxes and tax credits.......................... 242,062 67,741 85,138 Gain on sale of assets.................................. (25,756) (7,627) (1,148) Cumulative effect on prior years of change in accounting, net of tax................................ (17,690) 13,840 -- Decrease (increase) in accounts receivable................ (340,707) (178,803) 6,800 Increase in inventory..................................... (1,195) (39,692) (473) Decrease in assets under risk management.................. 27,688 -- -- Decrease (increase) in prepaid expenses and other......... 4,117 (11,563) (32,375) Increase in interest payable.............................. 43,809 32,564 14,081 Increase (decrease) in accounts payable and accrued liabilities............................................. 322,239 163,589 (8,648) Increase in liabilities under risk management............. 8,926 -- -- Increase (decrease) in long-term incentive compensation... (108,747) 134,862 32,952 Other, net................................................ (22,641) (61,025) (44,798) ---------- ---------- --------- Net cash provided by operating activities............... 665,208 417,150 266,588 ---------- ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowing on long-term obligations........................ 3,099,206 5,267,843 102,450 Payments on long-term obligations......................... (3,366,345) (255,718) (84,502) Short-term financing, net................................. (303,257) 1,114,586 -- Issuance of preferred securities.......................... -- 326,168 -- Redemption of preferred securities........................ (124,650) -- -- Capital contributions from parent......................... -- 2,000,000 -- Cash dividends to parent.................................. (88,000) -- -- Financing costs........................................... -- (89,429) -- ---------- ---------- --------- Net cash provided by (used in) financing activities..... (783,046) 8,363,450 17,948 ---------- ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Investments in and loans to energy projects............... (177,466) (97,570) (117,216) Purchase of generating stations........................... (16,895) (7,958,474) -- Purchase of common stock of acquired companies............ (104,774) (653,499) (221,985) Capital expenditures...................................... (352,330) (216,440) (73,393) Proceeds from sale-leaseback transactions................. 1,667,000 -- -- Proceeds from loan repayments............................. 13,735 31,661 12,790 Proceeds from sale of assets.............................. 35,546 34,833 4,100 Increase in restricted cash............................... (60,048) (341) (12,507) Investments in other assets............................... (262,662) 50,337 (18,973) Other, net................................................ (23,989) (28,267) 18,941 ---------- ---------- --------- Net cash provided by (used in) investing activities..... 718,117 (8,837,760) (408,243) ---------- ---------- --------- Effect of exchange rate changes on cash..................... (36,109) (3,323) (2,998) ---------- ---------- --------- Net increase (decrease) in cash and cash equivalents........ 564,170 (60,483) (126,705) Cash and cash equivalents at beginning of period............ 398,695 459,178 585,883 ---------- ---------- --------- Cash and cash equivalents at end of period.................. $ 962,865 $ 398,695 $ 459,178 ========== ========== =========
The accompanying notes are an integral part of these consolidated financial statements. 79 EDISON MISSION ENERGY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS) NOTE 1. GENERAL ORGANIZATION Edison Mission Energy is a wholly-owned subsidiary of The Mission Group, a wholly-owned, non-utility subsidiary of Edison International, the parent holding company of Southern California Edison Company. Through our subsidiaries, we are engaged in the business of developing, acquiring, owning or leasing and operating electric power generation facilities worldwide. We also conduct energy trading and price risk management activities in power markets open to competition. CALIFORNIA POWER CRISIS Edison International, our ultimate parent company, is a holding company. Edison International is also the corporate parent of Southern California Edison Company, an electric utility that buys and sells power in California. In the past year, various market conditions and other factors have resulted in higher wholesale power prices to California utilities. At the same time, two of the three major utilities, Southern California Edison and Pacific Gas and Electric Co., have operated under a retail rate freeze. As a result, there has been a significant under recovery of costs by Southern California Edison and Pacific Gas and Electric, and each of these companies has failed to make payments due to power suppliers and others. Given these and other payment defaults, creditors of Southern California Edison and Pacific Gas and Electric could file involuntary bankruptcy petitions against these companies. Other results of the under recoveries could include an end to the rate freeze and significant retail rate increases. A number of federal and state, legislative and regulatory initiatives addressing the issues of the California electric power industry have been proposed, including wholesale rate caps, retail rate increases, acceleration of power plant permitting and state entry into the power market. Many of these activities are ongoing. These activities may result in a restructuring of the California power market. At this time, these activities are in their preliminary stages, and it is not possible to estimate their likely ultimate outcome For more information on how the current California power crisis affects our investments, see "--Note 13. Commitments and Contingencies--Other Commitments and Contingencies--California Power Crisis." Southern California Edison's current financial condition has had, and may continue to have, an adverse impact on Edison International's credit quality and, as previously reported by Edison International, has resulted in cross-defaults under Edison International's credit facilities. Both Standard & Poor's Ratings Services and Moody's Investors Service, Inc. have lowered the credit ratings of Edison International and Southern California Edison to substantially below investment grade levels. The credit ratings remain under review for potential downgrade by both Standard & Poor's and Moody's. To isolate ourselves from the credit downgrades and potential bankruptcies of Edison International and Southern California Edison, and to facilitate our ability and the ability of our subsidiaries to maintain their respective investment grade credit ratings, on January 17, 2001, we amended our articles of incorporation and our bylaws to include so-called "ring-fencing" provisions. These ring-fencing provisions are intended to preserve us as a stand-alone investment grade rated entity despite the current credit difficulties of Edison International and Southern California Edison. These provisions 80 require the unanimous approval of our board of directors, including at least one independent director, before we can do any of the following: - declare or pay dividends or distributions unless: - we then have an investment grade credit rating and receive rating agency confirmation that the dividend or distribution will not result in a downgrade; or - the dividends do not exceed $32.5 million in any fiscal quarter and we meet an interest coverage ratio of not less than 2.2 to 1 for the immediately preceding four fiscal quarters. We currently meet this interest coverage ratio; - institute or consent to bankruptcy, insolvency or similar proceedings or actions; or - consolidate or merge with any entity or transfer substantially all our assets to any entity, except to an entity that is subject to similar restrictions. We cannot assure you that these measures will effectively isolate us from the credit downgrades or the potential bankruptcies of Edison International and Southern California Edison. In January 2001, Standard & Poor's and Moody's lowered our credit ratings. Our senior unsecured credit ratings were downgraded to "BBB-" from "A-" by Standard & Poor's and to "Baa3" from "Baa1" by Moody's. Our credit ratings remain investment grade. Both Standard & Poor's and Moody's have indicated that the credit ratings outlook for us is stable. A downgrade in our credit ratings below investment grade could increase our cost of capital, increase our credit support obligations, make efforts to raise capital more difficult and could have an adverse impact on us and our subsidiaries. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATIONS The consolidated financial statements include Edison Mission Energy and its majority-owned subsidiaries, partnerships and a special purpose corporation. All significant intercompany transactions have been eliminated. Certain prior year reclassifications have been made to conform to the current year financial statement presentation. MANAGEMENT'S USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires us 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 reported period. Actual results could differ from those estimates. CASH EQUIVALENTS Cash equivalents include time deposits and other investments totaling $555.7 million at December 31, 2000, with maturities of three months or less. All investments are classified as available-for-sale. INVESTMENTS Investments in energy projects and oil and gas investments with 50% or less voting stock are accounted for by the equity method. The majority of energy projects and all investments in oil and gas are accounted for under the equity method at December 31, 2000 and 1999. The equity method of accounting is generally used to account for the operating results of entities over which we have a significant influence but in which we do not have a controlling interest. 81 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, including leasehold improvements and construction in progress, are capitalized at cost and are principally comprised of our majority-owned subsidiaries' plants and related facilities. Depreciation and amortization are computed by using the straight-line method over the useful life of the property, plant and equipment and over the lease term for leasehold improvements. As part of the acquisition of the Illinois Plants and the Homer City plant, we acquired emission allowances under the Environmental Protection Agency's Acid Rain Program. Although the emission allowances granted under this program are freely transferable, we intend to use substantially all the emission allowances in the normal course of our business to generate electricity. Accordingly, we have classified emission allowances expected to be used by us to generate power as part of property, plant and equipment. Acquired emission allowances will be amortized over the estimated lives of the plants on a straight-line basis. Useful lives for property, plant, and equipment are as follows: Furniture and office equipment.............................. 3 - 20 years Building, plant and equipment............................... 10 - 60 years Emission allowances......................................... 20 - 40 years Civil works................................................. 40 - 80 years Capitalized leased equipment................................ 25 - 33 years Leasehold improvements...................................... Life of lease
GOODWILL Goodwill represents the cost incurred in excess of the fair value of net assets acquired in a purchase transaction. The amounts are being amortized on a straight-line basis over periods ranging from 20 to 40 years. Accumulated amortization was $38.8 million and $33.2 million at December 31, 2000 and 1999, respectively. IMPAIRMENT OF INVESTMENTS AND LONG-LIVED ASSETS We periodically evaluate the potential impairment of our investments in projects and other long-lived assets, including goodwill, based on a review of estimated future cash flows expected to be generated. If the carrying amount of the investment or asset exceeds the amount of the expected future cash flows, undiscounted and without interest charges, then an impairment loss for our investments in projects and other long-lived assets is recognized in accordance with Accounting Principles Board Opinion No. 18 "The Equity Method of Accounting for Investments in Common Stock" and Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," respectively. CAPITALIZED INTEREST Interest incurred on funds borrowed by us to finance project construction is capitalized. Capitalization of interest is discontinued when the projects are completed and deemed operational. Such capitalized interest is included in investment in energy projects and property, plant and equipment. 82 Capitalized interest is amortized over the depreciation period of the major plant and facilities for the respective project.
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Interest incurred................................... $703.7 $380.6 $209.2 Interest capitalized................................ (14.3) (27.4) (26.3) ------ ------ ------ $689.4 $353.2 $182.9 ====== ====== ======
INCOME TAXES We are included in the consolidated federal income tax and combined state franchise tax returns of Edison International. We calculate our income tax provision on a separate company basis under a tax sharing arrangement with The Mission Group, which in turn has an agreement with Edison International. Tax benefits generated by us and used in the Edison International consolidated tax return are recognized by us without regard to separate company limitations. We account for income taxes using the asset-and-liability method, wherein deferred tax assets and liabilities are recognized for future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities using enacted rates. Investment and energy tax credits are deferred and amortized over the term of the power purchase agreement of the respective project. Income tax accounting policies are discussed further in Note 10. MAINTENANCE ACCRUALS Certain of our plant facilities' major pieces of equipment require major maintenance on a periodic basis. These costs are expensed as incurred. Through December 31, 1999, we accrued for major maintenance costs incurred during the period between turnarounds (referred to as "accrue in advance" accounting method). The accounting policy has been widely used by independent power producers as well as several other industries. In March 2000, the Securities and Exchange Commission issued a letter to the Accounting Standards Executive Committee, stating its position that the Securities and Exchange Commission staff does not believe it is appropriate to use an "accrue in advance" method for major maintenance costs. The Accounting Standards Executive Committee agreed to add accounting for major maintenance costs as part of an existing project and to issue authoritative guidance by August 2001. Due to the position taken by the Securities and Exchange Commission staff, we voluntarily decided to change our accounting policy to record major maintenance costs as an expense as incurred. Such change in accounting policy is considered preferable based on the recent guidance provided by the Securities and Exchange Commission. In accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," we have recorded $17.7 million, after tax, increase to net income, as a cumulative change in the accounting for major maintenance costs during the quarter ended March 31, 2000. Pro forma data have not been provided for prior periods, as the impact would not be material. PROJECT DEVELOPMENT COSTS We capitalize only the direct costs incurred in developing new projects subsequent to being awarded a bid. These costs consist of professional fees, salaries, permits, and other directly related development costs incurred by us. The capitalized costs are amortized over the life of operational projects or charged to expense if management determines the costs to be unrecoverable. 83 DEFERRED FINANCING COSTS Bank, legal and other direct costs incurred in connection with obtaining financing are deferred and amortized as interest expense on a basis which approximates the effective interest rate method over the term of the related debt. Accumulated amortization of these costs amounted to $30.4 million in 2000 and $9.7 million in 1999. REVENUE RECOGNITION We record revenue and related costs as electricity is generated or services are provided. For our long-term power contracts that provide for higher pricing in the early years of the contract, revenue is recognized in accordance with Emerging Issues Task Force Issued Number 91-6 "Revenue Recognition of Long-Term Sales Contract," which results in a deferral and levelization of revenues being recognized. Also included in deferred revenues is the deferred gain from the termination of the Loy Yang B power sales agreement. Revenues are adjusted for price differentials resulting from electricity rate swap agreements in the United States, United Kingdom and Australia. These rate swap agreements are discussed further in Note 7. DERIVATIVE FINANCIAL INSTRUMENTS We engage in price risk management activities for both trading and non-trading purposes. Derivative financial instruments are mainly utilized by us to manage exposure to fluctuations in interest rates, foreign exchange rates, oil and gas prices and energy prices. Hedge accounting is utilized to account for financial instruments entered into for non-trading purposes so long as there is a high degree of correlation between price movements in the derivative and the item designated as being hedged. For example, the differentials to be paid or received related to interest rate agreements are recorded as adjustments to interest expense. The differentials to be paid or received related to electricity rate swap agreements are currently recorded as adjustments to electric revenues or fuel expenses. An electricity rate swap agreement is an exchange of a fixed price of electricity for a floating price. Under hedge accounting, gains and losses on financial instruments used for hedging purposes are recognized in the Consolidated Income Statement in the same manner as the hedged item. If a derivative financial instrument contract is terminated because it is probable that a transaction or forecasted transaction will not occur, any gain or loss as of such date is immediately recognized. If a derivative financial instrument contract is terminated for other economic reasons, any gain or loss as of the termination date is deferred and recorded concurrently with the related energy purchase or sale. Mark-to-market accounting would be used if the hedge accounting criteria were not met. Derivative financial instruments that are utilized for trading purposes are accounted for using the fair value method under EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." Under this method, forwards, futures, options, swaps and other financial instruments with third parties are reflected at market value and are included in the balance sheet as assets or liabilities from energy trading activities. In the absence of quoted value, financial instruments are valued at fair value, considering time value, volatility of the underlying commodity, and other factors as determined by Edison Mission Energy. Resulting gains and losses are recognized in net gains (losses) from energy trading and price risk management in the accompanying Consolidated Income Statements in the period of change. Assets from energy trading and price risk management activities include the fair value of open financial positions related to trading activities and the present value of net amounts receivable from structured transactions. Liabilities from energy trading and price risk management activities include the fair value of open financial positions related to trading activities of open financial positions related to trading activities and the present value of net amounts payable from structured transactions. 84 TRANSLATION OF FOREIGN FINANCIAL STATEMENTS Assets and liabilities of most foreign operations are translated at end of period rates of exchange, and the income statements are translated at the average rates of exchange for the year. Gains or losses from translation of foreign currency financial statements are included in comprehensive income in shareholder's equity. Gains or losses resulting from foreign currency transactions are normally included in other income in the consolidated statements of income. Foreign currency transaction gains/(losses) amounted to $12.8 million, ($1.7) million and ($1.2) million for 2000, 1999 and 1998, respectively. STOCK-BASED COMPENSATION We measure compensation expense relative to stock-based compensation by the intrinsic-value method. NEW ACCOUNTING STANDARD Effective January 1, 2001, Edison Mission Energy adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For derivatives that qualify for hedge accounting, depending on the nature of the hedge, changes in fair value are either offset by changes in the fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. Effective January 1, 2001, we will record all derivatives at fair value unless the derivatives qualify for the normal sales and purchases exception. We expect that the portion of our business activities related to physical sales and purchases of power or fuel and those similar business activities of our affiliates will qualify for this exception. We expect the majority of our risk management activities will qualify for treatment under SFAS No. 133 as cash flow hedges with appropriate adjustments made to other comprehensive income. In the United Kingdom, we expect that the majority of our activities related to the Fiddler's Ferry, Ferrybridge and First Hydro power plants will not qualify for either the normal purchases and sales exception or as cash flow hedges. Accordingly, we expect the majority of these contracts will be recorded at fair value, with subsequent changes in fair value recorded through the income statement. As a result of the adoption of SFAS No. 133, we expect our quarterly earnings will be more volatile than earnings reported under our prior accounting policy. The cumulative effect on prior years' net income resulting from the change in accounting for derivatives in accordance with SFAS No. 133 is expected to be less than $10 million, net of tax. NOTE 3. INVENTORY Inventory is stated at the lower of weighted average cost or market. Inventory at December 31, 2000 and December 31, 1999 consisted of the following:
2000 1999 -------- -------- Coal and fuel oil........................................... $207.8 $190.1 Spare parts, materials and supplies......................... 72.1 68.8 ------ ------ Total....................................................... $279.9 $258.9 ====== ======
85 NOTE 4. ACQUISITIONS ACQUISITION OF SUNRISE PROJECT On November 17, 2000, we completed a transaction with Texaco Inc. to purchase a proposed 560 MW gas fired combined cycle project to be located in Kern County, California, referred to as the Sunrise Project. The acquisition included all rights, title and interest held by Texaco in the Sunrise Project, except that Texaco has an option to repurchase a 50% interest in the project prior to its commercial operation. As part of this transaction, we also: (i) acquired from Texaco an option to purchase two gas turbines which we plan to utilize in the project, (ii) provided Texaco an option to purchase two of the turbines available to us under the Edison Mission Energy Master Turbine Lease and (iii) granted Texaco an option to acquire a 50% interest in 1000 MW of future power plant projects we designate. For more information on the Edison Mission Energy Master Turbine Lease, see "Note 14. Lease Commitments--Edison Mission Energy Master Turbine Lease." The Sunrise Project consists of two phases with Phase I, construction of a single-cycle gas fired facility (320 MW), currently scheduled to be completed in August 2001, and Phase II, conversion to a combined-cycle gas fired facility (560 MW), currently scheduled to be completed in June 2003. In December 2000, we received the Energy Commission Certification and a permit to construct the Sunrise Plant, which allowed us to commence construction of Phase I. We are negotiating with the California Department of Water Resources the detailed terms and conditions of a long-term cost-based-type rate power purchase agreement. We cannot assure you that we will be successful in reaching a final agreement. The total purchase price of the Sunrise Project was $27 million. We funded the purchase with cash. The total estimated construction cost of this project is approximately $400 million. As of December 31, 2000, we had also spent $17.8 million on construction costs for the Sunrise Project. ACQUISITION OF TRADING OPERATIONS OF CITIZENS POWER LLC On September 1, 2000, we completed a transaction with P&L Coal Holdings Corporation and Gold Fields Mining Corporation (Peabody) to acquire the trading operations of Citizens Power LLC and a minority interest in structured transaction investments relating to long-term power purchase agreements. The purchase price of $44.9 million was based on the sum of: (a) fair market value of the trading portfolio and the structured transaction investments at the date of the acquisition and (b) $25 million. The acquisition was funded with cash. As a result of this acquisition, we have expanded our trading operations beyond the traditional marketing of our electric power. By the end of the third quarter of 2000, the Citizens trading operations were merged into our own marketing operations under Edison Mission Marketing & Trading, Inc. ACQUISITION OF INTEREST IN ITALIAN WIND On March 15, 2000, we completed a transaction with UPC International Partnership CV II to acquire Edison Mission Wind Power Italy B.V., formerly known as Italian Vento Power Corporation Energy 5 B.V., which owns a 50% interest in a series of power projects that are in operation or under development in Italy. All the projects use wind to generate electricity from turbines which is sold under fixed-price, long-term tariffs. Assuming all projects under development are completed, currently scheduled for 2002, the total capacity of these projects will be 283 MW. The total purchase price is 90 billion Italian Lira (approximately $44 million at December 31, 2000), with equity contribution obligations of up to 33 billion Italian Lira (approximately $16 million at December 31, 2000), depending on the number of projects that are ultimately developed. As of December 31, 2000, our payments in respect of these projects included $27 million toward the purchase price and $13 million in equity contributions. 86 ACQUISITION OF ILLINOIS PLANTS On December 15, 1999, we completed a transaction with Commonwealth Edison, a subsidiary of Exelon Corporation, to acquire Commonwealth Edison's fossil-fuel power generating plants located in Illinois, which are collectively referred to as the Illinois Plants. These plants provide access to Mid-America Interconnected Network and the East Central Area Reliability Council. In connection with this transaction, we entered into power purchase agreements with Commonwealth Edison with terms of up to five years, pursuant to which Commonwealth Edison purchases capacity and has the right to purchase energy generated by the plants. Subsequently, Commonwealth Edison assigned its rights and obligations under these power purchase agreements to Exelon Generation Company, LLC. Concurrently with the acquisition of the Illinois Plants, we assigned our right to purchase the Collins Station, a 2,698 MW gas and oil-fired generating station located in Illinois, to third party lessors. After this assignment, we entered into leases of the Collins Station with terms of 33.75 years. The aggregate megawatts either purchased or leased as a result of these transactions with Commonwealth Edison Company and the third party lessors is 9,539 MW. Consideration for the Illinois Plants, excluding $860 million paid by the third party lessors to acquire the Collins Station, consisted of a cash payment of approximately $4.1 billion. The acquisition was funded primarily with a combination of approximately $1.6 billion of non-recourse debt secured by a pledge of the stock of specified subsidiaries, $1.3 billion of Edison Mission Energy's debt and $1.2 billion in equity contributions to us from Edison International. ACQUISITION OF FERRYBRIDGE AND FIDDLER'S FERRY PLANTS On July 19, 1999, we completed a transaction with PowerGen UK plc to acquire the Ferrybridge and Fiddler's Ferry coal fired electric generating plants located in the U.K.. Ferrybridge, located in West Yorkshire, and Fiddler's Ferry, located in Warrington, each has a generating capacity of approximately 2,000 MW. Consideration for the purchase of the Ferrybridge and Fiddler's Ferry plants by our indirect subsidiary, Edison First Power, consisted of an aggregate of approximately $2.0 billion (L1.3 billion sterling at the time of the acquisition) for the two plants. The acquisition was funded primarily with a combination of net proceeds of L1.15 billion from the Edison First Power Limited Guaranteed Secured Variable Rate Bonds due 2019, a $500 million equity contribution to us from Edison International and cash. The Edison First Power Bonds were issued to a special purpose entity formed by Merrill Lynch International. Merrill Lynch International sold the variable rate coupons portion of the bonds to a special purpose entity that borrowed $1.3 billion (830 million pounds sterling at the time of the acquisition) under a term loan facility due 2012 to finance the purchase. ACQUISITION OF INTEREST IN CONTACT ENERGY On May 14, 1999, we completed a transaction with the New Zealand government to acquire 40% of the shares of Contact Energy Limited. The remaining 60% of Contact Energy's shares were sold in an overseas public offering resulting in widespread ownership among the citizens of New Zealand and offshore investors. These shares are publicly traded on stock exchanges in New Zealand and Australia. During 2000, we increased our share of ownership in Contact Energy to 42%. Contact Energy owns and operates hydroelectric, geothermal and natural gas fired power generating plants primarily in New Zealand with a total current generating capacity of 2,449 MW. Consideration for Contact Energy consisted of a cash payment of approximately $635 million (1.2 billion New Zealand dollars at the time of the acquisition), which was financed by $120 million of preferred securities, a $214 million (400 million New Zealand dollars at the time of the acquisition) 87 credit facility, a $300 million equity contribution to us from Edison International and cash. The credit facility was subsequently paid off with proceeds from the issuance of additional preferred securities. ACQUISITION OF HOMER CITY PLANT On March 18, 1999, we completed a transaction with GPU, Inc., New York State Electric & Gas Corporation and their respective affiliates to acquire the 1,884 MW Homer City Electric Generating Station. This facility is a coal fired plant in the mid-Atlantic region of the United States and has direct, high voltage interconnections to both the New York Independent System Operator, which controls the transmission grid and energy and capacity markets for New York State and is commonly known as the NYISO, and the Pennsylvania-New Jersey-Maryland Power Pool, which is commonly known as the PJM. Consideration for the Homer City plant consisted of a cash payment of approximately $1.8 billion, which was partially financed by $1.5 billion of new loans, combined with our revolver borrowings and cash. ACQUISITION OF INTEREST IN ECOELECTRICA In December 1998, we acquired 50% of the 540 MW EcoElectrica liquefied natural gas combined-cycle cogeneration facility under construction in Penuelas, Puerto Rico for approximately $243 million. The project also includes a desalination plant and liquefied natural gas storage and vaporization facilities. Commercial operation commenced March 2000. ACCOUNTING TREATMENT OF ACQUISITIONS Each of the acquisitions described above has been accounted for utilizing the purchase method. The purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair market values. Amounts in excess of the fair value of the net assets acquired have been assigned to goodwill. Our consolidated statement of income reflects the operations of Citizens beginning September 1, 2000, Italian Wind beginning April 1, 2000, EcoElectrica beginning March 1, 2000, the Homer City plant beginning March 18, 1999, Contact Energy beginning May 1, 1999, the Ferrybridge and Fiddler's Ferry plants beginning July 19, 1999, and the Illinois Plants beginning December 15, 1999. PRO FORMA DATA The following unaudited pro forma data summarizes the consolidated results of operations for the periods indicated as if the acquisition of the Ferrybridge and Fiddler's Ferry plants had occurred at the beginning of 1999 and 1998. The pro forma data gives effect to certain adjustments including electric revenues, fuel expense, plant operations, depreciation and amortization, interest expense and related income tax adjustments. These results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made at the beginning of 1999 and 1998 or of the results which may occur in the future. Pro forma data has not been provided for the acquisitions of the Homer City plant and the Illinois Plants because these plants were previously operated as part of an integrated, regulated utility whose primary business was the sale of power bundled with transmission, distribution and customer support to retail customers. Accordingly, historical financial results of these plants would not be meaningful and are not required due to the acquisitions not being considered business combinations. Pro forma financial information is not 88 presented for the acquisition of trading operations of Citizens Power LLC as the effect of this acquisition was not material to our results of operations or financial position.
(UNAUDITED) YEARS ENDED DECEMBER 31, ------------------- 1999 1998 -------- -------- Operating revenues....................................... $1,889.9 $1,447.9 Income before accounting change and extraordinary loss... 126.2 95.7 Net income............................................... 112.4 95.7
The table below summarizes additional acquisitions by Edison Mission Energy or its wholly-owned subsidiaries from 1998 through 2000.
PERCENTAGE DATE ACQUISITION ACQUIRED PURCHASE PRICE - ---- ------------------------------ ---------- -------------- ENERGY PROJECTS October 5, 1999....... Pride Hold Limited (Roosecote) 20.0% $16.0 July 10, 1998......... Tri Energy Company Limited 25.0% 1.5 OIL AND GAS July 28, 2000......... Four Star Oil & Gas Company 1.7% 1.4 May 15, 2000.......... Four Star Oil & Gas Company 1.7% 1.8 December 17, 1999..... Four Star Oil & Gas Company 0.6% 2.3 January 1, 1998....... Four Star Oil & Gas Company 3.2% 4.1
NOTE 5. INVESTMENTS INVESTMENTS IN ENERGY PROJECTS Investments in energy projects, generally 50% or less owned partnerships and corporations, are accounted for by the equity method. The difference between the carrying value of energy project investments and the underlying equity in the net assets amounted to $479 million at December 31, 2000. The differences are being amortized over the life of the projects. The following table presents summarized financial information of the investments in energy projects:
DECEMBER 31, ------------------- 2000 1999 -------- -------- DOMESTIC ENERGY PROJECTS Equity investment...................................... $ 398.5 $ 424.7 Loans receivable....................................... 165.7 151.9 -------- -------- Subtotal............................................. 564.2 576.6 -------- -------- INTERNATIONAL ENERGY PROJECTS Equity investment...................................... 1,479.8 1,315.1 -------- -------- Total................................................ $2,044.0 $1,891.7 ======== ========
Our subsidiaries have provided loans or advances related to certain projects. Domestic loans at December 31, 2000 consist of the following: a $107.8 million, 10% interest loan, due on demand; a $26.3 million, 5% interest promissory note, interest payable semiannually, due April 2008; and a $31.6 million, 12% interest loan, due on demand. The undistributed earnings of investments accounted for by the equity method were $270.7 million in 2000 and $223.9 million in 1999. 89 The following table presents summarized financial information of the investments in energy projects accounted for by the equity method:
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Revenues....................................... $2,470.9 $2,031.8 $1,585.7 Expenses....................................... 1,984.0 1,590.2 1,255.6 -------- -------- -------- Net income................................... $ 486.9 $ 441.6 $ 330.1 ======== ======== ========
DECEMBER 31, ------------------- 2000 1999 -------- -------- Current assets........................................... $1,807.9 $ 722.3 Noncurrent assets........................................ 7,371.1 7,728.2 -------- -------- Total assets........................................... $9,179.0 $8,450.5 ======== ======== Current liabilities...................................... $1,163.9 $1,584.8 Noncurrent liabilities................................... 5,829.2 4,769.7 Equity................................................... 2,185.9 2,096.0 -------- -------- Total liabilities and equity........................... $9,179.0 $8,450.5 ======== ========
The majority of noncurrent liabilities are comprised of project financing arrangements that are non-recourse to us. The following table presents, as of December 31, 2000, the energy projects accounted for by the equity method that represent at least five percent (5%) of our income before tax or in which we have an investment balance greater than $50 million.
OWNERSHIP ENERGY PROJECT LOCATION INVESTMENT INTEREST OPERATING STATUS - -------------- --------------------- ---------- --------- ----------------------------- Contact Energy........ New Zealand $508.1(1) 42% Operating hydro, natural gas and geothermal facilities Paiton................ East Java, Indonesia 489.9 40% Operating coal fired facility EcoElectrica.......... Penuelas, Puerto Rico 298.4 50% Operating liquefied natural gas facility Watson................ Carson, CA 113.2 49% Operating cogeneration facility Brooklyn Navy Yard.... Brooklyn, NY 83.1 50% Operating cogeneration facility Sycamore.............. Bakersfield, CA 71.4 50% Operating cogeneration facility Midway-Sunset......... Fellows, CA 62.1 50% Operating cogeneration facility Kern River............ Bakersfield, CA 56.4 50% Operating cogeneration facility March Point........... Anacortes, WA 28.0 50% Operating cogeneration facility James River........... Hopewell, VA 24.0 50% Operating coal fired cogeneration facility
- -------------------------- (1) Investment is translated into U.S. dollars at the year-end exchange rate. At December 31, 2000, the quoted market value of our investment in Contact Energy was $288.2 million. The valuation represents a calculation based on the closing stock price of Contact Energy on the New Zealand stock exchange and is not necessarily indicative of the amount that could 90 be realized upon sale. We expect to recover our investment in Contact Energy based on future cash flows forecasted to be generated from the project. INVESTMENTS IN OIL AND GAS At December 31, 2000, we had one 35.84%-owned (with 34.54% voting stock) and one 50%-owned investment in oil and gas. These investments are accounted for utilizing the equity method. The difference between the carrying value of one oil and gas investment and the underlying equity in the net assets amounted to $10.8 million at December 31, 2000. The difference is being amortized on a unit of production basis over the life of the reserves. The following table presents summarized financial information of the investments in oil and gas:
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Operating revenues.................................. $382.6 $224.3 $211.3 Operating expenses.................................. 187.0 144.5 164.1 ------ ------ ------ Operating income.................................... 195.6 79.8 47.2 Provision (credit) for income taxes................. 63.6 16.9 (2.3) ------ ------ ------ Net income (before non-operating items)............. 132.0 62.9 49.5 Non-operating expense, net.......................... (9.8) (10.4) (13.5) ------ ------ ------ Net income........................................ $122.2 $ 52.5 $ 36.0 ====== ====== ======
DECEMBER 31, ------------------- 2000 1999 -------- -------- Current assets.............................................. $ 98.8 $ 47.0 Noncurrent assets........................................... 350.9 377.2 ------ ------ Total assets.............................................. $449.7 $424.2 ====== ====== Current liabilities......................................... $ 36.5 $ 22.7 Noncurrent liabilities...................................... 238.6 238.6 Deferred income taxes and other liabilities................. 61.7 48.1 Equity...................................................... 112.9 114.8 ------ ------ Total liabilities and equity.............................. $449.7 $424.2 ====== ======
During the fourth quarter of 1999, we completed the sale of 31.5% of our 50.1% interest in Four Star Oil & Gas for $34.2 million in cash and 50% interest in the acquirer, Four Star Holdings. Four Star Holdings financed the purchase of the interest in Four Star Oil & Gas from $27.5 million in loans from affiliates, including $13.7 million from us, and $13.7 million from cash on hand. Upon completion of the sale, we continue to own an 18.6% direct interest in Four Star Oil & Gas and an indirect interest of 15.75% which is held through Four Star Holdings. As a result of this transaction, our total interest in Four Star Oil & Gas has decreased from 50.1% to 34.35%. Cash proceeds from the sale were $34.2 million ($20.5 million net of the loan to Four Star Holdings). The gain on the sale of the 31.5% interest in Four Star Oil & Gas was $11.5 million of which we deferred 50%, or $5.6 million, due to our equity interest in Four Star Holdings. The after-tax gain on the sale was approximately $30 million. 91 NOTE 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
DECEMBER 31, -------------------- 2000 1999 -------- --------- Buildings, plant and equipment.......................... $7,842.6 $ 9,957.1 Emission allowances..................................... 1,285.3 1,310.9 Civil works............................................. 929.2 956.5 Construction in progress................................ 335.8 108.8 Capitalized leased equipment............................ 192.8 200.1 -------- --------- 10,585.7 12,533.4 Less accumulated depreciation and amortization.......... 721.6 411.1 -------- --------- Net property, plant and equipment..................... $9,864.1 $12,122.3 ======== =========
In connection with the Homer City, Loy Yang B, First Hydro, Doga and Iberian Hy-Power plant financings, lenders have taken a security interest in the respective plant assets. NOTE 7. FINANCIAL INSTRUMENTS SHORT-TERM OBLIGATIONS
DECEMBER 31, ---------------------- 2000 1999 -------- -------- Commercial Paper......................................... $444.2 $1,130.0 Other short-term obligations............................. 440.7 -- Unamortized discount..................................... (1.5) (7.9) ------ -------- Total.................................................. $883.4 $1,122.1 ====== ======== Weighted-average interest rate........................... 7.4% 6.9%
Commercial paper consists of a $700 million senior credit facility due May 2001 of which $444.2 million was outstanding at December 31, 2000. The commercial paper facility represents recourse debt and is indexed to LIBOR. Other short-term obligations consist of a borrowing under the $700 million senior credit facility and the $300 million senior credit facility due May 2001 and a 20 million pounds sterling (approximately $30 million at December 31, 2000) bank borrowing of which $283.5 million and $28.7 million were outstanding, respectively, at December 31, 2000. At December 31, 1999, commercial paper consisted of a $700 million facility due March 2000 and a $500 million facility due November 2000, of which $630 million and $500 million was outstanding, respectively. LONG-TERM OBLIGATIONS Long-term obligations include both corporate debt and non-recourse project debt, whereby lenders rely on specific project assets to repay such obligations. At December 31, 2000, recourse debt totaled 92 $1.2 billion and non-recourse project debt totaled $5.9 billion. Long-term obligations consist of the following:
DECEMBER 31, -------------------- 2000 1999 --------- -------- RECOURSE Edison Mission Energy (parent only) Senior Notes, net due 2002 (8.125%)....................................... $ 99.7 $ 99.6 due 2009 (7.73%)........................................ 596.4 596.1 Floating Rate Notes, net due 2001 (LIBOR+0.67%) (6.79% at 12/31/99)......................... -- 499.5 Bank of America NT&SA Credit Agreement due 2001 (LIBOR+0.175%) (6.849% at 12/31/00)....................... 349.0 215.0 Long-Term Obligations--Affiliate............................ 78.0 78.0 NON-RECOURSE (UNLESS OTHERWISE NOTED) Edison Mission Energy Funding Corp. Series A Notes, net due 1997-2003 (6.77%)................. 130.6 168.1 Series B Bonds, net due 2004-2008 (7.33%)................. 189.1 189.0 Edison Mission Holdings Co. Senior Secured Bonds--$300 MM due 2019 (8.137%)........... 300.0 300.0 Senior Secured Bonds--$530 MM due 2026 (8.734%)........... 530.0 530.0 Construction Loan due 2004 (LIBOR+1.0%) (7.701% at 12/31/00)............................................... 182.0 77.0 Edison Mission Midwest Holdings Co. Tranche A due 2002 (LIBOR+1.0%) (7.469% at 12/31/99)...... -- 840.0 Tranche B due 2004 (LIBOR+0.95%) (9.247% at 12/31/00)..... 626.0 839.0 Tranche C--$150 MM due 2004 (LIBOR+0.95%) (9.5% at 12/31/00)............................................... 143.4 -- Commercial Paper due 2002 (6.601%)........................ 803.9 -- Doga project Finance Agreement between Doga and OPIC due 2010 (U.S. Treasury Note+3.75%) (11.2% at 12/31/00).......... 86.6 90.9 NCM Credit Agreement due 2010 (U.S. LIBOR+1.25%) (8.24% at 12/31/00).................. 31.9 33.5 Ferrybridge and Fiddler's Ferry plants L830 MM Term Loan Facility due 2012 (Sterling LIBOR+1.5%) (7.786% at 12/31/00).............. 1,106.7 1,312.0 Pounds Sterling Coal and Capex Facility due 2003--recourse (Sterling LIBOR+0.875%+0.15%) (7.29% at 12/31/00)....... 86.7 22.6 L150 MM Long-term Obligation--Affiliate................... 224.3 -- First Hydro plants First Hydro Finance plc L400 MM Guaranteed Secured Bonds due 2021 (9%)........................................... 598.2 645.2 L18 MM Credit Agreement due 2004 (Sterling LIBOR+0.55%+0.0145%) (6.904% at 12/31/00)..... 26.9 29.0 Iberian Hy-Power plants Spanish peseta Project Finance Credit Facility due 2012 (MIBOR+0.75%) (5.69% at 12/31/00)....................... 56.2 53.9 Spanish peseta Subordinated Loan due 2003 (9.408%)........ 10.7 15.3 Spanish peseta Compagnie Generale Des Eaux due 2003 (non-interest bearing).................................. 22.5 31.9 Kwinana plant Australian dollar Syndicated Project Facility Agreement due 2012 (BBR+1.2%) (7.52% at 12/31/00)................. 49.8 62.4
93
DECEMBER 31, -------------------- 2000 1999 --------- -------- Loy Yang B plant Australian dollar Amortizing Term Facility due 2017 (BBR+0.5% to 1.1%) (7.037% at 12/31/00)................. 392.9 321.2 Australian dollar Interest Only Term Facility due 2012 (BBR+0.5% to 0.85%) (7.037% at 12/31/00)................ 272.5 484.6 Australian dollar Working Capital Facility due 2017 (BBR+0.5% to 1.1%) (7.037% at 12/31/00)................. 5.6 6.6 Roosecote plant Pounds sterling Term Loan and Guarantee Facility due 2005 (Sterling LIBOR+0.6%) (6.77% at 12/31/00)............... 98.8 97.8 Capital lease obligation (see Note 14).................... 0.9 22.8 Other long-term obligations--recourse....................... 3.4 4.0 --------- -------- Subtotal.................................................... $ 7,102.7 $7,665.0 Current maturities of long-term obligations................. (1,767.9) (225.7) --------- -------- Total....................................................... $ 5,334.8 $7,439.3 ========= ========
At December 31, 2000, we had available $24.5 million of borrowing capacity and approximately $126.5 million in letters of credit issued under a $500 million revolving credit facility that expires in October 2001. LONG-TERM OBLIGATIONS--AFFILIATES During 1997, we declared a dividend of $78 million to The Mission Group which was recorded as a note payable due in June 2007 with interest at LIBOR + 0.275% (6.96% at December 31, 2000). The note was subsequently exchanged for two notes with the same terms and conditions and assigned to other subsidiaries of Edison International. In January 2000, Edison Capital, a wholly-owned subsidiary of Edison International, provided 150 million pounds sterling of subordinated financing to Edison First Power Holdings I, an indirect, wholly-owned affiliate of Edison Mission Energy. The coupon bearing interest sums are due January 2024 at a coupon rate of 11.79%. On January 17, 2001, the subordinated financing was repaid with interest and, therefore, the obligation is included in current maturities of long-term obligations. FINANCING OF THE HOMER CITY PLANT In March 1999, Edison Mission Holdings Co., an indirect, wholly-owned affiliate of Edison Mission Energy, closed a $1.1 billion financing in connection with the acquisition of the Homer City plant. The financing consisted of (1) an $800 million, 364-day term loan facility, (2) a $250 million, five-year term loan facility and (3) a $50 million, five-year revolving credit facility. The $800 million credit facility has since been repaid as described below. These loans are structured on a limited-recourse basis in which the lenders look primarily to the cash generated by the Homer City plant to repay the debt and have taken a security interest in the Homer City plant assets. We expect to use amounts available under the $250 million five-year term loan facility to fund environmental capital improvements at the Homer City plant and use amounts available under the $50 million five-year revolving credit facility for general working capital purposes. As of December 31, 2000 and 1999, there were no amounts outstanding under the $50 million five-year revolving credit facility. In May 1999, Edison Mission Holdings Co. completed an $830 million bond financing. The financing consists of (1) $300 million, 8.137% Senior Secured Bonds due 2019 and (2) $530 million, 8.734% Senior Secured Bonds due 2026. These bonds are non-recourse to us apart from the Credit Support Guarantee and Debt Service Reserve Guarantee entered into by us. The Credit Support 94 Guarantee requires us to guarantee the payment and performance of the obligations of Edison Mission Holdings to the bond holders, banks and other secured parties which financed the acquisition of the Homer City plant in an aggregate amount not to exceed approximately $42 million. This guarantee is to remain in place until December 31, 2001. To satisfy the requirements under the Edison Mission Holdings Co. bond financing to have a debt service reserve account balance in an amount equal to six months' debt service projected to be due following the payment of a distribution, Edison Mission Energy agreed to guarantee the payment and performance of the obligations of Edison Mission Holdings, in the amount of approximately $35 million, pursuant to a debt service reserve guarantee. In addition, Edison Mission Energy provides a guarantee of Edison Mission Holdings' obligations in the amount of $3 million to the lenders involved in the bank financing. As a result of Edison Mission Energy's downgrade in January 2001, Edison Mission Holdings is in the process of finalizing the arrangement of a letter of credit of approximately $35 million to replace the bond debt service reserve guarantee. FINANCING OF THE FERRYBRIDGE AND FIDDLER'S FERRY PLANTS In July 1999, Edison First Power Limited, an indirect, wholly-owned affiliate of Edison Mission Energy, issued Edison First Power Bonds due 2019. The bonds are guaranteed by us. The Edison First Power Bonds were issued to a special purpose entity formed by Merrill Lynch International, which sold the variable rate coupons portion of the bonds to another special purpose entity that borrowed 830 million pounds sterling (approximately $1.2 billion as of December 31, 2000) under a Term Loan Facility to finance the purchase. The Term Loan Facility accrues interest at sterling LIBOR plus 1.50% to 1.90% and is repaid in semi-annual installments over a 12-year period beginning December 1999. As part of the financing of the Ferrybridge and Fiddler's Ferry plants, we also entered into a 359 million pounds sterling (approximately $537 million as of December 31, 2000) Coal and Capex Facility due January 2004 and July 2004, respectively, and a 20 million pounds sterling (approximately $30 million as of December 31, 2000) working capital facility available through September 2019. As of December 31, 2000, $28.7 million was outstanding under the working capital facility. Edison First Power has defaulted on its financing documents related to the acquisition of the Fiddler's Ferry and Ferrybridge power plants. The financial performance of these plants has not matched our expectations, largely due to lower energy power prices resulting primarily from increased competition, warmer-than-average weather and uncertainty surrounding the new electricity trading arrangements. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Market Risk Exposures--United Kingdom." As a result, Edison First Power has decided to defer some environmental capital expenditures originally planned to increase plant utilization and therefore is currently in breach of milestone requirements for the implementation of the capital expenditures program set forth in the financing documents relating to the acquisition of these plants. In addition, due to this reduced financial performance, Edison First Power's debt service coverage ratio during 2000 declined below the threshold set forth in the financing documents. Edison First Power is currently in discussions with the relevant financing parties to revise the required capital expenditure program, to waive (i) the breach of the financial ratio covenant for 2000, (ii) a technical breach of requirements for the provision of information that was delayed due to uncertainty regarding capital expenditures, and (iii) other related technical defaults. Edison First Power is in the process of requesting the necessary waivers and consents to amendments from the financing parties. We cannot assure you that these waivers and consents to amendments will be forthcoming. The financing documents stipulate that a breach of the financial ratio covenant constitutes an immediate event of default and, if the event of default is not waived, the financing parties are entitled to enforce their security over Edison First Power's assets, including the Fiddler's Ferry and Ferrybridge plants. Despite the breaches under the financing documents, Edison First Power's debt service coverage ratio 95 for 2000 exceeded 1:1. Due to the timing of its cash flows and debt service payments, Edison First Power utilized L37 million from its debt service reserve to meet its debt service requirements in 2000. In accordance with SFAS No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED", we have evaluated impairment of the Ferrybridge and Fiddler's Ferry power plants. The undiscounted projected cash flow from these power plants exceeds the net book value at December 31, 2000, and, accordingly, no impairment of these power plants is permitted under SFAS No. 121. As a result of the change in the prices of power in the U.K., we are considering the sale of Ferrybridge and Fiddler's Ferry power plants. Management has not made a decision whether or not the sale of these power plants will ultimately occur and, accordingly, these assets are not classified as held for sale. However, if a decision to sell the Ferrybridge and Fiddler's Ferry power plants were made, it is likely that the fair value of the assets would be substantially below their book value at December 31, 2000. Our net investment in our subsidiary that holds the Ferrybridge and Fiddler's Ferry power plants and related debt was $918 million at December 31, 2000. FINANCING OF THE ILLINOIS PLANTS In December 1999, Edison Mission Midwest Holdings Co., an indirect, wholly-owned affiliate of Edison Mission Energy, closed a $1.7 billion financing in connection with the acquisition of the Illinois Plants. The financing consisted of (1) an $840 million revolving credit facility due 2002, referred to as Tranche A, (2) an $839 million revolving credit facility due 2004, referred to as Tranche B, and (3) a $150 million of borrowing capacity available under a working capital revolving facility, referred to as Tranche C, at LIBOR + 0.95% due 2004. These credit facilities are structured on a non-recourse basis, in which the debt is secured by a pledge of stock of specified subsidiaries. On December 13, 2000, the commitment amount under Tranche A was increased from $840 million to $911 million, and the commitment amount under Tranche B was decreased from $839 million to $816 million. As of December 31, 2000, the amounts borrowed in 1999 under Tranche A were paid. Under the working capital revolving facility, Tranche C, $6.6 million of borrowing capacity was available at December 31, 2000. In February 2000, Edison Mission Midwest Holdings Co. issued $1.7 billion of commercial paper under a commercial paper program and repaid a similar amount of outstanding bank borrowings. At December 31, 2000, $803.9 million of commercial paper was outstanding. In December 1999, as part of the financing of the Illinois Plants, we also issued $500 million floating rate notes due 2001 and borrowed $215 million under our $500 million revolving credit facility that expires in 2001. During the third quarter of 2000, the $500 million floating rate notes and the amount borrowed under the revolving credit facility were repaid. ANNUAL MATURITIES ON LONG-TERM DEBT Annual maturities on long-term debt at December 31, 2000, for the next five years, excluding capital leases (see Note 14) are summarized as follows: 2001--$1,767.6 million; 2002--$192.6 million; 2003--$326.5 million; 2004--$1,426.4 million; and 2005--$115 million. The current portion of Roosecote debt is included in long-term debt, as proceeds from future borrowings will exceed the current portion under the terms of the Term Loan and Guarantee Facility at Roosecote. RESTRICTED CASH Several cash balances are restricted primarily to pay amounts required for debt payments and letter of credit expenses. The total restricted cash in Restricted cash and other assets was $121.0 million at December 31, 2000 and $69.9 million at December 31, 1999. Debt service reserves classified in Restricted cash and other assets (including reserves for interest on annual lease payments) were $75.1 million at December 31, 2000 and $69.7 million at December 31, 1999. 96 Collateral reserves classified in Restricted cash and other assets were $37.2 million at December 31, 2000 as required by the Edison Mission Energy Turbine Trust agreement entered into on December 4, 2000. This agreement is discussed further in Note 14. Each of our direct or indirect subsidiaries is organized as a legal entity separate and apart from Edison Mission Energy and its other subsidiaries. Any asset of any of those subsidiaries may not be available to satisfy our obligations or any obligations of our other subsidiaries. However, unrestricted cash or other assets which are available for distribution may, subject to applicable law and the terms of financing arrangements of these parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to us or our affiliates. FAIR VALUES OF FINANCIAL INSTRUMENTS The following table summarizes the fair values for outstanding financial instruments used for purposes other than trading by risk category and instrument type:
DECEMBER 31, --------------------------------------------- 2000 1999 --------------------- --------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------- ---------- -------- ---------- INSTRUMENTS Non-derivatives: Long-term receivables................................ $ 267.6 $ 267.6 $ 7.8 $ 6.6 Long-term obligations................................ 5,334.8 5,231.9 7,439.3 7,430.4 Preferred securities subject to mandatory redemption......................................... 326.8 326.8 358.8 359.8 Derivatives: Interest rate swap/cap agreements.................... -- (40.8) -- (7.2) Commodity price: Forwards........................................... -- (107.5) -- -- Futures............................................ (2.9) (11.1) -- -- Options............................................ 0.6 1.8 3.5 3.5 Swaps.............................................. (46.6) 508.0 -- 70.8 Foreign currency forward exchange agreements......... -- (2.1) -- --
In assessing the fair value of our financial instruments, both derivative and non-derivative, we use a variety of methods and assumptions that are based on market conditions and risk existing at each balance sheet date. Quoted market prices for the same or similar instruments are used for long-term receivables, interest rate swap/cap agreements, long-term obligations and preferred securities. Foreign currency forward exchange agreements are estimated by obtaining quotes from the bank. The carrying amounts reported for cash equivalents, commercial paper facilities and other short-term debt approximate fair value due to their short maturities. The fair value of the electricity rate swaps agreements (included under commodity price-swaps) entered into by Ferrybridge and Fiddler's Ferry, First Hydro and the Loy Yang B plants has been estimated by discounting the future cash flows on the difference between the average aggregate contract price per MW and a forecasted market price per MW, multiplied by the amount of MW sales remaining under contract. The fair value of the commodity price contracts considers quoted marked prices, time value, volatility of the underlying commodities and other factors. 97 NOTE 8. RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS Our risk management policy allows for the use of derivative financial instruments to limit financial exposure on its investments and to manage exposure to fluctuations in interest rates, foreign exchange rates, oil and gas prices and energy prices for both trading and non-trading purposes. COMMODITY PRICE RISK MANAGEMENT Energy trading and price risk management activities give rise to commodity price risk, which represents the potential loss that can be caused by a change in the market value of a particular commodity. Commodity price risks are actively monitored to ensure compliance with the risk management policies of Edison Mission Energy. Policies are in place which limit the amount of total net exposure we may enter into at any point in time. Procedures exist which allow for monitoring of all commitments and positions with daily reporting to senior management. Edison Mission Energy performs a "value at risk" analysis in our daily business to measure, monitor and control our overall market risk exposure. The use of value at risk allows management to aggregate overall risk, compare risk on a consistent basis and identify the drivers of the risk. Value at risk measures the worst expected loss over a given time interval, under normal market conditions, at a given confidence level. Given the inherent limitations of value at risk and relying on a single risk measurement tool, we supplement this approach with industry "best practice" techniques including the use of stress testing and worst-case scenario analysis, as well as stop limits and counterparty credit exposure limits. INTEREST RATE RISK MANAGEMENT Interest rate changes affect the cost of capital needed to finance the construction and operation of our projects. We have mitigated the risk of interest rate fluctuations by arranging for fixed rate financing or variable rate financing with interest rate swaps or other hedging mechanisms for a number of our project financings. We have entered into several interest rate swap agreements under which the maturity date of the swaps occurs prior to the final maturity of the underlying debt. Under the fixed to variable swap agreements, the fixed interest rate payments are at a weighted average rate of 5.65% at December 31, 2000 and 1999. Variable rate payments are based on six month LIBOR capped at 9%. The weighted average LIBOR rate applicable to these agreements was 5.605% and 6.22% at December 31, 2000 and 1999, respectively. Under the variable to fixed swap agreements, we will pay counterparties interest at a weighted average fixed rate of 7.59% and 7.6% at December 31, 2000 and 1999, respectively. Counterparties will pay us interest at a weighted average variable rate of 6.43% and 5.03% at December 31, 2000 and 1999, respectively. The weighted average variable interest rates are based on LIBOR or equivalent interest rate benchmarks for foreign denominated interest rate swap agreements. CREDIT RISK Our financial instruments and power sales contracts involve elements of credit risk. Credit risk relates to the risk of loss that we would incur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. The counterparties to financial instruments and contracts consist of a number of major financial institutions and domestic and foreign utilities. Our attempts to mitigate this risk by entering into contracts with counterparties that have a strong capacity to meet their contractual obligations and by monitoring the credit quality of these financial institutions and utilities. One of our customers, Exelon Generation Company, accounted for 33% of our revenues during 2000. Any failure by Exelon Generation Company to make payments under the power purchase agreements could adversely affect our results of operations. The currency crisis in Indonesia has raised concerns over the ability of the state owned utility to meet its obligations under the current power sales contract with our Paiton project as discussed further in Note 13. In addition, we enter into contracts 98 whereby the structure of the contracts minimizes our credit exposure. Accordingly, we, with the exception of our contract with Exelon Generation Company and the power sale contract with our Paiton project, do not anticipate any material impact to our financial position or results of operations as a result of counterparty nonperformance. The electric power generated by some of our investments in domestic operating projects, excluding the Homer City plant and the Illinois Plants, is sold to electric utilities under long-term, typically with terms of 15 to 30-years, power purchase agreements and is expected to result in consistent cash flow under a wide range of economic and operating circumstances. To accomplish this, we structure our long-term contracts so that fluctuations in fuel costs will produce similar fluctuations in electric and/or steam revenues and enter into long-term fuel supply and transportation agreements. In addition, we have plants located in different geographic areas in order to mitigate the effects of regional markets, economic downturns or unusual weather conditions. FOREIGN EXCHANGE RATE RISK Fluctuations in foreign currency exchange rates can affect, on a United States dollar equivalent basis, the amount of our equity contributions to, and distributions from, our international projects. As we continue to expand into foreign markets, fluctuations in foreign currency exchange rates can be expected to have a greater impact on our results of operations in the future. At times, we have hedged a portion of our current exposure to fluctuations in foreign exchange rates through financial derivatives, offsetting obligations denominated in foreign currencies, and indexing underlying project agreements to United States dollars or other indices reasonably expected to correlate with foreign exchange movements. In addition, we have used statistical forecasting techniques to help assess foreign exchange risk and the probabilities of various outcomes. We cannot assure you, however, that fluctuations in exchange rates will be fully offset by hedges or that currency movements and the relationship between certain macro economic variables will behave in a manner that is consistent with historical or forecasted relationships. At December 31, 2000, we had outstanding foreign currency forward exchange contracts entered into in the ordinary course of business to protect ourselves from adverse currency rate fluctuations on anticipated foreign currency commitments with varying maturities ranging from January 2001 to July 2002. The periods of the forward exchange contracts correspond to the periods of the hedged transactions. Edison Mission Energy has the following commodity, interest rate and foreign currency hedges:
DECEMBER 31, ----------------------------------------------- 2000 1999 ---------------------- ---------------------- NOTIONAL CONTRACT NOTIONAL CONTRACT AMOUNT EXPIRES AMOUNT EXPIRES -------- ----------- -------- ----------- Derivative commodity contracts: Forwards........................................ $ 488.6 2001 - 2003 $ -- -- Futures......................................... (69.8) 2001 -- -- Options......................................... 3.5 2001 47.3 2001 Swaps........................................... 1,747.8 2001 - 2016 1,802.7 2000 - 2016 Interest rate swaps: Fixed to variable............................... 100.0 2002 100.0 2002 Variable to fixed............................... 906.1 2001 - 2009 1,066.3 2001 - 2009 Interest rate caps................................ 583.7 2005 - 2010 626.4 2005 Foreign Currency Forward Contracts................ 90.7 2001 - 2002 -- --
99 ENERGY TRADING On September 1, 2000, we acquired the trading operations of Citizens Power LLC. As a result of this acquisition, we have expanded our trading operations beyond the traditional marketing of our electric power. Our energy trading and price risk management activities give rise to market risk, which represents the potential loss that can be caused by a change in the market value of a particular commitment. Market risks are actively monitored to ensure compliance with the risk management policies of Edison Mission Energy. Policies are in place which limit the amount of total net exposure we may enter into at any point in time. Procedures exist which allow for monitoring of all commitments and positions with daily reporting to senior management. We perform a "value at risk" analysis in our daily business to measure, monitor and control our overall market risk exposure. The use of value at risk allows management to aggregate overall risk, compare risk on a consistent basis and identify the reasons for the risk. Value at risk measures the worst expected loss over a given time interval, under normal market conditions, at a given confidence level. Given the inherent limitations of value at risk and relying on a single risk measurement tool, we supplement this approach with industry "best practice" techniques including the use of stress testing and worst-case scenario analysis, as well as stop limits and counterparty credit exposure limits. The fair value of the financial instruments, including forwards, futures, options and swaps, related to trading activities as of December 31, 2000, which include energy commodities, and the average fair value of those instruments held during the period from inception (September 1, 2000) to December 31, 2000 are set forth below:
AVERAGE FAIR VALUE FAIR VALUE AS OF FOR THE PERIOD ENDED DECEMBER 31, 2000 DECEMBER 31, 2000 ---------------------- ----------------------- ASSETS LIABILITIES ASSETS LIABILITIES -------- ----------- --------- ----------- Forward contracts........................ $302.0 $282.1 $154.0 $147.2 Futures contracts........................ 0.1 0.1 0.1 0.1 Option contracts......................... 1.4 3.6 3.2 1.7 Swap agreements.......................... 2.9 4.3 1.8 2.3 ------ ------ ------ ------ Total.................................... $306.4 $290.1 $159.1 $151.3 ====== ====== ====== ======
The approximate gross contract or notional amounts of financial instruments as of December 31, 2000 are as follows:
DECEMBER 31, 2000 ---------------------- ASSETS LIABILITIES -------- ----------- Forward contracts......................................... $433.4 $420.1 Futures contracts......................................... 0.4 0.1 Option contracts.......................................... 1.6 (0.1) Swap agreements........................................... 39.6 64.0
100 The net realized and change in unrealized gains or losses arising from trading activities for the period from inception (September 1, 2000) to December 31, 2000 are as follows:
PERIOD ENDED DECEMBER 31, 2000 ------------------ Forward contracts........................................... $68.4 Futures contracts........................................... 0.4 Option contracts............................................ (1.4) Swap agreements............................................. (5.2) ----- Total....................................................... $62.2 =====
The change in unrealized gain from trading and price risk management activities included in the above amounts was $11.7 million for the period ended December 31, 2000. NOTE 9. PREFERRED SECURITIES COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITY OF PARTNERSHIP HOLDING SOLELY PARENT DEBENTURES. In November 1994, Mission Capital, L.P., a limited partnership of which Edison Mission Energy is the sole general partner, issued 3.5 million 9.875% Cumulative Monthly Income Preferred Securities, Series A at a price of $25 per security. These securities are redeemable at the option of Mission Capital, in whole or in part, beginning November 1999, with mandatory redemption in 2024 at a redemption price of $25 per security, plus accrued and unpaid distributions. No securities have been redeemed as of December 31, 2000. During August 1995, Mission Capital issued 2.5 million 8.5% Cumulative Monthly Income Preferred Securities, Series B at a price of $25 per security. These securities are redeemable at the option of Mission Capital, in whole or in part, beginning August 2000, with mandatory redemption in 2025 at a redemption price of $25 per security, plus accrued and unpaid distributions. No securities were redeemed in 2000. We issued a guarantee in favor of the holders of the preferred securities, which guarantees the payments of distributions declared on the preferred securities, payments upon a liquidation of Mission Capital and payments on redemption with respect to any preferred securities called for redemption by Mission Capital. So long as any preferred securities remain outstanding, we will not be able to declare or pay, directly or indirectly, any dividend on, or purchase, acquire or make a distribution or liquidation payment with respect to, any of its common stock if at such time (i) we shall be in default with respect to its payment obligations under the guarantee, (ii) there shall have occurred any event of default under the subordinated indenture, or (iii) we shall have given notice of its selection of an extended interest payment period as provided in the indenture and such period, or any extension thereof, shall be continuing. NOT SUBJECT TO MANDATORY REDEMPTION. In connection with the 40% acquisition of Contact Energy in May 1999, Edison Mission Energy Global Management, Inc., an indirect wholly-owned affiliate of Edison Mission Energy, issued $120 million of Flexible Money Market Cumulative Preferred Stock. The stock issuance consisted of (1) 600 Series A shares and (2) 600 Series B shares, both with liquidation preference of $100,000 per share and a dividend rate of 5.74% until May 2004. On December 20, 2000, Edison Mission Energy Global Management, Inc. was dissolved and its $120 million of Flexible Money Market Cumulative Preferred Stock was redeemed. The 600 Series A and 600 Series B shares were redeemed at their liquidation preference of $100,000 per share, along with an additional liquidation premium of $3,785 per share, and all unpaid dividends. The redemption of Edison Mission Energy Global Management's preferred shares was funded by return of capital from Edison Mission Energy Taupo Limited. Edison Mission Energy Taupo Limited sold its entire interest in Contact Energy Limited to EME Pacific Holdings, an indirect, wholly-owned subsidiary of Edison Mission Energy, to permit Edison Mission Energy Taupo to make the necessary distribution to Edison Mission Energy Global Management. In connection with the transfer of ownership of Contact, Edison 101 Mission Energy entered into a further Deed of Covenant in favor of the institutional subscriber of 160 million New Zealand dollars of the preferred stock issued by Edison Mission Energy Taupo in June 1999, discussed below. This further Deed of Covenant required Edison Mission Energy to compensate the institutional preferred stock subscriber in the event that a private binding ruling issued to it by the New Zealand Inland Revenue Department ceases to apply as a direct result of the transfer. The amount of any compensation that may become payable by Edison Mission Energy under the further Deed of Covenant is limited to that necessary to keep the preferred stock subscriber in the same position that it would have been had the private binding ruling continued to apply. The support agreement between Edison Mission Energy and Edison Mission Energy Global Management, which required Edison Mission Energy to make certain capital contributions to Edison Mission Energy Global Management, was terminated immediately following the dissolution of Edison Mission Energy Global Management and the redemption of the preferred shares as described above. SUBJECT TO MANDATORY REDEMPTION. During June 1999, Edison Mission Energy Taupo Limited, a New Zealand corporation, an indirect, wholly-owned affiliate of Edison Mission Energy, issued $84 million of Class A Redeemable Preferred Shares (16,000 shares at a price of 10,000 New Zealand dollars per share). The dividend rate ranges from 6.19% to 6.86%. The shares are redeemable in June 2003 at 10,000 New Zealand dollars per share. If an event of default occurs at any time without prejudice to any other remedies which the redeemable preferred share subscriber may have, the redeemable preferred share subscriber may, by notice to the issuer, require redemption of, and the issuer must redeem, the redeemable preferred shares on the date specified in that notice. Each dividend will rank for payment in priority to the rights in respect of dividends and the rights, if any, in respect of interest on arrears thereof of all holders of other classes of shares of ours other than redeemable preferred shares issued by us. Edison Mission Energy Taupo shall not pay or make, or allow to be paid or made, any distribution, other than dividends or the redemption amount or similar amounts payable in respect of the retail shares, if an event of default or potential event of default has occurred, which remains unremedied, unless the redeemable preferred share subscriber has given its prior written consent which may be given on such conditions as the redeemable preferred share subscriber deems reasonable. From July through November 1999, Edison Mission Energy Taupo issued $125 million of retail redeemable preferred shares (240 million shares at a price of one New Zealand dollar per share). The dividend rate ranges from 5.00% to 6.37%. The shares are redeemable at one New Zealand dollar per share in June 2001 (64 million), June 2002 (43 million), and June 2003 (133 million). Edison Contact Finance is a special purpose company established to raise funds by the issuance of retail redeemable preferred shares to assist Edison Mission Energy Taupo to refinance in part the funding used by it for its acquisition of 40% of the ordinary shares in Contact Energy. Edison Contact Finance and Edison Mission Energy Taupo are parties to a subscription and indemnity agreement, which contains the terms of subscription by Edison Contact Finance for Edison Mission Energy Taupo retail shares. Edison Contact Finance will subscribe for Edison Mission Energy Taupo retail shares as and when Edison Contact Finance issues retail shares. The principal terms of issuance of Edison Mission Energy Taupo retail shares are set out in the Subscription Agreement and are substantially the same as the terms of issue of the Class A Redeemable Preferred shares. On an event of default under the terms of issue of the retail shares, early redemption of the shares may be required by the holders of the shares by special resolution, by 15% of the holders of shares, in instances of non-payment, by written notice to Edison Contact Finance, or Edison Contact Finance by written notice to the holders of shares. If only part of the retail shares are redeemed earlier than their scheduled redemption date, in some cases, a minimum number of retail shares must be redeemed, and unless the redemption occurs on a dividend payment date, Edison Mission Energy Taupo must redeem all Edison Mission Energy Taupo shares in any class, with the same scheduled redemption date and fixed dividend rate. Edison Contact Finance will redeem the same shares of a class corresponding to the redeemed Edison Mission Energy Taupo shares. Not all 102 classes of shares need be affected by a partial redemption of Edison Mission Energy Taupo retail shares. Redemption of retail shares can be accelerated if Edison Mission Energy Taupo exercises its option under the terms of the subscription and indemnity agreement to redeem any of the Edison Mission Energy Taupo retail shares at its discretion. Edison Contact Finance will pay fully imputed dividends, in arrears, to the holder of each retail share on the record date. Edison Contact Finance may change the annual dividend rates, which will attach to the shares at any time before acceptance by Edison Contact Finance of an application for those shares. In connection with the preferred shares issued by Edison Mission Energy Taupo Limited to partially finance the acquisition of the 40% interest in Contact Energy, Edison Mission Energy provided a guaranty of Edison Mission Energy Taupo Limited's obligation to pay a minimum level of non-cumulative dividends on the preferred shares through June 30, 2002, including NZ$12.9 million during 2001 and NZ$4.6 million during the six months ending June 30, 2002. In addition, Edison Mission Energy has agreed to pay amounts required to ensure that Edison Misison Energy Taupo Limited will satisfy two financial ratio covenants on specified dates. The first financial ratio, called a dividends to outgoings ratio, is to be calculated as of June 30, 2002, and is based on historical and projected dividends received from Contact Energy and the dividends payable to preferred shareholders. The second financial ratio, called a debt to valuation ratio, is to be calculated as of May 14, 2001, and is based on the fair value of our Contact Energy shares and the outstanding preferred shares. If, however, Edison Mission Energy's senior unsecured credit rating by Standard & Poor's were downgraded below BBB-, Edison Mission Energy may be called to perform on its guaranty of Edison Mission Energy Taupo Limited's financial covenants before the specified calculation dates. Based on the fair value of our ownership in Contact Energy at March 20, 2001, had Edison Mission Energy been required to perform on its guarantee of the debt to valuation ratio as of that date, Edison Mission Energy's obligation would have been approximately $19 million. NOTE 10. INCOME TAXES CURRENT AND DEFERRED TAXES Income tax expense includes the current tax liability from operations and the change in deferred income taxes during the year. The components of the net accumulated deferred income tax liability were:
DECEMBER 31, ------------------- 2000 1999 -------- -------- DEFERRED TAX ASSETS Items deductible for book not currently deductible for tax.................................................. $ 132.4 $ 178.9 Loss carryforwards..................................... 97.0 68.5 Deferred income........................................ 182.5 185.3 Dividends in excess of equity earnings................. 4.9 6.3 Price risk management.................................. 38.5 -- -------- -------- Total................................................ $ 455.3 $ 439.0 -------- -------- DEFERRED TAX LIABILITIES Basis differences...................................... $2,047.7 $1,939.1 Tax credits, net....................................... 19.1 19.5 Other.................................................. -- 0.9 -------- -------- Total................................................ 2,066.8 1,959.5 -------- -------- Deferred taxes and tax credits, net...................... $1,611.5 $1,520.5 ======== ========
103 Loss carryforwards, primarily Australian, total $281 million and $232 million at December 31, 2000 and 1999, respectively, with $11 million expiring in 2005. Federal capital loss carryforwards total $25 million expiring in 2005. State capital loss carryforwards total $309 million and $107 million at December 31, 2000 and 1999, respectively, with no expiration date. Loss carryforwards total approximately $20 million for Pennsylvania and $63 million for Illinois at December 31, 2000 with various expiration dates. The components of income (loss) before income taxes are as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- U.S................................................. $ 2.1 $(74.7) $ 32.8 Foreign............................................. 178.0 178.4 169.8 ------ ------ ------ Total............................................. $180.1 $103.7 $202.6 ====== ====== ======
United States income taxes have not been provided on unrepatriated foreign earnings in the amounts of $487 million and $372 million at December 31, 2000 and 1999, respectively. In addition, foreign income taxes have not been provided on unrepatriated foreign earnings from a different foreign jurisdiction in the amount of $151 million and $136 million at December 31, 2000 and 1999, respectively. The provision (benefit) for income taxes is comprised of the following:
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- CURRENT Federal.......................................... $(206.5) $ (75.0) $(10.5) State............................................ (19.8) (0.5) (19.0) Foreign.......................................... 58.8 (34.0) 14.8 ------- ------- ------ Total current.................................. $(167.5) $(109.5) $(14.7) ======= ======= ====== DEFERRED Federal.......................................... $ 213.5 $ 37.4 $ 28.1 State............................................ 37.9 10.1 25.3 Foreign.......................................... (11.4) 21.6 31.7 ------- ------- ------ Total deferred................................. 240.0 69.1 85.1 ------- ------- ------ Provision (benefit) for income taxes............... $ 72.5 $ (40.4) $ 70.4 ======= ======= ======
104 The components of the deferred tax provision, which arise from tax credits and timing differences between financial and tax reporting, are presented below:
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Basis differences and tax credit amortization............... $266.3 $157.4 $116.5 Loss carryforwards.......................................... (28.5) (25.5) (32.6) Deferred income............................................. 2.8 2.6 3.7 State tax deduction......................................... (5.4) (6.0) 4.3 Items deductible for book and tax in different accounting periods................................................... 45.4 (52.9) (17.4) Elimination of book income.................................. -- -- 6.9 Price risk management....................................... (38.5) -- -- Other....................................................... (2.1) (6.5) 3.7 ------ ------ ------ Total deferred provision.................................. $240.0 $ 69.1 $ 85.1 ====== ====== ======
Variations from the 35% federal statutory rate are as follows:
YEARS ENDED DECEMBER 31, --------------------------------- 2000 1999 1998 -------- -------- -------- Expected provision for federal income taxes................. $ 63.0 $ 36.3 $ 70.9 Increase (decrease) in the provision for taxes resulting from: State tax--net of federal deduction....................... 11.7 3.6 4.1 Dividends received deduction.............................. (11.0) (2.2) (4.0) Amortization of tax credits............................... (0.4) (1.1) (6.5) Benefit due to foreign tax rate reduction................. -- (5.9) (11.0) Taxes payable under anti-deferral regimes................. 6.0 7.0 6.7 Taxes on foreign operations at different rates............ 7.6 5.9 8.4 Book and tax basis differences............................ (8.2) (7.8) 2.3 Capital loss not previously recognized.................... -- (29.0) -- Non-utilization of foreign losses......................... 16.0 6.9 -- Permanent reinvestment of earnings of foreign affiliates located in different foreign tax jurisdiction........... (12.2) (40.3) -- Refund of Advance Corporation Tax......................... -- (15.2) -- Other..................................................... -- 1.4 (0.5) ------ ------ ------ Total provision (benefit) for income taxes................ $ 72.5 $(40.4) $ 70.4 ====== ====== ====== Effective tax rate........................................ 40.3% (39.0)% 34.8% ====== ====== ======
We are, and may in the future be, under examination by tax authorities in varying tax jurisdictions with respect to positions we take in connection with the filing of our tax returns. Matters raised upon audit may involve substantial amounts, which, if resolved unfavorably, an event not currently anticipated, could possibly be material. However, in our opinion, it is unlikely that the resolution of any such matters will have a material adverse effect upon our financial condition or results of operations. NOTE 11. EMPLOYEE BENEFIT PLANS United States employees of Edison Mission Energy are eligible for various benefit plans of Edison International. Several of our Australian, United Kingdom and Spanish subsidiaries also participate in their own respective defined benefit pension plans. 105 PENSION PLANS Noncontributory, defined benefit pension plans cover employees who fulfill minimum service requirements. In April 1999, Edison International adopted a cash balance feature for its pension plan. In 1999, we acquired the Homer City plant and the Illinois Plants. The acquisitions are discussed further in Note 4. The obligations and expenses for employees at these plants are included below. In 1999, Ferrybridge and Fiddler's Ferry employees were included as part of the PowerGen UK Group defined benefit pension plan, Electricity Supply Pension Scheme, administered by a trustee, which provides pension and other related benefits. Contributions to the plan are based on a percentage of compensation for the covered employees and are assessed by a qualified actuary. As a result of Ferrybridge and Fiddler's Ferry not having a plan separate from the PowerGen UK Group, amounts were not readily available to provide the information included in the tables below for 1999. Pension expense recorded by Ferrybridge and Fiddler's Ferry totaled $1.0 million for the period from July 1999 through December 31, 1999. During the first quarter of 2000, Ferrybridge and Fiddler's Ferry employees joined a separate defined benefit pension plan utilized by First Hydro employees. All amounts for the year 2000 are included in the table below. Information on plan assets and benefit obligations is shown below:
YEARS ENDED DECEMBER 31, ------------------------------------------------------ 2000 1999 2000 1999 -------- -------- ---------- ---------- U.S. PLANS NON U.S. PLANS Change in Benefit Obligation Benefit obligation at beginning of year.......... $ 37.5 $ 26.1 $ 119.2 $ 36.7 Service cost..................................... 10.2 2.3 3.5 2.0 Interest cost.................................... 2.7 2.1 6.6 1.9 Plan amendment................................... -- (3.8) -- -- Acquisition...................................... -- 10.6 -- -- Actuarial loss (gain)............................ 0.4 0.4 (4.7) 5.8 Plan participants' contribution.................. -- -- 2.6 0.8 Benefits paid.................................... (1.3) (0.2) (1.0) (0.6) ------ ------ ---------- ---------- Benefit obligation at end of year.............. $ 49.5 $ 37.5 $ 126.2 $ 46.6 ====== ====== ========== ========== Change in Plan Assets Fair value of plan assets at beginning of year... $ 28.6 $ 20.9 $ 118.0 $ 34.8 Actual return on plan assets..................... (0.3) 5.8 (2.7) 8.3 Employer contributions........................... 9.4 2.1 7.6 2.5 Plan participants' contribution.................. -- -- 0.9 0.2 Benefits paid.................................... (1.3) (0.2) (0.8) (0.4) ------ ------ ---------- ---------- Fair value of plan assets at end of year....... $ 36.4 $ 28.6 $ 123.0 $ 45.4 ====== ====== ========== ========== Funded Status...................................... $(13.1) $ (8.9) $ (3.2) $ (1.2) Unrecognized net loss (gain)....................... 0.2 (3.4) 5.9 0.7 Unrecognized net obligation........................ 0.9 1.1 (0.1) -- Unrecognized prior service cost.................... (2.8) (3.1) 0.5 0.4 ------ ------ ---------- ---------- Pension asset (liability).......................... $(14.8) $(14.3) $ 3.1 $ (0.1) ====== ====== ========== ========== Discount rate...................................... 7.25% 7.75% 4.0 - 6.0% 4.5 - 6.0% Rate of compensation increase...................... 5.00% 5.00% 3.75 - 4.5% 3.75 - 4.5% Expected return on plan assets..................... 8.50% 7.50% 5.75 - 9.0% 6.5 - 9.0%
106 Components of pension expense were:
YEARS ENDED DECEMBER 31, --------------------------------------------------------------- 2000 1999 1998 2000 1999 1998 -------- -------- -------- -------- -------- -------- U.S. PLANS NON U.S. PLANS Service cost........................... $10.2 $2.3 $2.4 $3.4 $1.5 $1.8 Interest cost.......................... 2.7 2.1 1.4 6.7 1.9 1.9 Expected return on plan assets......... (2.7) (1.7) (1.3) (7.2) (2.1) (3.4) Net amortization and deferral.......... (0.4) -- 0.2 -- 0.1 1.3 ----- ---- ---- ---- ---- ---- Total pension expense.................. $ 9.8 $2.7 $2.7 $2.9 $1.4 $1.6 ===== ==== ==== ==== ==== ====
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Most United States employees retiring at or after age 55 with at least 10 years of service are eligible for postretirement health and dental care, life insurance and other benefits. In 1999, we acquired the Homer City plant and the Illinois Plants. The acquisitions are discussed further in Note 4. The obligations and expenses for employees at these plants are included below. Information on plan assets and benefit obligations is shown below:
YEARS ENDED DECEMBER 31, ------------------- 2000 1999 -------- -------- Change in Benefit Obligation Benefit obligation at beginning of year.................. $ 77.3 $ 14.9 Service cost............................................. 5.4 1.6 Interest cost............................................ 7.6 1.3 Plan amendment........................................... -- (4.1) Acquisition.............................................. -- 80.7 Actuarial loss (gain).................................... 30.0 (17.0) Benefits paid............................................ (0.2) (0.1) ------- ------ Benefit obligation at end of year........................ $ 120.1 $ 77.3 ======= ====== Change in Plan Assets Fair value of plant assets at beginning of year.......... $ -- $ -- Employer contributions................................... 0.2 0.1 Benefits paid............................................ (0.2) (0.1) ------- ------ Fair value of plan assets at end of year............... $ -- $ -- ======= ====== Funded Status.............................................. $(120.1) $(77.3) Unrecognized net loss (gain)............................... 14.5 (15.5) Unrecognized transition obligation......................... -- -- Unrecognized prior service cost............................ (1.9) (2.1) ------- ------ Recorded liability......................................... $(107.5) $(94.9) ======= ====== Discount rate.............................................. 7.50% 8.0% Expected return on plan assets............................. 8.20% 7.5%
107 The components of postretirement benefits other than pensions expense were:
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Service cost............................................. $ 5.4 $1.6 $1.4 Interest cost............................................ 7.6 1.3 0.7 Net amortization......................................... (0.2) 0.1 0.2 ----- ---- ---- Net expense.............................................. $12.8 $3.0 $2.3 ===== ==== ====
The assumed rate of future increases in the per-capita cost of health care benefits is 11% for 2001, gradually decreasing to 5% for 2008 and beyond. Increasing the health care cost trend rate by one percentage point would increase the accumulated obligation as of December 31, 2000, by $31.4 million and annual aggregate service and interest costs by $3.5 million. Decreasing the health care cost trend rate by one percentage point would decrease the accumulated obligation as of December 31, 2000, by $23.7 million and annual aggregate service and interest costs by $2.6 million. EMPLOYEE STOCK PLANS A 401(k) plan is maintained to supplement eligible United States employees' retirement income. The plan received contributions from us of $5.3 million in 2000, $2.9 million in 1999 and $0.8 million in 1998. Doga employees are included in a separate government scheme, Pension Plan of Social Security Institution. The plan is administered by the officers of the Turkish Government. Contributions to the plan are based on a percentage of compensation for the covered employees and are assessed by the Ministry of Labor and Social Security. The plan is substantially funded at the end of each month. Pension expense recorded by Doga was $114 thousand in 2000 and $12 thousand in 1999. We also sponsor a defined contribution plan for specified United Kingdom subsidiaries. Annual contributions are based on ten percent of covered employees' salaries. Contribution expense for the subsidiaries totaled approximately $0.5 million, $0.4 million and $0.5 million in 2000, 1999 and 1998, respectively. NOTE 12. STOCK COMPENSATION PLANS Under the Edison International Equity Compensation Plan, shares of Edison International common stock were reserved for potential issuance to key Edison Mission Energy employees in various forms, including the exercise of stock options. In May 2000, Edison International adopted an additional plan, the 2000 Equity Plan. Under these programs, there are currently outstanding to officers of Edison Mission Energy, options on 3,353,371 shares of Edison International Common Stock of which 2,550,660, 154,695 and 83,000 were granted in 2000, 1999 and 1998, respectively. Each option may be exercised to purchase one share of Edison International common stock, and is exercisable at a price equivalent to the fair market value of the underlying stock at the date of grant. Edison International stock options include a dividend equivalent feature. Generally, for options issued before 1994, amounts equal to dividends accrue on the options at the same time and at the same rate as would be payable on the number of shares of Edison International common stock covered by the options. The amounts accumulate without interest. For Edison International stock options issued after 1993, dividend equivalents are subject to reduction unless certain shareholder return performance criteria are met. Beginning with the 1999 Edison International stock option awards, only some stock options include a dividend equivalent feature. The liability and associated expense is accrued each quarter for the dividend equivalents for each option year. At the end of the performance measurement period, the expense and related liability is adjusted accordingly. Upon exercise, the dividends are paid out and the associated liability is reduced on Edison Mission Energy Consolidated Balance Sheet. The 2000 stock option awards did not include dividend equivalents. Future stock option awards are not expected to include dividend equivalents. 108 A portion of the executive long-term incentives for 2000 was awarded in the form of performance shares. The performance shares were restructured as retention incentives in December 2000, which will pay as a combination of Edison International common stock and cash if the executive remains employed at the end of the performance period. No special stock options may be exercised before five years have passed unless the stock price appreciates to $25 (based on the average of 20 consecutive trading day closing prices). Performance shares may still be awarded in 2001 and 2002. All stock options have a 10-year term. Options issued after 1997 generally vest in 25 percent annual installments over a four-year period, although the vesting period for the May 2000 grants does not begin until May 2001. Stock options issued prior to 1998 had a three-year vesting period with one-third of the total award vesting after each of the first three years of the award term. If an option holder retires, dies or is permanently and totally disabled (qualifying event) during the vesting period, the unvested options will vest on a pro rata basis. The performance shares values are accrued ratably over a three-year performance period. We measure compensation expense related to stock-based compensation by the intrinsic value method. Compensation expense recorded under the stock compensation program was $0.7 million for 2000, $0.4 million for 1999 and $0.5 million for 1998. The weighted-average fair value of options granted during 2000, 1999 and 1998 was $5.63 per share option, $6.45 per share option and $6.33 per share option, respectively. The weighted-average remaining life of options outstanding was 8 years as of December 31, 2000, and 7 years as of December 31, 1999 and 1998. The fair value for each option granted during 2000, 1999 and 1998, reflecting the basis for the pro forma disclosures, was determined on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used in determining fair value through the model:
2000 1999 1998 ------------ -------- -------- Expected life............................. 8 years 7 years 7 years Risk-free interest rate................... 4.7% to 6.0% 5.5% 5.6% Expected volatility....................... 17% to 46% 18% 17%
The recognition of dividend equivalents results in no dividends assumed for purposes of fair-value determination. Stock-based compensation expense under the "fair-value" method of accounting prescribed by SFAS No. 123 "Stock-Based Compensation" would have resulted in pro forma net income of $123.8 million, $131.4 million and $132.3 million in 2000, 1999 and 1998, respectively. 109 A summary of the status of Edison International's stock options granted to Edison Mission Energy employees is as follows:
SHARE WEIGHTED OPTIONS EXERCISE PRICE EXERCISE PRICE --------- --------------- -------------- Outstanding, December 31, 1997....... 320,590 $14.56 - $24.44 $19.49 Granted.............................. 83,000 $27.25 - $29.34 $27.31 Forfeited............................ (1,200) $17.63 - $19.75 $19.04 Exercised............................ (50,018) $14.56 - $23.28 $18.44 --------- Outstanding, December 31, 1998....... 352,372 $14.56 - $24.44 $21.51 Granted.............................. 154,695 $25.31 - $28.13 $27.84 Forfeited............................ (1,229) $19.75 - $27.25 $25.65 Exercised............................ (26,767) $14.56 - $19.85 $18.81 --------- Outstanding, December 31, 1999....... 479,071 $14.56 - $29.34 $23.84 Granted.............................. 2,550,660 $20.06 - $28.13 $21.84 Transferred to Edison Mission Energy from Edison International.......... 514,750 $14.56 - $28.13 $23.68 Forfeited............................ (147,518) $18.75 - $28.13 $24.58 Exercised............................ (43,592) $14.56 - $28.13 $19.01 --------- Outstanding, December 31, 2000....... 3,353,371 $14.56 - $29.34 $22.31 =========
PHANTOM STOCK OPTIONS Edison Mission Energy, as a part of the Edison International long-term incentive compensation program, issued phantom stock option performance awards to key employees commencing in 1994. Each phantom stock option could be exercised to realize any appreciation in the value of one hypothetical share of Edison Mission Energy stock over its exercise price. Compensation expense was recognized during the period that the employee had the right to receive this appreciation. Exercise prices for our phantom stock were escalated on an annually compounded basis over the grant price by 9%. The value of the phantom stock was recalculated annually as determined by a formula linked to the value of its portfolio of investments less general and administrative costs. The options had a 10-year term with one-third of the total award vesting in each of the first three years of the award term, for all awards prior to 1998. For options awarded in 1998 and 1999, one-fourth of the total award vested in each of the first four years of the award term. Compensation expense recorded with respect to phantom stock options was $4.1 million (before the $60 million adjustment referred to below), $136.3 million and $39 million in 2000, 1999 and 1998, respectively. In June 2000, the board of directors of Edison International approved an exchange offer to the holders of outstanding phantom options which was subsequently accepted by all holders of these options. The exchange offer was principally for cash, with a portion exchanged for stock equivalent units relating to Edison International common stock. The number of stock equivalent units was determined on the basis of $20.50 per share, and the stock equivalent units accrue and will receive dividend equivalents. Participants were required to elect to cash their vested stock equivalent units on either the first or third anniversary of the exchange offer date (August 2000) for an amount equal to the daily average of Edison International common stock (for 20 trading days preceding the elected payment date). Some participants have elected to defer payment of their cash and stock equivalent units. Since all the outstanding phantom options have been terminated, there will be no future exercises of the phantom options. 110 Due to the lower valuation of the exchange offer, compared to the values previously accrued, the liability for accrued incentive compensation was reduced by approximately $60 million in the third quarter of 2000. NOTE 13. COMMITMENTS AND CONTINGENCIES FIRM COMMITMENT FOR ASSET PURCHASE
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS) - -------- ----------------------- -------------------- Italian Wind Projects(i)............... 36 billion Italian Lira $17
- ------------------------ (i) The Italian Wind Projects are a series of power projects that are in operation or under development in Italy. A wholly-owned subsidiary of Edison Mission Energy owns a 50% interest. Purchase payments will continue through 2002, depending on the number of projects that are ultimately developed. FIRM COMMITMENTS TO CONTRIBUTE PROJECT EQUITY
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS) - -------- ---------------------- -------------------- Italian Wind Projects(i)................ 6 billion Italian Lira $3
- ------------------------ (i) The Italian Wind Projects are a series of power projects that are in operation or under development in Italy. A wholly-owned subsidiary of Edison Mission Energy owns a 50% interest. Equity will be contributed depending on the number of projects that are ultimately developed. Firm commitments to contribute project equity could be accelerated due to certain events of default as defined in the non-recourse project financing facilities. Management does not believe that these events of default will occur to require acceleration of the firm commitments. CONTINGENT OBLIGATIONS TO CONTRIBUTE PROJECT EQUITY
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS) - -------- ----------------------- -------------------- Paiton(i).............................. -- $39 ISAB(ii)............................... 90 billion Italian Lira 44
- ------------------------ (i) Contingent obligations to contribute additional project equity will be based on events principally related to insufficient cash flow to cover interest on project debt and operating expenses, project cost overruns during the plant construction, specified partner obligations or events of default. Our obligation to contribute contingent equity will not exceed $141 million, of which $102 million has been contributed as of December 31, 2000. As of March 16, 2001, $5 million of this amount remains to be funded. For more information on the Paiton project, see "--Other Commitments and Contingencies--Paiton." (ii) ISAB is a 512 MW integrated gasification combined cycle power plant near Siracusa in Sicily, Italy. A wholly-owned subsidiary of Edison Mission Energy owns a 49% interest. Commercial operations commenced in April 2000. Contingent obligations to contribute additional equity to the project relate specifically to an agreement to provide equity assurances to the project's lenders depending on the outcome of the contractor claim arbitration. We are not aware of any other significant contingent obligations or obligations to contribute project equity other than as noted above and equity contributions made by us to meet capital calls by 111 partnerships who own qualifying facilities that have power purchase agreements with Southern California Edison and Pacific Gas and Electric. See "--California Power Crisis" for further discussion. OTHER COMMITMENTS AND CONTINGENCIES SUBSIDIARY INDEMNIFICATION AGREEMENTS Some of our subsidiaries have entered into indemnification agreements, under which the subsidiaries agreed to repay capacity payments to the projects' power purchasers in the event the projects unilaterally terminate their performance or reduce their electric power producing capability during the term of the power contracts. Obligations under these indemnification agreements as of December 31, 2000, if payment were required, would be $256 million. We have no reason to believe that the projects will either terminate their performance or reduce their electric power producing capability during the term of the power contracts. CALIFORNIA POWER CRISIS We have partnership interests in eight partnerships which own power plants in California which have power purchase contracts with Pacific Gas and Electric and/or Southern California Edison. Three of these partnerships have a contract with Southern California Edison, four of them have a contract with Pacific Gas and Electric, and one of them has contracts with both. In 2000, our share of earnings before taxes from these partnerships was $168 million, which represented 20% of our operating income. Our investment in these partnerships at December 31, 2000 was $345 million. As a result of Southern California Edison's and Pacific Gas and Electric's current liquidity crisis, each of these utilities has failed to make payments to qualifying facilities supplying them power. These qualifying facilities include the eight power plants which are owned by partnerships in which we have a partnership interest. Southern California Edison did not pay any of the amounts due to the partnerships in January, February and March of 2001 and may continue to miss future payments. Pacific Gas and Electric made its January payment in full but thus far has paid only a small portion of the amounts due to the partnerships in February and March and may not pay all or a portion of its future payments. The California utilities' failure to pay has adversely affected the operations of our eight California qualifying facilities. Continuing failures to pay similarly could have an adverse impact on the operations of our California qualifying facilities. Provisions in the partnership agreements stipulate that partnership actions concerning contracts with affiliates are to be taken through the non-affiliated partner in the partnership. Therefore, partnership actions concerning the enforcement of rights under each qualifying facility's power purchase agreement with Southern California Edison in response to Southern California Edison's suspension of payments under that power purchase agreement are to be taken through the non-Edison Mission Energy affiliated partner in the partnership. Some of the partnerships have sought to minimize their exposure to Southern California Edison by reducing deliveries under their power purchase agreements. It is unclear at this time what additional actions, if any, the partnerships will take in regard to the utilities' suspension of payments due to the qualifying facilities. As a result of the utilities' failure to make payments due under these power purchase agreements, the partnerships have called on the partners to provide additional capital to fund operating costs of the power plants. From January 1, 2001 through March 20, 2001, subsidiaries of ours have made equity contributions totaling approximately $103 million to meet capital calls by the partnerships. Our subsidiaries and the other partners may be required to make additional capital contributions to the partnerships. Southern California Edison has stated that it is attempting to avoid bankruptcy and, subject to the outcome of regulatory and legal proceedings and negotiations regarding purchased power costs, it intends to pay all its obligations once a permanent solution to the current energy and liquidity crisis has been reached. Pacific Gas and Electric has taken a different approach and is seeking to invoke force 112 majeure provisions under its power purchase agreements to excuse its failure to pay. In either case, it is possible that the utilities will not pay all their obligations in full. In addition, it is possible that Southern California Edison and/or Pacific Gas and Electric could be forced into bankruptcy proceedings. If this were to occur, payments to the qualifying facilities, including those owned by partnerships in which we have a partnership interest, could be subject to significant delays associated with the lengthy bankruptcy court process and may not be paid in full. At February 28, 2001, accounts receivable due to these partnerships from Southern California Edison and Pacific Gas & Electric were $437 million; our share of these receivables was $217 million. Furthermore, Southern California Edison's and Pacific Gas and Electric's power purchase agreements with the qualifying facilities could be subject to review by a bankruptcy court. While we believe that the generation of electricity by the qualifying facilities, including those owned by partnerships in which we have a partnership interest, is needed to meet California's power needs, we cannot assure you either that these partnerships will continue to generate electricity without payment by the purchasing utility, or that the power purchase agreements will not be adversely affected by a bankruptcy or contract renegotiation as a result of the current power crisis. CREDIT SUPPORT FOR TRADING AND PRICE RISK MANAGEMENT ACTIVITIES Our trading and price risk management activities are conducted through our subsidiary, Edison Mission Marketing & Trading, Inc., which is currently rated investment grade ("BBB-" by Standard and Poor's). As part of obtaining an investment grade rating for this subsidiary, we have entered into a support agreement, which commits us to contribute up to $300 million in equity to Edison Mission Marketing & Trading, if needed to meet cash requirements. An investment grade rating is an important benchmark used by third parties when deciding whether or not to enter into master contracts and trades with us. The majority of Edison Mission Marketing & Trading's contracts have various standards of creditworthiness, including the maintenance of specified credit ratings. If Edison Mission Marketing & Trading does not maintain its investment grade rating or if other events adversely affect its financial position, a third party could request Edison Mission Marketing & Trading to provide adequate assurance. Adequate assurance could take the form of supplying additional financial information, additional guarantees, collateral, letters of credit or cash. Failure to provide adequate assurance could result in a counterparty liquidating an open position and filing a claim against Edison Mission Marketing & Trading for any losses. The California power crisis has adversely affected the liquidity of West Coast trading markets, and to a lesser extent, other regions in the United States. Our trading and price risk management activity has been reduced as a result of these market conditions and uncertainty regarding the effect of the power crisis on our affiliate, Southern California Edison. It is not certain that resolution of the California power crisis will occur in 2001 or that, if resolved, we will be able to conduct trading and price risk management activities in a manner that will be favorable to us. PAITON The Paiton project is a 1,230 MW coal fired power plant in operation in East Java, Indonesia. Our wholly-owned subsidiary owns a 40% interest and had a $490 million investment in the Paiton project at December 31, 2000. The project's tariff under the power purchase agreement with PT PLN is higher in the early years and steps down over time. The tariff for the Paiton project includes costs relating to infrastructure to be used in common by other units at the Paiton complex. The plant's output is fully contracted with the state-owned electric company, PT PLN. Payments are in Indonesian Rupiah, with the portion of the payments intended to cover non-Rupiah project costs, including returns to investors, adjusted to account for exchange rate fluctuations between the Indonesian Rupiah and the U.S. dollar. The project received substantial finance and insurance support from the Export-Import Bank of the United States, the Japan Bank for International Cooperation, the U.S. Overseas Private Investment 113 Corporation and the Ministry of Economy, Trade and Industry of Japan. PT PLN's payment obligations are supported by the Government of Indonesia. The projected rate of growth of the Indonesian economy and the exchange rate of Indonesian Rupiah into U.S. dollars have deteriorated significantly since the Paiton project was contracted, approved and financed. The Paiton project's senior debt ratings have been reduced from investment grade to speculative grade based on the rating agencies' determination that there is increased risk that PT PLN might not be able to honor the power purchase agreement with P.T. Paiton Energy, the project company. The Government of Indonesia has arranged to reschedule sovereign debt owed to foreign governments and has entered into discussions about rescheduling sovereign debt owed to private lenders. In May 1999, Paiton Energy notified PT PLN that the first 615 MW unit of the Paiton project had achieved commercial operation under the terms of the power purchase agreement and, in July 1999, that the second 615 MW unit of the plant had similarly achieved commercial operation. Because of the economic downturn, PT PLN was then experiencing low electricity demand and PT PLN, through February 2000, dispatched the Paiton plant to zero. In addition, PT PLN filed a lawsuit contesting the validity of its agreement to purchase electricity from the project. The lawsuit was withdrawn by PT PLN on January 20, 2000, and in connection with this withdrawal, the parties entered into an interim agreement for the period through December 31, 2000, under which dispatch levels and fixed and energy payment amounts were agreed. As of December 31, 2000, PT PLN had made all fixed payments due under the interim agreement totaling $115 million and all payments due for energy delivered by the plant to PT PLN. As part of the continuing negotiations on a long-term restructuring of the tariff, Paiton Energy and PT PLN agreed in January 2001 on a Phase I Agreement for the period from January 1, 2001 through June 30, 2001. This agreement provides for fixed monthly payments aggregating $108 million over its six month duration and for the payment for energy delivered to PT PLN from the plant during this period. Paiton Energy and PT PLN intend to complete the negotiations of the further phases of a new long-term tariff during the six month duration of the Phase I Agreement. To date, PT PLN has made all fixed and energy payments due under the Phase I Agreement. Events, including those discussed above, have occurred which may mature into defaults of the project's debt agreements following the passage of time, notice or lapse of waivers granted by the project's lenders. On October 15, 1999, the project entered into an interim agreement with its lenders pursuant to which the lenders waived defaults during the term of the agreement and effectively agreed to defer payments of principal until July 31, 2000. In July, the lenders agreed to extend the term of the lender interim agreement through December 31, 2000. In December 2000, the lenders agreed to an additional extension of the lender interim agreement through December 31, 2001. Paiton Energy has received lender approval of the Phase I Agreement. Under the terms of the power purchase agreement, PT PLN has been required to pay for capacity and fixed operating costs once each unit and the plant achieved commercial operation. As of December 31, 2000, PT PLN had not paid invoices amounting to $814 million for capacity charges and fixed operating costs under the power purchase agreement. All arrears under the power purchase agreement continue to accrue, minus the fixed monthly payments actually made under the year 2000 interim agreement and under the recently agreed Phase I Agreement, with the payment of these arrears to be dealt with in connection with the overall long-term restructuring of the tariff. In this regard, under the Phase I Agreement, Paiton Energy has agreed that, so long as the Phase I Agreement is complied with, it will seek to recoup no more than $590 million of the above arrears, the payment of which is to be dealt with in connection with the overall tariff restructuring. Any material modifications of the power purchase agreement resulting from the continuing negotiation of a new long-term tariff could require a renegotiation of the Paiton project's debt 114 agreements. The impact of any such renegotiations with PT PLN, the Government of Indonesia or the project's creditors on our expected return on our investment in Paiton Energy is uncertain at this time; however, we believe that we will ultimately recover our investment in the project. BROOKLYN NAVY YARD Brooklyn Navy Yard is a 286 MW gas fired cogeneration power plant in Brooklyn, New York. Our wholly-owned subsidiary owns 50% of the project. In February 1997, the construction contractor asserted general monetary claims under the turnkey agreement against Brooklyn Navy Yard Cogeneration Partners, L.P. for damages in the amount of $136.8 million. Brooklyn Navy Yard Cogeneration Partners has asserted general monetary claims against the contractor. In connection with a $407 million non-recourse project refinancing in 1997, we agreed to indemnify Brooklyn Navy Yard Cogeneration Partners and its partner from all claims and costs arising from or in connection with the contractor litigation, which indemnity has been assigned to Brooklyn Navy Yard Cogeneration Partners' lenders. At this time, we cannot reasonably estimate the amount that would be due, if any, related to this litigation. Additional amounts, if any, which would be due to the contractor with respect to completion of construction of the power plant would be accounted for as an additional part of its power plant investment. Furthermore, our partner has executed a reimbursement agreement with us that provides recovery of up to $10 million over an initial amount, including legal fees, payable from its management and royalty fees. At December 31, 2000, no accrual has been recorded in connection with this litigation. We believe that the outcome of this litigation will not have a material adverse effect on our consolidated financial position or results of operations. ILLINOIS PLANTS--POWER PURCHASE AGREEMENTS During 2000, 33% of our electric revenues were derived under power purchase agreements with Exelon Generation Company, a subsidiary of Exelon Corporation, entered into in connection with our December 1999 acquisition of the Illinois Plants. Exelon Corporation is the holding company of Commonwealth Edison and PECO Energy Company, major utilities located in Illinois and Pennsylvania. Electric revenues attributable to sales to Exelon Generating Company are earned from capacity and energy provided by the Illinois Plants under three five-year power purchase agreements. If Exelon Generation were to fail to or became unable to fulfill its obligations under these power purchase agreements, we may not be able to find another customer on similar terms for the output of our power generating assets. Any material failure by Exelon Generation to make payments under these power purchase agreements could adversely affect our results of operations and liquidity. Pursuant to the acquisition documents for the purchase of generating assets from Commonwealth Edison, our subsidiary committed to install one or more gas-fired power plants having an additional gross dependable capacity of 500 MWs at existing or adjacent power plant site in Chicago. The acquisition documents require that commercial operations of this project be completed by December 15, 2003. The estimated cost to complete the construction of this 500 MW gas-fired power plant is approximately $250 million. FUEL SUPPLY CONTRACTS At December 31, 2000, we had contractual commitments to purchase and/or transport coal and fuel oil. Based on the contract provisions which consist of fixed prices, subject to adjustment clauses in some cases, these minimum commitments are currently estimated to aggregate $2.4 billion in the next five years summarized as follows: 2001--$838 million; 2002--$653 million; 2003--$386 million; 2004--$308 million; 2005--$241 million. 115 LITIGATION We are routinely involved in litigation arising in the normal course of business. While the results of such litigation cannot be predicted with certainty, we, based on advice of counsel, do not believe that the final outcome of any pending litigation will have a material adverse effect on our financial position or results of operations. ENVIRONMENTAL MATTERS OR REGULATIONS We are subject to environmental regulation by federal, state and local authorities in the United States and foreign regulatory authorities with jurisdiction over projects located outside the United States. We believe that we are in substantial compliance with environmental regulatory requirements and that maintaining compliance with current requirements will not materially affect our financial position or results of operation. However, possible future developments, such as the promulgation of more stringent environmental laws and regulations, and future proceedings which may be taken by environmental authorities, could affect the costs and the manner in which we conduct our business and could cause us to make substantial additional capital expenditures. We cannot assure you that we would be able to recover these increased costs from our customers or that our financial position and results of operations would not be materially adversely affected. Typically, environmental laws require a lengthy and complex process for obtaining licenses, permits and approvals prior to construction and operation of a project. Meeting all the necessary requirements can delay or sometimes prevent the completion of a proposed project as well as require extensive modifications to existing projects, which may involve significant capital expenditures. We expect that compliance with the Clean Air Act and the regulations and revised State Implementation Plans developed as a consequence of the Act will result in increased capital expenditures and operating expenses. For example, we expect to spend approximately $67 million in 2001 to install upgrades to the environmental controls at the Homer City plant to control sulfur dioxide and nitrogen oxide emissions. Similarly, we anticipate upgrades to the environmental controls at the Illinois Plants to control nitrogen oxide emissions to result in expenditures of approximately $61 million, $67 million, $130 million, $123 million and $57 million for 2001, 2002, 2003, 2004 and 2005, respectively. Provisions related to nonattainment, air toxins, permitting of new and existing units, enforcement and acid rain may affect our domestic plants; however, final details of all these programs have not been issued by the United States Environmental Protection Agency and state agencies. In addition, at the Ferrybridge and Fiddler's Ferry plants we anticipate environmental costs arising from plant modification of approximately $52 million for the 2001-2005 period. We own an indirect 50% interest in EcoElectrica, L.P., a limited partnership which owns and operates a liquified natural gas import terminal and cogeneration project at Penuelas, Puerto Rico. In 2000, the U.S. Environmental Protection Agency issued to EcoElectrica a notice of violation and a compliance order alleging violations of the federal Clean Air Act primarily related to start-up activities. Representatives of EcoElectrica have met with the Environmental Protection Agency to discuss the notice of violations and compliance order. To date, EcoElectrica has not been informed of the commencement of any formal enforcement proceedings. It is premature to assess what, if any, action will be taken by the Environmental Protection Agency. Prior to our purchase of the Homer City plant, the Environmental Protection Agency requested information from the prior owners of the plant concerning physical changes at the plant. Other than with respect to the Homer City plant, no proceedings have been initiated or requests for information issued with respect to any of our United States facilities. However, we have been in informal voluntary discussions with the Environmental Protection Agency relating to these facilities, which may result in the payment of civil fines. We cannot assure you that we will reach a satisfactory agreement or that these facilities will not be subject to proceedings in the future. Depending on the outcome of the 116 proceedings, we could be required to invest in additional pollution control requirements, over and above the upgrades we are planning to install, and could be subject to fines and penalties. NOTE 14. LEASE COMMITMENTS We lease office space, property and equipment under noncancelable lease agreements that expire in various years through 2063. The primary capital lease obligation is for a plant located in the United Kingdom denominated in pounds sterling. A group of banks provides a guarantee on the performance of the capital lease obligation under a term loan and guarantee facility agreement. The facility agreement provides for an aggregate of $171.6 million in a guarantee to the lessor and in loans to the project. As of December 31, 2000, the loan obligation stands at $98.8 million, which is secured by the plant assets of $14.6 million owned by the project and a debt service reserve of $3.0 million. Future minimum payments for operating and capital leases at December 31, 2000, are:
OPERATING CAPITAL YEARS ENDING DECEMBER 31, LEASES LEASES - ------------------------- --------- -------- 2001....................................................... $ 174.8 $0.3 2002....................................................... 193.9 0.2 2003....................................................... 195.5 0.2 2004....................................................... 219.5 0.1 2005....................................................... 260.2 0.2 Thereafter................................................. 3,821.4 -- -------- ---- Total future commitments................................... $4,865.3 1.0 ======== Amount representing interest (8.86%)....................... 0.2 ---- Net Commitments............................................ $0.8 ====
Operating lease expense amounted to $122.0 million, $10.4 million and $6.9 million in 2000, 1999 and 1998, respectively. SALE-LEASEBACK TRANSACTIONS In connection with the acquisition of the Illinois Plants, we assigned the right to purchase the Collins gas and oil-fired power plant to third party lessors. The third party lessors purchased the Collins Station for $860 million and entered into leases of the plant with us. The leases, which are being accounted for as operating leases, have an initial term of 33.75 years with payments due on a quarterly basis. The base lease rent includes both a fixed and variable component; the variable component of which is impacted by movements in defined short-term interest rate indexes. Under the terms of the leases, we may request a lessor, at its option, to refinance the lessor's debt, which if completed would impact the base lease rent. If a lessor intends to sell its interest in the Collins Station, we have a first right of refusal to acquire the facility at fair market value. Minimum lease payments (included in the table above) are $42.3 million in 2001, $50.3 million in 2002, $50.3 million in 2003, $50.4 million in 2004, and $50.3 million in 2005. At December 31, 2000, the total remaining minimum lease payments were $1.5 billion. On July 10, 2000, one of our subsidiaries entered into a sale-leaseback of equipment, primarily Illinois peaker power units, to a third party lessor for $300 million. Under the terms of the 5-year lease, we have a fixed price purchase option at the end of the lease term of $300 million. We guarantee the monthly payments under the lease. Minimum lease payments (included in the table above) are $21.1 million in 2001, $21.0 million in 2002, $21.0 million in 2003, and $21.0 million in 2004. In connection with the sale-leaseback, a subsidiary of ours purchased $255 million of notes issued by the lessor which accrue interest at LIBOR plus 0.65% to 0.95%, depending on our credit rating. The notes 117 are due and payable in five years. The gain recognized on the sale of equipment has been deferred and is being amortized over the term of the lease. On August 24, 2000, we entered into a sale-leaseback transaction for the Powerton and Joliet power facilities located in Illinois to third party lessors for an aggregate purchase price of $1.367 billion. Under the terms of the leases (33.75 years for Powerton and 30 years for Joliet), our subsidiary makes semi-annual lease payments on each January 2 and July 2, beginning January 2, 2001. Edison Mission Energy guarantees the subsidiary's payments under the leases. If a lessor intends to sell its interest in the Powerton or Joliet power facility, we have a right of first refusal to acquire the interest at fair market value. Minimum lease payments (including in the table above) are $83.3 million for 2001, $97.3 million for 2002, $97.3 million for 2003, $97.3 million for 2004 and $141.1 million for 2005. At December 31, 2000, the total remaining minimum lease payments are $2.4 billion. Lease costs of these power facilities will be levelized over the terms of the respective leases. The gain recognized on the sale of the power facilities has been deferred and is being amortized over the term of the lease. EDISON MISSION ENERGY MASTER TURBINE LEASE In December 2000, we entered into a master lease and other agreements for the construction of new projects using nine turbines that are being procured from Siemens Westinghouse. The aggregate total construction cost of these projects is estimated to be approximately $986 million. Under the terms of the master lease, the lessor, as owner of the projects, is responsible for the development and construction costs of the new projects using these turbines. We have agreed to supervise the development and construction of the projects as the agent of the lessor. Upon completion of construction of each project, we have agreed to lease the projects from the lessor. In connection with the lease, we have provided a residual value guarantee to the lessor at the end of the lease term. We are required to deposit treasury notes equal to 103% of the construction costs as collateral for the lessor which can only be used under circumstances involving our default of our obligations we have agreed to perform during the construction of each project. Lease payments are scheduled to begin in November 2003. Minimum lease payments (included in the table above) are $3.1 million in 2003, $27.7 million in 2004, and $50.2 million in 2005. The term of the master lease ends in 2010. The master lease grants us, as lessee, a purchase option based on the lease balance which can be exercised at any time during the term. NOTE 15. RELATED PARTY TRANSACTIONS Specified administrative services such as payroll and employee benefit programs, all performed by Edison International or Southern California Edison Company employees, are shared among all affiliates of Edison International, and the costs of these corporate support services are allocated to all affiliates, including us. Costs are allocated based on one of the following formulas: percentage of time worked, equity in investment and advances, number of employees, or multi-factor (operating revenues, operating expenses, total assets and number of employees). In addition, services of Edison International or Southern California Edison employees are sometimes directly requested by us and these services are performed for our benefit. Labor and expenses of these directly requested services are specifically identified and billed at cost. We believe the allocation methodologies utilized are reasonable. We made reimbursements for the cost of these programs and other services, which amounted to $65.3 million, $34.6 million and $29.7 million in 2000, 1999 and 1998, respectively. Accounts payable--affiliates associated with these administrative services totaled $25.5 million and $7.8 million at December 31, 2000 and 1999, respectively. We record accruals for tax liabilities and/or tax benefits which are settled quarterly according to a series of tax sharing agreements as described in Note 2. Under these agreements, we recognized tax benefits of $226.3 million, $75.5 million and $29.5 million for 2000, 1999 and 1998, respectively. See 118 Note 10. Amounts included in Accounts receivable--affiliates associated with these tax benefits totaled $149.9 million and $1.9 million at December 31, 2000 and 1999, respectively. Edison Mission Operation & Maintenance, Inc., an indirect, wholly-owned affiliate of Edison Mission Energy, has entered into operation and maintenance agreements with partnerships in which Edison Mission Energy has a 50% or less ownership interest. Pursuant to the negotiated agreements, Edison Mission Operation & Maintenance shall perform all operation and maintenance activities necessary for the production of power by these partnerships' facilities. The agreements will continue until terminated by either party. Edison Mission Operation & Maintenance paid for all costs incurred with operating and maintaining the facility and may also earn an incentive compensation as set forth in the agreements. We recorded revenues under the operation and maintenance agreements of $27.9 million, $28.9 million and $29.8 million in 2000, 1999 and 1998, respectively. Accounts receivable--affiliates for Edison Mission Operation & Maintenance totaled $4.9 million and $5.1 million at December 31, 2000 and 1999, respectively. Specified Edison Mission Energy subsidiaries have ownership in partnerships that sell electricity generated by their project facilities to Southern California Edison Company and others under the terms of long-term power purchase agreements. Sales by these partnerships to Southern California Edison Company under these agreements amounted to $715.9 million, $512.6 million and $534.8 million in 2000, 1999 and 1998, respectively. NOTE 16. SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Cash paid Interest (net of amount capitalized)............ $619.5 $ 327.6 $171.5 Income taxes (receipts)......................... $(38.2) $ (41.5) $ 8.8 Details of assets acquired Fair value of assets acquired................... $518.5 $9,151.1 $248.4 Liabilities assumed............................. 396.8 539.1 -- ------ -------- ------ Net cash paid for acquisitions.................... $121.7 $8,612.0 $248.4 ====== ======== ======
NOTE 17. BUSINESS SEGMENTS We operate predominantly in one line of business, electric power generation, with reportable segments organized by geographic region: Americas, Asia Pacific and Europe, Central Asia, Middle East and Africa. Our plants are located in different geographic areas, which mitigate the effects of regional markets, economic downturns or unusual weather conditions. Electric power and steam generated in the United States is sold primarily under (1) long-term contracts, with terms of 15 to 30-years, to domestic electric utilities and industrial steam users, (2) through a centralized power pool, or (3) under power purchase agreements with Commonwealth Edison, which assigned its rights and obligations under these power purchase agreements to Exelon Generation Company, which began December 15, 1999 and have a term of up to five years. We currently derive a significant source of our revenues from the sale of energy and capacity to Exelon Generation Company under the power purchase agreements terminating in December 2004. Our revenues from Commonwealth Edison were $1.1 billion for the year ended December 31, 2000. This represents 33% of our consolidated revenues in 2000. Our share of equity in earnings from partnerships that have long-term power purchase agreements with Southern California Edison were $153.0 million, $132.4 million and $112.7 million for the years ended December 31, 2000, 1999 and 119 1998, respectively. This represents 5% in 2000, 8% in 1999 and 13% in 1998 of our consolidated revenues. Both companies' revenues are included in the Americas region shown below. Plants located in the United Kingdom and a plant in Australia sell their energy and capacity production through a centralized power pool. The plants that sell through a centralized power pool enter into short and/or long-term contracts to hedge against the volatility of price fluctuations in the pool. Other electric power generated overseas is sold under long-term contracts to electric utilities located in the country where the power is generated. Intercompany transactions have been eliminated in the following segment information.
EUROPE, CENTRAL ASIA, ASIA MIDDLE EAST CORPORATE/ AMERICAS PACIFIC AND AFRICA OTHER TOTAL -------- -------- ------------- ---------- --------- 2000 Electric & operating revenues............ $1,571.0 $ 184.2 $1,236.3 $ -- $ 2,991.5 Net losses from energy trading and price risk management........................ (17.3) -- -- -- (17.3) Equity in income from investments........ 257.2 14.6 (5.0) -- 266.8 -------- -------- -------- ------- --------- Total operating revenues............... 1,810.9 198.8 1,231.3 -- 3,241.0 Fuel and plant operations................ 1,131.6 61.5 730.1 -- 1,923.2 Depreciation and amortization............ 191.2 35.0 144.8 11.1 382.1 Long-term incentive compensation......... -- -- -- (56.0) (56.0) Administrative and general............... 21.1 -- -- 139.8 160.9 -------- -------- -------- ------- --------- Income (loss) from operations............ $ 467.0 $ 102.3 $ 356.4 $ (94.9) $ 830.8 ======== ======== ======== ======= ========= Identifiable assets...................... $5,606.6 $1,408.9 $5,346.8 $ 567.2 $12,929.5 Equity investments and advances.......... 952.3 1,048.9 86.4 -- 2,087.6 -------- -------- -------- ------- --------- Total assets........................... $6,558.9 $2,457.8 $5,433.2 $ 567.2 $15,017.1 ======== ======== ======== ======= ========= Additions to property and plant.......... $ 294.1 $ 4.0 $ 38.9 $ 15.3 $ 352.3 1999 Electric & operating revenues............ $ 378.6 $ 213.6 $ 805.8 $ -- $ 1,398.0 Net losses from energy trading and price risk management........................ (6.4) -- -- -- (6.4) Equity in income from investments........ 224.8 18.1 1.4 -- 244.3 -------- -------- -------- ------- --------- Total operating revenues............... 597.0 231.7 807.2 -- 1,635.9 Fuel and plant operations................ 237.7 73.8 456.6 -- 768.1 Depreciation and amortization............ 52.5 40.5 88.3 8.9 190.2 Long-term incentive compensation......... -- -- -- 136.3 136.3 Administrative and general............... -- -- -- 114.9 114.9 -------- -------- -------- ------- --------- Income (loss) from operations............ $ 306.8 $ 117.4 $ 262.3 $(260.1) $ 426.4 ======== ======== ======== ======= ========= Identifiable assets...................... $6,708.4 $1,421.1 $5,382.8 $ 81.0 $13,593.3 Equity investments and advances.......... 862.2 1,063.1 15.6 -- 1,940.9 -------- -------- -------- ------- --------- Total assets........................... $7,570.6 $2,484.2 $5,398.4 $ 81.0 $15,534.2 ======== ======== ======== ======= ========= Additions to property and plant.......... $6,127.0 $ 6.1 $2,124.3 $ 52.7 $ 8,310.1
120
EUROPE, CENTRAL ASIA, ASIA MIDDLE EAST CORPORATE/ AMERICAS PACIFIC AND AFRICA OTHER TOTAL -------- -------- ------------- ---------- --------- 1998 Electric & operating revenues............ $ 29.9 $ 205.1 $ 469.4 $ -- $ 704.4 Equity in income from investments........ 184.6 1.3 3.5 -- 189.4 -------- -------- -------- ------- --------- Total operating revenues............... 214.5 206.4 472.9 -- 893.8 Fuel and plant operations................ 22.2 69.6 241.3 -- 333.1 Depreciation and amortization............ 9.8 31.6 40.3 5.6 87.3 Long-term incentive compensation......... -- -- -- 39.0 39.0 Administrative and general............... -- -- -- 83.9 83.9 -------- -------- -------- ------- --------- Income (loss) from operations............ $ 182.5 $ 105.2 $ 191.3 $(128.5) $ 350.5 ======== ======== ======== ======= ========= Identifiable assets...................... $ 173.6 $1,334.3 $2,239.6 $ 184.1 $ 3,931.6 Equity investments and advances.......... 841.2 361.2 23.8 0.3 1,226.5 -------- -------- -------- ------- --------- Total assets........................... $1,014.8 $1,695.5 $2,263.4 $ 184.4 $ 5,158.1 ======== ======== ======== ======= ========= Additions to property and plant.......... $ 1.1 $ 2.2 $ 66.1 $ 4.0 $ 73.4
During 2000, Edison Mission Energy changed its presentation of segment performance by presenting the measure of profit or loss for each reportable segment as income (loss) from operation compared to net income (loss) as reported in 1999 and 1998. GEOGRAPHIC INFORMATION Foreign operating revenues and assets by country included in the table above are shown below.
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Operating revenues Australia....................................... $ 178.1 $208.5 $199.3 Other Asia Pacific.............................. 20.7 23.2 7.1 -------- ------ ------ Total Asia Pacific................................ $ 198.8 $231.7 $206.4 ======== ====== ====== United Kingdom.................................. $1,114.6 $746.8 $448.8 Turkey.......................................... 98.9 38.0 -- Spain........................................... 17.8 22.4 24.1 -------- ------ ------ Total Europe, Central Asia, Middle East and Africa.......................................... $1,231.3 $807.2 $472.9 ======== ====== ======
121
DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Assets Australia.................................... $1,216.5 $1,397.5 $1,326.2 New Zealand.................................. 685.7 616.8 -- Indonesia.................................... 531.3 442.5 358.2 Other Asia Pacific........................... 24.3 27.4 11.1 -------- -------- -------- Total Asia Pacific............................. $2,457.8 $2,484.2 $1,695.5 ======== ======== ======== United Kingdom............................... $4,933.1 $5,032.3 $1,787.1 Turkey....................................... 231.0 191.2 161.8 Spain........................................ 143.9 167.2 195.7 Other Europe, Central Asia, Middle East and Africa..................................... 125.2 7.7 118.8 -------- -------- -------- Total Europe, Central Asia, Middle East and Africa....................................... $5,433.2 $5,398.4 $2,263.4 ======== ======== ========
NOTE 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
2000 FIRST(I) SECOND THIRD(I) FOURTH(I) TOTAL - ---- -------- -------- -------- --------- -------- Operating revenues......................... $736.9 $723.2 $1,050.3 $730.6 $3,241.0 Operating income........................... 127.6 125.4 489.5 88.3 830.8 Income (loss) before accounting change..... (30.2)(ii) (18.5)(ii) 191.3 (35.0) 107.6 Net income (loss).......................... (12.5)(ii) (18.5)(ii) 191.3 (35.0) 125.3
1999 FIRST(I) SECOND THIRD(I) FOURTH(I) TOTAL - ---- -------- -------- -------- --------- -------- Operating revenues........................... $269.6 $271.3(iii) $532.4(iv) $562.6 (v) $1,635.9 Operating income............................. 114.1 74.9(iii) 218.0(iv) 19.4 (v) 426.4 Income (loss) before accounting change....... 57.9 5.5(iii) 86.6(iv) (5.9)(v) 144.1 Net income (loss)............................ 44.1 5.5(iii) 86.6(iv) (5.9)(v) 130.3
- ------------------------ (i) Reflects our seasonal pattern, in which the majority of earnings from domestic projects are recorded in the third quarter of each year and higher electric revenues from specified international projects are recorded during the winter months of each year. (ii) Reflects an increase in interest expense as the result of additional debt financings due to the acquisitions throughout 1999. (iii) Reflects the operations of the Homer City plant acquired in March 1999. (iv) Reflects the operations of the Homer City plant, the Doga project, which commenced commercial operations in May 1999, and the Ferrybridge and Fiddler's Ferry plants acquired in July 1999. (v) Reflects the operations of the Homer City plant, the Doga project, the Ferrybridge and Fiddler's Ferry plants and the Illinois Plants acquired in December 1999. 122 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT POSITIONS WITH EDISON MISSION ENERGY Listed below are our current directors and executive officers and their ages and positions as of March 20, 2001.
DIRECTOR POSITION HELD CONTINUOUSLY TERM CONTINUOUSLY TERM NAME, POSITION AND AGE SINCE EXPIRES SINCE EXPIRES - ---------------------- ------------ -------- ------------- -------- John E. Bryson, 57 .................................. 2000 2001 -- -- Director, Chairman of the Board Dean A. Christiansen, 41 ............................ 2001 2001 -- -- Director Theodore F. Craver, Jr., 49 ......................... 2001 2001 -- -- Director Bryant C. Danner, 63 ................................ 1993 2001 -- -- Director Alan J. Fohrer, 50 .................................. 1992 2001 2000 2001 Director, President and Chief Executive Officer Robert M. Edgell, 54 ................................ -- -- 1988 2001 Executive Vice President and Division President of Edison Mission Energy, Asia Pacific William J. Heller, 44 ............................... -- -- 2000 2001 Senior Vice President and Division President of Edison Mission Energy, Europe, Central Asia, Middle East and Africa Ronald L. Litzinger, 41 ............................. -- -- 1999 2001 Senior Vice President, WorldwideOperations Georgia R. Nelson, 51 ............................... -- -- 1999 2001 Senior Vice President and President of Midwest Generation EME, LLC Kevin M. Smith, 43 .................................. -- -- 1999 2001 Senior Vice President and Chief Financial Officer Raymond W. Vickers, 58 .............................. -- -- 1999 2001 Senior Vice President and General Counsel
BUSINESS EXPERIENCE Below is a description of the principal business experience during the past five years of each of the individuals named above and the name of each public company in which any director named above is a director. MR. BRYSON has been director and chairman of the board of Edison Mission Energy since January 2000. Mr. Bryson was director of Edison Mission Energy from January 1986 to January 1998. Mr. Bryson has been president of Edison International since January 2000 and chairman of the board and chief executive officer of Edison International since 1990. Mr. Bryson served as chairman of the board, chief executive officer and a director of Southern California Edison from 1990 to January 2000. Mr. Bryson is a director of The Walt Disney Company, The Boeing Company, and Pacific American Income Shares, Inc. and LM Institutional Fund Advisors I, Inc. 123 MR. CHRISTIANSEN has been director of Edison Mission Energy since January 2001 and serves as Edison Mission Energy's independent director. Mr. Christiansen has been president of Lord Securities since October 2000 and has been president of Acacia Capital since May 1990. Mr. Christiansen has been a director of Capital Markets Engineering & Trading, New York since August 1999 and has been director of Structural Concepts Corporation of Muskegon, Michigan since May 1995. MR. CRAVER has been director of Edison Mission Energy since January 2001. Mr. Craver has been senior vice president, chief financial officer, and treasurer of Edison International since January 2000. Mr. Craver has been chairman of the board and chief executive officer of Edison Enterprise since September 1999. Mr. Craver served as senior vice president and treasurer of Edison International from February 1998 to January 2000. Mr. Craver served as senior vice president and treasurer of Southern California Edison from February 1998 to September 1999. Mr. Craver served as vice president and treasurer of Edison International and Southern California Edison from September 1996 to February 1998. Mr. Craver was executive vice president and corporate treasurer of First Interstate Bancorp from September 1990 to April 1996. MR. DANNER has been director of Edison Mission Energy since May 1993. Mr. Danner has been executive vice president and general counsel of Edison International since June 1995. Mr. Danner was executive vice president and general counsel of Southern California Edison from June 1995 until January 2000. Mr. Danner was senior vice president and general counsel of Edison International and Southern California Edison from July 1992 until May 1995. MR. EDGELL has been executive vice president of Edison Mission Energy since April 1988. Mr. Edgell served as director of Edison Mission Energy from May 1993 to January 2001. Mr. Edgell was named division president of Edison Mission Energy's Asia Pacific region in January 1995. MR. FOHRER has been director, president and chief executive officer of Edison Mission Energy since January 2000. From 1998 to 2000, Mr. Fohrer served as chairman of the board. From 1993 to 1998, Mr. Fohrer served as vice chairman of the board. Mr. Fohrer was executive vice president and chief financial officer of Edison International and was executive vice president and chief financial officer of Southern California Edison from June 1995 until January 2000. Effective February 1996 and June 1995, Mr. Fohrer also served as treasurer of Southern California Edison and Edison International, respectively, until August 1996. Mr. Fohrer was senior vice president, treasurer and chief financial officer of Edison International, and senior vice president and chief financial officer of Southern California Edison from January 1993 until May 1995. Mr. Fohrer was Edison Mission Energy's interim chief executive officer between May 1993 and August 1993. From 1991 until 1993, Mr. Fohrer was vice president, treasurer and chief financial officer of Edison International and Southern California Edison. MR. HELLER has been senior vice president and division president of Edison Mission Energy, Europe, Central Asia, Middle East and Africa since February 2000. Mr. Heller was elected director of Edison Mission Energy's board, effective December 9, 1999, and subsequently resigned effective February 7, 2000. Mr. Heller was senior vice president of Strategic Planning and New Business Development for Edison International from January 1996 until February 2000. Prior to joining Edison International, Mr. Heller was with McKinsey and Company, Inc. from 1982 to 1995, serving as principal and head of McKinsey's Los Angeles Energy Practice from 1991 to 1995. MR. LITZINGER has been senior vice president of Edison Mission Energy's Worldwide Operations since June 1999. Mr. Litzinger served as vice president of O&M Business Development from December 1998 to May 1999. Mr. Litzinger has been with Edison Mission Energy since November 1995 serving as both regional vice president of O&M Business Development and manager of O&M Business Development until December 1998. Prior to joining Edison Mission Energy, Mr. Litzinger was a reliability supervisor with Texaco Refining and Marketing, Inc. from March 1995 to October 1995 and prior to that held numerous management positions with Southern California Edison since June 1986. 124 MS. NELSON has been senior vice president of Edison Mission Energy since January 1996 and has been president of Midwest Generation EME, LLC since May 1999. From January 1996 until June 1999, Ms. Nelson was senior vice president of Worldwide Operations. Ms. Nelson was division president of Edison Mission Energy's Americas region from January 1996 to January 1998. Prior to joining Edison Mission Energy, Ms. Nelson served as senior vice president of Southern California Edison from June 1995 until December 1995 and vice president of Southern California Edison from June 1993 until May 1995. MR. SMITH has been senior vice president and chief financial officer of Edison Mission Energy since May 1999. Mr. Smith served as treasurer of Edison Mission Energy from 1992 to 2000 and was elected a vice president in 1994. During March 1998 until September 1999, Mr. Smith also held the position of regional vice president of the Americas region. MR. VICKERS has been senior vice president and general counsel of Edison Mission Energy since March 1999. Prior to joining Edison Mission Energy, Mr. Vickers was a partner with the law firm of Skadden, Arps, Slate, Meagher & Flom LLP concentrating on international business transactions, particularly cross-border capital markets and investment transactions, project implementation and finance. SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Pursuant to Item 405 of Regulation S-K, Edison Mission Energy is required to disclose the following recently elected officers who each had one delinquent Form 3 "Initial Statement of Beneficial Ownership of Securities" filing which is required to be filed within 10 days of being elected for fiscal year 2000:
NAME DATE ELECTED - ---- ------------------ Dennis Winkleman, Vice President........................ February 7, 2000 Thomas McDaniel, Director............................... February 9, 2000 Gary Garcia, Treasurer.................................. February 10, 2000 Sam Henry, Vice President............................... August 1, 2000 Fred McCluskey, Vice President.......................... August 1, 2000 Guy Gorney, Vice President.............................. August 1, 2000 John Mathis, Vice President............................. August 30, 2000 David Goss, Vice President.............................. September 1, 2000 Paul Jacob, Vice President.............................. September 1, 2000 Mark Maisto, Vice President............................. September 1, 2000 Mark Williams, Vice President........................... September 1, 2000 Larry Silverstein, Vice President....................... September 1, 2000 John Mallory, Vice President............................ September 1, 2000 Lewis Hashimoto, Vice President......................... November 6, 2000
125 ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table provides information concerning compensation paid by Edison Mission Energy to each of the named executive officers during the years 2000, 1999 and 1998 for services rendered by such persons in all capacities to Edison Mission Energy and its subsidiaries. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION ------------ --------------------------------------------------- SECURITIES OTHER ANNUAL UNDERLYING ALL OTHER SALARY BONUS COMPENSATION(3) OPTIONS(4) COMPENSATION(5) NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($) - --------------------------- -------- -------- -------- --------------- ------------ --------------- Alan J. Fohrer(1) ........ 2000 458,654 --(8) 49,176 497,800 55,604 President and Chief Executive Officer Edward R. Muller(1) ...... 2000 22,431 --(8) 91 98,000 508,001(7) President and Chief 1999 463,000 347,250 2,147 33,780 35,797 Executive Officer 1998 432,000 390,000 2,624 21,160 40,172 Robert M. Edgell ......... 2000 417,000 --(8) -- 183,600 100,041(6) Executive Vice President 1999 387,000 276,500 -- 23,580 93,224(6) and Division President of 1998 362,000 265,000 -- 14,760 56,474(6) Edison Mission Energy, Asia Pacific Raymond W. Vickers ....... 2000 359,000 --(8) 4,648 161,200 16,170 Senior Vice President and 1999 287,692 158,700 2,688 22,690 231 General Counsel Georgia R. Nelson ........ 2000 349,000 --(8) 4,228 150,900 31,460 Senior Vice President and 1999 330,000 178,200 3,532 13,610 28,478 President of Midwest 1998 310,000 170,000 3,125 8,580 29,233 Generation EME, LLC Mark Maisto(2) ........... 2000 99,231 850,000(8) -- 30,000 1,846 President of Edison Mission Marketing & Trading, Inc.
- ------------------------ (1) On January 17, 2000, Mr. Muller resigned as president and chief executive officer of Edison Mission Energy and Mr. Fohrer was elected president and chief executive officer of Edison Mission Energy. (2) On February 23, 2001, Mr. Maisto resigned as president of Edison Mission Marketing & Trading, Inc. (3) Includes perquisites if in total they exceed the lesser of $50,000 or 10% of annual salary and bonus, plus reimbursed taxes. (4) No Stock Appreciation Rights have been awarded. Amounts shown are comprised of Edison International nonqualified stock options and Edison Mission Energy phantom stock options for 126 1999 and 1998. As discussed in footnote (3) in the table below entitled "Aggregated Option Exercises in 2000 and Year-End Option Values," all phantom stock options have been canceled pursuant to an exchange offer. The terms and conditions for the 2000 Option Awards are described in footnotes to the table below entitled "Option Grants in 2000." For 2000, Mr. Fohrer, Mr. Muller, Mr. Edgell, Mr. Vickers, Ms. Nelson and Mr. Maisto received 496,672; 98,000; 61,200; 51,200; 50,300 and 0 Edison International stock options pursuant to the Edison International Equity Compensation Plan, respectively, and 1,128; 0; 122,400; 110,000; 100,600 and 30,000 Edison International stock options pursuant to the Edison International 2000 Equity Plan, respectively. For 1999, Mr. Muller, Mr. Edgell, Mr. Vickers and Ms. Nelson received 23,100; 16,100; 15,500 and 9,300 Edison International stock options, respectively, and 10,680; 7,480; 7,190 and 4,310 Edison Mission Energy phantom stock options, respectively. For 1998, Mr. Muller, Mr. Edgell and Ms. Nelson received 13,300; 8,700 and 5,400 Edison International stock options, respectively; and 7,860; 6,060 and 3,180 Edison Mission Energy phantom stock options, respectively. (5) Includes the following company contributions to a defined contribution plan, Stock Savings Plus Plan and a supplemental plan for eligible participants who are affected by Stock Savings Plus Plan participation limits imposed on higher-paid individuals by federal tax law: For 2000, Mr. Fohrer, $31,801; Mr. Muller, $2,984; Mr. Edgell, $25,870; Mr. Vickers, $14,961; Ms. Nelson, $20,984 and Mr. Maisto, $1,846. For 1999, Mr. Muller, $30,374; Mr. Edgell, $16,384; Mr. Vickers, $0 and Ms. Nelson, $19,779. For 1998, Mr. Muller, $26,373; Mr. Edgell, $14,550 and Ms. Nelson, $15,461. Also includes the following amounts of interest accrued on deferred compensation of the named individuals, which is considered under the rules of the Securities and Exchange Commission to be at an above-market rate: For 2000, Mr. Fohrer, $23,743; Mr. Muller, $4,769; Mr. Edgell, $840; Mr. Vickers, $1,110; Ms. Nelson, $3,856 and Mr. Maisto, $0. For 1999, Mr. Muller, $5,272; Mr. Edgell, $338; Mr. Vickers, $231 and Ms. Nelson, $2,353; For 1998, Mr. Muller, $13,520; Mr. Edgell, $1,116 and Ms. Nelson, $7,812. (6) Includes an overseas service allowance of $65,311, $68,644 and $33,693 in 2000, 1999 and 1998, respectively. (7) In January 2000, Edison Mission Energy entered into a separate agreement with Mr. Muller in connection with the end of his employment that is discussed below in the section entitled "Employment Contract and Termination of Employment Arrangements." (8) No bonuses were paid under the Executive Incentive Compensation Plan to executive officers for 2000 performance. Mr. Maisto received an award for year 2000 performance pursuant to agreements entered into in connection with the acquisition of Citizens Power LLC by Edison Mission Energy. 127 EXECUTIVE STOCK OPTIONS The following table presents information regarding Edison International stock options granted during 2000 pursuant to the Edison International Equity Compensation Plan and/or the Edison International 2000 Equity Plan adopted by the Edison International Board on May 18, 2000 to the executive officers named in the Summary Compensation Table above. OPTION GRANTS IN 2000(1)
INDIVIDUAL GRANTS --------------------------------------------------------- PERCENT OF TOTAL OPTIONS GRANT DATE OPTIONS GRANTED TO EXERCISE OR PRESENT GRANTED EMPLOYEES BASE PRICE EXPIRATION VALUE NAME (#)(2)(3)(4) IN 2000 ($/SH) DATE(5) ($)(6) - ---- ------------ --------------- ----------- ---------- ---------- Alan J. Fohrer(7) Equity Compensation Plan............ 83,100 2% 25.1875 01/04/2010 438,768 Equity Compensation Plan............ 14,700 LESS THAN 1% 27.1250 01/04/2010 84,231 Equity Compensation Plan............ 398,872 10% 20.0625 05/18/2010 2,321,435 2000 Equity Plan.................... 1,128 LESS THAN 1% 20.0625 05/18/2010 6,565 Edward R. Muller Equity Compensation Plan............ 98,000 2% 25.1875 cancelled 517,440 Robert M. Edgell Equity Compensation Plan............ 61,200 2% 25.1875 01/04/2010 323,136 2000 Equity Plan.................... 122,400 3% 20.0625 05/18/2010 712,368 Raymond W. Vickers Equity Compensation Plan............ 51,200 1% 25.1875 01/04/2010 270,336 2000 Equity Plan.................... 110,000 3% 20.0625 05/18/2010 640,200 Georgia R. Nelson Equity Compensation Plan............ 50,300 1% 25.1875 01/04/2010 265,584 2000 Equity Plan.................... 100,600 2% 20.0625 05/18/2010 585,492 Mark Maisto 2000 Equity Plan.................... 15,000 LESS THAN 1% 20.5000 03/25/2002 89,850 2000 Equity Plan.................... 15,000 LESS THAN 1% 20.5000 cancelled 89,850
- -------------------------- (1) No Stock Appreciation Rights were granted under the Equity Compensation Plan to any participant during 2000. Stock Appreciation Rights cannot be granted under the 2000 Equity Plan. This table reflects all awards made under the Edison International Equity Compensation Plan and/or the 2000 Equity Plan during 2000. (2) Edison International nonqualified stock options granted in 2000 may be exercised when vested to purchase one share of Edison International common stock. Two Option Award grants were made during 2000 to the executive officers named in the table above. On January 3, 2000, the annual Option Award was made, and on May 18, 2000, a special Option Award was made in lieu of the 2001 and 2002 annual Option Awards. No dividend equivalents were included with either of these option grants. The Edison International Compensation and Executive Personnel Committee administers the Equity Compensation Plan and the 2000 Equity Plan and has sole discretion to determine all terms and conditions of any grant, subject to plan limits. It may substitute cash that is equivalent in value to the Option Awards and, with the consent of the executive, may amend the terms of any award, including the post-termination term, and the vesting schedule. (3) The January 3, 2000, Option Awards are subject to a four-year vesting period with one-fourth of the total award vesting and becoming exercisable annually beginning on January 2, 2001. If an executive retires, dies, or terminates employment following a permanent and total disability during the four-year vesting period, the unvested Option Awards will vest and be exercisable to the extent of 1/48 of the grant for each full month of service during the vesting period. Upon retirement, death or permanent and total disability, the vested Option Awards may continue to be exercised within their original term by the recipient or beneficiary. If an executive 128 is terminated other than by retirement, death or permanent and total disability, Option Awards that were vested as of the prior anniversary date of the grant are forfeited unless exercised within 180 days of the date of termination. All unvested Option Awards are forfeited on the date of termination. The Option Awards of Mr. Fohrer are transferable to a spouse, child or grandchild. Appropriate and proportionate adjustments may be made by the Edison International Compensation and Executive Personnel Committee to the Option Awards to reflect any impact resulting from various corporate events such as reorganizations, stock splits and so forth. If Edison International is not the surviving corporation in such a reorganization, all Option Awards then outstanding will become vested and be exercisable unless provisions are made as part of the transaction to substitute options of the successor corporation with appropriate adjustments as to the number and price of the options. Notwithstanding the foregoing, the January 3, 2000 Option Awards provide that upon a change of control of Edison International after the occurrence of a Distribution Date under the Rights Agreement approved by the Edison International Board of Directors on November 21, 1996, and amended on September 16, 1999, the options will vest and will remain exercisable for at least two years following the Distribution Date. A Distribution Date is generally the date a person acquires 20% or more of the Common Stock of Edison International, or a date specified by the Edison International Board of Directors after commencement of a tender offer for 20% or more of such stock. In no event, however, may an Option Award be exercised beyond its original term. (4) The May 18, 2000, Option Awards are subject to a five-year vesting period with one-fourth of the total award vesting annually beginning on May 18, 2002. The Option Awards may not be exercised prior to May 18, 2005, unless the closing price of Edison International Common Stock has averaged at least $25 per share over 20 consecutive trading days. If an executive retires, dies, or terminates employment following a permanent and total disability (a "Separation Event") during the five-year vesting period, the unvested Option Awards will vest and be exercisable (subject to the stock price appreciation requirement) to the extent of 1/60 of the grant for each full month of service during the vesting period, taking into consideration prior vesting and exercises (the "regular vesting rule"). Unvested Option Awards of Mr. Fohrer will vest and be exercisable upon a Separation Event in two equal blocks, the 2001 block and the 2002 block. Both blocks will vest and be exercisable to the extent provided under the regular vesting rule if the Separation Event occurs prior to January 1, 2001. If the Separation Event occurs during 2001, the 2001 block will be fully vested and exercisable (subject to the stock price appreciation requirement), and the 2002 block will vest and be exercisable to the extent determined under the regular vesting rule. If the Separation Event occurs after 2002, both blocks will be fully vested and exercisable (subject to the stock price appreciation requirement). Following a Separation Event, the vested Option Awards may be exercised within their original term by the recipient or beneficiary. If an executive terminates employment other than by a Separation Event, Option Awards that were vested as of the prior anniversary date of the grant are forfeited unless exercised within 180 days of the date employment is terminated. All unvested Option Awards are forfeited on the date employment is terminated. The Option Awards of Mr. Fohrer are transferable to a spouse, child or grandchild. Appropriate and proportionate adjustments may be made by the Edison International Compensation and Executive Personnel Committee to the Option Award to reflect any impact resulting from various corporate events such as reorganizations, stock splits and so forth. In the event of a change in control of Edison International, the May 18, 2000, Option Awards then outstanding will vest and be exercisable unless provisions are made as part of the transaction for the assumption or substitution of the Option Awards with options of the successor corporation with appropriate adjustments as to the number and price of the options. If an involuntary severance occurs during a protected period, but prior to a change in control, unvested Option Awards and vested Option Awards reaching the end of their 180-day exercise period will be suspended and unexercisable. If a change in control occurs within 24 months after the involuntary severance, the Option Awards will vest and be exercisable for 60 days after the change in control, or until the end of the 180-day period following employment termination, whichever date is later. In no event, however, may an Option Award be exercised beyond its original term. (5) The Option Awards are subject to earlier expiration upon termination of employment as described in footnotes (3) and (4) above. (6) The grant date value of each Edison International stock option for the January 3, 2000, Option Award was calculated to be $5.28 per option share using the Black-Scholes stock option pricing model. For purposes of 129 this calculation, it was assumed that the average exercise period was ten years, the volatility rate was 23.48%, the risk-free rate of return was 5.58%, the dividend yield was 4.02% and the stock price and exercise price were $25.1875. The grant date value of each Edison International stock option for the January 18, 2000, Option Award was calculated to be $5.73 per option share using the Black-Scholes stock option pricing model. For purposes of this calculation, it was assumed that the average exercise period was ten years, the volatility rate was 23.48%, the risk-free rate of return was 5.65%, the dividend yield was 4.02% and the stock price and exercise price were $27.125. The grant date value of each Edison International stock option for the May 18, 2000, Option Award was calculated to be $5.82 per option share using the Black-Scholes stock option pricing model. For purposes of this calculation, it was assumed that the average exercise period was ten years, the volatility rate was 36.67%, the risk-free rate of return was 6.01%, the dividend yield was 4.21% and the stock price and exercise price were $20.0625. The grant date value of each Edison International stock option for the September 1, 2000, Option Award was calculated to be $5.99 per option share using the Black-Scholes stock option pricing model. For purposes of this calculation, it was assumed that the average exercise period was ten years, the volatility rate was 38.12%, the risk-free rate of return was 6.06%, the dividend yield was 4.35% and the stock price and exercise price were $20.500. (7) Mr. Fohrer was granted an additional increment of Edison International stock options on January 18, 2000, upon his election as president and chief executive officer of Edison Mission Energy. 130 The following table presents information regarding the exercise of Edison International stock options and Edison Mission Energy phantom stock options during 2000 by the executive officers named in the Summary Compensation Table above and unexercised options held as of December 31, 2000 by any of the named officers. No Stock Appreciation Rights were exercised during 2000 or held at year-end 2000 by any of the named officers. AGGREGATED OPTION EXERCISES IN 2000 AND YEAR-END OPTION VALUES
(A) (B) (C) (D) (E) NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN- AT FISCAL YEAR- THE-MONEY OPTIONS AT END(1) FISCAL YEAR-END(1)(2) ------------------- ------------------------ SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/ ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE NAME (#) ($) (#) ($) - ---- --------------- -------------- ------------------- ------------------------ Alan J. Fohrer Edison International ..... -- -- 211,026 / 582,474 37,912 / 0 Edward R. Muller Edison International ..... -- -- 88,666 / 12,534 8,425 / 0 Edison Mission Energy .... -- --(4) 0 / 0 0 / 0 Robert M. Edgell Edison International ..... -- -- 47,576 / 200,024 2,190 / 0 Edison Mission Energy .... -- --(5) 0 / 0 17,435,794 / 755,348 Raymond W. Vickers Edison International ..... -- -- 3,876 / 172,824 0 / 0 Edison Mission Energy .... -- --(5) 0 / 0 140,611 / 431,150 Georgia R. Nelson Edison International ..... -- -- 11,692 / 160,574 0 / 0 Edison Mission Energy .... -- --(5) 0 / 0 4,640,176 / 419,411 Mark Maisto Edison International ..... -- -- 0 / 30,000 0 / 0
- ------------------------ (1) Each Edison International stock option may be exercised for one share of Edison International Common Stock at an exercise price equal to the fair market value of the underlying Common Stock on the date the option was granted. Dividend equivalents that may accrue on some of the Edison International stock options accumulate without interest and are paid in cash. The option terms for current year awards are discussed in footnotes (3) and (4) in the table above entitled "Option Grants in 2000." Each Edison Mission Energy phantom stock option represents a right to exercise an option to realize any appreciation in the deemed value of one hypothetical share of Edison Mission Energy phantom stock. Outstanding Edison Mission Energy phantom stock options were canceled pursuant to an exchange offer that is discussed in footnote (3) below. (2) Edison International stock options have been treated as in-the-money if the fair market value of the underlying stock at December 31, 2000 exceeded the exercise price of the options. The dollar amounts shown for Edison International stock options are the differences between (i) the fair market value of the Edison International Common Stock underlying all unexercised in-the-money options at year-end 2000 and (ii) the exercise prices of those options. The aggregate value at 131 year-end 2000 of all accrued dividend equivalents, exercisable and unexercisable, for the named officers was:
$ / $ ------------- Alan J. Fohrer.............................................. 1,051,040 / 0 Edward R. Muller............................................ 419,569 / 0 Robert M. Edgell............................................ 307,255 / 0 Raymond W. Vickers.......................................... 0 / 0 Georgia R. Nelson........................................... 31,064 / 0 Mark Maisto................................................. 0 / 0
Edison Mission Energy phantom stock options were canceled during 2000 pursuant to the terms of an exchange offer described below in footnote (3). The amounts shown in Column (e) reflect the value of the exchange offer on December 31, 2000. (3) In July 2000, an exchange offer was made for all outstanding Edison Mission Energy phantom stock options. Holders of 100 percent of the outstanding options accepted the exchange offer, and all conditions for completion of the exchange offer were satisfied on August 8, 2000. Because all of the phantom stock options have been terminated, no future phantom stock option exercises will occur. The exchange offer was principally for cash with a portion to be exchanged for stock equivalent units related to Edison International Common Stock. The number of stock units was determined on a basis of $20.50 per share. Each stock unit represents the value of one share of Edison International Common Stock. The stock equivalent units accrue dividend equivalents that are converted to additional stock equivalent units. The vested cash, plus accrued interest from August 8, 2000, was paid on March 13, 2001. Amounts attributable to unvested phantom stock options will vest according to the original schedule and will be paid with interest at that time. Participants may elect to receive payment for their stock equivalent units on either the first- or third-year anniversary of the August 8, 2000 exchange date. The stock equivalent units will be converted to cash in an amount equal to the number of stock equivalent units multiplied by the sum of the daily average of the high and low trading prices of Edison International Common Stock on the New York Stock Exchange for the 20 trading days preceding the elected payment date divided by 20. Some phantom stock option holders elected to defer payments of the cash and/or stock equivalent units, and the payment schedules for them will differ from that described above. (4) Edison Mission Energy made payments in settlement of the phantom stock options held by Mr. Muller who resigned by mutual agreement in January 2000. See the section entitled "Employment Contract and Termination of Employment Arrangements" below for further information regarding the terms of this agreement. (5) Messrs. Edgell and Vickers, and Ms. Nelson accepted the exchange offer described above in footnote (3), and their Edison Mission Energy phantom stock options have therefore been canceled. 132 The following table presents information regarding Edison International performance shares granted in part under the Edison International Equity Compensation Plan during 2000 to the executive officers named in the Summary Compensation Table above. LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR(1)
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS ------------------------------- (A) (B) (C) (D) (E) (F) NUMBER OF SHARES, UNITS PERFORMANCE OR OR OTHER OTHER PERIOD RIGHTS UNTIL MATURATION THRESHOLD TARGET MAXIMUM NAME(2) (#) OR PAYOUT ($) ($) ($) - ------- ------------- ---------------- --------- -------- -------- Alan J. Fohrer......................... 3,328 Units 2 years N/A N/A N/A 3,328 Units 3 years Edward R. Muller....................... 3,372 Units cancelled N/A N/A N/A 3,371 Units cancelled Robert M. Edgell....................... 2,108 Units 2 years N/A N/A N/A 2,107 Units 3 years Raymond W. Vickers..................... 1,752 Units 2 years N/A N/A N/A 1,752 Units 3 years Georgia R. Nelson...................... 1,726 Units 2 years N/A N/A N/A 1,726 Units 3 years
- ------------------------ (1) Twenty-five percent of each Executive Officer's long-term incentive compensation for 2000 was awarded in the form of Edison International performance shares, with the balance being granted in the form of Edison International Stock Options. The stock options are discussed in the footnotes to the table above entitled "Option Grants in 2000." Performance shares are stock-based units with each unit worth one share of Edison International Common Stock. No dividend equivalents were included with these grants. Two payment dates were established for this initial grant of performance shares, each covering one-half of the performance shares awarded. The first payment date is December 31, 2001; the second payment date is December 31, 2002. One-half of the performance shares will be paid in Edison International Common Stock under the Equity Compensation Plan, and one-half will be paid in cash equal to the value of such stock outside of the plan. The initial grant and payment of performance shares was conditioned on certain performance targets being met including total shareholder return. However, effective January 2, 2001, the Edison International Compensation and Executive Personnel Committee restructured the performance shares into retention incentives as an inducement to Executive Officers to continue working through resolution of the California power crisis. The downside and upside potential was eliminated, and the performance shares will pay at target levels on the first and second payment dates if the executive officer remains employed by Edison Mission Energy on those dates. Pro rata payments will be made in the event of death, disability, or involuntary severance without cause, but no payment will be made in the event of a voluntary separation or a separation for cause. (2) Mr. Maisto was not awarded any Edison International performance shares in 2000. 133 RETIREMENT BENEFITS The following table sets forth estimated gross annual benefits payable upon retirement at age 65 to the executive officers named in the Summary Compensation Table above in the remuneration and years of service classifications indicated. PENSION PLAN TABLE(1)
YEARS OF SERVICE -------------------------------------------------------------------------- REMUNERATION 10 15 20 25 30 35 40 - ------------ -------- -------- -------- -------- -------- -------- -------- $100,000 $ 25,000 $ 33,750 $ 42,500 $ 51,250 $ 60,000 $ 65,000 $ 70,000 150,000 37,500 50,625 63,750 76,875 90,000 97,500 105,000 200,000 50,000 67,500 85,000 102,500 120,000 130,000 140,000 250,000 62,500 84,375 106,250 128,125 150,000 162,500 175,000 300,000 75,000 101,250 127,500 153,750 180,000 195,000 210,000 350,000 87,500 118,125 148,750 179,375 210,000 227,500 245,000 400,000 100,000 135,000 170,000 205,000 240,000 260,000 280,000 450,000 112,500 151,875 191,250 230,625 270,000 292,500 315,000 500,000 125,000 168,750 212,500 256,250 300,000 325,000 350,000 550,000 137,500 185,625 233,750 281,875 330,000 357,500 385,000 600,000 150,000 202,500 255,000 307,500 360,000 390,000 420,000
- ------------------------ (1) Estimates are based on the terms of the retirement plan, a qualified defined benefit employee retirement plan, and the executive retirement plan, a non-qualified supplemental executive retirement plan, currently covering Edison Mission Energy's executive officers with the following assumptions: (i) the qualified retirement plan will be maintained, (ii) optional forms of payment that reduce benefit amounts have not been selected, and (iii) any benefits in excess of limits contained in the Internal Revenue Code of 1986 and any incremental retirement benefits attributable to consideration of the annual bonus or participation in Edison Mission Energy's deferred compensation plans will be paid out of the executive retirement plan as unsecured obligations of Edison Mission Energy. For purposes of the executive retirement plan, as of December 31, 2000, the years of service completed for: Mr. Fohrer, 27; Mr. Muller, 6; Mr. Edgell, 30; Mr. Vickers, 2 and Ms. Nelson, 30. Amounts in the Pension Plan Table include neither the Income Continuation Plan nor the Survivor Income/Retirement Income plans, which provide post-retirement death benefits and supplemental retirement income benefits. These plans are discussed in "--Other Retirement Benefits." The retirement plans provide monthly benefits at normal retirement age, 65 years, determined by a percentage of the average of the executive's highest 36 consecutive months of regular salary and, in the case of the executive retirement plan with respect to senior officers, the executive's highest 36 consecutive months of salary and bonus prior to attaining age 65. Compensation used to calculate combined benefits under the plans is based on base salary and bonus as reported in the Summary Compensation Table. The service percentage is based on 1 3/4% per year for the first 30 years of service (52 1/2% upon completion of 30 years' service) and 1% for each year in excess of 30. Senior officers receive an additional service percentage of 3/4 percent per year for the first ten years of service (7.5% upon completion of ten years of service). The actual benefit is offset by up to 40% of the executive's primary Social Security benefits. The normal form of benefit is a life annuity with a 50% survivor benefit following the death of the participant. Retirement benefits are reduced for retirement prior to age 61. The amounts shown in the Pension Plan Table above do not reflect reductions in retirement benefits due to the Social Security offset or early retirement. 134 Messrs. Fohrer and Edgell have elected to retain coverage under a prior benefit program. This program provided, among other benefits, the post-retirement benefits discussed in the following section. The retirement benefits provided under the prior program are less than the benefits shown in the Pension Plan Table in that they do not include the additional 7.5% service percentage. To determine these reduced benefits, multiply the dollar amounts shown in each column by the following factors: 10 years of service--70%, 15 years--78%, 20 years--82%, 25 years--85%, 30 years--88%, 35 years--88%, and 40 years--89%. OTHER RETIREMENT BENEFITS Additional post-retirement benefits are provided pursuant to the Survivor Income Continuation Plan and the Survivor Income/Retirement Income Plan under the Executive Supplemental Benefit Program. The Survivor Income Continuation Plan provides a post-retirement survivor benefit payable to the beneficiary of the executive officer following his or her death. The benefit is approximately 23% of final compensation (salary at retirement and the average of the three highest bonuses paid in the five years prior to retirement) payable for ten years certain. If a named executive officer's final annual compensation were $600,000 (the highest compensation level in the Pension Plan Table above), the beneficiary's estimated annual survivor benefit would be approximately $138,000. Messrs. Fohrer and Edgell have elected coverage under this plan. The Supplemental Survivor Income/Retirement Income Plan provides a post-retirement survivor benefit payable to the beneficiary of the executive officer following his or her death. The benefit is 25% of final compensation (salary at retirement and the average of the three highest bonuses paid in the five years prior to retirement) payable for ten years certain. At retirement, an executive officer has the right to elect the retirement income benefit in lieu of the survivor income benefit. The retirement income benefit is 10% of final compensation (salary at retirement and the average of the three highest bonuses paid in the five years prior to retirement) payable to the executive officer for ten years certain immediately following retirement. If a named executive officer's final annual compensation were $600,000 (the highest compensation level in the Pension Plan Table above), the beneficiary's estimated annual survivor benefit would be approximately $150,000. If a named executive officer were to elect the retirement income benefit in lieu of survivor income and had final annual compensation of approximately $600,000 (the highest compensation level in the Pension Plan Table above), the named executive officer's estimated annual benefit would be approximately $60,000. Messrs. Fohrer and Edgell have elected coverage under this plan. EMPLOYMENT CONTRACT AND TERMINATION OF EMPLOYMENT ARRANGEMENTS EDWARD R. MULLER Mr. Muller served as the president and chief executive officer of Edison Mission Energy beginning on August 23, 1993. On January 17, 2000, Mr. Muller resigned by mutual agreement from all positions with Edison Mission Energy and related companies. Pursuant to the agreement, Mr. Muller was paid $500,000 as a one-time severance payment. In addition, Edison Mission Energy made a further payment to Mr. Muller in cancellation of his vested Edison Mission Energy phantom stock options of $34.548 million in the aggregate. This payment equaled an agreed upon amount per phantom stock option over the exercise prices of Mr. Muller's vested phantom stock options and was accrued as of the end of 1999 in anticipation of a contemplated exchange offer or future phantom stock option exercises. The agreement with Mr. Muller also provided for consulting services to be rendered by him to Edison Mission Energy for a period of up to 24 months, subject to earlier termination under certain circumstances. During the consulting period, Edison Mission Energy will pay Mr. Muller a consulting fee at the rate of $300,000 per annum and his unvested Edison International stock options will 135 continue to vest ratably. Mr. Muller's unvested Edison Mission Energy phantom stock options will also vest ratably during the consulting period and be paid out at the same rate per phantom stock option as was paid in cancellation of his vested phantom stock options, up to $1.712 million in the aggregate. Under the agreement with Edison Mission Energy, Mr. Muller is subject to a number of covenants, including non-competition, confidentiality, non-solicitation, non-disparagement and non-interference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT CERTAIN BENEFICIAL OWNERS Set forth below is certain information regarding each person who is known to us to be the beneficial owner of more than five percent of our common stock.
NAME AND ADDRESS AMOUNT AND NATURE OF TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS - -------------- ----------------------- ----------------------- ---------------- Common Stock, no par value................ The Mission Group 100 shares held 100% 18101 Von Karman directly and with Avenue, Suite 1700 exclusive voting and Irvine, California investment power 92612
MANAGEMENT Set forth below is certain information about the beneficial ownership in equity securities of Edison International by all directors of Edison Mission Energy, the executive officers of Edison Mission Energy named in the Summary Compensation Table in Item 11 and all directors and executive officers of Edison Mission Energy as a group as of December 31, 2000. The table includes shares that can be acquired through March 1, 2001; through the exercise of stock options. Unless otherwise indicated, each named person has sole voting and investment power.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP AS OF DECEMBER 31, NAME COMPANY AND CLASS OF STOCK 2000(A) - ---- --------------------------------- -------------------- John E. Bryson................... Edison International Common Stock 916,135(b) Dean A. Christiansen(k).......... Edison International Common Stock -- Theodore F. Craver, Jr........... Edison International Common Stock 109,751(c) Bryant C. Danner................. Edison International Common Stock 279,590(d) Alan J. Fohrer................... Edison International Common Stock 299,237(e) Robert M. Edgell................. Edison International Common Stock 107,837(f) Raymond W. Vickers............... Edison International Common Stock 24,603(g) Georgia R. Nelson................ Edison International Common Stock 33,162(h) Mark Maisto(l)................... Edison International Common Stock 7,548(i) All directors and executive officers as a group............ Edison International Common Stock 1,950,245(j)
- ------------------------ (a) No named person or group owns more than 1% of the outstanding shares of the class. (b) Includes 16,025 shares credited under the Stock Savings Plus Plan and 839,501 shares that can be acquired through the exercise of options. Includes 14,000 shares held as co-trustee of trust with shared voting and investment power, 6,000 shares held as trustee of trust with shared voting and sole investment power, 40,409 shares held as co-trustee and co-beneficiary of trust with shared 136 voting and investment power, and 200 shares held by spouse with shared voting and investment power. (c) Includes 103,751 shares that can be acquired through the exercise of options. Includes 6,000 shares held as co-trustee and co-beneficiary of trust with shared voting and investment power. (d) Includes 3,139 shares credited under the Stock Savings Plus Plan and 269,451 shares that can be acquired through the exercise of options. (e) Includes 28,889 shares credited under the Stock Savings Plus Plan and 267,426 shares that can be acquired through the exercise of options. (f) Includes 42,262 shares credited under the Stock Savings Plus Plan and 65,575 shares that can be acquired through the exercise of options. (g) Includes 852 shares credited under the Stock Savings Plus Plan and 20,551 shares that can be acquired through the exercise of options. (h) Includes 5,220 shares credited under the Stock Savings Plus Plan and 27,942 shares that can be acquired through the exercise of options. (i) Includes 48 shares credited under the Stock Savings Plus Plan and 7,500 shares that can be acquired through the exercise of options. (j) Includes 102,166 shares credited under the Stock Savings Plus Plan and 1,768,348 shares that can be acquired through the exercise of options. Stock Savings Plus Plan shares for which instructions are not received from any plan participant may be voted by the Stock Savings Plus Plan Trustee in its discretion. (k) Mr. Christiansen was elected as an independent director of Edison Mission Energy's Board, effective January 15, 2001. (l) Mr. Maisto resigned as president of Edison Mission Marketing & Trading, Inc., effective February 23, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In July 1999, Edison Mission Energy made an interest-free loan to Georgia R. Nelson, Senior Vice President and President of Midwest Generation EME, LLC, in the amount of $179,800 in exchange for a note executed by Ms. Nelson and payable to us 365 days following the conclusion of her assignment in Chicago, Illinois. In October 2000, we made a loan to Gregory C. Hoppe, Vice President of Edison Mission Energy, and Director, Australia, in the amount of $350,000 in exchange for a secured promissory note executed by Mr. Hoppe and payable to us at simple interest of 6.37%. The entire note, together with accrued interest, is due January 2002. 137 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) List of Financial Statements See Index to Consolidated Financial Statements at Item 8 of this report. (2) List of Financial Statement Schedules The following items are filed as a part of this report pursuant to Item 14(d) of Form 10-K: - The Cogeneration Group Combined Financial Statements as of December 31, 2000, 1999 and 1998. - Four Star Financial Statements as of December 31, 2000, 1999 and 1998. Schedule I--Condensed Financial Information of Parent Schedule II--Valuation and Qualifying Accounts All other schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the consolidated financial statements or notes thereto. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 2000. (c) Exhibits
EXHIBIT NO. DESCRIPTION - ------------------------- ------------------------------------------------------------ 2.1 Agreement for the sale and purchase of shares in First Hydro Limited, dated December 21, 1995, between PSB Holding Limited and First Hydro Finance Plc, incorporated by reference to Exhibit 2.1 to Edison Mission Energy's Form 8-K dated December 21, 1995. 2.2 Transaction Implementation Agreement, dated March 29, 1997, between The State Electricity Commission of Victoria, Edison Mission Energy Australia Limited, Loy Yang B Power Station Pty Ltd, Loy Yang Power Limited, The Honorable Alan Robert Stockdale, Leanne Power Pty Ltd and Edison Mission Energy, incorporated by reference to Exhibit 2.2 to Edison Mission Energy's Form 8-K dated May 22, 1997. 2.3 Stock Purchase and Assignment Agreement, dated December 23, 1998, between KES Puerto Rico, L.P., KENETECH Energy Systems, Inc., KES Bermuda, Inc. and Edison Mission Energy del Caribe for the (i) sale and purchase of KES Puerto Rico, L.P.'s shares in EcoElectrica Holdings Ltd.; (ii) assignment of KENETECH Energy Systems' rights and interests in that certain Project Note from the Partnership; and (iii) assignment of KES Bermuda, Inc.'s rights and interests in that certain Administrative Services Agreement dated October 31 1997, incorporated by reference to Exhibit 2.3 to Edison Mission Energy's Form 10-K for the year ended December 31, 1998. 2.4 Asset Purchase Agreement, dated August 1, 1998, between Pennsylvania Electric Company, NGE Generation, Inc., New York State Electric & Gas Corporation and Mission Energy Westside, Inc., incorporated by reference to Exhibit 2.4 to Edison Mission Energy's Form 10-K for the year ended December 31, 1998. 2.5 Asset Sale Agreement, dated March 22, 1999, between Commonwealth Edison Company and Edison Mission Energy as to the Fossil Generating Assets, incorporated by reference to Exhibit 2.5 to Edison Mission Energy's Form 10-K for the year ended December 31, 1998.
138
EXHIBIT NO. DESCRIPTION - ------------------------- ------------------------------------------------------------ 2.6 Agreement for the Sale and Purchase of Shares in Contact Energy Limited, dated March 10, 1999, between Her Majesty the Queen in Right of New Zealand, Edison Mission Energy Taupo Limited and Edison Mission Energy, incorporated by reference to Exhibit 2.6 to the Edison Mission Energy's Form 10-Q for the quarter ended March 31, 1999. 2.7 Sale, Purchase and Leasing Agreement between PowerGen UK plc and Edison First Power Limited for the purchase of the Ferrybridge C Power Station, incorporated by reference to Exhibit 2.7 to Edison Mission Energy's Form 8-K/A dated July 19, 1999. 2.8 Sale, Purchase and Leasing Agreement between PowerGen UK plc and Edison First Power Limited for the purchase of the Fiddler's Ferry Power Station, incorporated by reference to Exhibit 2.8 to Edison Mission Energy's Form 8-K/A dated July 19, 1999. 2.9 Purchase and Sale Agreement, dated May 10, 2000, between Edison Mission Energy, P & L Coal Holdings Corporation and Gold Fields Mining Corporation, incorporated by reference to Exhibit 2.9 to Edison Mission Energy's 10-Q for the quarter ended September 30, 2000. 2.10 Asset Purchase Agreement dated 3 March 2000 between MEC International B.V. and UPC International Partnership CV II, incorporated by reference to Exhibit 10.80 to Edison Mission Energy's Form 10-Q for the quarter ended March 31, 2000. 2.11 Stock Purchase Agreement, dated November 17, 2000 between Mission Del Sol, LLC and Texaco Inc.* 3.1 First Amended and Restated Articles of Incorporation of Edison Mission Energy. Originally filed with Edison Mission Energy's Registration Statement on Form 10 to the Securities and Exchange Commission on September 30, 1994 and amended by Amendment No. 1 thereto dated November 19, 1994 and Amendment No. 2 thereto dated November 21, 1994 (as so amended, the "Form 10").* 3.1.1 Certificate of Amendment of Articles of Incorporation of Edison Mission Energy dated October 18, 1988, originally filed with Edison Mission Energy's Form 10.* 3.1.2 Certificate of Amendment of Articles of Incorporation of Edison Mission Energy dated January 17, 2001.* 3.2 By-Laws of Edison Mission Energy as amended to and including January 1, 2000.* 3.2.1 Amendment to By-Laws of Edison Mission Energy dated January 15, 2001.* 4.1 Copy of the Global Debenture representing Edison Mission Energy's 9 7/8% Junior Subordinated Deferrable Interest Debentures, Series A, Due 2024, incorporated by reference to Exhibit 4.1 to Edison Mission Energy's Form 10-K for the year ended December 31, 1994. 4.2 Conformed copy of the Indenture, dated as of November 30, 1994, between Edison Mission Energy and The First National Bank of Chicago, as Trustee, incorporated by reference to Exhibit 4.2 to Edison Mission Energy's Form 10-K for the year ended December 31, 1994. 4.2.1 First Supplemental Indenture, dated as of November 30, 1994, to Indenture dated as of November 30, 1994 between Edison Mission Energy and The First National Bank of Chicago, as Trustee, incorporated by reference to Exhibit 4.2.1 to Edison Mission Energy's Form 10-K for the year ended December 31, 1994. 4.3 Indenture, dated as of June 28, 1999, between Edison Mission Energy and The Bank of New York, as Trustee, incorporated by reference to Exhibit 4.1 to Edison Mission Energy's Registration Statement on Form S-4 to the Securities and Exchange Commission on February 18, 2000.
139
EXHIBIT NO. DESCRIPTION - ------------------------- ------------------------------------------------------------ 4.3.1 First Supplemental Indenture, dated as of June 28, 1999, to Indenture dated as of June 28, 1999, between Edison Mission Energy and The Bank of New York, as Trustee, incorporated by reference to Exhibit 4.2 to Edison Mission Energy's Registration Statement on Form S-4 to the Securities and Exchange Commission on February 18, 2000. 4.4 Copy of the Security representing Edison Mission Energy's 8 1/8% Senior Notes Due 2002.* 4.5 Promissory Note ($499,450,800), dated as of August 24, 2000, by Edison Mission Energy in favor of Midwest Generation, LLC.* 4.5.1 Schedule identifying substantially identical agreements to Promissory Note constituting Exhibit 4.4 hereto.* 4.6 Promissory Note, dated as of June 23, 2000, by Edison Mission Energy in favor of Midwest Generation, LLC.* 10.1 Registration Rights Agreement, dated as of June 23, 1999, between Edison Mission Energy and the Initial Purchasers specified therein, incorporated by reference to Exhibit 10.1 to Edison Mission Energy's Registration Statement on Form S-4 to the Securities and Exchange Commission on February 18, 2000. 10.2 Power Purchase Contract between Southern California Edison Company and Champlin Petroleum Company, dated March 8, 1985, incorporated by reference to Exhibit 10.2 to Edison Mission Energy's Form 10. 10.2.1 Amendment to Power Purchase Contract between Southern California Edison Company and Champlin Petroleum Company, dated July 29, 1985, incorporated by reference to Exhibit 10.2.1 to Edison Mission Energy's Form 10. 10.2.2 Amendment No. 2 to Power Purchase Contract between Southern California Edison Company and Champlin Petroleum Company, dated October 29, 1985, incorporated by reference to Exhibit 10.2.2 to Edison Mission Energy's Form 10. 10.4 Power Purchase Contract between Southern California Edison Company and Imperial Energy Company, dated February 22, 1984, incorporated by reference to Exhibit 10.4 Edison Mission Energy's Form 10. 10.4.1 Amendment to Power Purchase Contract between Southern California Edison Company and Imperial Energy Company, dated November 13, 1984, incorporated by reference to Exhibit 10.4.1 to Edison Mission Energy's Form 10. 10.6 Power Purchase Contract between Southern California Edison Company and Imperial Energy Company Niland No. 2, dated April 16, 1985, incorporated by reference to Exhibit 10.6 to Edison Mission Energy's Form 10. 10.7 Power Purchase Contract between Southern California Edison Company and Chevron U.S.A. Inc., dated November 9, 1984, incorporated by reference to Exhibit 10.7 to Edison Mission Energy's Form 10. 10.7.1 Amendment No. 1 to Power Purchase Contract between Southern California Edison Company and Chevron U.S.A. Inc., dated March 29, 1985, incorporated by reference to Exhibit 10.7.1 to Edison Mission Energy's Form 10. 10.7.2 Amendment No. 2 to Power Purchase Contract between Southern California Edison Company and Chevron U.S.A. Inc., dated November 21, 1985, incorporated by reference to Exhibit 10.7.2 to Edison Mission Energy's Form 10. 10.7.3 Amendment No. 3 to Power Purchase Contract between Southern California Edison Company and Chevron U.S.A. Inc., dated November 21, 1985, incorporated by reference to Exhibit 10.7.3 to Edison Mission Energy's Form 10.
140
EXHIBIT NO. DESCRIPTION - ------------------------- ------------------------------------------------------------ 10.8 Power Purchase Contract between Southern California Edison Company and Arco Petroleum Products Company (Watson Refinery), incorporated by reference to Exhibit 10.8 to Edison Mission Energy's Form 10. 10.9 Power Supply Agreement between State Electricity Commission of Victoria, Loy Yang B Power Station Pty. Ltd. and the Company Australia Pty. Ltd., as managing partner of the Latrobe Power Partnership, dated December 31, 1992, incorporated by reference to Exhibit 10.9 to Edison Mission Energy's Form 10. 10.10 Power Purchase Agreement between P.T. Paiton Energy Company as Seller and Perusahaan Umum Listrik Negara as Buyer, dated February 12, 1994, incorporated by reference to Exhibit 10.10 to Edison Mission Energy's Form 10. 10.11 Amended and Restated Power Purchase Contract between Southern California Energy Company and Midway-Sunset Cogeneration Company, dated May 5, 1988, incorporated by reference to Exhibit 10.11 to Edison Mission Energy's Form 10. 10.12 Parallel Generation Agreement between Kern River Cogeneration Company and Southern California Energy Company, dated January 6, 1984, incorporated by reference to Exhibit 10.12 to Edison Mission Energy's Form 10. 10.13 Parallel Generation Agreement between Kern River Cogeneration (Sycamore Project) Company and Southern California Energy Company, dated December 18, 1984, incorporated by reference to Exhibit 10.13 to Edison Mission Energy's Form 10. 10.15 Conformed copy of the Second Amended and Restated U.S. $500 million Bank of America National Trust and Savings Association Credit Agreement, dated as of October 11, 1996, incorporated by reference to Exhibit 10.15.3 to Edison Mission Energy's Form 10-K for the year ended December 31, 1996. 10.15.1 Amendment One to Second Amended and Restated U.S. $500 million Bank of America National Trust and Savings Association Credit Agreement, dated as of August 17, 2000.* 10.16 Amended and Restated Ground Lease Agreement between Texaco Refining and Marketing Inc. and March Point Cogeneration Company, dated August 21, 1992, incorporated by reference to Exhibit 10.16 to Edison Mission Energy's Form 10. 10.16.1 Amendment No. 1 to Amended and Restated Ground Lease Agreement between Texaco Refining and Marketing Inc. and March Point Cogeneration Company, dated August 21, 1992, incorporated by reference to Exhibit 10.16 to Edison Mission Energy's Form 10. 10.17 Memorandum of Agreement between Atlantic Richfield Company and Products Cogeneration Company, dated September 17, 1987, incorporated by reference to Exhibit 10.17 to Edison Mission Energy's Form 10. 10.18 Memorandum of Ground Lease between Texaco Producing Inc. and Sycamore Cogeneration Company, dated January 19, 1987, incorporated by reference to Exhibit 10.18 to Edison Mission Energy's Form 10. 10.19 Amended and Restated Memorandum of Ground Lease between Getty Oil Company and Kern River Cogeneration Company, dated November 14, 1984, incorporated by reference to Exhibit 10.19 to Edison Mission Energy's Form 10. 10.20 Memorandum of Lease between Sun Operating Limited Partnership and Midway-Sunset Cogeneration Company, incorporated by reference to Exhibit 10.20 to Edison Mission Energy's Form 10. 10.21 Executive Supplemental Benefit Program, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313).
141
EXHIBIT NO. DESCRIPTION - ------------------------- ------------------------------------------------------------ 10.22 1981 Deferred Compensation Agreement, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313). 10.23 1985 Deferred Compensation Agreement for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313). 10.24 1987 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313). 10.25 1988 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1- 2313). 10.26 1989 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-9936). 10.27 1990 Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-9936). 10.28 Annual Deferred Compensation Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-9936). 10.29 Executive Retirement Plan for Executives, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (File No. 1-2313). 10.31 Estate and Financial Planning Program for Executive Officers, incorporated by reference to Exhibits to Forms 10-K filed by SCEcorp (Fi1e No 1-9936). 10.32 Letter Agreement with Edward R. Muller, incorporated by reference to Exhibit 10.32 to Edison Mission Energy's Form 10. 10.33 Agreement with James S. Pignatelli, incorporated by reference to Exhibit 10.33 to Edison Mission Energy's Form 10. 10.34 Conformed copy of the Guarantee Agreement dated as of November 30, 1994, incorporated by reference to Exhibit 10.34 to Edison Mission Energy's Form 10. 10.35 Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration Technologies, Inc., dated as of December 18, 1989, incorporated by reference to Exhibit 10.35 to Edison Mission Energy's Form 10-K for the year ended December 31, 1994. 10.35.1 First Amendment to Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration Technologies, Inc., dated November 1, 1991, incorporated by reference to Exhibit 10.35.1 to Edison Mission Energy's Form 10-K for the year ended December 31, 1994. 10.35.2 Second Amendment to Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration Technologies, Inc., dated June 3, 1994, incorporated by reference to Exhibit 10.35.2 to Edison Mission Energy's Form 10-K for the year ended December 31, 1994. 10.35.3 Third Amendment to Indenture of Lease between Brooklyn Navy Yard Development Corporation and Cogeneration Technologies, Inc., dated December 12, 1994, incorporated by reference to Exhibit 10.35.3 to Edison Mission Energy's Form 10-K for the year ended December 31, 1994. 10.37 Amended and Restated Limited Partnership Agreement of Mission Capital, L.P., dated as of November 30, 1994, incorporated by reference to Exhibit 10.37 to Edison Mission Energy's Form 10-K for the year ended December 31, 1994.
142
EXHIBIT NO. DESCRIPTION - ------------------------- ------------------------------------------------------------ 10.38 Action of General Partner of Mission Capital, L.P. creating the 9 7/8% Cumulative Monthly Income Preferred Securities, Series A, dated as of November 30, 1994, incorporated by reference to Exhibit 10.38 to Edison Mission Energy's Form 10-K for the year ended December 31, 1994. 10.39 Action of General Partner of Mission Capital, L.P., creating the 8 1/2% Cumulative Monthly Income Preferred Securities, Series B, dated as of August 8, 1995, incorporated by reference to Exhibit 10.39 to Edison Mission Energy's Form 10-Q for the quarter ended June 30, 1995. 10.40 Power Purchase Contract between ISAB Energy, S.r.l. as Seller and Enel, S.p.A. as Buyer, dated June 9, 1995, incorporated by reference to Exhibit 10.40 to Edison Mission Energy's Form 10-Q for the quarter ended June 30, 1995. 10.41 400 million sterling pounds Barclays Bank Plc Credit Agreement, dated December 18, 1995, incorporated by reference to Exhibit 10.41 to Edison Mission Energy's Form 8-K, dated December 21, 1995. 10.44 Guarantee by Edison Mission Energy, dated December 20, 1996, in favor of The Fuji Bank, Limited, Los Angeles Agency, to secure Camino Energy Company's payments pursuant to Camino Energy Company's Credit Agreement and Defeasance Agreement, incorporated by reference to Exhibit 10.44 to Edison Mission Energy's Form 10-K for the year ended December 31, 1996. 10.45 Power Purchase Agreement between National Power Corporation and San Pascual Cogeneration Company International B.V., dated September 10, 1997, incorporated by reference to Exhibit 10.45 to Edison Mission Energy's Form 10-K for the year ended December 31, 1997. 10.46 Power Purchase Agreement between Gulf Power Generation Co., LTD., and Electricity Generating Authority of Thailand, dated December 22, 1997, incorporated by reference to Exhibit 10.46 to Edison Mission Energy's Form 10-K for the year ended December 31, 1997. 10.49 Equity Support Guarantee by Edison Mission Energy, dated December 23, 1998, in favor of ABN AMRO Bank N.V., and the Chase Manhattan Bank to guarantee certain equity funding obligations of EcoElectrica Ltd. and EcoElectrica Holdings Ltd. pursuant to EcoElectrica Ltd.'s Credit Agreement dated as of October 31, 1997, incorporated by reference to Exhibit 10.49 to Edison Mission Energy's Form 10-K for the year ended December 31, 1998. 10.50 Master Guarantee and Support Instrument by Edison Mission Energy, dated December 23, 1998, in favor of ABN AMRO Bank N.V., and the Chase Manhattan Bank to guarantee the availability of funds to purchase fuel for the EcoElectrica project pursuant to EcoElectrica Ltd.'s Credit Agreement dated as of October 31, 1997 and Intercreditor Agreement dated as of October 31, 1997, incorporated by reference to Exhibit 10.50 to Edison Mission Energy's Form 10-K for the year ended December 31, 1998. 10.51 Guarantee Assumption Agreement from Edison Mission Energy, dated December 23, 1998, under which Edison Mission Energy assumed all of the obligations of KENETECH Energy Systems, Inc. to Union Carbide Caribe Inc., under the certain Guaranty dated November 25, 1997, incorporated by reference to Exhibit 10.51 to Edison Mission Energy's Form 10-K for the year ended December 31, 1998.
143
EXHIBIT NO. DESCRIPTION - ------------------------- ------------------------------------------------------------ 10.52 Transition Power Purchase Agreement, dated August 1, 1998, between New York State Electric & Gas Corporation and Mission Energy Westside, Inc, incorporated by reference to Exhibit 10.52 to Edison Mission Energy's Form 10-K for the year ended December 31, 1998. 10.53 Transition Power Purchase Agreement, dated August 1, 1998, between Pennsylvania Electric Company and Mission Energy Westside, Inc., incorporated by reference to Exhibit 10.53 to Edison Mission Energy's Form 10-K for the year ended December 31, 1998. 10.54 Guarantee, dated August 1, 1998, between Edison Mission Energy, Pennsylvania Electric Company, NGE Generation, Inc. and New York State Electric & Gas Corporation, incorporated by reference to Exhibit 10.54 to Edison Mission Energy's Form 10-K for the year ended December 31, 1998. 10.55 Credit Agreement, dated March 18, 1999, among Edison Mission Holdings Co. and Certain Commercial Lending Institutions, and Citicorp USA, Inc., incorporated by reference to Exhibit 10.55 to Edison Mission Energy's Form 8-K dated March 18, 1999. 10.56 Guarantee and Collateral Agreement made by Edison Mission Holdings Co., Edison Mission Finance Co., Homer City Property Holdings, Inc., Chestnut Ridge Energy Co., Mission Energy Westside, Inc., EME City Generation L.P. and Edison Mission Energy in favor of United States Trust Company of New York, dated as of March 18, 1999, incorporated by reference to Exhibit 10.56 to Edison Mission Energy's Form 8-K dated March 18, 1999. 10.56.1 Amendment No. 1 to the Guarantee and Collateral Agreement, dated May 27, 1999, between Edison Mission Holdings, Edison Mission Finance Co., Homer City Property Holdings, Inc., Chestnut Ridge Energy Company, Mission Energy Westside, Inc., EME Homer City Generation L.P. and Edison Mission Energy in favor of United States Trust Company of New York, incorporated by reference to Exhibit 10.56.1 to Amendment No. 1 of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 8, 2000. 10.56.2 Open-End Mortgage, Security Agreement and Assignment of Leases and Rents, dated March 18, 1999 from EME Homer City Generation L.P. to United States Trust Company of New York, incorporated by reference to Exhibit 10.56.2 to Amendment No. 1 of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 8, 2000. 10.56.3 Amendment No. 1 to the Open-End Mortgage, Security Agreement and Assignment of Leases and Rents, dated May 27, 1999, from EME Homer City Generation L.P. to United States Trust Company of New York, incorporated by reference to Exhibit 10.56.3 to Amendment No. 1 of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 8, 2000. 10.57 Collateral Agency and Intercreditor Agreement among Edison Mission Holdings Co., Edison Mission Finance Co., Homer City Property Holdings, Inc., Chestnut Ridge Energy Co., Mission Energy Westside, Inc., EME Homer City Generation L.P., The Secured Parties' Representatives, Citicorp USA, Inc. as Administrative Agent and United States Trust Company of New York as Collateral Agent, dated as of March 18, 1999, incorporated by reference to Exhibit 10.57 to Edison Mission Energy's Form 8-K dated March 18, 1999. 10.58 Security Deposit Agreement among Edison Mission Holdings Co., Edison Mission Finance Co., Homer City Property Holdings, Inc., Chestnut Ridge Energy Co., Mission Energy Westside, Inc., EME Homer City Generation L.P. and United States Trust Company of New York, as Collateral Agent, dated as of March 18, 1999, incorporated by reference to Exhibit 10.58 to Edison Mission Energy's Form 8-K dated March 18, 1999.
144
EXHIBIT NO. DESCRIPTION - ------------------------- ------------------------------------------------------------ 10.58.1 Amendment No. 1 to the Security Deposit Agreement, dated May 27, 1999, between Edison Mission Holdings, Edison Mission Finance Co., Homer City Property Holdings, Inc., Chestnut Ridge Energy Company, Mission Energy Westside, Inc., EME Homer City Generation L.P. and United States Trust Company of New York, as Collateral Agent, incorporated by reference to Exhibit 10.58.1 to Amendment No. 1 of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 8, 2000. 10.59 Credit Support Guarantee, dated as of March 18, 1999, made by Edison Mission Energy in favor of United States Trust Company of New York, incorporated by reference to Exhibit 10.59 to Edison Mission Energy's Form 8-K dated March 18, 1999. 10.59.1 Amendment No. 1 to the Credit Support Guarantee, dated May 27, 1999, made by Edison Mission Energy in favor of United States Trust Company of New York, incorporated by reference to Exhibit 10.59.1 to Amendment No. 1 of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 8, 2000. 10.60 Debt Service Reserve Guarantee, dated as of March 18, 1999, made by Edison Mission Energy in favor of United States Trust Company of New York on behalf of the various financial institutions (Lenders) as are or may become parities to the Credit Agreement, dated as of March 18, 1999, among Edison Mission Holdings Co., the Lenders and Citicorp USA, Inc., incorporated by reference to Exhibit 10.60 to Edison Mission Energy's Form 8-K dated March 18, 1999. 10.60.1 Amendment No. 1 to the Debt Service Reserve Guarantee, dated May 27, 1999, made by Edison Mission Energy in favor of United States Trust Company of New York, incorporated by reference to Exhibit 10.60.1 to Amendment No. 1 of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 8, 2000. 10.60.2 Bond Debt Service Reserve Guarantee, dated May 27, 1999, made by Edison Mission Energy in favor of United States Trust Company of New York, incorporated by reference to Exhibit 10.60.2 to Amendment No. 1 of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 8, 2000. 10.60.3 Intercompany Loan Subordination Agreement, dated March 18, 1999, among Edison Mission Holdings Co., Edison Mission Finance Co., Homer City Property Holdings, Inc., Chestnut Ridge Energy Co., Mission Energy Westside, Inc., EME Homer City Generation L.P. and United States Trust Company of New York, incorporated by reference to Exhibit 10.60.3 to Amendment No. 2 of Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on February 29, 2000. 10.61 Credit Agreement, dated March 18, 1999, among Edison Mission Energy and Certain Commercial Lending Institutions, and Citicorp USA, Inc., incorporated by reference to Exhibit 10.61 to Edison Mission Energy's Form 8-K dated March 18, 1999. 10.61.1 Amendment One to Credit Agreement, dated as of August 17, 2000, by and among Edison Mission Energy, Certain Commercial Lending Institutions, and Citicorp USA, Inc., as Administrative Agent.* 10.62 Edison Power Limited L1,150,000,000 Guaranteed Secured Variable Rate Bonds due 2019 Guaranteed by Maplekey UK Limited, incorporated by reference to Exhibit 10.62 to Edison Mission Energy's Form 8-K dated Ju1y 19, 1999.
145
EXHIBIT NO. DESCRIPTION - ------------------------- ------------------------------------------------------------ 10.64 Coal and Capex Facility Agreement, dated July 16, 1999 between EME Finance UK Limited, Barclay's Capital and Credit Suisse First Boston, The Financial Institutions named as Banks, and Barclays Bank PLC as Facility Agent, incorporated by reference to Exhibit 10.64 to Edison Mission Energy's Form 10-Q for the quarter ended September 30, 1999. 10.65 Guarantee by Edison Mission Energy dated July 16, 1999 supporting the Coal and Capex Facility Agreement (Facility Agreement) issued by Barclays Bank PLC to secure EME Finance UK Limited obligations pursuant to the Facility Agreement, incorporated by reference to Exhibit 10.65 to Edison Mission Energy's Form 10-Q for the quarter ended September 30, 1999. 10.65.1 Amendment One to Guarantee by Edison Mission Energy supporting the Facility Agreement, dated as of August 17, 2000.* 10.66 Debt Service Reserve Guarantee, dated as of July 16, 1999, made by Edison Mission Energy in favor of Bank of America National Trust and Savings Association, incorporated by reference to Exhibit 10.66 to Edison Mission Energy's Form 10-K for the year ended December 31, 1999. 10.71 Indenture, dated as of May 27, 1999, between Edison Mission Holdings Co. and United States Trust Company of New York, as Trustee, incorporated by reference to Exhibit 4.1 to Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on December 3, 1999. 10.75 Exchange and Registration Rights Agreement, dated as of May 27, 1999, by and among the Initial Purchasers named therein, the Guarantors named therein and Edison Mission Holdings Co., incorporated by reference to Exhibit 10.1 to Edison Mission Holdings Co.'s Registration Statement on Form S-4 to the Securities and Exchange Commission on December 3, 1999. 10.76 Agreement among Edward R. Muller, Edison International and Edison Mission Energy concerning the terms of Mr. Muller's employment separation, incorporated by reference to Exhibit 10.76 to Edison Mission Energy's Form 10-Q for the quarter ended March 31, 2000. 10.77 Agreement By and Between S. Linn Williams and Edison Mission Energy dated February 5, 2000, incorporated by reference to Exhibit 10.77 to Edison Mission Energy's Form 10-Q for the quarter ended March 31, 2000. 10.78 Form of Agreement for 2000 Employee Awards under the Equity Compensation Plan, incorporated by reference to Exhibit 10.78 to Edison Mission Energy's Form 10-Q for the quarter ended March 31, 2000. 10.79 Resolution regarding the computation of disability and survivor benefits prior to age 55 for Alan J. Fohrer, incorporated by reference to Exhibit 10.79 to Edison Mission Energy's Form 10-Q for the quarter ended March 31, 2000. 10.81 Edison International 2000 Equity Plan, incorporated by reference to Exhibit 10.1 to Edison International's Form 10-Q for the quarter ended June 30, 2000. (File No. 1-9936). 10.82 Form of Agreement for 2000 Employee Awards under the 2000 Equity Plan, incorporated by reference to Exhibit 10.2 to Edison International's Form 10-Q for the quarter ended June 30, 2000. (File No. 1-9936). 10.83 Amendment No. 1 to the Edison International Equity Compensation Plan (as restated January 1, 1998), incorporated by reference to Exhibit 10.4 to Edison International's Form 10-Q for the quarter ended June 30, 2000. (File No. 1-9936).
146
EXHIBIT NO. DESCRIPTION - ------------------------- ------------------------------------------------------------ 10.84 Credit Agreement, dated May 30, 2000, among Edison Mission Energy, Certain Commercial Lending Institutions and Bank of America, N.A., incorporated by reference to Exhibit 10.84 to Edison Mission Energy's Form 10-Q for the quarter ended June 30, 2000. 10.84.1 Amendment One to Credit Agreement, dated as of August 17, 2000, by and among Edison Mission Energy, Certain Commercial Lending Institutions and Bank of America, N.A. as Administrative Agent.* 10.85 Guarantee, dated as of June 23, 2000, in favor of EME/CDL Trust and Midwest Generation, LLC made by Edison Mission Energy.* 10.86 Power Purchase Agreement (Crawford, Fisk, Waukegan, Will County, Joliet and Powerton Generating Stations), dated as of December 15, 1999, between Commonwealth Edison Company and Midwest Generation, LLC.* 10.87 Power Purchase Agreement (Collins Generating Station), dated as of December 15, 1999, between Commonwealth Edison Company and Midwest Generation, LLC.* 10.87.1 Amendment No. 1 to the Power Purchase Agreement, dated July 12, 2000, between Commonwealth Edison Company and Midwest Generation, LLC.* 10.87.2 Amended and Restated Power Purchase Agreement (Collins Generating Station), dated as of September 13, 2000, between Commonwealth Edison Company and Midwest Generation, LLC.* 10.88 Power Purchase Agreement (Crawford, Fisk, Waukegan, Calumet, Joliet, Bloom, Electric Junction, Sabrooke and Lombard Peaking Units), dated as of December 15, 1999, between Commonwealth Edison Company and Midwest Generation, LLC.* 10.89 Participation Agreement, dated as of June 23, 2000, among Midwest Generation, LLC, Edison Mission Energy, EME/CDL Trust, the Investor party to the Trust Agreement, Wilmington Trust Company, the Persons listed as Noteholders on Schedule I thereto, Citicorp North America, Inc. and Citicorp North America, Inc.* 10.89.1 Amendment One, dated as of August 17, 2000, by and among Midwest Generation, LLC, Edison Mission Energy, EME/CDL Trust, Citicorp Del-Lease, Inc., Wilmington Trust Company, Certain Noteholders Party Thereto, Citicorp North America, Inc. and Citicorp North America, Inc.* 10.90 Reimbursement Agreement, dated as of August 17, 2000, between Edison Mission Energy and Midwest Generation, LLC.* 18.1 Preferability Letter Regarding Change in Accounting Principle for Major Maintenance Costs, incorporated by reference to Exhibit 18.1 to Edison Mission Energy's Form 10-Q for the quarter ended March 31, 2000. 21 List of Subsidiaries of Edison Mission Energy.*
- ------------------------ * Filed herewith. (d) Financial Statement Schedules Financial information for the Cogeneration Group and Four Star Oil & Gas Company is for the years ended December 31, 2000, 1999 and 1998. The financial statements of the Cogeneration Group present the combination of those entities that are energy projects and 50% or less owned by Edison Mission Energy and that met the requirements of Rule 3-09 of Regulation S-X in 2000 and 1999. The financial statements of Four Star Oil & Gas Company represent an oil and gas investment that is 50% or less owned by Edison Mission Energy and that met the requirements of Rule 3-09 of Regulation S-X in 2000. There were no entities which were 50% or less owned by Edison Mission Energy that met the requirements of Rule 3-09 of Regulation S-X in 1998. 147 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Edison Mission Energy: We have audited the accompanying combined balance sheets of Kern River Cogeneration Company (a general partnership between Getty Energy Company and Southern Sierra Energy Company), Sycamore Cogeneration Company (a general partnership between Texaco Cogeneration Company and Western Sierra Energy Company), Watson Cogeneration Company (a general partnership between Camino Energy Company and Products Cogeneration Company) and CPC Cogeneration LLC (a Delaware limited liability company, (collectively the Cogeneration Group) as of December 31, 2000 and 1999, and the related combined statements of income, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Cogeneration Group as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. As more fully disclosed in Note 2 to the financial statements, effective January 1, 2000, Kern River Cogeneration Company and Sycamore Cogeneration Company changed their method of accounting for major maintenance costs from the "accrue in advance" method to the "expense as incurred" method. ARTHUR ANDERSEN LLP Los Angeles, California March 21, 2001 148 THE COGENERATION GROUP COMBINED STATEMENTS OF INCOME (IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------------- 2000 1999 1998 -------- -------- ----------- (UNAUDITED) OPERATING REVENUES Sales of energy to Southern California Edison............. $601,255 $432,989 $379,852 Sales of energy to Texaco Exploration and Production...... 20,760 13,797 11,755 Sales of energy to ARCO Products Company.................. 58,941 28,961 26,229 Sales of steam to Texaco Exploration and Production Inc..................................................... 102,561 67,357 68,441 Sales of steam to ARCO Products Company................... 70,130 51,831 46,943 -------- -------- -------- Total operating revenues................................ 853,647 594,935 533,220 -------- -------- -------- OPERATING EXPENSES Plant and other operating expenses........................ 548,027 316,097 305,465 Depreciation and amortization............................. 23,980 22,530 22,573 Administrative and general................................ 21,516 20,712 19,884 -------- -------- -------- Total operating expenses................................ 593,523 359,339 347,922 -------- -------- -------- Income from operations.................................. 260,124 235,596 185,298 -------- -------- -------- OTHER INCOME (EXPENSE) Interest and other income................................. 2,256 2,078 2,742 Interest expense.......................................... (2,687) (2,699) (3,327) -------- -------- -------- Total other income (expense)............................ (431) (621) (585) -------- -------- -------- INCOME BEFORE CHANGE IN ACCOUNTING PRINCIPLE................ $259,693 $234,975 $184,713 -------- -------- -------- Cumulative effect on prior years of change in accounting for major maintenance costs (Note 2).......................... 13,808 -- -- -------- -------- -------- NET INCOME.................................................. $273,501 $234,975 $184,713 ======== ======== ========
The accompanying notes are an integral part of these combined financial statements. 149 THE COGENERATION GROUP COMBINED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ------------------- 2000 1999 -------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents................................. $ 10,703 $ 16,026 Trade receivables--affiliates............................. 196,536 70,461 Other receivables......................................... 68 510 Inventories............................................... 14,034 19,274 Prepaid expenses and other assets......................... 2,485 2,480 -------- -------- Total current assets.................................... 223,826 108,751 -------- -------- PROPERTY, PLANT AND EQUIPMENT............................... 690,344 683,744 Less accumulated depreciation and amortization............ 324,767 298,914 -------- -------- Net property, plant and equipment....................... 365,577 384,830 -------- -------- INTANGIBLE ASSETS, NET...................................... 19,441 20,566 -------- -------- TOTAL ASSETS................................................ $608,844 $514,147 ======== ======== LIABILITIES, PARTNERS' EQUITY AND MEMBERS' EQUITY CURRENT LIABILITIES Accounts payable--affiliates.............................. $134,667 $ 44,497 Accounts payable and accrued liabilities.................. 10,408 13,493 -------- -------- Total current liabilities............................... 145,075 57,990 -------- -------- LOANS PAYABLE, net of current maturities.................... 53,733 53,733 -------- -------- MAINTENANCE ACCRUAL......................................... -- 23,039 -------- -------- Total liabilities....................................... 198,808 134,762 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 6) PARTNERS' EQUITY............................................ 380,349 379,385 MEMBERS' EQUITY............................................. 29,687 -- -------- -------- Total Partners' Equity and Members' Equity.............. 410,036 379,385 -------- -------- TOTAL LIABILITIES, PARTNERS' EQUITY AND MEMBERS' EQUITY..... $608,844 $514,147 ======== ========
The accompanying notes are an integral part of these combined financial statements. 150 THE COGENERATION GROUP COMBINED STATEMENTS OF PARTNERS' EQUITY AND MEMBERS' EQUITY (IN THOUSANDS)
EDISON MISSION ENERGY TEXACO ARCO AFFILIATES AFFILIATES AFFILIATES TOTAL ---------- ---------- ---------- --------- Balances at December 31, 1997 (Unaudited).......... $ 222,417 $ 89,929 $ 95,501 $ 407,847 Cash distributions (Unaudited)..................... (98,630) (56,000) (44,370) (199,000) Net income (Unaudited)............................. 91,634 56,218 36,861 184,713 --------- -------- -------- --------- Balances at December 31, 1998 (Unaudited).......... 215,421 90,147 87,992 393,560 Cash distributions................................. (123,510) (71,325) (54,315) (249,150) Net income......................................... 116,509 68,588 49,878 234,975 --------- -------- -------- --------- Balances at December 31, 1999...................... 208,420 87,410 83,555 379,385 Cash distributions................................. (120,425) (71,425) (51,000) (242,850) Net income......................................... 135,680 83,183 54,638 273,501 --------- -------- -------- --------- Balances at December 31, 2000...................... $ 223,675 $ 99,168 $ 87,193 $ 410,036 ========= ======== ======== =========
The accompanying notes are an integral part of these combined financial statements. 151 THE COGENERATION GROUP COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 --------- --------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income............................................... $ 273,501 $ 234,975 $ 184,713 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect change of accounting principle....... (13,808) -- -- Depreciation and amortization.......................... 23,980 22,530 22,573 Loss on disposal of assets............................. 53 51 -- Increase in receivables.................................. (125,634) (1,847) (5,721) Increase in inventories.................................. (1,921) (138) (2,255) (Decrease) increase in payables.......................... 87,083 7,299 (12,335) (Decrease) increase in maintenance accrual............... (1,670) 2,757 3,100 Other, net............................................... (4) (41) (146) --------- --------- --------- Net cash provided by operating activities.................. 241,580 265,586 189,929 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures..................................... (4,066) (4,835) (7,962) Proceeds from disposal of assets......................... 13 9 -- --------- --------- --------- Net cash used in investing activities...................... (4,053) (4,826) (7,962) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from escrow account............................. -- 112 670 Loan repayments.......................................... -- (2,233) (13,404) Distribution to partners................................. (242,850) (249,150) (199,000) --------- --------- --------- Net cash used in financing activities...................... (242,850) (251,271) (211,734) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (5,323) 9,489 (29,767) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............. 16,026 6,537 36,304 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 10,703 $ 16,026 $ 6,537 ========= ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Interest paid............................................ $ 2,687 $ 2,712 $ 3,378 --------- --------- --------- Capital expenditures accrued in accounts payable......... $ -- $ 1,613 $ -- --------- --------- ---------
The accompanying notes are an integral part of these combined financial statements. 152 THE COGENERATION GROUP NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 (UNAUDITED) NOTE 1. GENERAL Principles of Combination Edison Mission Energy, a wholly owned subsidiary of The Mission Group, a wholly owned non-utility subsidiary of Edison International, the parent holding company of Southern California Edison Company (SCE), has a general partnership interest in Kern River Cogeneration Company, Sycamore Cogeneration Company, Watson Cogeneration Company and CPC Cogneration LLC(jointly referred to herein as the Cogeneration Group). Southern Sierra Energy Company, Western Sierra Energy Company, and Camino Energy Company are separate legal entities from Edison Mission Energy. The accompanying combined financial statements have been prepared for purposes of Edison Mission Energy complying with certain requirements of the Securities and Exchange Commission. Background of operations Kern River Cogeneration Company, which is commonly referred to as Kern River, is a general partnership between Getty Energy Company, a wholly owned subsidiary of Texaco, Inc., and Southern Sierra Energy Company, a wholly owned subsidiary of Edison Mission Energy. Kern River owns and operates a 300-MW natural gas-fired cogeneration facility located near Bakersfield, California, which sells electricity to Southern California Edison Company and which sells electricity and steam to Texaco Exploration and Production, Inc., a wholly owned subsidiary of Texaco, for use in Texaco Exploration and Production, Inc.'s enhanced oil recovery operations in the Kern River Oil Field. Partnership income (loss) is allocated equally to the partners. Sycamore Cogeneration Company, which is commonly referred to as Sycamore, is a general partnership between Texaco Cogeneration Company, a wholly owned subsidiary of Texaco, and Western Sierra Energy Company, a wholly owned subsidiary of Edison Mission Energy. Sycamore owns and operates a 300-MW natural gas-fired cogeneration facility located near Bakersfield, California, which sells electricity to Southern California Edison Company and which sells steam to Texaco Exploration and Production, Inc. for use in Texaco Exploration and Production, Inc.'s enhanced oil recovery operations in the Kern River Oil Field. Partnership income (loss) is allocated equally to the partners. Watson Cogeneration Company, which is commonly referred to as Watson, is a general partnership between Carson Cogeneration Company, a wholly owned subsidiary of CH-Twenty, Inc., a majority owned subsidiary of Atlantic Richfield Company, which is commonly referred to as ARCO, Products Cogeneration Company, a wholly owned subsidiary of ARCO and Camino Energy Company, a wholly owned subsidiary of Edison Mission Energy. Carson Cogeneration Company, Products Cogeneration Company and Camino Energy Company own 49 percent, 2 percent, and 49 percent, respectively. Watson owns and operates a 385-MW natural gas-fired cogeneration facility located in Carson, California, which sells electricity to Southern California Edison Company and which sells electricity and steam to ARCO Products Company for use at ARCO Products Company's refinery. Partnership income (loss) is allocated based upon the partners' respective ownership percentage. Effective January 1, 2000, the partners in Watson created CPC Cogeneration LLC (commonly referred to as CPC). Watson's partners own CPC in the same percentage in which they own Watson. The general purpose of CPC is to act as an intermediary between Watson and ARCO by purchasing power from Watson and selling it to ARCO. 153 Current developments The three projects making up the Cogeneration Group sell the majority of their electricity to SCE. As a result of Southern California Edison's current liquidity crisis, SCE has failed to make payments to qualifying facilities supplying them power. These qualifying facilities include the Cogeneration Group. Southern California Edison did not pay any of the amounts due to the Cogeneration Group in January, February and March of 2001 and may continue to miss future payments. Southern California Edison's failure to pay has adversely affected the operations of the Cogeneration Group. Continuing failures to pay could have an adverse impact on the operations of the California qualifying facilities. Some of the partnerships in the Cogeneration Group have sought to minimize their exposure to Southern California Edison by reducing deliveries under their power purchase agreements. It is unclear at this time what additional actions, if any, the Cogeneration Group will take in regard to the utility's suspension of payments due to the qualifying facilities. As a result of the utility's failure to make payments due under these power purchase agreements, the Cogeneration Group has called on the partners to provide additional capital to fund operating costs of the power plants. From January 1, 2001 through March 21, 2001, partners have contributed $93 million to meet capital calls by the Cogeneration Group. Southern California Edison has stated that it is attempting to avoid bankruptcy and, subject to the outcome of regulatory and legal proceedings and negotiations regarding purchased power costs, it intends to pay all its obligations once a permanent solution to the current energy and liquidity crisis has been reached. It is possible that the utility will not pay all its obligations in full. In addition, it is possible that Southern California Edison could be forced into bankruptcy proceedings. If this were to occur, payments to the qualifying facilities, including the Cogeneration Group, could be subject to significant delays associated with the lengthy bankruptcy court process and may not be paid in full. At February 28, 2001, accounts receivable from Southern California Edison were $349 million. Furthermore, Southern California Edison's power purchase agreements with the qualifying facilities could be subject to review by a bankruptcy court. While we believe that the generation of electricity by the qualifying facilities, including the Cogeneration Group, is needed to meet California's power needs, we cannot assure you either that the Cogeneration Group will continue to generate electricity without payment by the purchasing utility, or that the power purchase agreements will not be adversely affected by a bankruptcy or contract renegotiation as a result of the current power crisis. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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. Inventories Inventories are comprised of materials and supplies, and are stated at their lower of average cost or market. Property, Plant and Equipment All costs, including interest and field overhead expenses, incurred during construction and the precommission phase of the facilities were capitalized as part of the cost of the facilities. Revenue earned during the precommission phase was offset against the cost of the facilities. The facilities and 154 related equipment are being depreciated on a straight-line basis over approximately 30 years, which are the estimated useful lives of the facilities. Intangible Assets Intangible assets are stated net of accumulated amortization of $16.4 million and $15.2 million at December 31, 2000 and 1999, respectively, and consist of outside boundary limit facilities, refinery infrastructure, environment permits and land use, as outlined in the various partnership agreements, contributed to the Cogeneration Group. All of the intangible assets relate to the operations of the various facilities, and as a result, are being amortized on a straight-line basis over the estimated useful life of the facilities. Statements of Cash Flows For the purposes of reporting cash flows, the Cogeneration Group considers short-term temporary cash investments with an original maturity of three months or less to be cash equivalents. Maintenance Accruals Through December 31, 1999 two of the partnerships included in the Cogeneration Group accrued for major maintenance costs during the period between turnarounds (referred to as "accrue in advance" accounting method). Such accounting policy has been widely used by independent power producers as well as several other industries. In March 2000, the Securities Exchange Commission issued a letter to the Accounting Standards Executive Committee, stating its position that the Securities Exchange Commission Staff does not believe it is appropriate to use an "accrue in advance" method for major maintenance costs. The Accounting Standards Executive Committee agreed to add accounting for major maintenance costs as part of an existing project to issue authoritative guidance by August 2001. Due to the position taken by the Securities Exchange Commission Staff, the Cogeneration Group voluntarily decided to change their accounting policy to record major maintenance costs as an expense as incurred. Such change in accounting is considered preferable based on the recent guidance provided by the Securities Exchange Commission. In accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," the Cogeneration Group has recorded a $13.8 million increase to net income, as a cumulative change in the accounting for major maintenance costs, during the year ended December 31, 2000. Fair Value of Financial Instruments The carrying amount of the short-term investments approximates fair value due to the short maturities of such investments. The estimated fair value of loans payable is discussed in Note 4. Income Taxes The Cogeneration Group is treated as a partnership for income tax purposes and the income or loss of the Cogeneration Group is included in the income tax returns of the individual partners. Accordingly, no recognition has been given to income taxes in the financial statements. 155 NOTE 3. PROPERTY, PLANT AND EQUIPMENT Plant and equipment consist of the following:
DECEMBER 31, ------------------- 2000 1999 -------- -------- (IN MILLIONS) Plant and equipment Power plant facilities.................................... $683.4 $676.5 Building, furniture and office equipment.................. 5.0 6.1 Construction in process................................... 2.0 1.1 ------ ------ 690.4 683.7 Less--accumulated depreciation and amortization............. 324.8 298.9 ------ ------ $365.6 $384.8 ====== ======
NOTE 4. LOANS PAYABLE
DECEMBER 31, ------------------- 2000 1999 -------- -------- (IN MILLIONS) Watson project: Note payable to ARCO (5%)................................. $27.4 $27.4 Note payable to Camino Energy Company (5%)................ 26.3 26.3 ----- ----- Subtotal.................................................... 53.7 53.7 Current maturities of loans payable......................... -- -- ----- ----- Total....................................................... $53.7 $53.7 ===== =====
The fair value of the two Watson project notes was approximately $34.5 million and $52.5 million at December 31, 2000 and 1999, respectively. The Watson project notes matures in 2008. NOTE 5. RELATED-PARTY TRANSACTIONS/CONTRACTUAL OBLIGATIONS Operating and Other Costs The amounts incurred by us, Texaco and their respective affiliates for operating and other costs charged to the Cogeneration Group, which are not disclosed elsewhere, were as follows:
(IN MILLIONS) --------------------------------- 2000 1999 1998 -------- -------- ----------- (UNAUDITED) Texaco and affiliates................................ $3.6 $3.8 $4.1 Edison Mission Energy and affiliates................. $1.0 $1.3 $1.3
The above costs represent salaries and wages, labor related costs and overhead of personnel and related costs for services directly performed on behalf of each partnership. In addition, such charges from Southern California Edison Company and its affiliates include interconnection charges which are billed based on tariffs applicable to similar customers. Management believes the basis for charges between affiliates is reasonable. 156 Interconnection Facilities Agreement Under the terms of an Interconnection Facilities Agreement, one of the partnerships within the Cogeneration Group pays a monthly charge of 1.7 percent of the added investment, as defined, for a portion of the Interconnection Facilities which are owned, operated and maintained by Southern California Edison Company. Amounts paid under this agreement were $1.6 million for the three years ended December 31, 2000, 1999 and 1998. Fuels Management Agreement Certain partnerships of the Cogeneration Group are party to agreements with Texaco Natural Gas, Inc., whereby Texaco Natural Gas, Inc. is to procure and manage all fuel-gas supplies and transportation for two of the facilities (except fuel-gas supplies procured and delivered under tariff-gas contracts, provided under an excepted contract or otherwise excluded from these agreements by the mutual consent of the partners). As of January 01, 1996, the Amended and Restated Fuel Management Agreement, terminating on October 01, 2002, was entered into such that Texaco Natural Gas, Inc. will receive a fixed service fee of $.0375 per MMBtu of fuel gas supplied to certain of partnerships within the Cogeneration Group, subject to escalation as defined in the agreement. As of December 31, 2000, Texas Natural Gas, Inc. received a fixed service fee of $.039 per MMBtu. The amounts incurred under the amended agreements were $315.3 million, $177.4 million and $168.8 million, which included fees earned by Texaco Natural Gas, Inc. of $2.5 million, $2.5 million and $2.5 million, for the three years ended December 31, 2000, 1999 and 1998, respectively. One of the partnerships within Cogeneration Group has entered into a fuel, refinery gas and butane, purchase agreement with a subsidiary of ARCO. This partnership's purchases under this agreement amounted to $155.2 million, $32.4 million and $39.9 million for the three years ended December 31, 2000, 1999 and 1998, respectively. Operation and Maintenance Agreement Two of the partnerships within the Cogeneration Group have agreements with Edison Mission Operation & Maintenance, Inc., a wholly owned subsidiary of Edison Mission Energy, whereby Edison Mission Operation & Maintenance, Inc. shall perform all operation and maintenance activities necessary for the production of electricity and steam by these partnerships' facilities. The agreements will continue until terminated by either party. Edison Mission Operation & Maintenance, Inc. is paid for all costs incurred in connection with operating and maintaining the facility. Edison Mission Operation & Maintenance, Inc. may also earn incentive compensation as set forth in the agreements. The amounts incurred by the Cogeneration Group under these agreements were $6.3 million, $6.1 million, and $6.1 million, which included incentive compensation earned by Edison Mission Operation & Maintenance, Inc. of $1.0 million, $.9million and $.9 million for the three years ended December 31, 2000, 1999 and 1998, respectively. One partnership within the Cogeneration Group has an agreement with a subsidiary of ARCO, whereby the subsidiary shall perform all operation and maintenance activities necessary for the production of electricity and steam by this Cogeneration Group's facility. The agreement will continue until termination of the Power Purchase Agreement in April 2008. The ARCO subsidiary is reimbursed for all costs incurred in connection with operating and maintaining the facility. The amounts incurred under this agreement were $5.7 million, $5.6 million, and $4.8 million for the three years ended December 31, 2000, 1999 and 1998, respectively. Additionally, ARCO provides other ancillary services under a service contract for a fee. Total service fees earned by ARCO were $1.4 million for the three years ended December 31, 2000, 1999 and 1998. 157 Steam Purchase and Sale Agreements Certain partnerships within the Cogeneration Group have agreements with Texaco Exploration and Production, Inc. for the sale of steam generated by these partnerships' facilities. The agreements terminate 20 years from the date of the first sale of steam there under. Texaco Exploration and Production, Inc. pays this group a steam fuel charge based upon the quantity and quality of steam delivered during the month, which is priced at the lesser of the current Southern California Gas Company Border Gas Price, or the weighted average posted price of Kern River Crude, less any severance, excise or windfall profit taxes, and a processing charge per MMBtu as defined in the agreements. The quantity of steam sold under this contract is expected to be sufficient for the Cogeneration Group to maintain qualifying facility status. These agreements have been amended whereby the partnerships will reduce a portion of steam prices in 2000, 1999 and to a limited extent 1998. Reductions in steam revenues based upon these agreements totaled $24.2 million, $20.9 million and $2.2 million for the three years ended December 31, 2000, 1999 and 1998, respectively. Parallel Generation Agreements The Cogeneration Group has two Parallel Generation Agreements with Southern California Edison Company for the sale of net energy and contract capacity generated by the Cogeneration Group. The Parallel Generation Agreements will remain in effect 20 years from the firm operation date, August 09, 1985 and January 01, 1998, respectively. The Parallel Generation Agreements were amended to contain energy pricing terms that maintain the intent of the Parallel Generation Agreements' original pricing terms. Energy payments are currently based on an energy rate that is calculated using a short-run-avoided-cost, which is commonly referred to as SRAC, based formula, that contains a prescribed energy rate indexed to the Southern California Border Spot Price of natural gas, and the quantity of kilowatts delivered during on-peak, mid-peak, off-peak and super off-peak hours. Southern California Edison Company also pays the Cogeneration Group for firm capacity based upon a contracted amount per kilowatt year, as defined in the Parallel Generation Agreements. Pursuant to the amendment, on and after the date on which SRAC energy payments are based on the clearing price paid by the independent Power Exchange the energy pricing shall be the greater of (i) the price obtained from the SRAC-based formula, or (ii) the average Power Exchange prices during the month for the delivery period which are equal to the "day ahead" market clearing prices published by the Power Exchange, or (iii) the average Power Exchange prices during the month for the delivery period which Southern California Edison Company uses to establish its retail rates. The SRAC-based formula energy price will be compared to the energy price posted by the California Power Exchange price, which will be discounted by 4%. The higher of the two prices will be used to calculate energy payments due the partnership. Pursuant to the amendment, the Cogeneration Group received a one-time payment from Southern California Edison Company in the amount of $35.3 million during 1999 that adjusted for the difference between the sum of payments made to the Partnership for the deliveries of energy after October 14, 1996, through March 1999, and the sum of payments for such energy determined by the SRAC-based formula. The amount of the payment is included in 1999 sales of energy to Southern California Edison Company. The Parallel Generation Agreements require the Cogeneration Group to make repayment of capacity payments to Southern California Edison Company, the power purchaser for the project, in the event the Partnership unilaterally terminates its Parallel Generation Agreements prior to the term of the Parallel Generation Agreements, or reduces its electric power output below contract capacity during the term of the Parallel Generation Agreements. Obligations that the Partnership could be exposed to in the event of early termination under the Parallel Generation Agreements as of December 31, 2000, 158 would be approximately $97 million. We have no reason to believe that the Partnership will either terminate its Parallel Generation Agreements or reduce its electric power output below contract capacity during the term of the Parallel Generation Agreements. Natural Gas Supply and Transportation Agreement The Cogeneration Group purchases gas on the spot market. As such, the Cogeneration Group may be exposed, in the short-term, to fluctuations in the price of natural gas, however, fluctuations in the prices paid for gas are implicitly tied to the revenues received for either power or steam under the agreements. NOTE 6. COMMITMENTS AND CONTINGENCIES Ship or Pay Pursuant to the Master Agreement, entered into as of December 01, 1994, certain partnerships of the Cogeneration Group executed a Security of Supply Agreement with an affiliated partnership of Edison Mission Energy and Texaco. As such the Cogeneration Group has agreed to accept and underwrite, on a pro-rata basis, a portion of Texaco's commitment pursuant to the Transportation Agreement between Texaco, the Mojave Pipeline Company and the El Paso Pipeline Company, dated February 15, 1989 and extending through March 31, 2008. The Cogeneration Group has agreed that Mojave Pipeline Company and El Paso Pipeline Company shall be the exclusive means of delivery for certain partnerships within the Cogeneration Group of the lesser of 75 percent of the annual total natural gas fuel requirements for such Cogeneration Group and 52,012,500 MMBtu per year. Except upon the occurrence of certain permissible events, two of the partnerships within the Cogeneration Group are subject to certain terms and conditions, whereby failure to transport the required quantity of natural gas on the Mojave Pipeline Company's pipeline will result in the Cogeneration Group paying $0.63 per deficit MMBtu. Such Cogeneration Group will share any ship-or-pay liabilities on a pro-rata basis, as defined in the Transportation Agreement, with the affiliated partnership. For each of the years in the three-year period ended December 31, 2000, the transportation quantities required under the Transportation Agreement were met. It is the opinion of the relevant Cogeneration Group's management that these commitments will continue to be met based upon current projections for the operations of such Cogeneration Group's facilities. 159 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Four Star Oil & Gas Company: We have audited the accompanying consolidated balance sheets of Four Star Oil & Gas Company (a Delaware corporation) and subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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. 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Four Star Oil & Gas Company and subsidiary as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Houston, Texas March 2, 2001 160 FOUR STAR OIL & GAS COMPANY CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 2000 AND 1999 (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2000 1999 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................... $ 18 $ 14 Accounts receivable, trade.................................. 21 12 Affiliate receivables....................................... 63 17 Other current assets........................................ 2 2 ----- ----- Total current assets...................................... 104 45 ----- ----- PROPERTIES, PLANT AND EQUIPMENT (Successful-efforts method)................................................... 941 939 Less--Accumulated depreciation, depletion and amortization.............................................. (618) (565) ----- ----- Net properties, plant and equipment....................... 323 374 OTHER....................................................... 4 3 ----- ----- Total..................................................... $ 431 $ 422 ===== ===== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities.................... $ 15 $ 12 Affiliate payables.......................................... 17 7 Taxes payable............................................... 8 1 ----- ----- Total current liabilities................................. 40 20 ----- ----- NOTES PAYABLE TO AN AFFILIATE............................... 239 239 ----- ----- DEFERRED INCOME TAXES AND OTHER............................. 54 48 ----- ----- COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS' EQUITY: Preferred stock, $1.00 par value, 400 Class A shares authorized, 230 shares and 310 shares issued and outstanding at December 31, 2000 and 1999, respectively; 400 Class B authorized, 300 shares issued and outstanding at December 31, 2000 and 1999............................. -- -- Common stock, $1.00 par value, 1,000 Class A shares authorized, issued and outstanding; 2,000 Class B shares authorized, 239 shares and 159 shares issued and outstanding at December 31, 2000 and 1999, respectively; 1,000 Class C shares authorized, 25 shares issued and outstanding............................................... -- -- Additional paid-in capital.................................. 90 90 Retained earnings........................................... 8 25 ----- ----- Total stockholders' equity................................ 98 115 ----- ----- Total..................................................... $ 431 $ 422 ===== =====
The accompanying notes are an integral part of these consolidated financial statements. 161 FOUR STAR OIL & GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN MILLIONS)
2000 1999 1998 -------- -------- -------- REVENUES: Crude oil................................................... $ 71 $ 47 $ 43 Natural gas................................................. 271 139 124 Natural gas liquids......................................... 53 25 19 Gain on sale of capital assets.............................. -- 2 -- Other....................................................... 18 12 6 ---- ---- ---- 413 225 192 ---- ---- ---- COSTS AND EXPENSES: Cost of sales............................................... 73 36 33 General and administrative and other........................ 45 44 50 Depreciation, depletion and amortization.................... 42 45 52 Impairment of oil and gas properties........................ 25 -- -- Taxes other than income taxes............................... 28 14 12 ---- ---- ---- 213 139 147 ---- ---- ---- OPERATING INCOME............................................ 200 86 45 INTEREST EXPENSE AND OTHER, net............................. (17) (14) (18) ---- ---- ---- INCOME BEFORE INCOME TAXES.................................. 183 72 27 ---- ---- ---- PROVISION FOR (BENEFIT FROM) INCOME TAXES: Federal-- Current..................................................... 50 11 9 Deferred.................................................... 6 5 (20) State and local-- Current..................................................... -- -- 2 ---- ---- ---- 56 16 (9) ---- ---- ---- NET INCOME.................................................. $127 $ 56 $ 36 ==== ==== ====
The accompanying notes are an integral part of these consolidated financial statements. 162 FOUR STAR OIL & GAS COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN MILLIONS, EXCEPT SHARE AMOUNTS)
COMMON SHARES PREFERRED SHARES ------------------------------ ------------------- COMMON PREFERRED PAID-IN RETAINED CLASS A CLASS B CLASS C CLASS A CLASS B STOCK STOCK CAPITAL EARNINGS -------- -------- -------- -------- -------- ---------- ---------- -------- -------- BALANCE, December 31, 1997.................. 1,000 117 25 352 -- $ -- $ -- $ 80 $ 8 DIVIDENDS PAID.......... -- -- -- -- -- -- -- (11) (27) NET INCOME.............. -- -- -- -- -- -- -- -- 36 ------ ---- --- ---- ---- ---------- ---------- ---- ----- BALANCE, December 31, 1998.................. 1,000 117 25 352 -- -- -- 69 17 STOCK ISSUANCE.......... -- -- -- -- 300 -- -- 21 -- DIVIDENDS PAID.......... -- -- -- -- -- -- -- -- (48) NET INCOME.............. -- -- -- -- -- -- -- -- 56 STOCK CONVERSION........ -- 42 -- (42) -- -- -- -- -- ------ ---- --- ---- ---- ---------- ---------- ---- ----- BALANCE, December 31, 1999.................. 1,000 159 25 310 300 -- -- 90 25 DIVIDENDS PAID.......... -- -- -- -- -- -- -- -- (144) STOCK CONVERSION........ -- 80 -- (80) -- -- -- -- -- NET INCOME.............. -- -- -- -- -- -- -- -- 127 ------ ---- --- ---- ---- ---------- ---------- ---- ----- BALANCE, December 31, 2000.................. 1,000 239 25 230 300 $ -- $ -- $ 90 $ 8 ====== ==== === ==== ==== ========== ========== ==== ===== TOTAL STOCKHOLDERS' EQUITY ------------- BALANCE, December 31, 1997.................. $ 88 DIVIDENDS PAID.......... (38) NET INCOME.............. 36 ----- BALANCE, December 31, 1998.................. 86 STOCK ISSUANCE.......... 21 DIVIDENDS PAID.......... (48) NET INCOME.............. 56 STOCK CONVERSION........ -- ----- BALANCE, December 31, 1999.................. 115 DIVIDENDS PAID.......... (144) STOCK CONVERSION........ -- NET INCOME.............. 127 ----- BALANCE, December 31, 2000.................. $ 98 =====
The accompanying notes are an integral part of these consolidated financial statements. 163 FOUR STAR OIL & GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN MILLIONS)
2000 1999 1998 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................. $ 127 $ 56 $ 36 Reconciliation of net income to net cash provided by operating activities-- Depreciation, depletion and amortization.................... 42 45 52 Impairment of oil and gas properties........................ 25 -- -- Deferred income taxes and other............................. 4 7 (22) Changes in operating working capital-- Gain on sale of capital assets.............................. -- (2) -- Accounts receivable, trade.................................. (9) (4) 7 Affiliate receivables....................................... (46) (3) 35 Other current assets........................................ -- (1) 9 Accounts payable and accrued liabilities.................... 3 (10) 11 Affiliate payables.......................................... 10 3 (8) Taxes payable............................................... 7 (1) (2) ----- ----- ---- Net cash provided by operating activities................. 163 90 118 ----- ----- ---- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures........................................ (21) (19) (21) Proceeds from property sales................................ 6 4 -- ----- ----- ---- Net cash used in investing activities..................... (15) (15) (21) ----- ----- ---- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid.............................................. (144) (48) (38) Loan principal repayment.................................... -- (309) (21) Borrowings.................................................. -- 239 -- ----- ----- ---- Net cash used in financing activities..................... (144) (118) (59) ----- ----- ---- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 4 (43) 38 CASH AND CASH EQUIVALENTS, beginning of year................ 14 57 19 ----- ----- ---- CASH AND CASH EQUIVALENTS, end of year...................... $ 18 $ 14 $ 57 ===== ===== ==== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash flows from operating activities include the following net cash payments-- Income taxes................................................ $ 41 $ 12 $ 9 Interest.................................................... 18 15 20
The accompanying notes are an integral part of these consolidated financial statements. 164 FOUR STAR OIL & GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF THE COMPANY: The use in this report of the term "Texaco" refers solely to Texaco Inc., a Delaware corporation, and its consolidated subsidiaries or to subsidiaries and affiliates either individually or collectively. In 1984, Texaco acquired all of the outstanding common stock of Four Star Oil & Gas Company (Four Star or the Company) for $10.2 billion. At the time of acquisition, Four Star was an integrated petroleum and natural gas company involved in the exploration for and production, transportation, refining and marketing of crude oil and petroleum products. The acquisition was accounted for as a purchase, and the Four Star assets and liabilities were recorded at fair market value. Substantially all of Four Star's assets other than certain U.S. crude oil and natural gas exploration and producing properties and Four Star's interest in the Partitioned Neutral Zone were disposed of either through sales to third parties or sales and transfers to other Texaco subsidiaries in connection with Texaco's internal reorganization accomplished in late 1984. In 1989, Four Star's interest in the Partitioned Neutral Zone was transferred to Texaco, and Texaco sold 20 percent of its interest in Four Star to Edison Mission Energy (Mission Energy). Four Star was an 80 percent owned subsidiary of Texaco from December 31, 1989, through December 30, 1991. Through a series of stock transactions among Four Star, Texaco Exploration and Production Inc. (TEPI), Texaco and Mission Energy, the ownership interest in Four Star was as follows as of December 31, 1997: Texaco--31.9 percent; TEPI--32.3 percent; and Mission Energy--35.8 percent. During 1998, TEPI sold 20 shares of Four Star Class A common stock and 17 shares of Four Star Class B common stock to Mission Energy. This sale resulted in the following companies holding an interest in Four Star: Texaco--31.9 percent; TEPI--29.8 percent; and Mission Energy--38.3 percent. In March 1999, Four Star issued 300 shares of preferred stock in exchange for TEPI's interest in the Hugoton Gas Field. In November 1999, Mission Energy sold 360 shares of Class A common stock to Four Star Oil & Gas Holdings Company. In December 1999, TEPI converted 42 Class A preferred shares to Class B common stock. The transactions in 1999 resulted in the following companies holding an interest in Four Star: Texaco--26.5 percent; TEPI--40.4 percent; Mission Energy--13 percent; and Four Star Oil & Gas Holdings Company (owned jointly by Texaco Inc. and Mission Energy)--20.1 percent. During 2000, TEPI sold 28 shares of Four Star Class A and 12 shares Class B common stock to Mission Energy. Also, TEPI converted 80 shares of its Class A preferred stock into Class B common stock. The transactions resulted in the following companies holding an interest in Four Star: Texaco--26.5 percent; TEPI--38.2 percent; Mission Energy--15.2 percent; and Four Star Oil & Gas Holdings Company--20.1 percent. 2. SIGNIFICANT ACCOUNTING POLICIES: CASH AND CASH EQUIVALENTS Highly liquid investments with a maturity of three months or less when purchased are generally considered to be cash equivalents. PROPERTIES, PLANT AND EQUIPMENT, AND DEPRECIATION, DEPLETION AND AMORTIZATION The Company follows the successful-efforts method of accounting for its oil and gas exploration and production operations. 165 Lease acquisition costs related to properties held for oil and gas production are capitalized when incurred. Unproved properties with acquisition costs which are individually significant are assessed on a property-by-property basis, and a loss is recognized, by provision of a valuation allowance, when the assessment indicates an impairment in value. Unproved properties with acquisition costs which are not individually significant are generally aggregated, and the portion of such costs estimated to be nonproductive, based on historical experience, is amortized on an average holding period basis. Exploratory costs, excluding the costs of exploratory wells, are charged to expense as incurred. Costs of drilling exploratory wells, including stratigraphic test wells, are capitalized pending determination of whether the wells have found proved reserves which justify commercial development. If such reserves are not found, the drilling costs are charged to exploratory expenses. Intangible drilling costs applicable to productive wells and to development dry holes, as well as tangible equipment costs related to the development of oil and gas reserves, are capitalized. The costs of productive leaseholds and other capitalized costs related to production activities, including tangible and intangible costs, are amortized principally by field on the unit-of-production basis by applying the ratio of produced oil and gas to estimated recoverable proved oil and gas reserves. Estimated future restoration and abandonment costs are taken into account in determining amortization and depreciation rates. Depreciation of properties, plant and equipment related to operations other than production is provided generally on the group plan, using the straight-line method, with depreciation rates based upon estimated useful lives applied to the cost of each class of property. Normal maintenance and repairs of properties, plant and equipment are charged to expense as incurred. Renewals, betterments and major repairs that materially extend the life of properties are capitalized, and the assets replaced, if any, are retired. When fixed capital assets representing complete units of property are disposed of, any profit or loss after accumulated depreciation and amortization is credited or charged to income. When miscellaneous business properties are disposed of, the difference between asset cost and salvage value is charged or credited to accumulated depreciation. Four Star has adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance with SFAS No. 121, the Company reviews its proved oil and gas properties for impairment whenever events and circumstances indicate a decline in the recoverability of their carrying value. In 2000, the Company estimated the expected future cash flows of its oil and gas properties and compared such future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. The carrying amount of one property exceeded the estimated undiscounted future cash flows; therefore, the Company adjusted the carrying amount of the property to fair value as determined by discounting the estimated future cash flows. The factors used to determine fair value included, but were not limited to, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures and a discount rate commensurate with the risk on those properties. As a result, the Company recorded an impairment of $25 million on its Green Canyon 184 property in 2000 due to downward reserve revisions. The Company did not record any impairment charge in 1999 or 1998. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 166 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, is effective for fiscal years beginning after June 15, 2000. Adoption of this standard will not have a material effect on the Company's financial position as the Company has no derivatives as of December 31, 2000, except for its physical sale contracts, which qualify as normal sales. RECLASSIFICATIONS Certain previously reported amounts have been reclassified to conform to current-year presentation. 3. RELATED-PARTY TRANSACTIONS: Four Star has various business transactions with Texaco and other Texaco subsidiaries and affiliates. These transactions principally involve sales by Four Star of crude oil, natural gas and natural gas liquids, and billings by Texaco for management, professional, technical and administrative services, as well as direct charges for exploration and production-related activities. Effective January 1, 1990, pursuant to a service agreement between Four Star and Texaco, Four Star pays $605,000 per month, escalating 5 percent per annum beginning in 1991 through expiration of the agreement on December 31, 1999, for management, professional, technical and administrative services, which amount is included as a component of operating expenses in the accompanying consolidated statements of income. Effective July 1, 1994, the first amendment to the service agreement provides for an additional $476,000 per month, escalating 4 percent per annum beginning July 1, 1994, through the expiration of the agreement. Effective December 1, 1999, Four Star entered into a service agreement with TEPI for management, administrative, professional and technical services through November 1, 2004. Four Star paid a monthly fixed fee of $568,417 through December 1, 2000. Beginning November 15, 2000, the monthly fixed fee was adjusted to $579,785. In addition, Four Star paid a monthly unit fee of $612,368 until December 1, 2000. On November 15, 2000, Four Star commenced payment of a monthly unit fee of $645,015. This unit fee is adjusted monthly to reflect actual oil and gas production. The monthly fixed and unit fees are included as a component of operating expenses in the accompanying consolidated statements of income. As described in Note 1, in March 1999, Four Star issued 300 shares of preferred stock in exchange for TEPI's interest in the Hugoton Gas Field. As described in Note 1, during 2000, TEPI sold 28 shares of Four Star Class A common stock and 12 shares of Class B common stock to Edison. As described in Note 5, the Company entered into a loan agreement with Texaco in September 1999. Pursuant to the contractual agreement described in Note 10, certain tax benefits and liabilities are assumed by Texaco. 167 Texaco has an option to purchase, for $1.0 million, Four Star's interest in the Headlee Devonian unit. The option is exercisable during a two-year period commencing on the date that the accumulated production of natural gas from this unit totals 131.4 billion cubic feet (Bcf), as measured from January 1, 1990. As of December 31, 2000, accumulated production totaled 106.5 Bcf. The following table summarizes sales to and purchases from affiliates during 2000, 1999 and 1998 (in millions):
2000 1999 1998 --------------------- -------------------- -------------------- SALES PURCHASES SALES PURCHASES SALES PURCHASES -------- ---------- -------- --------- -------- --------- Texaco Natural Gas Inc................. $214.7 $ -- $123.7 $ -- $112.9 $ -- TEPI................................... .8 -- 3.5 0.8 19.1 3.7 Texaco................................. -- -- -- -- -- -- Bridgeline LLC--Texaco Pipeline........ .5 -- 0.6 -- 1.0 -- Equilon Enterprises LLC................ 70.7 -- 46.7 -- 43.2 -- ------ ---------- ------ ---- ------ ---- Total................................ $286.7 $ -- $174.5 $0.8 $176.2 $3.7 ====== ========== ====== ==== ====== ====
4. PROPERTIES, PLANT AND EQUIPMENT: In 1999, Four Star sold $2 million of its properties for $4 million, resulting in an approximate $2 million gain on the sale. In 2000, Four Star sold $5.9 million of its properties for $6.3 million, resulting in an approximate $400,000 gain on the sale. 5. LONG-TERM DEBT: In September 1999, Four Star retired its loan with Chase Bank of Texas, N.A., and entered into a loan agreement with Texaco. The outstanding balance on the loan agreement was $239 million at December 31, 2000 and 1999. The loan bears interest at LIBOR plus 1 percent and matures on December 31, 2005. Interest expense during 2000, 1999 and 1998, was $18 million, $15 million and $20 million, respectively. Four Star pays Texaco an annual facility fee and administrative fee of $250,000. The borrowing base will be determined on a yearly basis as set forth in the Four Star Oil & Gas Credit Agreement dated September 30, 1999. If the outstanding aggregate principal amount of the loan, excluding the amount of any debt permitted by the loan agreement, exceeds the amount of the borrowing base, Four Star must pay such excess to Texaco in four equal quarterly installments. In 2000, Four Star's borrowing based exceeded the amount of the loan, thus no principal payments were due. Four Star has the right, subject to certain conditions, to prepay the note in whole or in part prior to the maturity date. 6. CONCENTRATION OF CREDIT RISK: Credit risk represents the accounting loss that the Company would record if its customers failed to perform pursuant to contractual terms. Substantially all of the Company's accounts receivable at December 31, 2000, result from sales to the Company's two largest customers both of which are Texaco entities, as discussed in Note 3. This concentration of customers may impact the Company's overall credit risk either positively or negatively in that these entities may be similarly affected by industrywide changes in economic or other conditions. The Company's credit policy and relatively short duration of receivable mitigate the risk of uncollected receivables. At December 31, 2000, the Company had not incurred any credit losses on receivables. 168 Two customers, Texaco Natural Gas Inc. and Equilon Enterprises LLC, accounted for more than 10 percent of the Company's total revenues in 2000, 1999 and 1998. Texaco Natural Gas Inc. accounted for 52 percent, 58 percent and 59 percent of sales in 2000, 1999 and 1998, respectively. Equilon Enterprises LLC accounted for 17 percent, 22 percent and 23 percent of sales in 2000, 1999 and 1998, respectively. 7. INCOME TAXES: The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income taxes are determined utilizing a liability approach. This method gives consideration to the future tax consequences associated with utilization of energy tax credits and differences between financial accounting and tax bases of assets and liabilities. Such differences relate mainly to depreciable and depletable properties, intangible drilling costs and nonproductive leases. The composition of deferred tax assets and liabilities and the related tax effects at December 31, 2000, 1999 and 1998, were as follows (in millions):
2000 1999 1998 ----------------------- ----------------------- ----------------------- CURRENT NONCURRENT CURRENT NONCURRENT CURRENT NONCURRENT ---------- ---------- ---------- ---------- ---------- ---------- Deferred tax assets related to energy tax credits........................ $ -- $ 4.1 $ -- $ 27 $ 5 $ 27 Deferred tax liabilities related to oil and gas properties............. -- (57.7) -- (74) -- (73) ---------- ------ ---------- ---- ---------- ---- Net deferred tax liability........... $ -- $(53.6) $ -- $(47) $ 5 $(46) ========== ====== ========== ==== ========== ====
There are differences between income taxes computed using the statutory rate of 35 percent and the Company's effective income tax rates (31 percent in 2000, 22 percent in 1999 and 33 percent benefit in 1998), primarily as the result of certain tax credits available to the Company. Reconciliations of income taxes computed using the statutory rate to the effective tax rates are as follows (in millions):
2000 1999 1998 -------- -------- -------- Income taxes computed at the statutory rate............... $64 $ 25 $ 9 Section 29 tax credits.................................... (8) (11) (19) Other, net................................................ -- 2 1 --- ---- ---- Provision (benefit) for income taxes...................... $56 $ 16 $ (9) === ==== ====
8. STOCKHOLDERS' EQUITY: In 1995, Four Star created four additional classes of stock: Class A common (voting), Class B common (voting), Class C common, and preferred. The Class A common stock was issued in exchange for the outstanding common stock as of May 15, 1995. Texaco sold 6 percent of its Class A common stock to Mission Energy effective January 1, 1995. In addition, 25 shares of Class C common stock, 117 shares of Class B common stock and 352 shares of preferred stock were issued in connection with property acquisitions. In 1995, Texaco, TEPI and Mission Energy entered into an agreement granting Mission Energy the option to purchase shares of Class A common stock or Class B common stock of Four Star (class determined by Texaco), provided that Mission Energy's ownership interest in the voting common stock does not exceed 49 percent of all voting common stock outstanding. The option expires on December 23, 2006. As of December 31, 2000 and 1999, Mission Energy owned 20 percent and 18 percent, respectively, of all voting common stock outstanding. Four Star Oil & Gas Holdings 169 Company (owned jointly by Texaco Inc. and Mission Energy) owned 29 percent of all voting common stock in the Company. Each share of preferred stock is convertible into one share of Class B common stock at any time on or after December 31, 1999. Each share of preferred stock shall be entitled to receive cumulative cash dividends of $5,112 per share per annum, payable semiannually. As described in Note 1, TEPI converted 80 shares of its Class A preferred stock into Class B common stock. In 2000, the Company distributed $140 million to its common stockholders and $4 million to its preferred stockholders. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash and cash equivalents, short-term receivables and payables and long-term debt. The carrying amounts approximate fair market value due to the highly liquid nature of the short-term instruments and the floating interest rates associated with the long-term debt which reflect market rates. 10. COMMITMENTS CONTINGENCIES: Texaco has assumed any and all liabilities of Four Star incurred or attributable to periods prior to January 1, 1990, for state and federal income, windfall profit, ad valorem or franchise taxes, and legal proceedings. In addition, Texaco has assumed certain of the tax liabilities of Four Star arising from January 1, 1990, to March 1, 1990, attributable to Four Star's status as a member of the Texaco tax consolidated group. In the opinion of the Company, while it is impossible to ascertain the ultimate legal and financial liability with respect to the above or other contingent liabilities, including lawsuits, claims, guarantees, federal taxes and federal regulations, the aggregate amount of such liability is not anticipated to be material in relation to the financial position or results of operations of the Company. 11. CHEVRON/TEXACO MERGER: On October 15, 2000, Texaco and Chevron Corporation (Chevron) entered into a merger agreement. In the merger, Texaco stockholders will receive .77 shares of Chevron common stock for each share of Texaco common stock they own, and Chevron stockholders will retain their existing shares. The merger is conditioned on, among other things, the approval of the stockholders of both companies, a pooling-of-interests accounting treatment for the merger, and the approvals of government agencies, such as the U.S. Federal Trade Commission (FTC). Texaco and Chevron anticipate that the FTC will require certain divestitures in the U.S. downstream in order to address market concentration issues, and the companies intend to cooperate with the FTC in this process. 170 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EDISON MISSION ENERGY (Registrant) By: /s/ KEVIN M. SMITH --------------------------------------- Kevin M. Smith SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Date: March 30, 2001 ---------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- PRINCIPAL EXECUTIVE OFFICER: /s/ ALAN J. FOHRER ------------------------------------------- President and Chief Executive March 30, 2001 Alan J. Fohrer Officer CONTROLLER OR PRINCIPAL ACCOUNTING OFFICER: /s/ THOMAS E. LEGRO ------------------------------------------- Vice President and Controller March 30, 2001 Thomas E. Legro MAJORITY OF BOARD OF DIRECTORS: /s/ JOHN E. BRYSON ------------------------------------------- Chairman of the Board March 30, 2001 John E. Bryson /s/ BRYANT C. DANNER ------------------------------------------- Director March 30, 2001 Bryant C. Danner /s/ THEODORE F. CRAVER, JR. ------------------------------------------- Director March 30, 2001 Theodore F. Craver, Jr.
171 SCHEDULE I EDISON MISSION ENERGY AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF PARENT CONDENSED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ----------------------- 2000 1999 ---------- ---------- ASSETS Cash and cash equivalents................................... $ 119,377 $ 3,985 Affiliate receivables....................................... 152,244 3,904 Other current assets........................................ 4,848 2,292 ---------- ---------- Total current assets........................................ 276,469 10,181 Investments in subsidiaries................................. 6,931,942 6,237,021 Other long-term assets...................................... 40,451 70,835 ---------- ---------- TOTAL ASSETS................................................ $7,248,862 $6,318,037 ========== ========== LIABILITIES AND SHAREHOLDER'S EQUITY Accounts payable and accrued liabilities.................... $ 147,641 $ 41,422 Affiliate payables.......................................... 376,400 425,237 Short-term obligations...................................... 854,676 1,122,067 Current maturities of long-term debt........................ 349,000 -- ---------- ---------- Total current liabilities................................... 1,727,717 1,588,726 Long-term obligations....................................... 696,144 1,410,203 Long-term affiliate debt.................................... 1,745,000 78,000 Deferred taxes and other.................................... 131,817 172,631 ---------- ---------- TOTAL LIABILITIES........................................... 4,300,678 3,249,560 COMMON SHAREHOLDER'S EQUITY................................. 2,948,184 3,068,477 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................. $7,248,862 $6,318,037 ========== ==========
172 SCHEDULE I EDISON MISSION ENERGY AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF PARENT CONDENSED STATEMENTS OF INCOME (IN THOUSANDS)
YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 --------- --------- -------- Equity in income of subsidiaries............................ $ 311,343 $ 306,603 $204,251 Operating expenses.......................................... (71,328) (225,277) (95,903) --------- --------- -------- Operating income............................................ 240,015 81,326 108,348 Interest expense and other.................................. (229,794) (51,220) (3,808) --------- --------- -------- Income before income taxes.................................. 10,221 30,106 104,540 Benefit for income taxes.................................... (115,031) (100,171) (27,594) --------- --------- -------- Net income.................................................. $ 125,252 $ 130,277 $132,134 ========= ========= ========
173 SCHEDULE I EDISON MISSION ENERGY AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF PARENT CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------------------------- 2000 1999 1998 ----------- ----------- --------- Net cash provided by (used in) operating activities........................................ $ (96,038) $ 203,658 $ 24,507 Net cash provided by financing activities........... 944,344 4,330,888 -- Net cash used in investing activities............... (732,914) (4,679,503) (490) ----------- ----------- --------- Net increase (decrease) in cash and cash equivalents....................................... 115,392 (144,957) 24,017 Cash and cash equivalents at beginning of period.... 3,985 148,942 124,925 ----------- ----------- --------- Cash and cash equivalents at end of period.......... $ 119,377 $ 3,985 $ 148,942 =========== =========== ========= Cash dividends received from subsidiaries........... $ 172,720 $ 233,291 $ 31,712
174 SCHEDULE II EDISON MISSION ENERGY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS ----------------------- BALANCE AT CHARGED TO CHARGED TO BEGINNING COSTS AND OTHER BALANCE AT END DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR - ----------- ---------- ---------- ---------- ---------- -------------- Year Ended December 31, 2000 Allowance for doubtful accounts..... $ 1,126 -- -- -- $ 1,126 Maintenance Accruals................ $25,664 -- -- $25,664(1) -- Year Ended December 31, 1999 Allowance for doubtful accounts..... -- $ 1,126 -- -- $ 1,126 Maintenance Accruals................ $26,053 $37,673 $ 54 $38,116 $25,664 Year Ended December 31, 1998 Allowance for doubtful accounts..... -- -- -- -- -- Maintenance Accruals................ $21,209 $10,663 $263 $ 6,082 $26,053
- ------------------------ (1) Through December 31, 1999 we accrued for major maintenance costs during the period between turnarounds (referred to as "accrue in advance" accounting method). The accounting policy has been widely used by independent power producers as well as several other industries. In March 2000, the Securities and Exchange Commission issued a letter to the Accounting Standards Executive Committee stating its position that the Securities and Exchange Commission staff does not believe it is appropriate to use an "accrue in advance" method for major maintenance costs. The Accounting Standards Executive Committee agreed to add accounting for major maintenance costs as part of an existing project and to issue authoritative guidance by August 2001. Due to the position taken by the Securities and Exchange Commission staff, we voluntarily decided to change our accounting policy to record major maintenance costs as an expense as incurred. Such change in accounting policy is considered preferable based on the recent guidance provided by the Securities and Exchange Commission. In accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," we have recorded $17.7 million, after tax, increase to net income, as a cumulative change in the accounting for major maintenance costs during the quarter ended March 31, 2000. 175 EX-2.11 2 a2042986zex-2_11.txt EXHIBIT 2.11 EXHIBIT 2.11 Stock Purchase Agreement between Mission Del Sol LLC and Texaco Inc November 17, 2000 TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS................................................ 1 1.1 Definitions................................................... 1 1.2 Interpretation................................................ 8 1.3 Accounting Terms.............................................. 9 ARTICLE 2 PURCHASE AND SALE.......................................... 9 2.1 Agreement to Purchase and Sell................................ 9 2.2 Purchase Price................................................ 9 2.3 Closing....................................................... 9 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER................... 10 3.1 Organization.................................................. 10 3.2 Requisite Authority; Etc...................................... 10 3.3 No Conflict................................................... 10 3.4 Consents...................................................... 10 3.5 Organization of Sunrise....................................... 11 3.6 Capital Stock................................................. 11 3.7 No Subsidiaries; Predecessor Status, Etc...................... 12 3.8 Books and Records............................................. 12 3.9 Compliance with Law........................................... 12 3.10 Litigation Claims............................................. 12 3.11 Real Property................................................. 12 3.12 Tangible Personal Property.................................... 13 3.13 Intellectual Property Rights.................................. 13 3.14 Contracts..................................................... 14 3.15 Licenses...................................................... 15 3.16 Liens......................................................... 15 3.17 Insurance..................................................... 16 3.18 Affiliate Transactions........................................ 16 3.19 No Employees/Labor Issues..................................... 16 3.20 Environmental Matters......................................... 17 3.21 Bank and Brokerage Accounts; Investment Assets................ 18 -i- TABLE OF CONTENTS (CONTINUED) PAGE 3.22 No Powers of Attorney......................................... 18 3.23 Financial Statements; Budget; Projections; Absence of Certain Changes............................................... 18 3.24 No Undisclosed Liabilities.................................... 19 3.25 Tax Matters................................................... 19 3.26 Project Governmental Approvals................................ 20 3.27 Disclosure.................................................... 20 3.28 Sufficiency of Assets......................................... 20 3.29 Employee Benefit Plans........................................ 20 3.30 Brokers' or Finders' Fees..................................... 21 3.31 Regulatory Status............................................. 21 3.32 No Solicitations.............................................. 21 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............ 21 4.1 Organization.................................................. 21 4.2 Requisite Authority; Etc...................................... 21 4.3 No Conflict................................................... 22 4.4 Consents...................................................... 22 4.5 Brokers' or Finders' Fees..................................... 22 4.6 Investment.................................................... 22 ARTICLE 5 TAX MATTERS................................................ 22 5.1 Termination of Tax Agreements................................. 22 5.2 General....................................................... 23 5.3 Allocation of Certain Taxes................................... 23 5.4 Tax Indemnification........................................... 24 5.5 Cooperation on Tax Matters, Etc............................... 25 5.6 Tax Contest................................................... 25 5.7 Termination of Indemnification................................ 26 5.8 Preparation and Filing of Tax Returns......................... 26 ARTICLE 6 INDEMNIFICATION............................................ 27 6.1 General Indemnification Obligations........................... 27 6.2 Limitation on Indemnification................................. 27 -ii- TABLE OF CONTENTS (CONTINUED) PAGE 6.3 Indemnification Procedures.................................... 27 ARTICLE 7 CLOSING DELIVERIES......................................... 30 7.1 Seller's Closing Deliveries................................... 30 7.2 Purchaser's Closing Deliveries................................ 31 ARTICLE 8 POST-CLOSING COVENANTS; CONDITIONS SUBSEQUENT.............. 31 8.1 Project Development........................................... 31 8.2 Other Books and Records....................................... 32 8.3 Notice of Sale................................................ 32 8.4 Delivery of Certain Schedules; Termination.................... 32 ARTICLE 9 MISCELLANEOUS.............................................. 32 9.1 Survival of Representations and Warranties.................... 32 9.2 Notices....................................................... 33 9.3 Transaction Expenses.......................................... 34 9.4 Entire Agreement.............................................. 34 9.5 Amendments and Modifications.................................. 34 9.6 Assignment.................................................... 34 9.7 Successors and Assigns........................................ 34 9.8 Benefits...................................................... 34 9.9 Governing Law................................................. 34 9.10 Arbitration................................................... 34 9.11 Severability.................................................. 36 9.12 Titles and Subtitles.......................................... 36 9.13 Counterparts.................................................. 36
-iii- STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as of November 17, 2000, by and among Mission Del Sol, LLC, a Delaware limited liability company ("Purchaser"), and TEXACO INC., a Delaware corporation ("Seller"). RECITALS WHEREAS, Seller owns ten (10) shares of common stock, par value $100.00 per share, of Sunrise Power Company, a Delaware corporation ("Sunrise"), constituting all issued and outstanding shares of capital stock of Sunrise (such shares being referred to herein as the "Shares"); WHEREAS, Sunrise owns the Sunrise Power Project, a proposed 560 megawatt gas-fired combined cycle power generation facility to be located in Kern County, California (the "Project"); and WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to purchase, the Shares from Seller on the terms and conditions set forth below. NOW, THEREFORE, in consideration of the foregoing facts and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE 1 DEFINITIONS 1.1 DEFINITIONS. Except as otherwise defined herein, capitalized terms used in this Agreement shall have the meaning indicated below. "AAA" has the meaning set forth in SECTION 9.10(b). "ACTIONS OR PROCEEDINGS" means any action, suit, proceeding, arbitration or Governmental or Regulatory Authority investigation or audit. "AFFILIATE" means any Person that directly, or indirectly through one of more intermediaries, controls or is controlled by or is under common control with the Person specified. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by Contract or otherwise and, in any event and without limitation of the previous sentence, any Person owning ten percent (10%) or more of the voting securities of a second Person shall be deemed to control that second Person. "ASSETS AND PROPERTIES" of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person, including, without limitation, cash, cash equivalents, Investment Assets, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and Intellectual Property. "BENEFIT PLAN" means any Plan established by Sunrise or any predecessor or Affiliate of Sunrise, existing at the Closing Date or prior thereto, to which Sunrise contributes or has contributed, or under which any employee, former employee or director of Sunrise or any beneficiary thereof is covered, is eligible for coverage or has benefit rights. "BEST KNOWLEDGE" means with respect to Seller, the actual knowledge or awareness of each or any of the persons listed on EXHIBIT A, or knowledge or awareness that such person or persons should have had in the ordinary course of business. "BOOKS AND RECORDS" means all files, documents, instruments, papers, books and records relating to the Business or condition of Sunrise, including, without limitation, financial statements, Tax returns and related work papers and letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute books, stock certificates and books, stock transfer ledgers, Contracts, Licenses, customer lists, computer files and programs, retrieval programs, operating data and plans and environmental studies and plans. "BUDGET" means the budget for all development costs, capital costs, operation and maintenance costs and other operating costs relating to Phase 1. "BUSINESS" means all businesses of Sunrise as currently conducted and proposed to be conducted. "BUSINESS COMBINATION" means, with respect to any Person, any merger, consolidation or combination to which such Person is a party, any sale, dividend, split or other disposition of capital stock or other equity interests of such Person or any sale, dividend or other disposition of all or substantially all of the Assets and Properties of such Person. "BUSINESS DAY" means a day other than Saturday, Sunday or any day on which banks located in the State of California are authorized or obligated to close. "CEC LICENSE" means the license to be issued by the California Energy Commission for Phase 1. "CERCLA" means the Comprehensive Environmental Response Compensation and Liability Act 42 U.S.C. Section 9601. "CLAIM NOTICE" has the meaning set forth in SECTION 6.3(a). "CLOSING" has the meaning set forth in SECTION 2.3. "CLOSING DATE" has the meaning set forth in SECTION 2.3. 2 "CLOSING PRO FORMA BALANCE SHEET" means the pro forma balance sheet of Sunrise as of ______________, in a form acceptable to Purchaser. "CODE" has the meaning set forth in SECTION 5.8. "COMMERCIAL OPERATIONS DATE" means the date mutually agreed upon between Purchaser and the EPC contractor for Phase 1. "COMMON PARENT" has the meaning set forth in SECTION 5.1. "COMMON STOCK" means the common stock, par value $100.00 per share, of Sunrise. "CONSENT" has the meaning set forth in SECTION 3.4(a). "CONTRACT" means any agreement, lease, evidence of Indebtedness, mortgage, indenture, security agreement or other contract (whether written or oral) including all amendments and supplements thereto. "CURE PERIOD" has the meaning set forth in SECTION 8.4(a). "ELECTION PERIOD" has the meaning set forth in SECTION 6.3(b). "EME" means Edison Mission Energy, a California corporation. "EMISSION CREDITS" means the air emissions reduction credits related to the Project, which credits are currently held in the name of Sunrise. "ENVIRONMENTAL CLAIM" means any notice, claim, demand or similar communication by any Person alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, fines or penalties) arising out of, based on or resulting from (a) the presence, or release into the environment, of any Regulated Material on or related to any Property or the conduct or Sunrise or (b) circumstances forming the basis of any violation, or alleged violation by Sunrise, of any Environmental Law or Governmental Approval issued under any Environmental Law. "ENVIRONMENTAL LAWS" means any Governmental or Regulatory Authority statute, ordinance, code, order, decree, Law, rule or regulation pertaining to or imposing liability or standards of conduct concerning environmental regulation, laws governing Regulated Materials, contamination or clean-up, health or safety, storage, handling and use of chemicals including, without limitation, CERCLA; the Resource Conversation and Recovery Act; the Emergency Planning and Community Right-to-Know Act of 1986; the Hazardous Substances Transportation Act; the Solid Waste Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Water Drinking Water Act; the Occupational Safety and Health Act; any state superlien, environmental health or safety statute; and all regulations adopted in respect of the foregoing laws, whether presently in force or proposed and coming into being and/or effectiveness hereafter. 3 "EXCEPTION NOTICE" has the meaning set forth in SECTION 8.4(a). "FINAL PAYMENT" has the meaning set forth in SECTION 2.2(c). "FINANCIAL STATEMENTS" has the meaning set forth in SECTION 3.23(a). "FIRPTA" means the Foreign Investment in Real Property Tax Act, as amended. "GAAP" means the United States generally accepted accounting principles as in effect from time to time, consistently applied. "GOVERNMENTAL APPROVALS" means any authorization, consent, approval, license, ruling, permit, certification, exemption, filing, order, judgment, decree, publication, notice, declaration, registration or other similar action with, by, of or to any Governmental or Regulatory Authority. "GOVERNMENTAL OR REGULATORY AUTHORITY" means any government, or any governmental department, commission, agency, authority, instrumentality or subdivision, or any judicial or administrative body, whether domestic, foreign, federal, state or local, having jurisdiction over the matter or matters in question. "INDEBTEDNESS" of any Person means all obligations of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) under capital leases and (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above of any other Person. "INDEMNIFIED PARTY" has the meaning set forth in SECTION 6.3(a). "INDEMNIFIED PERSONS" has the meaning set forth in SECTION 5.2(a). "INDEMNIFYING PARTY" has the meaning set forth in SECTION 6.3(a). "INDEMNITY NOTICE" has the meaning set forth in SECTION 6.3(e). "INITIAL PAYMENT" has the meaning set forth in SECTION 2.2(a). "INTELLECTUAL PROPERTY" means (a) all patents, patent applications and patent disclosures, (b) all trademarks, service marks, trade dress, logos, trade names and corporate names, and all applications, registrations and renewals in connection therewith, (c) all copyrights and all applications, registrations and renewals in connection therewith, (d) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, and business and marketing plans and proposals), (e) all computer software (including data and related documentation) and (f) all proprietary intellectual property rights relating to any of the foregoing. "INTERIM THIRD PARTY DEVELOPMENT COSTS" means all documented third party development costs necessary to develop and construct Phase 1 of the Project by the Commercial Operations 4 Date incurred or committed in accordance with the Budget (including, without limitation, amounts owed to Black & Veatch Construction, Inc., or its successor) during the period beginning on October 10, 2000 and ending on the Closing Date. "INVESTMENT ASSETS" means all debentures, notes and other evidences of indebtedness, stocks, securities (including rights to purchase and securities convertible into or exchangeable for other securities), interests in joint ventures and general and limited partnerships, mortgage loans and other investment or portfolio assets owned of record or beneficially by Sunrise. "LAW" means, (a) any statute, law, regulation, ordinance, rule, judgment, order, decree, permit, concession, grant, franchise, license, agreement or other governmental restriction or any interpretation or administration of any of the foregoing by any Governmental or Regulatory Authority (including, without limitation, Governmental Approvals) and (b) any directive, guideline, policy, requirement or any similar form of decision of or determination by any Governmental or Regulatory Authority, in each case, whether now or hereafter in effect (including, without limitation, in each case, any Environmental Law). "LIABILITIES" means all Indebtedness, obligations and other liabilities of a Person (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due). "LICENSES" means all licenses, permits, easements, certificates of authority, authorizations, approvals, registrations, franchises, orders, approvals and similar consents granted or issued by any Governmental or Regulatory Authority. "LIENS" means, with respect to any Property, any mortgage, lien, pledge, charge, easement, trust arrangement, right of way, encroachment, conditional sale or title retention arrangement, security interest or other claim or right of any kind in respect of such Property, or any preferential arrangement having the practical effect of constituting a security interest with respect to the payment of any obligation with, or from the proceeds of, such Property. "LOSSES" means any and all damages, fines, fees, penalties, deficiencies, losses and expenses (including, without limitation, interest, court costs, fees of attorneys, accountants and other experts or other expenses of litigation or other proceedings or of any claim, default or assessment). "MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the Business, operations, properties, prospects, assets or condition (financial or otherwise) of Sunrise, including, without limitation, by virtue of (i) the inability of any Person to perform in any respect under a Contract or Transaction Document to which it is a party, (ii) events affecting the development, commencement of construction, construction, financing, completion or operation of the Project, or (iii) events affecting the availability, validity or effectiveness of any License or (b) the legality, validity, or enforceability of any provision of any Transaction Document. "MOU" means that certain memorandum of understanding, dated October 10, 2000, by and between EME and Texaco Power and Gasification Global Inc. 5 "OPTION 1" means that certain option to be granted on the Closing Date by Purchaser to Seller, or an Affiliate of Seller, to acquire fifty percent (50%) of the shares of Sunrise or its successor, in the form attached hereto as EXHIBIT B. "OPTION 2" means that certain letter agreement, in the form attached hereto as EXHIBIT C, between Edison Mission Energy and Seller, or an Affiliate of Seller, to be effective on the Closing Date. "OPTIONS" means Option 1, Option 2 and the Siemens Turbines Option. "ORDER" means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final). "PERMITTED LIENS" means (a) Liens listed on SCHEDULE 3.12; (b) Liens reflected on the Financial Statements; (c) liens for Taxes not yet due and payable; (d) easements, rights-of-way, building or use restrictions, exceptions, variances, reservations, or similar Liens of record affecting but not materially interfering with the current or intended use or operation of the Project; and (e) materialmen's liens for amounts not in default. "PERSON" means any natural person, corporation, limited liability company, general partnership, limited partnership, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority. "PHASE 1" means the initial phase of the development, construction and operation of the Project, which will include development, construction and operation of a 320 megawatt simple-cycle peaking facility. "PLAN" means any bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, accident, disability, workmen's compensation or other insurance, severance, separation or other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, including, but not limited to, any "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder. "POST-CLOSING PERIOD" has the meaning set forth in SECTION 5.2(b). "PRE-CLOSING PERIOD" has the meaning set forth in SECTION 5.2(a)(i). "PREFERENTIAL RIGHT" has the meaning set forth in SECTION 3.4(b). "PROJECT" has the meaning set forth in the Recitals hereto. "PROJECT GOVERNMENTAL APPROVALS" has the meaning set forth in SECTION 3.26(a). 6 "PROJECT MANAGEMENT SERVICES AGREEMENT" means that certain agreement to be entered into between Sunrise and Seller or an Affiliate of Seller to be effective as of the Closing Date, in the form attached hereto as EXHIBIT D. "PROPERTY" means any property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, and any right or interest therein. "PURCHASE PRICE" has the meaning set forth in SECTION 2.2. "PURCHASER" has the meaning set forth in the Preamble hereto. "PURCHASER INDEMNIFIED PERSONS" has the meaning set forth in SECTION 5.4(a). "REGULATED MATERIALS" means any substance regulated under Environmental Laws because of their effect or potential effect on public health and the environment, including, without limitation, "Hazardous Substances," any "Petroleum" and "Natural Gas Liquids," as those terms are defined or used in Section 101 of CERCLA, "Hazardous Wastes" as that term is defined pursuant to Section 3001 of the Resource Conservation and Recovery Act, 42 U.S.C. Section 6921, polychlorinated biphenyls, chlorinated dioxins and furans, lead paint, asbestos, urea formaldehyde, radioactive materials, putrescibles, and infectious materials. "RELEASE" has the meaning set forth in SECTION 3.20(a). "REPRESENTATIVES" has the meaning set forth in SECTION 5.3. "REQUIRED PROJECT APPROVALS" has the meaning set forth in SECTION 3.26(b). "RIGHTS" means, with respect to any Person, any security, right, subscription, warrant, option, "phantom" stock right or other Contract that gives the right to (i) purchase or otherwise receive or be issued any shares of capital stock of such Person or any security of any kind convertible into or exchangeable or exercisable for any shares of capital stock of such Person or (ii) receive any benefits or rights similar to any rights enjoyed by or accruing to the holder of shares of capital stock of such Person, including any rights to participate in the equity, income or election of directors or officers of such Person. "SECOND PAYMENT" has the meaning set forth in SECTION 2.2(b). "SELLER" has the meaning set forth in the Preamble hereto. "SELLER INDEMNIFIED PERSONS" has the meaning set forth in Section 5.4(b). "SHARES" has the meaning set forth in the Recitals hereto. "SIEMENS TURBINES OPTION" means that certain option granted by an Affiliate of Purchaser to Seller, or an Affiliate of Seller, to acquire the rights to two (2) Siemens Westinghouse 501-F class combustion turbines, in the form attached hereto as EXHIBIT E. "SITE" has the meaning set forth in SECTION 3.11(a). 7 "SITE LEASE" means that certain Ground Lease, dated of even date herewith by and between Sunrise and TCI, for the lease of the real property located in Kern County, California, on which the Project shall be constructed and operated, a copy of which is attached hereto as EXHIBIT F. "SITE LEASE SCHEDULES" has the meaning set forth in SECTION 8.4(a). "STRADDLE PERIOD" has the meaning set forth in SECTION 5.6(a). "SUBJECT LIENS" has the meaning set forth in SECTION 8.4(a). "SUNK COSTS" means $23,436,957.00. "SUNRISE" has the meaning set forth in the Recitals hereto. "TAX CONTEST" has the meaning set forth in SECTION 5.2(b). "TAXES" means all taxes, assessments, charges, duties, fees, levies or other governmental charges, including, without limitation, all federal, state, local, foreign and other income, franchise, profits, capital gains, capital stock, transfer, sales, use, occupation, property, excise, severance, windfall profits, stamp, license, payroll, withholding and other taxes, assessments, charges, duties, fees, levies or other governmental charges of any kind whatsoever (whether payable directly or by withholding and whether or not requiring the filing of a federal, state or local tax return), all estimated taxes, deficiency assessments, additions to tax, penalties and interest and shall include any liability for such amounts as a result either of being a member of a combined, consolidated, unitary or affiliated group or of a contractual obligation to indemnify any person or other entity. "TCI" means Texaco California, Inc., a Delaware corporation. "THIRD PARTY CLAIM" has the meaning set forth in SECTION 6.3(a). "TRANSACTION DOCUMENTS" means this Agreement, the Options and the Project Management Services Agreement. 1.2 INTERPRETATION. Each definition used in this Agreement includes the singular and the plural, and reference to the neuter gender includes the masculine and feminine where appropriate. The headings to the Articles and Sections of this Agreement are for convenience of reference and shall not affect the meaning or interpretation of this Agreement. Except as otherwise stated, reference to Articles, Sections, Exhibits and Schedules means the Articles, Sections, Exhibits and Schedules of this Agreement. The Exhibits and Schedules referred to throughout this Agreement are hereby incorporated by reference into, and shall be deemed a part of, this Agreement, provided that no Exhibit that consists of a form of agreement or instrument shall be deemed to become effective until executed and delivered by the applicable parties. Unless the context clearly indicates otherwise, the word "including" when used in this Agreement means "including but not limited to," and the words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. 8 1.3 ACCOUNTING TERMS. All accounting terms not defined herein shall have the meanings determined by GAAP. ARTICLE 2 PURCHASE AND SALE 2.1 AGREEMENT TO PURCHASE AND SELL. In consideration of the representations, warranties and agreements contained in or made pursuant to this Agreement, Seller hereby agrees to sell, assign, transfer and convey to Purchaser the Shares, and Purchaser hereby agrees to purchase and accept the sale, assignment, transfer and conveyance to it of the Shares. 2.2 PURCHASE PRICE. In full consideration of the Shares, Purchaser shall pay an aggregate sum of Three Million Six Hundred Thousand Dollars ($3,600,000) and the Sunk Costs (collectively, the "Purchase Price") to Seller, payable as follows: (a) Two Million Dollars ($2,000,000.00) paid by or on behalf of Purchaser to Seller on or about October 13, 2000, the receipt of which is hereby acknowledged by Seller and which is non-refundable to Purchaser (the "Initial Payment"). (b) Eleven Million Seven Hundred Eighteen Thousand Four Hundred Seventy-Eight Dollars and 50/100 ($11,718,478.50), constituting one half (1/2) of the Sunk Costs (the "Second Payment"), payable by Purchaser to Seller in accordance with the terms and conditions set forth in SECTION 8.4(a) herein. (c) An amount equal to Eleven Million Seven Hundred Eighteen Thousand Four Hundred Seventy-Eight Dollars and 50/100 ($11,718,478.50), constituting the remaining one half (1/2) of the Sunk Costs (the "Final Payment"), payable on the third (3rd) Business Day after the later to occur of: (x) Purchaser's receipt of the CEC License, and (y) Purchaser's payment of the Second Payment. (d) Provided Seller, or an Affiliate or an assignee of Seller, has not exercised Option 1, an amount equal to One Million Six Hundred Thousand Dollars ($1,600,000), payable on the third (3rd) Business Day after the expiration of Option 1 (the "Contingency Payment"). (e) Subject to SECTION 8.4, the Second Payment, if any, and the Final Payment, if any, the Contingency Payment, if any, shall be payable to Seller by wire transfer to an account or accounts designated by Seller in writing. 2.3 CLOSING. The closing of the transactions contemplated hereunder (the "Closing") shall take place on the date hereof (the "Closing Date"), at 10:00 a.m. at the offices of Morgan, Lewis & Bockius LLP, 300 South Grand Avenue, 22nd Floor, Los Angeles, California 90071, or such other time, date and/or place as shall be agreed upon in writing by the parties. On the Closing Date, Seller shall assign and transfer to Purchaser good, valid and marketable title in and to the Shares, free and clear of all Liens, by delivering to Purchaser a certificate or certificates representing the Shares, in genuine and unaltered form, duly endorsed in blank or accompanied by duly executed stock powers endorsed in blank, with any requisite stock transfer tax stamps attached. 9 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER As of the Closing Date, Seller hereby represents and warrants to Purchaser as to the following: 3.1 ORGANIZATION. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the full corporate power and authority to own, lease and operate its Assets and Properties and to carry on its business as now being conducted. Seller is in good standing and duly qualified to transact business in the State of California. 3.2 REQUISITE AUTHORITY; ETC. Seller has all requisite power and authority to enter into the Transaction Documents to which it is a party. All necessary action on the part of Seller has been taken to authorize the execution and delivery of the Transaction Documents to which it is a party, the performance of its obligations under such Transaction Documents and the consummation of the transactions contemplated hereby and thereby, including, without limitation, to own, hold, sell and transfer the Shares pursuant to this Agreement. This Agreement has been and each of the other Transaction Documents to which Seller is a party, when executed and delivered by Seller will be, duly and validly executed and delivered by Seller and this Agreement constitutes, and each of the other Transaction Documents to which Seller is a party will constitute, valid and binding agreements of Seller, enforceable in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general application relating to or affecting creditors' rights generally and to general principles of equity (regardless of whether such enforceability is considered in an proceeding in equity or at law). 3.3 NO CONFLICT. The execution and delivery of the Transaction Documents, the consummation of the transactions contemplated by such Transaction Documents and the compliance by Seller and Sunrise with any of the provisions of such Transaction Documents to which it is a party does not and will not (i) violate or conflict with any provision of the charter, certificate of formation, by-laws or limited liability company agreement or other charter or governing documents of Seller and Sunrise, or any Law, judgment, order, writ, decree, determination, award or injunction applicable to Seller or Sunrise, (ii) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or any event which, with or without due notice or lapse of time, or both, would constitute a default) under, or result in the termination of, accelerate the performance required by, or result in or give to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under, or result in the creation of any Lien upon any of the Assets or Properties of Seller or Sunrise under any Contract, note, bond, mortgage, indenture, deed of trust, license, lease, agreement, License or other instrument or obligation of which Seller or Sunrise is a party or by which they or any of their respective Assets or Properties are bound or affected. 3.4 CONSENTS. (a) Except as set forth on SCHEDULE 3.4(a), no permit, application, notice, transfer, consent, approval, order, qualification, waiver from or authorization of, or declaration, 10 filing or registration with, any Governmental or Regulatory Authority or any third party pursuant to any Contract, or otherwise (each, a "Consent"), or pursuant to any Law or Order applicable to Seller or Sunrise, or any of their Assets or Properties is currently required to be made or obtained by Seller, Sunrise or Affiliates in connection with the execution, delivery and performance of the Transaction Documents or the consummation of the transactions contemplated by such Transaction Documents. (b) Except as set forth on SCHEDULE 3.4(b), no right of first refusal, preemptive right, right of first offer and other similar rights to acquire (each a "Preferential Right") are required to be complied with by Seller, Sunrise or their respective Affiliates in connection with the execution, delivery or performance of the Transaction Documents or the consummation of the transactions contemplated by such Transaction Documents. With respect to each such Preferential Right, Seller, Sunrise and each applicable Affiliate has complied with all of the requirements of the underlying agreement which provides such Preferential Right, or the holder thereof has waived its right to exercise such Preferential Right. 3.5 ORGANIZATION OF SUNRISE. Sunrise is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has full corporate power and authority to conduct its Business and to own, use and lease its Assets and Properties. SCHEDULE 3.5 lists all lines of Business in which Sunrise is participating or engaged. Sunrise is duly qualified, licensed or admitted to do business and is in good standing in those jurisdictions specified on SCHEDULE 3.5, which are the only jurisdictions in which the ownership, use or leasing of its Assets and Properties, or the conduct or nature of its Business, makes such qualification, licensing or admission necessary, except where the failure to be so qualified, licensed or admitted or be in good standing could not reasonably be expected to have a Material Adverse Effect. The name of each director and officer of Sunrise as of immediately prior to the Closing Date, and the position with Sunrise held by each, are listed on SCHEDULE 3.5. Seller has, prior to the Closing Date, delivered to Purchaser true and complete copies of the certificate of incorporation and by-laws of Sunrise. 3.6 CAPITAL STOCK. The authorized capital stock of Sunrise consists solely of ten (10) shares of Common Stock, of which only the Shares are issued and outstanding. The Shares are duly authorized, validly issued, outstanding, fully paid and nonassessable and were issued in compliance with all applicable federal and state securities laws, rules and regulations. None of the Shares were issued in violation of the preemptive or similar rights, whether contractual or statutory, of any past or present stockholder. Seller owns the Shares, beneficially and of record, free and clear of all Liens. Except for this Agreement, there are no Rights with respect to Sunrise. The delivery of a certificate or certificates at the Closing representing the Shares in the manner provided in SECTION 2.3 hereof will transfer to Purchaser good, valid and marketable title to the Shares, free and clear of all Liens. Other than to Purchaser in connection with this Agreement, Seller has not, directly or indirectly, transferred, pledged, sold, hypothecated or otherwise disposed of the Shares or accepted a transfer, pledge, hypothecation or other disposition of the Shares, with any Person in any manner. Seller has not granted and there is no outstanding option, warrant, right of exchange or first refusal, call, subscription right or other right to acquire the Shares or agreement to issue such option, warrant, right of first refusal or other Right. Seller has not taken any actions with respect to the Shares out of the ordinary course of business on or prior to the Closing Date. 11 3.7 NO SUBSIDIARIES; PREDECESSOR STATUS, ETC. Sunrise does not own, and has never owned, of record or beneficially, and does not control, and has never controlled, directly or indirectly, any capital stock, any securities convertible into capital stock or any other equity interest in any corporation, association or other business entity, nor is, directly or indirectly, a participant in any joint venture, partnership or other noncorporate entity. SCHEDULE 3.7 lists all names of all predecessor companies of Sunrise. Except as set forth on SCHEDULE 3.7, Sunrise has not been a subsidiary or division of another corporation or business entity or been a part of an acquisition which was later rescinded. 3.8 BOOKS AND RECORDS. The minute books and other similar records of Sunrise, as made available to Purchaser prior to the Closing Date, contain a true, accurate and complete record, in all respects, of all action taken at all meetings and by all written consents in lieu of meetings of the stockholders, the boards of directors and committees of the board of directors of Sunrise. The stock transfer ledger and other similar records of Sunrise, as made available to Purchaser prior to the Closing Date, accurately reflect all transfers prior to the Closing Date in the capital stock of Sunrise. Except as set forth on SCHEDULE 3.8, Sunrise does not have any of its Books and Records recorded, stored, maintained, operated or otherwise wholly or partly dependent upon or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of Sunrise. 3.9 COMPLIANCE WITH LAW. Seller and Sunrise have been and are in compliance in all respects with all Laws applicable to or otherwise concerning Sunrise and the Assets and Properties of Sunrise. 3.10 LITIGATION CLAIMS. There are no judgments, claims, proceedings, actions, governmental investigations, injunctions, orders, lawsuits, arbitral or similar awards or rulings in existence or, to the Best Knowledge of Seller, threatened against or with respect to Seller (regarding the Assets and Properties of Sunrise), Sunrise or the Assets and Properties of Sunrise, and to the Best Knowledge of Seller there exists no particular circumstance which could reasonably be expected to give rise to such claim, proceeding, action, governmental investigation, injunction, order, lawsuit, arbitral or similar award or ruling where an unfavorable result could reasonably be expected to have a Material Adverse Effect. SCHEDULE 3.10 contains a true, complete and accurate list of all Orders binding upon Seller (regarding the Assets and Properties of Sunrise), Sunrise or the Assets and Properties of Sunrise. 3.11 REAL PROPERTY. (a) Sunrise owns and leases no real property, other than the real property which Sunrise leases pursuant to the Site Lease (the "Site"). To the Best Knowledge of Seller, SCHEDULE 3.11(a) contains a true and correct list of all Liens (other than Permitted Liens) relating to or affecting the Site. (b) Sunrise has a valid and subsisting leasehold estate in and the right to quiet enjoyment of the Site for the full term of the Site Lease. Sunrise is in possession of all buildings, structures, facilities, fixtures and other improvements on the Site (excluding underground pipelines, utilities and/or oil field structures not conveyed to Sunrise as part of the leasehold 12 estate), as listed on SCHEDULE 3.11(b). The Site is adequate for the development, construction and operation of Phase 1. Sunrise has adequate rights of ingress and egress with respect to the Site and to the buildings, structures, facilities, fixtures and other improvements thereon. The Site and the buildings, structures, facilities, fixtures and other improvements thereon, or the use thereof, do not contravene or violate any building, zoning, administrative, occupational safety and health or other applicable Law in any respect (whether or not permitted on the basis of prior nonconforming use, waiver or variance). (c) The Site Lease is a legal, valid and binding agreement, enforceable in accordance with its terms, of Sunrise and of each other Person that is a party thereto, and except as set forth on SCHEDULE 3.11(c), there is no, and Sunrise has not received notice of any, default (or any condition or event which, after notice or lapse of time or both, would constitute a default) thereunder. Sunrise does not owe any brokerage commissions with respect to the Site Lease. (d) Seller has delivered to Purchaser prior to the Closing Date true and complete copies of the Site Lease (including any amendments and renewal letters), all deeds of trust, certificates of occupancy, title insurance policies, title reports, surveys and similar documents, and all amendments thereof, with respect to the Site. (e) To the Best Knowledge of Seller, except as set forth on SCHEDULE 3.11(e), no other party has any right to purchase or lease or holds any right of first refusal or option to purchase or lease the Site. (f) The improvements listed on SCHEDULE 3.11(f) are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, are adequate and suitable for the purposes for which they are presently being used and there are no condemnation or appropriation proceedings pending, or to the Best Knowledge of Seller, threatened against the Site or the improvements thereon. 3.12 TANGIBLE PERSONAL PROPERTY. Sunrise is in possession of and has good, valid and marketable title to, or has valid leasehold interests in or valid rights under Contract to use, all of its tangible personal property, including without limitation, the Emission Credits. All such tangible personal property, including without limitation, the Emission Credits, is free and clear of all Liens, other than Permitted Liens including Liens disclosed on SCHEDULE 3.12, and is in good working order and condition, ordinary wear and tear excepted, and its use complies in all respects with all applicable Laws. 3.13 INTELLECTUAL PROPERTY RIGHTS. Sunrise has interests in or uses only the Intellectual Property disclosed on SCHEDULE 3.13, each of which Sunrise either has all right, title and interest in or a valid and binding license to use. No other Intellectual Property is used or necessary in the conduct of the Business. Except as disclosed on SCHEDULE 3.13, (i) Sunrise has the exclusive right to use the Intellectual Property disclosed on SCHEDULE 3.13, (ii) all registrations with and applications to Governmental or Regulatory Authorities in respect of such Intellectual Property are valid and in full force and effect and are not subject to the payment of any Taxes or maintenance fees or the taking of any other actions by Sunrise to maintain their validity or effectiveness, (iii) there are no restrictions on the direct or indirect transfer of any license, or any interest therein, held by Sunrise in respect of such Intellectual Property, (iv) Seller has delivered 13 to Purchaser prior to the Closing Date documentation with respect to any invention, process, design, computer program or other know-how or trade secret included in such Intellectual Property, which documentation is accurate in all respects and reasonably sufficient in detail and content to identify and explain such invention, process, design, computer program or other know-how or trade secret and to facilitate its full and proper use without reliance on the special knowledge or memory of any Person, (v) Sunrise has taken reasonable security measures to protect the secrecy, confidentiality and value of their trade secrets, (vi) Sunrise is not, or has not received any notice that it is, in default (or with the giving of notice or lapse of time or both, would be in default) under any license to use such Intellectual Property and (vii) to the Best Knowledge of Seller, such Intellectual Property is not being infringed by any other Person. Neither Seller nor Sunrise has received notice that Sunrise is infringing any Intellectual Property of any other Person, no claim is pending or, has been made to such effect that has not been resolved and Sunrise is not infringing any Intellectual Property rights of any other Person. 3.14 CONTRACTS. (a) SCHEDULE 3.14(a) contains a true and complete list of each of the following Contracts or other arrangements (true and complete copies or, if none, reasonably complete and accurate written descriptions of which, together with all amendments and supplements thereto and all waivers of any terms thereof, have been delivered to Purchaser prior to the Closing Date), to which Sunrise is a party or by which any of its Assets and Properties is bound: (i) all Contracts with any Person containing any provision or covenant prohibiting or limiting the ability of Sunrise to engage in any business activity or compete with any Person or prohibiting or limiting the ability of any Person to compete with Sunrise; (ii) all partnership, joint venture, shareholders' or other similar Contracts with any Person; (iii) all Contracts for the purchase or lease of any real property on which the Project shall be located, including, without limitation, the Site Lease; (iv) all Contracts relating to Indebtedness of Sunrise; (v) all Contracts with distributors, dealers, manufacturer's representatives, sales agencies or franchisees; (vi) all Contracts relating to (A) the future disposition or acquisition of any Assets and Properties, other than dispositions or acquisitions in the ordinary course of business consistent with past practice, and (B) any Business Combination; (vii) all Contracts between or among Sunrise, on the one hand, and Seller, any officer, director, Affiliate of Seller of any such officer, director or Affiliate (other than Sunrise), on the other hand; (viii) all collective bargaining or similar labor Contracts; 14 (ix) all Contracts that (A) limit or contain restrictions on the ability of Sunrise to declare or pay dividends on, to make any other distribution in respect of or to issue or purchase, redeem or otherwise acquire its capital stock, to incur Indebtedness, to incur or suffer to exist any Lien, to purchase or sell any Assets and Properties, to change the lines of business in which it participates or engages or to engage in any Business Combination or (B) require Sunrise to maintain specified financial ratios or levels of net worth or other indicia of financial condition; (x) all other Contracts that involve any payment or potential payment, pursuant to the terms of any such Contract, by or to Sunrise; and (xi) all Contracts constituting Project documents, including, without limitation, the engineering, procurement and construction contract, the interconnection agreements, fuel supply agreements, gas supply agreements, long term services agreement, and operations and maintenance agreements. (b) Each Contract required to be disclosed on SCHEDULE 3.14(a) is in full force and effect and constitutes a legal, valid and binding agreement, enforceable in accordance with its terms, of each party thereto; and except as disclosed on SCHEDULE 3.14(b) neither Sunrise nor, to the Best Knowledge of Seller, any other party to such Contract is, or has received notice that it is, in violation or breach of or default under any such Contract (or with notice or lapse of time or both, would be in violation or breach of or default under any such Contract) and none of such Contracts contains a right of first refusal or change of control provision that will be triggered by the consummation of the transactions contemplated in the Transaction Documents. 3.15 LICENSES. (a) To the Best Knowledge of Seller, SCHEDULE 3.15(a) sets forth all Licenses (including a description of the owner, the function, the expiration and renewal date of each) required for the conduct of Sunrise's Business as currently contemplated. Except as set forth on SCHEDULE 3.15(a), Sunrise owns or validly holds all such Licenses and such Licenses are valid, binding and in full force and effect. Sunrise is not, and has not received any notice that it is, in default (or with the giving of notice or lapse of time or both, would be in default) under any such License. (b) To the Best Knowledge of Seller, SCHEDULE 3.15(b) sets forth all Licenses which Sunrise does not yet have but which shall be required for the completion of Phase 1. Neither Seller nor Sunrise has reason to believe that any such License will not be granted in due course prior to the time when needed. (c) To the Best Knowledge of Seller, the information set forth in each application submitted by or on behalf of Seller or any of its Affiliates related to or involved with Phase 1 in connection with a License and in all correspondence sent by or on behalf of Seller or such Affiliate in respect of each such application is accurate and complete in all respects. 3.16 LIENS. None of the Assets and Properties of Sunrise are subject to any Lien, except for Permitted Liens and the liens listed on SCHEDULE 3.11(a). 15 3.17 INSURANCE. All insurance policies and fidelity bonds relating to Sunrise or the Assets and Properties of Sunrise, including summary descriptions and the termination dates thereof, in force as of the date of this Agreement are set forth on SCHEDULE 3.17. The insurance coverage provided by such policies will terminate as a result of the transactions contemplated by this Agreement and the other Transaction Documents at the earliest of transfer of title, ownership, insurable interest or risk of loss. Except as set forth on SCHEDULE 3.17, all such insurance policies and fidelity bonds are in the name of Sunrise. None of Sunrise or, to the Best Knowledge of Seller, any other party to any such policy or bond is in breach, violation or default (including with respect to the payment of premiums or the giving of notices), and, to the Best Knowledge of Seller, no event has occurred that, with notice or the lapse of time or both, could constitute such a breach, violation or default by Sunrise or any other party, or permit termination, modification or acceleration, under such policy or bond, except where any such breach, violation, default, termination, modification or acceleration could not reasonably be expected to have a Material Adverse Effect. Each policy listed on SCHEDULE 3.17 is valid and binding and in full force and effect, no premiums due thereunder have not been paid and neither Sunrise nor the Person to whom such policy has been issued has received any notice of cancellation or termination in respect of any such policy or is in default thereunder. The insurance policies listed on SCHEDULE 3.17 are placed with financially sound and reputable insurers and, in light of the Business, operations and Assets and Properties of Sunrise, are in amounts and have coverages that are reasonable and customary for entities engaged in such businesses and operations and having such Assets and Properties. Neither Seller nor Sunrise has received notice that any insurer under any policy referred to in this SECTION 3.17 is denying liability with respect to a claim thereunder or defending under a reservation of rights clause. 3.18 AFFILIATE TRANSACTIONS. Except as disclosed on SCHEDULE 3.18, (i) there are no intercompany Liabilities between Sunrise and Seller or any officer, director or Affiliate of Seller, (ii) neither Seller nor any such officer, director or Affiliate provides or causes to be provided any assets, services or facilities to Sunrise, (iii) Sunrise does not provide nor causes to be provided any assets, services or facilities to Seller or any such officer, director or Affiliate and (iv) Sunrise does not beneficially own, directly or indirectly, any Investment Assets of Seller or any such officer, director or Affiliate. Except as disclosed on SCHEDULE 3.18, each of the Liabilities and transactions listed on SCHEDULE 3.18 was incurred or engaged in, as the case may be, on an arm's-length basis. Except as disclosed on SCHEDULE 3.18, all settlements of intercompany Liabilities between Sunrise and Seller or any such officer, director or Affiliate, have been made, and all allocations of intercompany expenses have been applied, in the ordinary course of business consistent with past practice. 3.19 NO EMPLOYEES/LABOR ISSUES. Sunrise does not have, and has never had, any employees or consultants nor any Contract providing for a commitment of employment or consultation services. Except as disclosed on SCHEDULE 3.19, none of Sunrise or any of its Affiliates involved with or related to the Project is presently nor has been in the past a party to any collective bargaining agreement, subject to a legal duty to bargain with any labor organization on behalf of employees nor operating under any expired collective bargaining agreement. Except as disclosed on SCHEDULE 3.19, there are no organizational efforts presently being made or, to the Best Knowledge of Seller, threatened by or on behalf of any labor union with respect to employees of Sunrise. Except as disclosed on SCHEDULE 3.19, none of Seller, Sunrise nor any of its Affiliates involved with or related to the Project is nor has ever been a 16 party to or subject to any pending strike, work stoppage, organizing attempt, picketing, boycott or similar activity. 3.20 ENVIRONMENTAL MATTERS. Sunrise has obtained all Licenses which are required in respect of its Business, operations or Assets and Properties under applicable Environmental Laws as of the Closing Date. Sunrise is in compliance in all respects with the terms and conditions of all such Licenses and with all applicable Environmental Law. Except as set forth on SCHEDULE 3.20: (a) No Order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or, to the Best Knowledge of Seller, threatened by any Governmental or Regulatory Authority with respect to any alleged failure by Sunrise to have any License required in connection with the conduct of the Business or operations of Sunrise or with respect to any treatment, storage, recycling, transportation, disposal or release as defined in 42 U.S.C. Section 9601(22) ("Release"), of any Regulated Material, and neither Seller nor Sunrise is aware of any facts or circumstances which could reasonably be expected to form the basis for any such Order, complaint, penalty or investigation. (b) Sunrise has not handled any Regulated Materials on any property now or previously owned or leased by Sunrise; and without limiting the foregoing (i) Sunrise has not handled or Released any polychlorinated biphenyl at, on or under any property now or previously owned or leased by Sunrise, (ii) Sunrise has not handled or Released any asbestos at, on or under any property now or previously owned or leased by Sunrise, (iii) Sunrise has not handled or Released any underground or aboveground storage tanks, active or abandoned, at, on or under any property now or previously owned or leased by Sunrise, and (iv) no Regulated Material has been Released in a quantity reportable under, or in violation of, any Environmental Law, at, on or under any property now or previously owned or leased by Sunrise; during any period that Sunrise owned or leased such property. (c) Sunrise has not transported or arranged for the transportation of any Regulated Material to any location which is the subject of any Action or Proceeding that could lead to claims against Purchaser or Sunrise for clean-up costs, remedial work, damages to natural resources or personal injury claims, including, but not limited to, claims under CERCLA. (d) No oral or written notification of a Release of a Regulated Material has been filed by or on behalf of Sunrise and no property now or previously owned or leased by Sunrise is listed or proposed for listing on the National Priorities List promulgated pursuant to CERCLA or on any similar state list of sites requiring investigation or clean-up. (e) To the Best Knowledge of Seller, there are no Liens (other than Permitted Liens) arising under or pursuant to any Environmental Law or Order on any real property owned or leased by Sunrise, and no action of any Governmental or Regulatory Authority has been taken or to the Best Knowledge of Seller, is in process which could subject any of such properties to such Liens, and Sunrise would not be required to place any notice or restriction relating to the presence of Regulated Material at any property owned by it in any deed to such property. 17 (f) Except as set forth on SCHEDULE 3.20(f), there have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted by, or on behalf of, or which are in the possession of, Sunrise or Seller in relation to any property or facility now or previously owned or leased by Sunrise which has not been delivered to Purchaser prior to the Closing Date. 3.21 BANK AND BROKERAGE ACCOUNTS; INVESTMENT ASSETS. SCHEDULE 3.21 sets forth (a) a true and complete list of the names and locations of all banks, trust companies, securities brokers and other financial institutions at which Sunrise has an account or safe deposit box or maintains a banking, custodial, trading or other similar relationship; (b) a true and complete list and description of each such account, box and relationship, indicating in each case the account number and the names of the respective officers, employees, agents or other similar representatives of Sunrise having signatory power with respect thereto; and (c) a list of each Investment Asset, the name of the record and beneficial owner thereof, the location of the certificates, if any, therefor, the maturity date, if any, and any stock or bond powers or other authority for transfer granted with respect thereto. 3.22 NO POWERS OF ATTORNEY. Except as set forth on SCHEDULE 3.22, Sunrise does not have any powers of attorney or comparable delegations of authority outstanding. 3.23 FINANCIAL STATEMENTS; BUDGET; PROJECTIONS; ABSENCE OF CERTAIN CHANGES. (a) Prior to the Closing Date, Seller has delivered to Purchaser the following financial statements: (i) the pro forma balance sheet of Sunrise as of November 16, 2000, in a form acceptable to Purchaser and certified by the comptroller of Seller (the "Closing Pro Forma Balance Sheet"), and (ii) the audited consolidated balance sheet of Seller and its consolidated Subsidiaries as of December 31, 1999, the related consolidated statements of operations, stockholders' equity and cash flows and all footnotes thereto, for the year ended December 31, 1999 (the "Financial Statements"). The Closing Pro Forma Balance Sheet presents fairly in all material respects on a pro forma basis the financial position of Sunrise as of November 16, 2000 and was prepared in accordance with GAAP. The Financial Statements (complete with appropriate footnote disclosures) present fairly in all material respects the consolidated financial position, results of operations, changes in stockholders' equity and cash flows of Seller and its consolidated subsidiaries at the respective date set forth therein and for the respective periods covered thereby, and were prepared in accordance with GAAP. The Closing Pro Forma Balance Sheet and the Financial Statements have been prepared from the books of account and financial records of Sunrise, and, where applicable, Seller (in the case of the Closing Pro Forma Balance Sheet) and of Seller (in the case of the Financial Statements). (b) Sunrise has conducted its Business only in the ordinary course of business, and there has not been (i) any event or development that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or (ii) any damage, destruction or loss, whether or not covered by insurance, that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (c) Seller has previously delivered the Budget to Purchaser, which Budget details in all respects the development costs for completion of Phase 1 currently anticipated to be 18 incurred by, or on behalf of, Seller, Sunrise and their respective Affiliates in order to achieve the commencement of construction of the Project and/or the Commercial Operations Date. The Budget has been prepared by, or on behalf of, Seller and/or Sunrise in good faith, based on assumptions which are reasonable and have been consistently applied, and the Budget and assumptions have taken into account all relevant facts and circumstances. (d) As of the Closing Date, the Interim Third Party Development Costs are equal to the aggregate amount of $8,000,000.00 3.24 NO UNDISCLOSED LIABILITIES. Except as reflected or reserved against, the Closing Pro Forma Balance Sheet or as disclosed on SCHEDULE 3.24, there are no Liabilities against, relating to or affecting Sunrise or any of its Assets and Properties. 3.25 TAX MATTERS. (a) Within the times and in the manner prescribed by law, Sunrise has filed all Tax returns required to be filed. (i) Except as set forth on SCHEDULE 3.25, Sunrise has paid all Taxes which have become due or which have been claimed to be due prior to the Closing Date, and have made provision, in accordance with GAAP, for all Taxes owed or accrued through the Closing Date (including, without limitation, any supplemental, additional or other real property Tax, whether or not currently due or payable, attributable to any change of ownership of Sunrise or of any of its assets prior to the Closing Date, but excluding Taxes payable by Seller as a consequence of the sale transaction described herein). (ii) To the Best Knowledge of Seller, Sunrise has timely filed all required Tax returns for taxable years ending before the Closing Date in accordance with the Code, Treasury Regulations, as amended, and all applicable Laws. (iii) To the Best Knowledge of Seller, no examinations of the Tax returns of Sunrise are currently in progress nor threatened and no deficiencies have been asserted or assessed against Sunrise as a result of any audit by the Internal Revenue Service or any state or local taxing authority and no such deficiency has been proposed or threatened. (iv) Sunrise has not been a member of any affiliated group filing a consolidated federal income Tax return, other than as a member of an affiliated group of which the common parent is Seller and does not have any liability for the Taxes of any Person (other than Sunrise) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (b) Each affiliated group filing a consolidated federal income Tax return of which Sunrise is or has been a member has filed all income Tax returns that it was required to file for each taxable period during which Sunrise was a member of such affiliated group. All such Tax returns were filed in accordance with the Code, Treasury Regulations, as amended and all applicable Laws. All income Taxes, as reported in such Tax returns, owed by any such affiliated groups have been paid, or have been accrued, for each taxable period during which Sunrise was a member of the group. 19 3.26 PROJECT GOVERNMENTAL APPROVALS. (a) To the Best Knowledge of Seller, SCHEDULE 3.26(a) sets forth all Governmental Approvals necessary for the conduct of Sunrise's Business as currently contemplated (collectively, the "Project Governmental Approvals"). Except as set forth on SCHEDULE 3.26(a), all such Project Governmental Approvals have been duly obtained or made, were validly issued, are in full force and effect, are final and not subject to modification or appeal, are held in the name of Sunrise (as indicated on SCHEDULE 3.26(a)) and are free from any conditions or requirements. No event has occurred that could reasonably be expected to (i) result in the revocation, termination or adverse modification of any such Project Governmental Approval or (ii) affect any rights of the relevant party under any such Project Governmental Approval. (b) To the Best Knowledge of Seller, SCHEDULE 3.26(b) sets forth all Governmental Approvals which Sunrise does not yet have but which shall be required for the completion of Phase 1 (the "Required Project Approvals"). Neither Seller nor Sunrise has reason to believe that any Required Project Approvals will not be granted in due course prior to the time when needed. (c) To the Best Knowledge of Seller, the information set forth in each application submitted by or on behalf of Seller or any of its Affiliates related to or involved with the Project in connection with a Project Governmental Approval, a Required Project Approval and in all correspondence sent by or on behalf of Seller or such Affiliate in respect of each such application is accurate and complete in all respects. 3.27 DISCLOSURE. All documents, reports or other written information pertaining to Seller, the Assets and Properties or the Project that have been furnished to Purchaser by or on behalf of Seller are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained therein not misleading. To the Best Knowledge of Seller, there is no fact, event or circumstance that has not been disclosed to Purchaser in writing, the existence of which could reasonably be expected to have a Material Adverse Effect. 3.28 SUFFICIENCY OF ASSETS. (a) SCHEDULE 3.28(a) sets forth, to the Best Knowledge of Seller, the status of the utilities anticipated to serve Phase 1 as of the Closing Date. (b) The assets set forth on SCHEDULE 3.28(b) constitute all of the Assets and Properties currently owned, held or used by Seller and its Affiliates primarily in connection with the development of and/or construction of Phase 1. To the Best Knowledge of Seller, there are no other Assets or Properties (including any personnel or services) necessary to conduct the Business in respect of Phase 1 as Phase 1 is currently contemplated to be constructed and operated that will not be (a) owned or provided by Sunrise, or (b) provided to Sunrise under the Contracts listed on SCHEDULE 3.14(a). 3.29 EMPLOYEE BENEFIT PLANS. Sunrise has never maintained nor contributed to (nor has ever had an obligation to maintain or contribute to) any Benefit Plan. 20 3.30 BROKERS' OR FINDERS' FEES. No agent, broker, investment banker, Person or firm acting on behalf of Seller, Sunrise or any of their Affiliates or under the authority of Seller, Sunrise or any of their Affiliates is or will be entitled to any brokers' or finders' fee or any other commission or similar fee directly or indirectly from any of the parties hereto in connection with any of the transactions contemplated hereby. 3.31 REGULATORY STATUS. Sunrise does not own any interest in any "qualifying cogeneration facility" or any "qualifying small power production facility" as such terms are defined under the Public Utility Regulatory Policies Act of 1978, as amended (16 U.S.C. Section 796, ET SEQ.), and the regulations of the Federal Energy Regulatory Commission promulgated thereunder, as amended from time to time. Neither Seller nor Sunrise has filed for exempt wholesale generator status with respect to the Project. 3.32 NO SOLICITATIONS. Since execution of the MOU, Seller has not taken, and has not permitted Sunrise or any Affiliate of Seller (or authorized or permitted any investment banker, financial advisor, attorney, accountant or other Person retained by or acting for or on behalf of Seller or Sunrise or any such Affiliate) to take, directly or indirectly, any action to initiate, assist, solicit, receive, negotiate, encourage or accept any offer or inquiry from any Person (a) to engage in any Business Combination with Sunrise, (b) to reach any agreement or understanding (whether or not such agreement or understanding is absolute, revocable, contingent or conditional) for, or otherwise attempt to consummate, any Business Combination with Sunrise or (c) to furnish or cause to be furnished any information with respect to Sunrise to any Person who Seller, Sunrise or such Affiliate (or any such Person acting for or on their behalf) knows or has reason to believe is in the process of considering any Business Combination with Sunrise. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER As of the Closing Date, Purchaser represents and warrants to Seller and Sunrise as follows: 4.1 ORGANIZATION. (a) Purchaser is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware and has the requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. (b) Purchaser is duly qualified or licensed to do business as a foreign limited liability company and is in good standing in each jurisdiction in which the use and ownership of its assets or the conduct of its business requires such license or qualification, except where the failure to be so qualified or licensed would not have a material adverse effect on Purchaser. 4.2 REQUISITE AUTHORITY; ETC. Purchaser has all requisite power and authority to enter into the Transaction Documents to which it is a party. All necessary action on the part of Purchaser has been taken to authorize the execution and delivery of this Agreement and the Transaction Documents to which it is a party, the performance of its obligations under such Transaction Documents and the consummation of the transactions contemplated under such 21 Transaction Documents. This Agreement has been, and each of the other Transaction Documents to which Purchaser is a party, when executed and delivered by Purchaser, will be, duly and validly executed and delivered by it, and this Agreement constitutes, and each of the other Transaction Documents will constitute, valid and binding agreements of Purchaser, enforceable in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general application relating to or affecting creditors' rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.3 NO CONFLICT. Neither the execution and delivery of this Agreement nor any of the Transaction Documents to which Purchaser is a party nor the consummation of the transactions contemplated hereby or thereby nor compliance by it with any of the provisions hereof or thereof will (i) violate or conflict with any provision of the charter or by-laws or other governing documents of Purchaser, or any Law, judgment, order, writ, decree or injunction applicable to Purchaser, or (ii) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or any event which, with or without due notice or lapse of time, or both, would constitute a default) under, or result in the termination of, accelerate the performance required by, or result in the creation of any Lien upon any of the properties or assets of Purchaser under, any contract, note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation of which Purchaser is a party or by which it or any of its Assets or Properties are bound. 4.4 CONSENTS. No Consent is currently required to be made or obtained by Purchaser in connection with its execution, delivery and performance of this Agreement or the consummation of the transactions contemplated by hereunder. 4.5 BROKERS' OR FINDERS' FEES. No agent, broker, investment banker, Person or firm acting on behalf of Purchaser or any of its Affiliates or under the authority of Purchaser or any of its Affiliates is or will be entitled to any brokers' or finders' fee or any other commission or similar fee directly or indirectly from any of the parties hereto in connection with any of the transactions contemplated hereby. 4.6 INVESTMENT. Purchaser is acquiring the Shares for its own account for investment purposes and not with a view toward any resale or distribution thereof; PROVIDED, HOWEVER, that the disposition of its properties shall at all times remain within its control. Purchaser acknowledges that such Shares have not been registered under the Securities Act of 1933, as amended and that it may not sell any such Shares except in accordance with the Securities Act of 1933, as amended, or applicable exemptions therefrom. ARTICLE 5 TAX MATTERS 5.1 TERMINATION OF TAX AGREEMENTS. As of the Closing Date, Seller represents and warrants to Purchaser that any and all agreements between each common parent of any affiliated group filing a consolidated federal income Tax return of which Sunrise is or has been a member (each a "Common Parent") and Sunrise includible in such Common Parent's consolidated federal 22 income Tax return are terminated with respect to Sunrise as of the Closing Date and will have no further effect for any taxable year with respect to Sunrise for any year from and after the Closing Date. 5.2 GENERAL. Seller and Purchaser covenant with each other regarding Taxes as follows: (a) SELLER'S LIABILITY. Seller shall be liable for (i) any and all liability with respect to Taxes which are imposed on or incurred by Sunrise for any taxable period ending on or before the Closing Date for Sunrise for which the Taxes are imposed or incurred ("Pre-Closing Period"), (ii) any liability for any taxable period for Sunrise for Taxes of other Persons pursuant to Treasury Regulation Section 1.1502-6 (or any comparable or similar provision under state or local law), as transferee or successor or pursuant to any contractual obligation or otherwise, and (iii) the portion of any Taxes (other than Taxes described in SECTION 5.2(a)(ii) above) which are imposed or incurred by Sunrise for any taxable period beginning before and ending after the Closing Date which are allocable as described in SECTION 5.3 to the period ending on the Closing Date. (b) PURCHASER'S LIABILITY. Purchaser and Purchaser's Affiliates shall be liable for (i) any and all liability with respect to Taxes which are imposed on or incurred by Sunrise for any taxable period beginning after the Closing Date for Sunrise ("Post Closing Period"), (ii) any liability of Purchaser or its Subsidiaries for Taxes of other Persons pursuant to Treasury Regulation Section 1.1502-6 (or any comparable state or local law) as transferee or successor or pursuant to any contractual obligation of otherwise, (iii) the portion of any Taxes (other than Taxes as described in SECTION 5.2(b)(ii) above) which are imposed on or incurred by Sunrise for any taxable period beginning before and ending after the Closing Date which are allocable as set forth in SECTION 5.3 to the period beginning after the Closing Date (c) TRANSFER TAXES. Purchaser shall pay any and all federal or state real or personal property transfer, recording, sales, use or similar Taxes arising from the transfer of the ownership of Sunrise from Seller to Purchaser. 5.3 ALLOCATION OF CERTAIN TAXES. In the case of any Tax that is attributable to a taxable period which begins before the Closing Date and ends after the Closing Date, the amount of Taxes attributable to the Pre-Closing Period or the Post-Closing Period shall be determined as follows: (a) Except to the extent provided in SECTION 5.3(b), all other Taxes shall be allocated between the Pre-Closing Period and the Post-Closing Period based upon an interim closing of the books of Sunrise as of the end of the day on the Closing Date and the computation of the Tax for each resulting period shall be computed as if each period were a separate taxable period; PROVIDED, HOWEVER, in no event shall the hypothetical Tax for any period be less than zero. (b) In the case of ad valorem Taxes imposed on Sunrise and franchise or similar Taxes imposed on Sunrise based on capital (including net worth or long-term debt) or number of shares of stock authorized, issued or outstanding, such Taxes shall be allocated 23 between the Pre-Closing Period and the Post-Closing Period based upon the respective number of days in each such period. 5.4 TAX INDEMNIFICATION. (a) SELLER'S INDEMNIFICATION. Seller shall indemnify Purchaser and its parent, Affiliates, subsidiaries and their respective officers, directors, stockholders, agents, representatives, employees, successors and assigns (the "Purchaser Indemnified Persons") in respect of, and hold each Purchaser Indemnified Person harmless, on an after-Tax basis, against (x) Losses resulting from, relating to, or constituting a breach of any representation contained in SECTION 3.25, hereof and (y) the failure to perform any covenant or agreement set forth in this ARTICLE 5. (i) Any and all Taxes due and payable or accrued with respect to the Pre-Closing Period. (ii) Any liability of Sunrise for Taxes of other entities whether pursuant to Treasury Regulation Section 1.1502-6 (or any comparable or similar provision under state, local or foreign law), as transferee or successor or pursuant to any contractual obligation or otherwise. (iii) For purposes of this SECTION 5.4(a), any and all transactions or events contemplated by this Agreement that occur on or prior to the Closing Date shall be deemed to have occurred in a Pre-Closing Period. (iv) Amounts payable pursuant to this SECTION 5.4(a) shall be computed after taking into account all Tax consequences to the Purchaser Indemnified Person of (i) the receipt of (or the right to receive) the indemnification payment and (ii) the incurrence of the liability that gave rise to the right to receive the indemnification payment. Thus, it is the intention of the parties that the Purchaser Indemnified Persons be held harmless with respect to the liability that give rise to the right to the indemnification payment on an after-Tax basis. (b) PURCHASER'S INDEMNIFICATION. Purchaser shall indemnify Seller and its parent, Affiliates, subsidiaries and their respective officers, directors, stockholders, agents, representatives, employees, successors and assigns (the "Seller Indemnified Persons") in respect of, and hold each Seller Indemnified Person harmless, on an after-Tax basis, against the failure to perform any covenant or agreement set forth in this ARTICLE 5. (i) Any and all Taxes due and payable or accrued with respect to the Post-Closing Period. (ii) Any liability of Sunrise for Taxes of other entities whether pursuant to Treasury Regulation Section 1.1502-6 (or any comparable or similar provision under state, local or foreign law), as transferee or successor or pursuant to any contractual obligation or otherwise. 24 (iii) For purpose of this SECTION 5.4(b), any and all transactions or events contemplated by this Agreement that occur after the Closing Date shall be deemed to have occurred in a Post-Closing Period. (iv) Amounts payable pursuant to this SECTION 5.4(b) shall be computed after taking into account all Tax consequences to the Seller Indemnified Person of (i) the receipt of (or the right to receive) the indemnification payment and (ii) the incurrence of the liability that gave rise to the right to receive the indemnification payment. Thus, it is the intention of the parties that the Seller Indemnified Persons be held harmless with respect tot he liability that gave rise to the right to the indemnification payment on an after-Tax basis. 5.5 COOPERATION ON TAX MATTERS, ETC. Purchaser, Seller and the Common Parent shall reasonably cooperate, as and to the extent reasonably requested by the other party, in connection with the filing of Tax returns and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder; provided that the party requesting assistance shall pay the reasonable out-of-pocket expenses incurred by the party providing such assistance; and provided further that no party shall be required to provide assistance at times or in amounts that would interfere unreasonably with the business and operations of such party. Purchaser agrees to retain all books and records with respect to Tax matters pertinent to Sunrise relating to any Tax periods ending on or prior to the Closing Date and any Tax periods beginning before the Closing Date and ending after the Closing Date until the expiration of any applicable statute of limitations or extensions thereof. 5.6 TAX CONTEST. Purchaser and Seller shall notify the other party in writing within thirty (30) days of receipt of written notice of any pending or threatened Tax examination, audit or other administrative or judicial proceeding (a "Tax Contest") that could reasonably be expected to result in an indemnification obligation by Seller of Purchaser under this ARTICLE 5. (a) To the extent that a Tax Contest relates to a Pre-Closing Period or to any Taxes for which Seller is liable in full hereunder, Seller shall at its expense control the defense and settlement of that part of such Tax Contest. To the extent that such Tax Contest relates to any Post-Closing Period or to any Taxes for which Purchaser is liable in full hereunder, Purchaser shall at its own expense control the defense and settlement of that part of such Tax Contest. The party not in control of the defense shall have the right to observe the conduct of any Tax Contest at its own expense, including through its own counsel and other professional experts. Purchaser and Seller shall jointly represent Sunrise in any Tax Contest relating to a Straddle Period, and fees and expenses related to such representation shall be paid equally by Purchaser and Seller. "Straddle Period" shall mean any taxable period beginning before and ending after the Closing Date. (b) Notwithstanding anything to the contrary in SECTION 5.6(a), to the extent that an issue raised in any Tax Contest controlled by one party or jointly controlled could materially affect the liability for Taxes of the other party, the controlling party shall not, and neither party in the case of joint control shall, enter into a final settlement without the consent of 25 the other party, which consent shall not be unreasonably withheld. Where a party withholds its consent to any final settlement, that party may continue or initiate further proceedings, at its own expense, and the liability of the party that wished to settle (as between the consenting and the nonconsenting party) shall not exceed the liability that would have resulted from the proposed final settlement (including interest, additions to tax, and penalties that have accrued at that time), and the non-consenting party shall indemnify the consenting party for such Taxes. (c) DISPUTES. In the event that a dispute arises between Seller and Purchaser as to the amount of Taxes or indemnification or any other matter relating to Taxes attributable to Sunrise, the parties shall attempt in good faith to resolve such dispute, and any agreed upon amount shall be paid to the appropriate party. If such dispute is not resolved 30 days thereafter, the parties shall submit the dispute to a mutually agreeable independent accounting firm for resolution, which resolution shall be final, conclusive and binding on the parties. Notwithstanding anything in this Agreement to the contrary, the fees and expenses of such independent accounting firm in resolving the dispute shall be borne equally by Seller and Purchaser. Any payment required to be made as a result of the resolution of the dispute by such independent accounting firm shall be made within ten days after such resolution, together with any interest determined by such independent accounting firm to be appropriate. 5.7 TERMINATION OF INDEMNIFICATION. The obligation to indemnify and hold harmless a party hereto pursuant to this ARTICLE 5 shall terminate thirty (30) days following the expiration of the applicable statute of limitations with respect to the tax liabilities in question (giving effect to any extension thereof). 5.8 PREPARATION AND FILING OF TAX RETURNS. (a) Seller and the Common Parent shall cause to be prepared and timely filed all Tax returns of Sunrise attributable to all periods that end on or before the Closing Date. (b) Buyer shall prepare and timely file or shall cause to be prepared and timely filed all other Tax returns with respect to Sunrise or in respect of its businesses, assets or operations. (c) Any Tax return to be prepared and filed by Purchaser or Seller or the Common Parent as provided in this SECTION 5.8 shall be prepared on a basis consistent with the last previous similar Tax return. Purchaser shall consult with Seller and the Common Parent concerning each such Tax return to be prepared and filed by Purchaser for periods after the Closing Date and report all items with respect to the portion of the period ending on the Closing Date in accordance with the instructions of Seller to the extent such reporting is allowable without in Purchaser's determination significant risk of the imposition of penalties or additions to Taxes as determined by Purchaser in consultation with its tax advisors. Purchaser shall cause Sunrise to provide Seller with a copy of each such proposed tax return (and such additional information regarding such tax return as may reasonably be requested by Seller) at least forty-five (45) days prior to the filing of such tax return, except that (i) in the case of a tax return relating to a monthly taxable period, the copy shall be provided to Seller at least ten (10) days prior to the filing of such tax return and (ii) in the case of a tax return due within ninety (90) days 26 following the Closing Date, the copy shall be provided to Seller in such shorter period of time prior to filing as Purchaser shall reasonably determine to be practicable. ARTICLE 6 INDEMNIFICATION 6.1 GENERAL INDEMNIFICATION OBLIGATIONS. (a) Seller shall indemnify, defend and hold harmless Purchaser, its parent, Affiliates, subsidiaries and their respective officers, directors, stockholders, agents, representatives, employees, successors and assigns from and against any and all Losses based upon, arising out of, in connection with, or relating to, directly or indirectly, any inaccuracy or breach of any representation, warranty, covenant or agreement of Seller or its Affiliates contained in this Agreement. (b) Purchaser shall indemnify, defend and hold harmless Seller, its parent, Affiliates, subsidiaries and their respective officers, directors, stockholders, agents, representatives, employees, successors and assigns from and against any and all Losses based upon, arising out of, in connection with, or relating to, directly or indirectly, any inaccuracy or breach of any representation, warranty, covenant or agreement of Purchaser or its Affiliates contained in this Agreement. 6.2 LIMITATION ON INDEMNIFICATION. (a) Except as set forth in SECTION 6.2(b), the indemnification obligations hereunder of an Indemnifying Party (as defined in SECTION 6.3(a)) shall not exceed Thirty-Five Million Dollars ($35,000,000) in the aggregate. (b) Notwithstanding anything to the contrary, the indemnification obligations hereunder of Seller with respect to Losses arising out of any breach of Seller's representations, warranties and covenants set forth in SECTION 3.4, SECTION 3.6, SECTION 3.11, SECTION 3.12 SECTION 3.20, SECTION 3.25 and ARTICLE 5 shall not exceed Fifty Million Dollars ($50,000,000) in the aggregate; provided, however, such Losses shall be applied to the maximum amount specified in SECTION 6.2(a) and shall not be exclusive thereof. 6.3 INDEMNIFICATION PROCEDURES. All claims for indemnification under this Agreement shall be asserted and resolved as follows: (a) A party claiming indemnification under this Agreement (an "Indemnified Party") shall promptly (A) notify the party from whom indemnification is sought (the "Indemnifying Party") of any third-party claim or claims ("Third Party Claim") asserted against the Indemnified Party which could give rise to a right of indemnification under this Agreement and (B) transmit to the Indemnifying Party a written notice ("Claim Notice") describing in reasonable detail the nature of the Third Party Claim, a copy of all papers served with respect to such claim (if any), an estimate of the amount of damages attributable to the Third Party Claim, if reasonably possible, and the basis of the Indemnified Party's request for indemnification under this Agreement. 27 (b) Within ten (10) days after receipt of any Claim Notice (the "Election Period"), the Indemnifying Party shall notify the Indemnified Party (A) whether the Indemnifying Party disputes its potential liability to the Indemnified Party under this Agreement with respect to such Third Party Claim and (B) whether the Indemnifying Party desires, at the sole cost and expense of the Indemnifying Party, to defend the Indemnified Party against such Third Party Claim. (c) If the Indemnifying Party notifies the Indemnified Party within the Election Period that the Indemnifying Party does not dispute its potential liability to the Indemnified Party under this Agreement and that the Indemnifying Party elects to assume the defense of the Third Party Claim, then the Indemnifying Party shall have the right to defend, at its sole cost and expense, such Third Party Claim by all appropriate proceedings, which proceedings shall be prosecuted diligently by the Indemnifying Party to a final conclusion or settled at the discretion of the Indemnifying Party in accordance with this SECTION 6.3. The Indemnifying Party shall have full control of such defense and proceedings including any compromise or settlement thereof; PROVIDED, HOWEVER, that (i) any such compromise or settlement shall include a full and general release and waiver of all claims against the Indemnified Party and its Affiliates with respect to the subject matter of such compromise or settlement, in form and substance reasonably satisfactory to the Indemnified Party, and (ii) any such compromise or settlement involving non-monetary obligations of the Indemnified Party, or otherwise having a direct effect upon its continuing operations, shall be subject to the consent of the Indemnified Party. The Indemnified Party is hereby authorized, at the sole cost and expense of the Indemnifying Party (but only if the Indemnified Party is actually entitled to indemnification hereunder or if the Indemnifying Party assumes the defense with respect to the Third Party Claim), to file, during the Election Period, any motion, answer or other pleadings which the Indemnified Party shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and which are not unnecessarily prejudicial to the Indemnifying Party. If requested by the Indemnifying Party, the Indemnified Party shall, at the sole cost and expense of the Indemnifying Party, cooperate with the Indemnifying Party and its counsel in contesting any Third Party Claim which the Indemnifying Party elects to contest, including, the making of any related reasonable counterclaim against the Person asserting the Third Party Claim or any reasonable cross-complaint against any Person and providing reasonable access to information and data. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this SECTION 6.3 and, except as permitted above or pursuant to this SECTION 6.3, shall bear its own costs and expenses with respect to such participation. (d) If the Indemnifying Party fails to notify the Indemnified Party within the Election Period that the Indemnifying Party does not dispute its potential liability to the Indemnified Party under this Agreement, or if the Indemnifying Party fails to notify the Indemnified Party within the Election Period that the Indemnifying Party elects to defend the Indemnified Party pursuant to this SECTION 6.3, or if the Indemnifying Party elects to defend the Indemnified Party pursuant to this SECTION 6.3 but fails to diligently and promptly prosecute or settle the Third Party Claim, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party (except where the Indemnifying Party has timely disputed its liability, in which event SECTION 6.3(f) shall apply), the Third Party Claim. The Indemnified Party shall have full control of such defense and proceedings including any 28 compromise or settlement thereof; PROVIDED, HOWEVER, that (i) any such compromise or settlement shall include a full and general release and waiver of all claims against the Indemnifying Party and its Affiliates, in form and substance satisfactory to the Indemnifying Party, and (ii) any such compromise or settlement involving non-monetary obligations of the Indemnifying Party, or otherwise having a direct effect upon its continuing operations, shall be subject to the consent of the Indemnifying Party. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this SECTION 6.3(d), and the Indemnifying Party shall bear its own costs and expenses with respect to such participation. (e) In the event an Indemnified Party should have a claim against an Indemnifying Party hereunder which does not involve a Third Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a written notice (the "Indemnity Notice") describing in reasonable detail the nature of the claim, an estimate of the amount of damages attributable to such claim and the basis of the Indemnified Party's request for indemnification under this Agreement. If the Indemnifying Party does not notify the Indemnified Party within thirty (30) days from its receipt of the Indemnity Notice that the Indemnifying Party disputes such claim, the claim specified by the Indemnified Party in the Indemnity Notice shall be deemed a liability of the Indemnifying Party hereunder. If the Indemnifying Party has timely disputed such claim, as provided above, such dispute shall be resolved by litigation in an appropriate court of competent jurisdiction. (f) Payments of all amounts owing by the Indemnifying Party pursuant to SECTIONS 6.3(c) and 6.3(d) (except as set forth in the next sentence) shall be made not later than thirty (30) days after the latest of (A) the settlement of the Third Party Claim or (B) the expiration of the period for appeal of a final adjudication of such Third Party Claim, except that amounts payable to the Indemnified Party for reasonable out of pocket expenses incurred by the Indemnified Party and for which it is entitled to indemnity hereunder shall be paid within 30 days of receipt of invoice therefor by the Indemnifying Party. Payments of all amounts owing by the Indemnifying Party pursuant to SECTION 6.3(d) (in the case where the Indemnifying Party has timely disputed its liability) or SECTION 6.3(e) shall be made not later than thirty (30) days after the expiration of the thirty-day Indemnity Notice period or, if the Indemnifying Party has timely disputed its liability, the expiration of the period for appeal of a final adjudication of the Indemnifying Party's liability to the Indemnified Party under this Agreement. (g) The failure to provide notice as provided in this SECTION 6.3 shall not excuse any party from its continuing obligations hereunder; PROVIDED, HOWEVER, any claim shall be reduced by the damages resulting from such party's delay or failure to provide notice as provided in this SECTION 6.3. 29 ARTICLE 7 CLOSING DELIVERIES 7.1 SELLER'S CLOSING DELIVERIES. On the Closing Date, Seller shall, or shall cause its Affiliates (as applicable) to, execute and/or deliver, to Purchaser the following: (a) each of the Transaction Documents, duly executed by an authorized officer of Seller or its Affiliate, as applicable; (b) copies of all Consents set forth on SCHEDULE 3.4(a), which Consents shall be in full force and effect on the Closing Date. (c) the original stock certificates constituting all of the issued and outstanding shares of Sunrise and which are held in the name of Seller, duly endorsed in blank and accompanied by duly executed stock powers; (d) the original corporate minute books (including, without limitation, Sunrise's charter documents), stock books, stock ledger and corporate seal of Sunrise; (e) the Site Lease and all other agreements between Seller or its Affiliates on the one hand, and Sunrise on the other hand, required to be delivered by Seller and Affiliates of Seller pursuant to this Agreement necessary for the development, construction, ownership, operation and maintenance of Phase 1, each in form and substance satisfactory to Purchaser and each duly executed by authorized representatives of all parties thereto; (f) the original certificates reflecting the Emission Credits; (g) a copy of a title commitment (all costs, expenses and premiums of such title commitment and subsequent CLTA title insurance policy shall be solely at the Seller's cost and expense; provided, however, that if Purchaser desires to upgrade to an ALTA title insurance policy, Purchaser shall pay all upgrade costs, expenses and premiums) to insure the Site, in form and substance satisfactory to Purchaser and issued by one or more title companies satisfactory to Purchaser; (h) updates of the environmental reports disclosed on SCHEDULE 3.20(f) from the date of their respective issuance through the Closing Date; (i) agreements terminating any Affiliate agreements and arrangements disclosed on SCHEDULE 3.18 and SCHEDULE 3.14(a) hereto (other than the Site Lease); (j) a FIRPTA certificate in compliance with Section 1445(b)(2) of the Code; (k) custody of all Books and Records of Sunrise and the Project; (l) an officer's certificate, signed by a duly authorized officer of Seller, certifying (i) the incumbency of Seller's officer(s) executing the Transaction Documents, (ii) Sunrise's certificate of incorporation and bylaws, each as amended to date, and (iii) the 30 resolutions of Seller authorizing the execution, delivery and performance of this Agreement and the transactions contemplated hereby; (m) certificates of good standing of Sunrise and certificates of tax good standing attesting to the payment by Sunrise of all franchise and other applicable taxes, issued by the Secretary of State or other appropriate official of the State of Delaware and of each jurisdiction in which Sunrise is required to be qualified to transact business; (n) resignations of all officers and directors of Sunrise, effective as of the Closing Date; (o) an opinion of Tony O. Hemming, Esq., counsel to Seller and Sunrise, dated as of the Closing Date, substantially in the form of EXHIBIT G attached hereto; (p) without limitation by specific enumeration of the foregoing, all other agreements, certificates and documents reasonably required to consummate the transactions contemplated hereunder. 7.2 PURCHASER'S CLOSING DELIVERIES. On the Closing Date, Purchaser shall, or shall cause its Affiliate (as applicable) to, execute and/or deliver to Seller the following: (a) each of the Transaction Documents, duly executed by an authorized officer of Purchaser or its Affiliate, as applicable; (b) copies of all Consents set forth on SCHEDULE 4.4, which Consents shall be in full force and effect on the Closing Date; (c) an officer's certificate, signed by a duly authorized officer of Purchaser, certifying (i) the incumbency of Purchaser's officer(s) executing this Agreement, and (ii) the resolutions of Purchaser authorizing the execution, delivery and performance of the Transaction Documents, and the transactions contemplated hereby; (d) an opinion of Steven D. Eisenberg, Esq., counsel to Purchaser, dated as of the Closing Date, in substantially the form of EXHIBIT H attached hereto; (e) without limitation by specific enumeration of the foregoing, all other agreements, certificates and documents reasonably required to consummate the transactions contemplated hereunder. ARTICLE 8 POST-CLOSING COVENANTS; CONDITIONS SUBSEQUENT 8.1 PROJECT DEVELOPMENT. After the Closing Date, Seller will assist Purchaser in the development and management of the Project pursuant to the Project Management Services Agreement. 31 8.2 OTHER BOOKS AND RECORDS. If, after the Closing Date, Seller discovers in its possession or under its control any other Books and Records, it shall promptly deliver such Books and Records to Purchaser. 8.3 NOTICE OF SALE. In the event Purchaser decides to sell any portion of the Project or EME decides to sell any portion of its ownership interest in Purchaser, Purchaser or EME, as applicable, shall give Seller thirty (30) days' prior notice of such impending sale. 8.4 DELIVERY OF CERTAIN SCHEDULES; TERMINATION (a) On or prior to 5:00 p.m. (PST) December 1, 2000, Seller shall deliver SCHEDULE 3.11(a) to this Agreement and shall cause its affiliate, TCI, to deliver SCHEDULE 17.1.8 to the Site Lease (collectively, the "Site Lease Schedules"). Upon receipt of the Site Lease Schedules, Purchaser and Sunrise shall have ten (10) days (provided that if the tenth (10) day is not a Business Day, Purchaser and Sunrise shall have until the next Business Day) in which to review the Site Lease Schedules, to determine whether any Liens disclosed thereon may reasonably have an impact upon the development, construction and/or operation of the Project (the "Subject Liens"), and to notify Seller in writing of the same (an "Exception Notice"). Seller and TCI shall have the period from their receipt of the Exception Notice until 5:00 p.m. (PST) on December 22, 2000 (such period, the "Cure Period") during which to remove and/or cure the Subject Liens and to provide Purchaser and Sunrise satisfactory written evidence of such removal and/or cure. In the event that Seller and TCI provides such satisfactory written evidence to Purchaser and Sunrise prior to the expiration of the Cure Period, Purchaser shall make the Second Payment to Seller within three (3) Business Days after Seller and TCI provide such satisfactory written evidence to Purchaser and Sunrise. (b) In the event that Seller and TCI fail to deliver the Site Lease Schedules within the time period prescribed in SECTION 8.4(a) above or fail to remove and/or cure within the Cure Period any of the Subject Liens identified in the Exception Notice in accordance with SECTION 8.4(a), the Transaction Documents and the Site Lease shall, at the election of Purchaser and Sunrise, terminate, shall be void ab initio and shall be of no further force or effect, without any liability or obligation on the part of Purchaser, Seller or Sunrise. In addition, upon termination of the Transaction Documents in accordance with this SECTION 8.4(b), (i) the MOU shall also terminate and shall be of no further force and effect, and (ii) Purchaser shall reconvey to Seller the Shares and the Books and Records of Sunrise delivered to Purchaser in accordance with Sections 7.1(c) and 7.1(k) hereof. ARTICLE 9 MISCELLANEOUS 9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Purchaser and Seller contained in or made pursuant to this Agreement shall survive for a period of one (1) year from and after the Closing Date; provided that, the indemnification obligations set forth in ARTICLE 5 and the representations and warranties set forth in SECTION 3.4, SECTION 3.6, SECTION 3.11, SECTION 3.12, SECTION 3.20 and SECTION 3.25 shall survive until the thirtieth (30th) day following expiration of the applicable statute of limitations. 32 9.2 NOTICES. Unless otherwise provided herein, any and all notices, requests and other communications required or permitted under this Agreement must be in writing and shall be deemed duly given only if delivered personally or sent by confirmed facsimile transmission, United States first class mail, or certified or registered mail, return receipt requested, or recognized national air courier service, postage or other charges prepaid to the parties at the following addresses or facsimile numbers: If to Seller: Texaco Inc. c/o Texaco Power & Gasification Inc. Burbank Media Studios 2255 N. Ontario Street Burbank, California 91504-3120 Attn: Andrew D. Hall Facsimile No.: 818-736-5676 with a copy to: Texaco Legal Department 1111 Bagby Houston, Texas 77002 Attention: Tony O. Hemming, Esq. Facsimile No.: 713-752-3259 If to Purchaser: Mission Del Sol, LLC c/o Edison Mission Energy 18101 Von Karman Avenue, Suite 1700 Irvine, California 92612-1046 Attention: General Counsel Facsimile No.: 949-757-0807 with a copy to: Morgan, Lewis & Bockius LLP 300 South Grand Avenue, 22nd Floor Los Angeles, California 90071-3132 Attention: Richard A. Shortz, Esq. Facsimile No.: 213-612-2554 All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section, be deemed given upon receipt, (iii) if delivered by overnight courier to the address as provided in this Section, be deemed given upon receipt, and (iv) if delivered by United States first class or certified or registered mail in the 33 manner described above to the address as provided in this Section, be deemed given upon receipt. Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice in accordance with this SECTION 9.2 specifying such change to the other party hereto. 9.3 TRANSACTION EXPENSES. Each of Seller and Purchaser shall bear the fees and expenses of its legal counsel and other consultants and advisors in connection with the Transaction Documents. 9.4 ENTIRE AGREEMENT. This Agreement, the other Transaction Documents and the other documents referred to herein and therein which form a part hereof and thereof, constitute the entire agreement by and between the parties concerning the purchase of Shares from Seller and supersede the MOU and any other prior understandings, agreements or representation by or between the parties, written or oral, to the extent they have related in any way to the subject matter hereof. 9.5 AMENDMENTS AND MODIFICATIONS. This Agreement may be amended or modified only by an instrument in writing duly executed by the parties hereto. 9.6 ASSIGNMENT. No party may assign its rights or obligations hereunder without the written consent of the non-assigning party, which consent may be granted in the sole discretion of the non-assigning party; PROVIDED, HOWEVER, Purchaser may assign its rights and obligations hereunder to a 50% Affiliate without Seller's consent. 9.7 SUCCESSORS AND ASSIGNS. All the terms and conditions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto. 9.8 BENEFITS. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement. 9.9 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California, without regard to the conflicts of laws provisions thereof. 9.10 ARBITRATION. (a) In the event of a disagreement between the parties involving the application or the interpretation of any provision of this Agreement, the matter involved in the disagreement shall, upon demand of either party, be submitted to arbitration in the manner hereinafter provided. Submission to arbitration, as hereinafter provided, shall be a condition precedent to any right to institute proceedings at law or in equity concerning such matter. (b) The disputing parties shall make every reasonable effort to resolve disputes, claims and controversies prior to any such dispute, claim or controversy reaching a state that requires implementation of this SECTION 9.10 for resolution. However, should any controversy arise between the parties as to which the disputing parties are unable to effect a satisfactory resolution, such controversy shall be submitted to arbitration in accordance with the 34 terms and provisions of this SECTION 9.10 and in accordance with the rules of the American Arbitration Association (or any successor organization) ("AAA"). (c) A party desiring to submit to arbitration any such controversy shall furnish its demand for arbitration in writing to the other party affected by the dispute, which demand shall contain a brief statement of the matter in controversy, as well as a list containing the names of three (3) suggested arbitrators from which list, of from other sources, the disputing parties shall choose only one (1) mutually acceptable arbitrator. If the disputing parties fail to agree upon the identity of an arbitrator within ten (10) days from the receipt of such notice, then any disputing party, on behalf of and after notice to the other disputing party, may request appointment by the AAA in accordance with its rules then prevailing of a panel of three (3) arbitrators. If the AAA should fail to appoint the arbitrators within fifteen (15) days after such request is made, then any disputing party may apply, on notice to the other disputing party, to the court as provided in California Code of Civil Procedure Section 1281.6 for the appointment of arbitrators. Each of the arbitrators chosen or appointed pursuant to this SECTION 9.10 shall be a person having at least ten (10) years' experience in the United States in a profession related to the subject matter involved in the dispute and shall not be a past or present officer, director or employee of any of the parties or their Affiliates. (d) Each disputing party shall furnish the arbitrator(s) and the other disputing party with a written statement of matters it deems to be in controversy for purposes of the arbitration procedures. Such statement shall also include all arguments, contentions and authorities which it contends substantiate its position. A hearing may be held at the option of any party to the arbitration, which hearing shall be conducted in accordance with the rules of the AAA. If only one (1) arbitrator is appointed pursuant to this SECTION 9.10 hereof, such arbitrator shall render his or her decision and award as soon as possible, but no later than thirty (30) days after the later of his or her receipt of such written statements from each of the disputing parties or the conclusion of hearings before such arbitrator. If, however, three (3) arbitrators are appointed, they shall render their decision and award, upon the concurrence of at least two (2) of their number, as soon as possible, but no later than thirty (30) days after the later of the receipt by such arbitrators of such written statements by each of the disputing parties or the conclusion of hearings before such arbitrators. The decision and award shall be in writing and counterpart copies thereof shall be delivered to each of the parties. Such decision shall be based solely upon the written arguments and contentions, coupled in appropriate cases with evidence and/or legal authorities, submitted by each disputing party. Except with the consent of each disputing party, the arbitrator shall not retain or consult any experts in arriving at the decision. In rendering such decision and award, the arbitrator(s) shall not add to, subtract from, or otherwise modify the provisions of this Agreement. (e) Each party agrees that judicial judgment may be had on the decision and award of the arbitrator(s) so rendered and may be enforced in accordance with the laws of the State of California. (f) Notwithstanding the above, in the event any arbitrator appointed by the disputing parties dies, refuses to act, or becomes incapable of acting, then the disputing parties shall appoint a successor arbitrator within five (5) days of notice of said disability. In the event the disputing parties fail to appoint the required successor within such time, any disputing party, 35 after notice to the other disputing party, may apply to the court as provided in California Code of Civil Procedure Section 1281.6 for the appointment of such necessary arbitrator. (g) Each disputing party shall bear the expense of its own counsel, experts and presentation of proof. The disputing parties shall share equally the expense of the arbitrator(s), and all other expenses of the arbitration. 9.11 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 9.12 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 9.13 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which, when executed and delivered to the other party, shall be deemed an original, but all of which together shall constitute one and the same instrument. * * * 36 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. SELLER: TEXACO INC., a Delaware corporation By: /s/ Andrew D. Hall Name: /s/ Andrew D. Hall Title: Attorney in Fact PURCHASER: MISSION DEL SOL, LLC, a Delaware limited liability company By: /s/ Gerard P. Loughman Name: /s/ Gerard P. Loughman Title: President and Chief Executive Officer EXHIBIT A Andrew D. Hall Gordon M. Thomson Julie D. Way Mervyn Soares Brian Burt EX-3.1 3 a2042986zex-3_1.txt EXHIBIT 3.1 Exhibit 3.1 STATE OF CALIFORNIA OFFICE OF THE SECRETARY OF STATE Corporation Division I, MARCH FONG EU, Secretary of State of the State of California, hereby certify: That the annexed transcript has been compared with the corporate record on file in this office, of which it purports to be a copy, and that same is full, true and correct. IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the State of California this OCT 28 1988 ------------------------------------ /s/ March Fong Eu ------------------------------------ Secretary of State [SEAL] The Great Seal of the State of California FIRST AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MISSION ENERGY COMPANY A CALIFORNIA CORPORATION (As Amended Through September 6, 1988) 1. We, James S. Pignatelli and Alan M. Fenning, hereby certify that we are the President and Secretary, respectively of Mission Energy Company, a California corporation, and that the following correctly sets forth the text of the Articles of Incorporation of said corporation, as amended to the date of filing of this certificate. 2. The foregoing Articles of Incorporation shall be amended and restated to read in full as follows: "FIRST AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MISSION ENERGY COMPANY A CALIFORNIA CORPORATION I The name of the corporation is Mission Energy Company. II The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. 1 III This corporation is authorized to issue only one class of shares, which shall be designated "common" shares. The total authorized number of such shares authorized to be issued is ten thousand (10,000) shares. IV 1. The liability of directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. 2. The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code with respect to actions for breach of duty to the corporation and its shareholders. The foregoing amendments and this certificate have been duly approved by the Board of Directors. Also, the foregoing amendments and this certificate have been duly approved by the required vote of the shareholders in accordance with Section 902 of the California Corporation Code. The total number of outstanding shares of this corporation is 100. The number of shares voting in favor of the amendments and this certificate equaled or exceeded the vote required. The percentage vote required was more than 50%. The Board of Directors and the shareholders have authorized the President and Secretary of this corporation to file with the Secretary of State of California this First Amended and Restated Articles of Incorporation." IN WITNESS WHEREOF, the undersigned have executed this Certificate on October 13, 1988. /s/ James S. Pignatelli -------------------------------- James S. Pignatelli, President 2 /s/ Alan M. Fenning -------------------------------- Alan M. Fenning, Secretary VERIFICATION The undersigned JAMES S. PIGNATELLI and ALAN M. FENNING, the President and Secretary, respectively, of Mission Energy Company, each declares under penalty of perjury under the laws of the State of California that the matters set forth in the foregoing certificate are true of his own knowledge. Executed at Irvine, California, on this 13th day of October, 1988. /s/ James S. Pignatelli -------------------------------- James S. Pignatelli, President /s/ Alan M. Fenning -------------------------------- Alan M. Fenning, Secretary 3 EX-3.1-1 4 a2042986zex-3_11.txt EXHIBIT 3.1.1 Exhibit 3.1.1 SECRETARY OF STATE CORPORATION DIVISION I, BILL JONES, Secretary of State of the State of California, hereby certify: That the annexed transcript has been compared with the corporate record on file in this office, of which it purports to be a copy, and that same is full, true and correct. IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the State of California this JAN. 29, 1996 -------------------------------------------- /s/ Bill Jones -------------------------------------------- Secretary of State [SEAL] The Great Seal of the State of California CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF MISSION ENERGY COMPANY Lynn M. Gardner and H. L. Mortensen certify that: 1. They are the duly elected and acting Vice President and Secretary, respectively of Mission Energy Company. 2. Article I of the Articles of Incorporation of said corporation shall be amended to read as follows: "The name of the corporation is Edison Mission Energy." 3. All of the directors of said corporation have consented in writing to adoption of the amendment aforesaid. 4. The sole holder of the outstanding shares of the corporation has consented in writing to the adoption of said amendment. IN WITNESS WHEREOF, the undersigned have executed this Certificate on January 24, 1996. /s/ Lynn M Gardner ---------------------------------------- Lynn M. Gardner Vice President of Mission Energy Company /s/ H.L. Mortensen ---------------------------------------- H.L. Mortensen Secretary of Mission Energy Company DECLARATION Each of the undersigned declares under penalty of perjury that the matters set forth in the foregoing Certificate of Amendment are true and correct of his own knowledge. Executed at Irvine, California, on January 24, 1996. /s/ Lynn M Gardner ---------------------------------------- Lynn M. Gardner Vice President of Mission Energy Company /s/ H.L. Mortensen ---------------------------------------- H.L. Mortensen Secretary of Mission Energy Company EX-3.1-2 5 a2042986zex-3_12.txt EXHIBIT 3.1.2 Exhibit 3.1.2 STATE OF CALIFORNIA SECRETARY OF STATE I, BILL JONES, Secretary of State of the State of California, hereby certify: That the attached transcript of 4 page(s) has been compared with the record on file in this office, of which it purports to be a copy, and that it is full, true and correct. IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the State of California this day of Jan. 17, 2001 --------------------- /s/ Bill Jones -------------------------------- Secretary of State [SEAL] The Great Seal of the State of California CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF EDISON MISSION ENERGY Alan I. Fohrer and Martha A. Spikes certify that: A. They are the duly elected and acting President and Secretary, respectively, of Edison Mission Energy, a California corporation. B. The First Amended and Restated Articles of Incorporation of Edison Mission Energy shall be amended by adding the following sections at the end of Article IV thereof: 3. At least one member of the Board of Directors (referred to as an "Independent Director") shall not have been, at the time of such director's appointment or at any time in the preceding five (5) years, (a) a direct or indirect legal or beneficial owner of any equity securities of the corporation or any Affiliate of the corporation, (b) a creditor, supplier, employee, officer, director family member, manager or contractor of the corporation or any Affiliate of the corporation or (c) a person who controls (whether directly or indirectly or otherwise) the corporation or any Affiliate of the corporation or any creditor; supplier, employee, officer, director, manager or contractor of the corporation or any Affiliate of the corporation; provided, however, that the lack of an Independent Director shall not affect the validity of the election of any director or of any action taken by the Board of Directors that otherwise would be valid under the Articles or Incorporation and Bylaws and the California General Corporation, except for any act requiring unanimous approval under Section 4 of this Article. As used in this Section 3, the term "Affiliate" means any entity (i) which owns beneficially, directly or indirectly, 10% or more of the outstanding shares of the common stock or other voting securities of the corporation, or which is otherwise in control of the corporation, (ii) of which 10% or more of the outstanding voting securities are owned beneficially, directly or indirectly, by any entity described in clause (i) above, or (iii) which is controlled by any entity described in clause (i) above; provided that for the purposes of this definition the terms "control" and "controlled by" shall have 1 the meanings assigned to them in Rule 405 under the Securities Act of 1933, as amended. 4. Notwithstanding any other provision of these Articles of Incorporation or applicable law, the corporation shall not, without the affirmative vote or written consent of 100% of the members of the Board of Directors (which must include at least one Independent Director), take any action to do any of the following: (1) consolidate or merge with or into any other entity or convey or transfer its properties and assets substantially as an entirety to any entity other than a consolidation, merger, conveyance or transfer as a result of which the corporation is the surviving entity or the surviving entity is organized under the laws of any State of the United States of America, assumes the obligations of the corporation, and has provisions in its organizational documents substantially similar to Sections 3 and 4 of this Article IV; (2) institute proceedings to be adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against it or file a petition seeking, or consent to, reorganization, liquidation or relief under any applicable federal or state law relating to bankruptcy, insolvency or reorganization, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the corporation or a substantial part of its property, or make any assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due; or (3) declare or pay any dividend (other than dividends payable solely in the common stock of the corporation) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of capital stock of the corporation or any warrants or options to purchase any such stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the corporation (such declarations, payments, setting apart, purchases, redemptions, defeasances, retirements, acquisitions and distributions being herein called "Covered Distributions"); provided, however, that Covered Distributions may be made by the corporation without the affirmative vote or written consent of 100% of the members of the Board if, at the time such 2 Covered Distribution is declared: (i) the corporation's senior unsecured long-term debt rating is at least BBB- (or equivalent) by Standard and Poor's Rating Services ("S&P") and Baa3 (or equivalent) by Moody's Investors Service, Inc. ("Moody's"), and prior to such Covered Distribution the corporation has received confirmation that, as a result of such Covered Distribution, the corporation's senior unsecured long-term debt rating will not be downgraded below BBB- (or equivalent) by S&P or Baa3 (or equivalent) by Moody's, or (ii) the Interest Coverage Ratio (as defined below) is not less than 2.2 to 1.0 for the immediately preceding four fiscal quarters for which financial information in respect thereof is available; provided that, in the case of Covered Distributions pursuant to clause (ii), the aggregate of such Covered Distributions during any fiscal quarter shall not exceed $32.5 million. As used in this Section 4, the terms appearing below shall have the meanings assigned to them as follows: "Interest Coverage Ratio" shall mean, for any period, Funds Flow from Operations during such period over Interest Expense for such period. "Funds Flow from Operations" shall mean, for any period, Distributions plus Operating Cash Flow plus interest income during such period less Operating Expenses during such period. "Distributions" shall mean any interest or principal payments on loans, distributions, management fees and dividends to the corporation or any of its subsidiaries made by a Non-Consolidated Operating Project. "Operating Cash Flow" shall mean, for any period, the excess of accrued Project Revenues during such period less accrued Project Operating Expenses less accrued Project Debt Service during such period from a Consolidated Operating Project. "Project Revenues" shall mean, for any period, all accrued revenues by the Consolidated Operating Projects during such period, including revenues from the sale of energy and capacity, steam and fuel plus accruals for business interruption insurance and all interest and other income. 3 "Project Operating Expenses" shall mean all accrued expenses by the Consolidated Operating Projects which are necessary for the continued operation and maintenance of the Consolidated Operating Projects which shall include operating lease payments and foreign taxes paid but exclude depreciation and amortization or any capital expenditure undertaken primarily to increase the efficiency of, expand or re-power the Consolidated Operating Projects or capital expenditures for environmental purposes which are not required by applicable law. "Project Debt Service" shall mean, for any period, all accrued interest and principal payments during such period for the Consolidated Operating Projects. Any principal payments made due to refinancing shall be excluded. "Consolidated Operating Projects" shall mean any electric generation facilities, oil and gas properties, trading activities, and operation and maintenance services in which the corporation or its subsidiaries have a direct or indirect ownership greater than 50%. "Non-Consolidated Operating Projects" shall mean any electric generation facilities, oil and gas properties, trading activities, and operation and maintenance services in which the corporation or its subsidiaries have a direct or indirect ownership equal to or less than 50%. "Operating Expenses" shall mean, for any period, all amounts accrued by the corporation in the conduct of its business during such period, including utilities, general and administrative expenses, employee salaries, wages and other employment-related costs, fees for letters of credit, surety bonds and performance bonds. Operating Expenses do not include federal and state taxes, depreciation or amortization and other non-cash charges. "Interest Expense" shall mean the accrued interest expense of all the corporation's senior recourse indebtedness, but shall exclude any intercompany obligation on which interest or the equivalent is received by the corporation. C. All of the directors of Edison Mission Energy have consented in writing to adoption of this amendment. D. Edison Mission Energy has one class of stock, Common Stock, of which 100 shares are outstanding. 4 E. The sole holder of the outstanding shares of Common Stock of Edison Mission Energy has consented in writing in accordance with Section 603(a) of the General Corporations Law of California (the "GCL") to the adoption of this amendment in satisfaction of the required vote of shareholders necessary to approve this amendment in accordance with Section 902 of the GCL. F. This certificate shall become effective upon the filing thereof with the Secretary of the State of California. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. IN WITNESS WHEREOF, the undersigned have executed this Certificate on January 15, 2001. /s/ Alan J. Fohrer ----------------------------------- Alan J. Fohrer President of Edison Mission Energy /s/ Martha A. Spikes ----------------------------------- Martha A. Spikes Secretary of Edison Mission Energy [logo] Office of the Secretary of State 5 EX-3.2 6 a2042986zex-3_2.txt EXHIBIT 3.2 Exhibit 3.2 BYLAWS OF EDISON MISSION ENERGY AS AMENDED TO AND INCLUDING JANUARY 1, 2000 EDISON MISSION ENERGY INDEX ARTICLE I -- OFFICES Section 1.1 Principal Executive Office.............................................................1 Section 1.2 Other Offices..........................................................................1 ARTICLE II -- SHAREHOLDERS Section 2.1 Meeting Locations......................................................................1 Section 2.2 Annual Meetings........................................................................1 Section 2.3 Special Meetings.......................................................................2 Section 2.4 Notice of Annual or Special Meeting....................................................2 Section 2.5 Quorum; Adjournment....................................................................2 Section 2.6 Adjourned Meeting and Notice Thereof...................................................3 Section 2.7 Voting.................................................................................3 Section 2.8 Record Date............................................................................4 Section 2.9 Consent of Absentees; Waiver of Notice.................................................4 Section 2.10 Action Without Meeting.................................................................5 Section 2.11 Proxies................................................................................5 ARTICLE III -- DIRECTORS Section 3.1 Powers.................................................................................5 Section 3.2 Number of Directors....................................................................6 Section 3.3 Election and Term of Office............................................................6 Section 3.4 Vacancies..............................................................................6 Section 3.5 Place of Meeting.......................................................................7 Section 3.6 Organization Meeting...................................................................7 Section 3.7 Special Meetings.......................................................................7 Section 3.8 Quorum.................................................................................8 Section 3.9 Participation in Meetings by Conference Telephone......................................8 Section 3.10 Waiver of Notice.......................................................................8 Section 3.11 Adjournment............................................................................8 Section 3.12 Fees and Compensation..................................................................9 Section 3.13 Action Without Meeting.................................................................9 ARTICLE IV -- OFFICERS Section 4.1 Officers...............................................................................9 Section 4.2 Election...............................................................................9 Section 4.3 Eligibility of Chairman of the Board, Vice Chairman of the Board or President.....................................................................9 Section 4.4 Removal and Resignation...............................................................10 Section 4.5 Appointment of Other Officers.........................................................10 Section 4.6 Vacancies.............................................................................10 Section 4.7 Salaries..............................................................................10 Section 4.8 Chairman of the Board.................................................................10 Section 4.9 Vice Chairman of the Board............................................................10 Section 4.10 President.............................................................................11 i Section 4.11 Vice President........................................................................11 Section 4.12 Chief Operating Officer...............................................................11 Section 4.13 General Manager.......................................................................11 Section 4.14 Chief Financial Officer...............................................................11 Section 4.15 General Counsel.......................................................................12 Section 4.16 Assistant General Counsel.............................................................12 Section 4.17 Controller............................................................................12 Section 4.18 Secretary.............................................................................12 Section 4.19 Assistant Secretary...................................................................12 Section 4.20 Secretary Pro Tempore.................................................................13 Section 4.21 Treasurer.............................................................................13 Section 4.22 Assistant Treasurer...................................................................13 Section 4.23 Performance of Duties.................................................................13 ARTICLE V -- OTHER PROVISIONS Section 5.1 Inspection of Bylaws..................................................................13 Section 5.2 Contracts and Other Instruments, Loans, Notes and Deposit of Funds.................................................................................13 Section 5.3 Representation of Shares of Other Corporations........................................14 Section 5.4 Annual Report to Shareholders.........................................................14 Section 5.5 Fiscal Year and Subdivisions..........................................................14 Section 5.6 Construction and Definitions..........................................................15 ARTICLE VI -- INDEMNIFICATION Section 6.1 Indemnification of Directors and Officers.............................................15 Section 6.2 Indemnification of Employees and Agents...............................................16 Section 6.3 Right of Directors and Officers to Bring Suit.........................................16 Section 6.4 Successful Defense....................................................................17 Section 6.5 Nonexclusivity of Rights..............................................................17 Section 6.6 Insurance.............................................................................17 Section 6.7 Expenses as a Witness.................................................................17 Section 6.8 Indemnity Agreements..................................................................17 Section 6.9 Severability..........................................................................18 Section 6.10 Effect of Repeal or Modification......................................................18 ARTICLE VII -- AMENDMENTS Section 7.1 Amendments............................................................................18
ii BYLAWS BYLAWS FOR THE REGULATION, EXCEPT AS OTHERWISE PROVIDED BY STATUTE OR ITS ARTICLES OF INCORPORATION OF EDISON MISSION ENERGY ADOPTED AS OF JANUARY 1, 2000 ARTICLE I -- OFFICES Section 1.1 PRINCIPAL EXECUTIVE OFFICE. The principal executive office of the corporation is hereby fixed and located at 18101 Von Karman Avenue, Suite 1700, in the City of Irvine, County of Orange, State of California. The Board of Directors ("the Board") is hereby granted full power and authority to change the principal executive office from one location to another. Section 1.2 OTHER OFFICES. Branches or subordinate offices may be established at any time by the Board of Directors or the President at any place within or without the State of California. ARTICLE II -- SHAREHOLDERS Section 2.1 MEETING LOCATIONS. All meetings of shareholders shall be held at the principal executive office, or at such other office or places within or without the State of California as may be designated by either the Board or by the person or persons giving notice of the meeting pursuant to Section 2.4. Section 2.2 ANNUAL MEETINGS. The annual meeting of shareholders shall be held on the 1st Tuesday in the month of May of each year, at the hour of 2:00 p.m. on said day, or at such other time on such other day as shall be fixed by the Board, to elect directors to hold office for the year next ensuing and until their successors shall be elected, and to consider and act upon such other matters as may lawfully be presented to such meeting; provided, however, that should said day fall upon a legal holiday observed by this corporation, then any such annual meeting of shareholders shall be held at the same time and place on the next day thereafter ensuing which is a full business day. Section 2.3 SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the Board, the Chairman of the Board, the Vice Chairman of the Board, the President, the Executive Vice President, the Senior Vice President, or the holders of shares entitled to cast not less than ten percent of the votes at such meeting. Upon request to the Chairman of the Board, the Vice Chairman of the Board, the President, the Executive Vice President, the Senior Vice President, the Secretary or Assistant Secretary by any person entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five nor more than sixty days after the receipt of the request. If the notice is not given within twenty days after receipt of the request, the persons entitled to call the meeting may give the notice. Section 2.4 NOTICE OF ANNUAL OR SPECIAL MEETING. Written notice of each annual or special meeting of shareholders shall be given not less than ten nor more than sixty days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (ii) in the case of the annual meeting, those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholders, but subject to the provisions of applicable law, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the name of nominees intended at the time of the notice to be presented by the Board for election. Notice of a shareholders' meeting or any report to the shareholders shall be given either personally to the recipient or to a person in the office of the recipient or by first-class United States mail, by private mail or messenger service, by telephone facsimile transmission, or by any other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. Such notice or report shall be deemed to have been given at the time when delivered personally, deposited in the United States mail or sent by private mail or messenger service, by telephone facsimile transmission or sent by any other means of written or electronic communication. Section 2.5 QUORUM; ADJOURNMENT. (a) A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of the shareholders. 2 (b) Except as provided in subsection (c) below, the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Articles. (c) The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. (d) In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted, except as provided in subsection (c) above. Section 2.6 ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders' meeting, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, but in the absence of a quorum (except as permitted by applicable law in the case of withdrawals by shareholders to reduce the number remaining to less than a quorum) no other business may be transacted at such meeting. With exceptions under Section 601(d) of the California Corporations Code and any other applicable law, it shall not be necessary to give any notice of the time and place of the adjourned meeting or of the business to be transacted thereat, other than by announcement at the meeting at which such adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. Section 2.7 VOTING. The shareholders entitled to notice of any meeting or to vote at any such meeting shall be only persons in whose name shares stand on the stock records of the corporation on the record date determined in accordance with Section 2.8. Voting shall in all cases be subject to the provisions of Chapter 7 of the California General Corporation Law, including the following provisions: (a) Shares standing in the name of another corporation, domestic or foreign, may be voted by an officer, agent, or proxyholder as the bylaws of the other corporation may prescribe or, in the absence of such provision, as the Board of the other corporation may determine or, in the absence of that determination, by the chairman of the board, president or any vice president of the other corporation, or by any other person authorized to 3 do so by the chairman of the board, president, or any vice president of the other corporation. Shares which are purported to be voted or any proxy purported to be executed in the name of a corporation (whether or not any title of the person signing is indicated) shall be presumed to be voted or the proxy executed in accordance with the provisions of the California General Corporation Law, unless the contrary is shown. (b) Shares of this corporation owned by its subsidiary shall not be entitled to vote on any matter. (c) Shares of this corporation held by this corporation in a fiduciary capacity, and shares of this corporation held in a fiduciary capacity by its subsidiary, shall not be entitled to vote on any matter, except as follows: (i) to the extent that the settlor or beneficial owner possesses and exercises a right to vote or to give this corporation binding instructions as to how to vote such shares; or (ii) where there are one or more co-trustees who are not affected by the prohibition of this subsection, in which case the shares may be voted by the co-trustees as if it or they are the sole trustees. Section 2.8 RECORD DATE. The Board may fix, in advance, a record date for the determination of the shareholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution, or any allotment of any rights or entitled to exercise any rights, in respect of any other lawful action. The record date so fixed shall be not more than sixty days nor less than ten days prior to the date of the meeting nor more than sixty days prior to any other action. When a record date is so fixed, only shareholders of record at the close of business on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of shares on the books of the corporation after the record date, except as otherwise provided by law or these Bylaws. Section 2.9 CONSENT OF ABSENTEES; WAIVER OF NOTICE. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this division to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at nor 4 the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, unless otherwise provided in the Articles or Bylaws, except as provided in the California General Corporation Law. Section 2.10 ACTION WITHOUT MEETING. Subject to Section 603 of the California General Corporation Law, any action which, under any provision of the California General Corporation Law, may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Section 2.11 PROXIES. Every person entitled to vote shares has the right to do so either in person or by one or more persons authorized by a written proxy executed by such shareholder and filed with the Secretary. No proxy shall be valid after the expiration of eleven (11) months from the date thereof, unless otherwise provided in the proxy. ARTICLE III -- DIRECTORS Section 3.1 POWERS. Subject to any limitations of the Articles, of these Bylaws and of the California General Corporation Law relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board. The Board may delegate the management of the day-to-day operation of the business of the corporation provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the Board shall have the following powers in addition to the other powers enumerated in these Bylaws: (a) To select and remove all the other officers, agents and employees of the corporation, prescribe the powers and duties for them as may not be inconsistent with law, with the Articles or these Bylaws, fix their compensation and require from them security for faithful service. (b) To conduct, manage and control the affairs and business of the corporation and to make such rules and regulations therefor not inconsistent with law, or with the Articles or these Bylaws, as they may deem best. 5 (c) To adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time as in their judgment they deem best. (d) To authorize the issuance of shares of stock of the corporation from time to time, upon such terms and for such consideration as may be lawful. (e) To borrow money and incur indebtedness for the purposes of the corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor. Section 3.2 NUMBER OF DIRECTORS. The authorized number of directors shall not be less than four (4) nor more than six (6) until changed by amendment of the Articles or by a Bylaw duly adopted by the shareholders. The exact number of directors shall be fixed, within the limits specified, by the Board or the shareholders in the same manner provided in these Bylaws for the amendment thereof. The exact number of authorized directors shall be five (5) until January 1, 2000, and effective January 1, 2000, the exact number of authorized directors shall be six (6) until changes as provided in these Bylaws. Section 3.3 ELECTION AND TERM OF OFFICE. The directors shall be elected at each annual meeting of the shareholders, but if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose. Each director shall hold office until the next annual meeting and until a successor has been elected and qualified. Section 3.4 VACANCIES. Any director may resign effective upon giving written notice to the Chairman of the Board, the Vice Chairman of the Board, the President, the Secretary, or the Board, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Vacancies in the Board, except those existing as a result of a removal of a director, may be filled by a majority of the remaining directors, whether or not less than a quorum, or by a sole remaining director, and each director so elected shall hold office until the next annual meeting and until such director's successor has been elected and qualified. Vacancies existing as a result of a removal of a director may be filled by the shareholders as provided by law. A vacancy or vacancies in the Board shall be deemed to exist in case of the death, resignation or removal of any director, or if the authorized number of directors be 6 increased, or if the shareholders fail, at any annual or special meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy not filled by the directors. Any such election by written consent other than to fill a vacancy created by removal requires the consent of a majority of the outstanding shares entitled to vote. If the Board accepts the resignation of a director tendered to take effect at a future time, the Board or the shareholders shall have power to elect a successor to take office when the resignation is to become effective. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of the director's term of office. Section 3.5 PLACE OF MEETING. Regular or special meetings of the Board shall be held at any place within or without the State of California which has been designated from time to time by the Board or as provided in these Bylaws. In the absence of such designation, regular meetings shall be held at the principal executive office. Section 3.6 ORGANIZATION MEETING. Promptly following each annual meeting of shareholders the Board shall hold a regular meeting for the purpose of organization, election of officers and the transaction of other business. Section 3.7 SPECIAL MEETINGS. Special meetings other than organization meetings of the Board for any purpose or purposes may be called at any time by the Chairman of the Board, the Vice Chairman of the Board, the President, any Executive Vice President, any Senior Vice President, the Secretary, an Assistant Secretary or by any two directors. Such meetings of the Board shall be held upon four days' written notice by mail or forty-eight hours' notice given personally or by telephone, telephone facsimile transmission, telegraph, telex or other similar means of communication. Any such notice shall be addressed or delivered to each director at such director's address as it is shown upon the records of the corporation or as may have been given to the corporation by the director for purposes of notice or, if such address is not shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held. The notice need not specify the purpose of such meeting. Notice by first-class mail shall be deemed to have been given at the time a written notice is deposited in the United States mail, postage prepaid or sent by private mail or messenger service. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient, to a person in the office of the recipient who the person giving the notice has reason to believe will promptly 7 communicate it to the recipient, delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person, by telephone to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient. Section 3.8 QUORUM. One-third of the maximum number of authorized directors constitutes a quorum of the Board for the transaction of business, except to adjourn as provided in Section 3.11 of this Article. As defined in Article III, Section 3.2, the maximum number of authorized directors is six. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board, unless a greater number is required by law or by the Articles; provided, however, that a meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. Section 3.9 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Such participation constitutes presence in person at such meeting. Section 3.10 WAIVER OF NOTICE. The transactions of any meeting of the Board, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 3.11 ADJOURNMENT. A majority of the directors present, whether or not a quorum is present, may adjourn any directors' meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place is fixed at the meeting adjourned. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. 8 Section 3.12 FEES AND COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board. Section 3.13 ACTION WITHOUT MEETING. In accordance with the provisions of Section 307(b) of the California General Corporation Law, any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board shall individually or collectively consent in writing to such action. Such written consent or consents shall have the same force and effect as a unanimous vote of the Board and shall be filed with the minutes of the proceedings of the Board. ARTICLE IV -- OFFICERS Section 4.1 OFFICERS. The officers of the corporation shall be a Chairman of the Board, a Vice Chairman of the Board, a President, a Vice President, a Chief Financial Officer, a Controller, a Secretary and a Treasurer. The corporation may also have, at the discretion of the Board, one or more additional Vice Presidents, a Chief Operating Officer, a General Manager, a General Counsel, one or more Assistant General Counsels, one or more Assistant Controllers, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 4.5 of this Article. Section 4.2 ELECTION. The officers of the corporation, except such officers as may be elected or appointed in accordance with the provisions of Section 4.5 or Section 4.6 of this Article, shall be chosen annually by, and shall serve at the pleasure of the Board, and shall hold their respective offices until their resignation, removal, or other disqualification from service, or until their respective successors shall be elected. Section 4.3 ELIGIBILITY OF CHAIRMAN OF THE BOARD, VICE CHAIRMAN OF THE BOARD OR PRESIDENT. No person shall be eligible for the office of Chairman of the Board, Vice Chairman of the Board or President unless such person is a member of the Board of the corporation; any other officer may or may not be a director. 9 Section 4.4 REMOVAL AND RESIGNATION. Any officer may be removed, either with or without cause, by the Board at any time or by any officer upon whom such power of removal may be conferred by the Board. Any such removal shall be without prejudice to the rights, if any, of the officer under any contract of employment of the officer. Any officer may resign at any time by giving written notice to the corporation, but without prejudice to the rights, if any, of the corporation under any contract of employment to which the officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 4.5 APPOINTMENT OF OTHER OFFICERS. The Board may appoint such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in the Bylaws or as the Board may from time to time determine. Notwithstanding the job title for such person, no employee or other representative of this corporation shall be an officer of this corporation unless elected by the Board. Section 4.6 VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular election or appointment to such office. Section 4.7 SALARIES. The salaries of the Chairman of the Board, Vice Chairman of the Board, President, General Manager, Vice Presidents, Controller, Treasurer and Secretary of the corporation shall be fixed by the Board. Salaries of all other officers shall be approved from time to time by the chief executive officer. Section 4.8 CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be such an officer, shall preside at all meetings of the Board, and shall exercise such powers and perform such duties as from time to time may be conferred upon or assigned to him by the Board or the Bylaws. Section 4.9 VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if there shall be such an officer, shall perform such of the duties of the Chairman of the Board as the Chairman of the Board shall 10 designate, and, in the absence of the Chairman of the Board, shall perform the duties of the Chairman of the Board. Section 4.10 PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board to the Chairman of the Board or Vice Chairman of the Board, the President shall be the chief executive officer of the corporation and has, subject to the control of the Board, general supervision, direction, and control of the business and affairs of the corporation. The President shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board or Vice Chairman of the Board, or if there be neither, at all meetings of the Board. The President has the general powers and duties of management usually vested in the office of president of a corporation and has such other powers and duties as may be prescribed by the Board or the Bylaws. The President may designate from time to time the titles which the employees or other representatives of this corporation shall use, including the appointment of agent for service of process. Without limiting the foregoing, the President may designate one or more employees as regional vice-presidents. Section 4.11 VICE PRESIDENT. In the absence or disability of the President, the Vice Presidents in order of their rank shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon the President. The Board of Directors may establish the order of rank of the Vice Presidents. In the absence of such ranking, the Vice Presidents shall be ranked as follows: Executive Vice President (if any), Senior Vice President (if any). Vice Presidents holding identical titles shall be ranked in order of election to that office by the Board. Section 4.12 CHIEF OPERATING OFFICER. The Chief Operating Officer, if there shall be such an officer, must be a vice president of the corporation and shall be subject to the exercise of the general powers of supervision, direction and control of the business and officers of the corporation by the President, and supervise the operations of the corporation. Section 4.13 GENERAL MANAGER. The General Manager, if there shall be such an officer, must be a vice president of the corporation and shall, subject to the exercise of the general powers of supervision, direction and control by the President, or the Chief Operating Officer, if any, shall manage the operations of the corporation. In the absence of the Chief Operating Officer, the General Manager shall perform all the duties of the Chief Operating Officer and when so acting shall have all the powers of, and be subject to, all the restrictions upon the Chief Operating Officer. 11 Section 4.14 CHIEF FINANCIAL OFFICER. The Chief Financial Officer of the corporation shall be the chief consulting officer in all matters of financial import, and shall have control over all financial matters concerning the corporation. If the corporation does not have a currently elected and acting Controller, the Chief Financial Officer shall also be the chief accounting officer of the corporation. Section 4.15 GENERAL COUNSEL. The General Counsel shall be the chief consulting officer of the corporation in all legal matters and, subject to the President, shall have control over all matters of legal import concerning the corporation. Section 4.16 ASSISTANT GENERAL COUNSEL. One or more Assistant General Counsels, if any, shall perform such of the duties of the General Counsel as the General Counsel may designate, and in the absence or disability of the General Counsel, any Assistant General Counsel, in order of election to that office by the Board, shall perform the duties of the General Counsel. Section 4.17 CONTROLLER. The Controller shall be the chief accounting officer of the corporation and shall have control over all accounting matters concerning the corporation and shall perform such other duties as the Board or the President shall designate. Section 4.18 SECRETARY. The Secretary shall keep or cause to be kept, at the principal executive office and such other place as the Board may order, a book of minutes of all meetings of the shareholders, the Board, and its committees, and a share register or a duplicate share register. The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board and any committees thereof required by the Bylaws or by law to be given, shall keep the seal of the corporation in safe custody, shall from time to time issue such corporate secretarial certificates as may be required for the business and affairs of the corporation, and shall have such other general powers and duties of management usually vested in the office of secretary of a corporation and as may be prescribed by the Board, the President or the Bylaws. Section 4.19 ASSISTANT SECRETARY. One or more Assistant Secretaries, if any, shall perform such of the duties of the Secretary as the Secretary shall designate, and in the absence or disability of the 12 Secretary, any Assistant Secretary, in order of election to that office by the Board, shall perform the duties of the Secretary. Section 4.20 SECRETARY PRO TEMPORE. At any meeting of the Board or of the shareholders from which the Secretary and Assistant Secretary are absent, a Secretary pro tempore may be appointed by the Board of Directors or shareholders as appropriate and act. Section 4.21 TREASURER. The Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation. The books of account shall at all times be open to inspection by any director. The Treasurer shall deposit, or cause to be deposited, all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors pursuant to Section 5.2. The Treasurer shall disburse or cause to be disbursed, the funds of the corporation as may be ordered by the President or the Chief Financial Officer, shall render to the President, the Chief Financial Officer or the directors, whenever they request it, an account of all transactions as Treasurer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board or the Bylaws. Section 4.22 ASSISTANT TREASURER. One or more Assistant Treasurers, if any, shall perform such of the duties of the Treasurer as the Treasurer shall designate, and in the absence or disability of the Treasurer, any Assistant Treasurer, in order of election to that office by the Board, shall perform the duties of the Treasurer. Section 4.23 PERFORMANCE OF DUTIES. Officers shall perform the duties of their respective offices as stated in these Bylaws, and such additional duties as the Board shall designate. ARTICLE V -- OTHER PROVISIONS Section 5.1 INSPECTION OF BYLAWS. The corporation shall keep in its principal executive office the original or a copy of these Bylaws, as amended to date, which shall be open to inspection by shareholders at all reasonable times during office hours. 13 Section 5.2 CONTRACTS AND OTHER INSTRUMENTS, LOANS, NOTES AND DEPOSIT OF FUNDS. The Chairman of the Board, the Vice Chairman of the Board, the President and any Vice President of this corporation, either alone or with the Secretary or an Assistant Secretary, shall execute in the name of the corporation such written instruments as may be authorized by the Board and, without special direction of the Board, such instruments as transactions of the ordinary business of the corporation may require and, such officers without the special direction of the Board may authenticate, attest or countersign any such instruments when deemed appropriate. The Board may authorize any person, persons, entity, entities, attorney, attorneys, attorney-in-fact, attorneys-in-fact, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by resolution of the Board as it may direct. Such authority may be general or confined to specific instances. All checks, drafts, or other similar orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as the Board, Chief Executive Officer, Chief Financial Officer or Treasurer may direct. Unless authorized by the Board or these Bylaws, no officer, agent, employee or any other person or persons shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or amount. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the Board may direct. Section 5.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The President or any other officer or officers authorized by the Board or the President are each authorized to vote, represent and exercise on behalf of the corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of the corporation. The authority herein granted may be exercised either by any such officer in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officer. Section 5.4 ANNUAL REPORT TO SHAREHOLDERS. The annual report to shareholders referred to in Section 1501 of the California General Corporation Law is expressly waived, but nothing herein shall be interpreted as prohibiting the Board from issuing annual or other periodic reports to shareholders. 14 Section 5.5 FISCAL YEAR AND SUBDIVISIONS. The calendar year shall be the corporate fiscal year of the corporation. For the purpose of paying dividends, for making reports and for the convenient transaction of the business of the corporation, the Board may divide the fiscal year into appropriate subdivisions. Section 5.6 CONSTRUCTION AND DEFINITIONS. Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the General Provisions of the California Corporations Code and in the California General Corporation Law shall govern the construction of these Bylaws. ARTICLE VI -- INDEMNIFICATION Section 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. Each person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, formal or informal, whether brought in the name of the corporation or otherwise and whether of a civil, criminal, administrative or investigative nature (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of this corporation or is or was serving at the request of this corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is an alleged action or inaction in an official capacity or in any other capacity while serving as a director or officer, shall, subject to the terms of any agreement between this corporation and such person, be indemnified and held harmless by this corporation to the fullest extent permissible under California law and this corporation's Articles of Incorporation, against all costs, charges, expenses, liabilities, and losses (including attorneys' fees, judgments, fines, Employee Retirement Income Security Act excise taxes or penalties, and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors, and administrators; provided, however, that (A) this corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of this corporation other than a suit permitted by Section 6.3; (B) this corporation shall indemnify any such person seeking indemnification in connection with settlement of a proceeding (or part thereof) other than a proceeding by or in the name of this corporation to procure a judgment in its favor only if any settlement of such a proceeding is approved in writing by this corporation; (C) that no such person shall be indemnified (i) except to the extent that the aggregate of losses to be indemnified exceeds the amount of such losses for which the director or officer is paid pursuant to any directors' and officers' liability insurance policy maintained by the corporation; (ii) on account of any suit in which judgment is rendered against such 15 person for an accounting of profits made from the purchase or sale by such person of securities of this corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state, or local statutory law; (iii) if a court of competent jurisdiction finally determines that any indemnification hereunder is unlawful; and (iv) as to circumstances in which indemnity is expressly prohibited by Section 317 of the General Corporation Law of California (the "Law"); and (D) that no such person shall be indemnified with regard to any action brought by or in the right of this corporation for breach of duty to this corporation and its shareholders (a) for acts or omissions involving intentional misconduct or knowing and culpable violation of law; (b) for acts or omissions that the director or officer believes to be contrary to the best interests of this corporation or its shareholders or that involve the absence of good faith on the part of the director or officer; (c) for any transaction from which the director or officer derived an improper personal benefit; (d) for acts or omissions that show a reckless disregard for the director's or officer's duty to this corporation or its shareholders in circumstances in which the director or officer was aware, or should have been aware, in the ordinary course of performing his or her duties, of a risk of serious injury to this corporation or its shareholders; (e) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's or officer's duties to this corporation or its shareholders; and (f) for costs, charges, expenses, liabilities, and losses arising under Section 310 or 316 of the Law. The right to indemnification conferred in this Article shall include the right to be paid by this corporation expenses incurred in defending any proceeding in advance of its final disposition; provided, however, that if the Law permits the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, such advances shall be made only upon delivery to this corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts to this corporation if it shall be ultimately determined that such person is not entitled to be indemnified. Section 6.2 INDEMNIFICATION OF EMPLOYEES AND AGENTS. A person who was or is a party or is threatened to be made a party to or is involved in any proceeding by reason of the fact that he or she is or was an employee or agent of this corporation or is or was serving at the request of this corporation as an employee or agent of another enterprise, including service with respect to employee benefit plans, whether the basis of such action is an alleged action or inaction in an official capacity or in any other capacity while serving as an employee or agent, may, subject to the terms of any agreement between this corporation and such person, be indemnified and held harmless by this corporation to the fullest extent permitted by California law and this corporation's Articles of Incorporation, against all costs, charges, expenses, liabilities, and losses, (including attorneys' fees, judgments, fines, Employee Retirement Income Security Act excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith. 16 Section 6.3 RIGHT OF DIRECTORS AND OFFICERS TO BRING SUIT. If a claim under Section 6.1 of this Article is not paid in full by this corporation within 30 days after a written claim has been received by this corporation, the claimant may at any time thereafter bring suit against this corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. Neither the failure of this corporation (including its Board, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he or she has met the applicable standard of conduct, if any, nor an actual determination by this corporation (including its Board, independent legal counsel, or its shareholders) that the claimant has not met the applicable standard of conduct, shall be a defense to the action or create a presumption for the purpose of an action that the claimant has not met the applicable standard of conduct. Section 6.4 SUCCESSFUL DEFENSE. Notwithstanding any other provisions of this Article, to the extent that a director or officer has been successful on the merits in defense of any proceeding referred to in Section 6.1 or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred in connection therewith. Section 6.5 NONEXCLUSIVITY OF RIGHTS. The right to indemnification provided by this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, bylaw, agreement, vote of shareholders, or disinterested directors, or otherwise. Section 6.6 INSURANCE. This corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of this corporation or another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability, or loss, whether or not this corporation would have the power to indemnify such person against such expense, liability, or loss under the Law. Section 6.7 EXPENSES AS A WITNESS. To the extent that any director, officer, employee, or agent of this corporation is, by reason of such position or a position with another entity at the request of this corporation, a witness in any action, suit, or proceeding, he or she shall be indemnified against all costs and expenses actually and reasonably incurred by him or her on his or her behalf in connection therewith. 17 Section 6.8 INDEMNITY AGREEMENTS. This corporation may enter into agreements with any director, officer, employee, or agent of this corporation providing for indemnification to the fullest extent permissible under the Law and this corporation's Articles of Incorporation. Section 6.9 SEVERABILITY. Each and every paragraph, sentence, term, and provision of this Article is separate and distinct so that if any paragraph, sentence, term, or provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of any other paragraph, sentence, term, or provision hereof. To the extent required, any paragraph, sentence, term, or provision of this Article may be modified by a court of competent jurisdiction to preserve its validity and to provide the claimant with, subject to the limitations set forth in this Article and any agreement between this corporation and claimant, the broadest possible indemnification permitted under applicable law. Section 6.10 EFFECT OF REPEAL OR MODIFICATION. Any repeal or modification of this Article shall not adversely affect any right of indemnification of a director or officer existing at the time of such repeal or modification with respect to any action or omission occurring prior to such repeal or modification. ARTICLE VII -- AMENDMENTS Section 7.1 AMENDMENTS. In accordance with Section 211 and subject to the provisions contained in Section 212 of the California Corporation Law, these Bylaws may be amended or repealed either by approval of the outstanding shares or by the approval of the Board; provided, however, that a Bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable Board or vice versa may only be adopted by approval of the outstanding shares. The exact number of directors within the maximum and minimum number specified in these Bylaws may be amended by the Board alone. [End of Bylaws] 18 EX-3.2-1 7 a2042986zex-3_21.txt EXHIBIT 3.2.1 Exhibit 3.2.1 AMENDMENT OF BYLAWS OF EDISON MISSION ENERGY The Bylaws of Edison Mission energy shall be amended in the following respects: 1. Section 3.2 shall be amended to read in full as follows: Section 3.2 NUMBER OF DIRECTORS The authorized number of directors shall not be less than four (4) nor more than six (6) until changed by amendment of the Articles or by a Bylaw duly adopted by the shareholders. The exact number of tractors shall be fixed, within the limits specified, by the Board or the shareholders in the same manner provided in these Bylaws for the amendment thereof. The exact number of authorized directors shall be five (5) until changed as provided in these Bylaws. 2. The following sections shall be added at the end of Article III: Section 3.14 INDEPENDENT DIRECTOR At least one member of the Board (referred to as an "Inde pendent Director) shall not have been, at the time of such director's appoint ment or at any time in the preceding five (5) years. (a) a direct or indirect legal or beneficial owner of any equity securities of the corporation or any Affiliate of the corporation, (b) a creditor, supplier, employee, officer, director, family member, manager or contractor of the corporation or any Affiliate of the corporation or (c) a person who controls (whether directly or indirectly or otherwise) the corporation or any Affiliate of the corporation or any creditor, supplier, employee, officer, director, manager or contractor of the corporation or any Affiliate of the corporation; provided, however, that the lack of an Independent Director shall not affect the validity of the election of any director or of any action taken by the Board that otherwise would be valid under the Articles of Incorporation and Bylaws and the California General Corporation, except for any action requiring unanimous approval under Section 3.15 of this Article. 1 As used in this Section 3.14, the term "Affiliate" means any entity (i) which owns beneficially, directly or indirectly, 10% or more of the outstanding shares of the common stock or other voting securities of the corporation, or which is otherwise in control of the corporation, (iii) of which 10% or more of the outstanding voting securities are owned beneficially, directly or indirectly, by any entity described in clause (1) above, or (iii) which is controlled by any entity described in clause (i) above; provided that for the purposes of this definition the terms "control" and "controlled by" shall have the meanings assigned to them in Rule 405 under the Securities Act of 1933, as amended. Section 3.15 ACTIONS REQUIRING UNANIMOUS APPROVAL Notwithstanding any other provision of these Bylaws or applicable law, the corporation shall not, without the affirmative vote or written consent of 100% of the members of the Board (which must include at least one Independent Director), take any action to do any of the following: (a) consolidate or merge with or into any other entity or convey or transfer its properties and assets substantially as an entirety to any entity other than a consolidation, merger, conveyance or transfer as a result of which the corporation is the surviving entity or the surviving entity is organized under the laws of any State of the United States of America, assumes the obligations of the corporation, and has provisions in its organizational documents substantially similar to Sections 3.14 and 3.15 of this Article III; (b) institute proceedings to be adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against it or file a petition seeking, or consent to, reorganization, liquidation or relief under any applicable federal or state law relating to bankruptcy, insolvency or reorganization, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the corporation or a substantial part of its property, or make any assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due; or (c) declare or pay any dividend (other than dividends payable solely in the common stock of the corporation) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemp tion, defeasance, retirement or other acquisition of, any shares of any class of capital 2 stock of the corporation or any warrants or options to purchase any such stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the corporation (such declarations, payments, setting apart, purchases, redemptions, defeasances, retirements, acquisitions and distributions being herein called "Covered Distributions"); provided, however, that Covered Distributions may be made by the corporation without the affirmative vote or written consent of 100% of the members of the Board if, at the time such Covered Distribution is declared: (i) the corpora tion's senior unsecured long-term debt rating is at least BBB- (or equivalent) by Standard and Poor's Rating Services ("S&P") and Baa3 (or equivalent) by Moody's Investors Service, Inc. ("Moody's"), and prior to such Covered Distribution the corporation has received confirmation that, as a result of such Covered Distribution, the corporation's senior unsecured long-term debt rating will not be downgraded below BBB- (or equivalent) by S&P or Baa3 (or equivalent) by Moody's, or (ii) the Interest Coverage Ratio (as defined below) is not less than 2.2 to 1.0 for the immedi ately preceding four fiscal quarters for which financial information in respect thereof is available; provided that, in the case of Covered Distributions pursuant to clause (ii), the aggregate of such Covered Distributions during any fiscal quarter shall not exceed $32.5 million. As used in this Section 3.15, the terms appearing below shall have the meanings assigned to them as follows: "Interest Coverage Ratio" shall mean, for any period, Funds Flow from Operations during such period over Interest Expense for such period. "Funds Flow from Operations" shall mean, for any period, Distribu tions plus Operating Cash Flow plus interest income during such period less Operat ing Expenses during such period. "Distributions" shall mean any interest or principal payments on loans, distributions, management fees and dividends to the corporation or any of its subsidiaries made by a Non-Consolidated Operating Project. "Operating Cash Flow" shall mean, for any period, the excess of accrued Project Revenues during such period less accrued Project Operating Ex penses less accrued Project Debt Service during such period from a Consolidated Operating Project. 3 "Project Revenues" shall mean, for any period, all accrued revenues by the Consolidated Operating Projects during such period, including revenues from the sale of energy and capacity, steam and fuel plus accruals for business interruption insurance and all interest and other income. "Project Operating Expenses" shall mean all accrued expenses by the Consolidated Operating Projects which are necessary for the continued operation and maintenance of the Consolidated Operating Projects which shall include operating lease payments and foreign taxes paid but exclude depreciation and amortization or any capital expenditure undertaken primarily to increase the efficiency of, expand or re-power the Consolidated Operating Projects or capital expenditures for environ mental purposes which are not required by applicable law. "Project Debt Service" shall mean, for any period, all accrued interest and principal payments during such period for the Consolidated Operating Projects. Any principal payments made due to refinancing shall be excluded. "Consolidated Operating Projects" shall mean any electric generation facilities, oil and gas properties, trading activities, and operation and maintenance services in which the corporation or its subsidiaries have a direct or indirect owner ship greater than 50%. "Non-Consolidated Operating Projects" shall mean any electric generation facilities, oil and gas properties, trading activities, and operation and maintenance services in which the corporation or its subsidiaries have a direct or indirect ownership equal to or less than 50%. "Operating Expenses" shall mean, for any period, all amounts accrued by the corporation in the conduct of its business during such period, including utilities, general and administrative expenses, employee salaries, wages and other employment-related costs, fees for letters of credit, surety bonds and performance bonds. Operating Expenses do not include federal and state taxes, depreciation or amortization, and other non-cash charges. "Interest Expanse" shall mean the accrued interest expense of all the corporation's senior recourse indebtedness, but shall exclude any intercompany obligation on which interest or the equivalent is received by the corporation. 4 EX-4.4 8 a2042986zex-4_4.txt EXHIBIT 4.4 Exhibit 4.4 THIS SENIOR NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM AND IN ANY EVENT MAY BE SOLD OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH THE PAYING AGENCY AGREEMENT, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE CORPORATE TRUST OFFICE OF THE PAYING AGENT IN NEW YORK CITY. EACH HOLDER OF THIS SENIOR NOTE REPRESENTS TO THE ISSUER THAT (A) SUCH HOLDER WILL NOT SELL OR OTHERWISE TRANSFER THIS SENIOR NOTE (WITHOUT CONSENT OF THE ISSUER) OTHER THAN (I) TO A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION COMPLYING WITH RULE 144A UNDER THE 1933 ACT, (II) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 904 UNDER THE 1933 ACT, (III) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT WITH THE PRIOR APPROVAL OF THE ISSUER OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT (WHICH THE ISSUER HAS NO OBLIGATION TO PREPARE OR FILE) AND THAT (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SENIOR NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE AND TO DELIVER TO THE TRANSFEREE PRIOR TO SALE A COPY OF A NOTICE TO INVESTORS (COPIES OF WHICH MAY BE OBTAINED FROM THE PAYING AGENT). MISSION ENERGY COMPANY 8-1/8% Senior Note Due 2002 No. R- $ CUSIP No. 605051AB7 MISSION ENERGY COMPANY, a corporation duly organized under the laws of the State of California (herein called the "Issuer"), for value received, hereby promises to pay to ______________________________ or registered assigns, the principal sum of _____________________________ on June 15, 2002, and to pay interest thereon from June 29, 1992 or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, semiannually in arrears on June 15 and December 15 in each year, commencing December 15, 1992 (each an "Interest Payment Date"), at the rate of 8-1/8% per annum, until the principal hereof is paid or made available for payment and (to the extent that the payment of such interest shall be legally enforceable) at the rate per annum equal to the above rate plus 2% per annum on any overdue principal and on any overdue installment of interest. Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Paying Agency Agreement hereinafter referred to, be paid to the person (the "registered holder") in whose name this Security is registered at the close of business on the June 1 or December 1 (whether or not a business day), as the case may be (each a "Regular Record Date"), next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the registered holder on such Regular Record Date and shall be paid to the person in whose name this Security is registered at the close of business on a special record date for the payment of such interest to be fixed by the Issuer, notice of which shall be given to registered holders of Securities not less than 10 days prior to such special record date. Principal of this Security shall be payable against surrender hereof at the corporate trust office of the Paying Agent hereinafter referred to or at such other offices or agencies as the Issuer may designate by written notice to the registered holders. Payments of principal and interest on this Security shall be made, in accordance with the foregoing and subject to applicable laws and regulations, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, by check mailed on or before the due date for such payment to the person entitled thereto at such person's address appearing on the aforementioned register or, in the case of payments of principal to such other address as the registered holder may specify upon surrender of the Security for payment; PROVIDED, HOWEVER, that any payments shall be made, in the case of a registered holder of at least $5,000,000 aggregate principal amount of Securities, by wire transfer of immediately available funds to an account maintained by the payee with a bank located in the United States of America if such registered holder so elects by giving written notice to the Paying Agent, not less than 15 days (or such fewer days as the Paying Agent may accept at its discretion) prior to the date of the first payment to be made to such registered holder, of such election and of the account to which payments are to be made. Reference is hereby made to the further provisions of this Security 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 Paying Agent by manual signature, this Security shall not be valid or obligatory for any purpose. 2 IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed, manually or in facsimile and a facsimile of its corporate seal to be affixed hereto. Dated: MISSION ENERGY COMPANY By ----------------------------- Name: Michael L. Noel Title: Senior Vice President and Chief Financial Officer Attest: By ----------------------------- Name: Howard L. Mortensen Title: Secretary Certificate of Authentication: This is one of the Securities referred to in the within-mentioned Issuing and Paying Agency Agreement. THE FUJI BANK AND TRUST COMPANY as Paying Agent By ----------------------------- Authorized Officer 3 1. This Security is one of a duly authorized issue of securities of the Issuer designated as its 8-l/8% Senior Notes Due 2002 (herein called the "Securities"), limited in aggregate principal amount to $100,000,000, issued and to be issued in accordance with an Issuing and Paying Agency Agreement, dated as of June 15, 1992 (herein called the "Paying Agency Agreement"), between the Issuer and The Fuji Bank and Trust Company, as Paying Agent (herein called the "Paying Agent", which term includes any successor paying agent under the Paying Agency Agreement), copies of which Paying Agency Agreement are on file and available for inspection at the corporate trust office of the Paying Agent in the Borough of Manhattan, the City of New York. The Securities are unsecured direct, unconditional and general obligations of the Issuer and will rank equally with all other unsecured and unsubordinated indebtedness of the Issuer. 2. The Securities are issuable only in fully registered form, without coupons, in minimum denominations of U.S.$100,000 and integral multiples of $1,000 above that amount. 3. So long as this Security is outstanding, the Issuer shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be surrendered for registration of transfer or exchange. The Issuer has initially appointed the corporate trust office of the Paying Agent as its agent in the Borough of Manhattan, The City of New York, for such purpose and has agreed to cause to be kept at such office a register in which, subject to such reasonable restrictions as it may prescribe, the Issuer will provide for the registration, registration and exchange of Securities and of transfers of Securities. The Issuer reserves the right to vary or terminate the appointment of The Fuji Bank and Trust Company as security registrar and paying agent or to appoint additional or other registrars and paying agents or to approve any change in the office through which any security registrar and paying agent acts, provided that there will at all times be a security registrar or paying agent in the Borough of Manhattan, The City of New York. The Company shall give prompt written notice to the holder of this Security of any appointment or termination of appointment of the Paying Agent as security registrar or paying agent, or any change in the location of the office of any paying agent or security registrar. Subject to the transfer restrictions set forth on the face hereof and in the Paying Agency Agreement, the transfer of a Security is registrable on the aforementioned register upon surrender of such Security at the corporate trust office of the Paying Agent duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Paying Agent duly executed by, the registered holder thereof or its attorney duly authorized in writing, in each case with signature guaranteed. Upon such surrender of this Security for registration of transfer, the Issuer shall execute, and the 4 Paying Agent shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities, dated the date of authentication thereof, of any authorized denominations and of a like aggregate principal amount. The Paying Agent shall not make any registration of transfer unless the proposed transferee of the Security has provided to the Paying Agent a representation that such proposed transferee is either a (i) Qualified Institutional Buyer as defined in Rule 144A under the 1933 Act and has provided to the Paying Agent a letter in the form of Exhibit B to the Paying Agency Agreement, or (ii) is transferring the Securities in an offshore transaction complying with the provisions of Rule 904 under the Act and has provided to the Paying Agent a letter in the form of Exhibit C to the Paying Agency Agreement. At the option of the registered holder upon request confirmed in writing, Securities may be exchanged for Securities of any authorized denominations and of a like tenor, form and aggregate principal amount upon surrender of the Securities to be exchanged at the corporate trust office of the Paying Agent. Whenever any Securities are so surrendered for exchange, the Issuer shall execute, and the Paying Agent shall authenticate and deliver, the Securities which the registered holder making the exchange is entitled to receive. Any registration of transfer or exchange will be effected upon the Paying Agent being satisfied with the documents of title and identity of the person making the request and subject to such reasonable restrictions as may be prescribed by the Issuer. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits, as the Securities surrendered upon such registration of transfer or exchange. No service charge shall be made for any registration of transfer or exchange, but the Issuer may require payment of a sum sufficient to cover any stamp or other tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Issuer, the Paying Agent and any agent of the Issuer or the Paying Agent may treat the person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Issuer nor the Paying Agent nor any such agent shall be affected by notice to the contrary. 4. (a) The Issuer shall pay to the Paying Agent at its principal office in the Borough of Manhattan, The City of New York, on or prior to each Interest Payment Date and the maturity date of the Securities, monies in such amounts sufficient (with any amounts then held by the Paying Agent and available for the purpose) to pay the interest on and the principal of the Securities due and payable on such Interest Payment Date or 5 maturity date, as the case may be. The Paying Agent shall apply the amounts so paid to it to the payment of such interest and principal in accordance with the terms of the Securities. Any monies paid by the Issuer to the Paying Agent for the payment of the principal of or interest on any Securities and remaining unclaimed at the end of two years after such principal or Interest shall have become due and payable (whether at maturity or otherwise) shall then be repaid to the Issuer upon its written request, and upon such repayment all liability of the Paying Agent with respect thereto shall cease, without, however, limiting in any way any obligation the Issuer may have to pay the principal of and interest on this Security as the same shall become due. (b) In any case where the due date for the payment of the principal of or interest on any Security shall be at any place of payment a day on which banking institutions are authorized or obligated by law to close, then payment of principal or interest need not be made on such date at such place but may be made on the next succeeding day at such place which is not a day on which banking institutions are authorized or obligated by law to close, with the same force and effect as if made on the date for such payment, and no interest shall accrue for the period after such date. 5. Except as set forth in Paragraph 3, the Issuer shall pay all stamp and other duties, if any, which may be imposed by the United States of America or any political subdivision thereof or taxing authority of or in the foregoing with respect to the Paying Agency Agreement or the original issuance of this Security. 6. In the event of any of the following, there shall be an "Event of Default" under this Security: (a) default in the payment of any interest on any Security for a period of 30 days after the date when due; or (b) default in the payment of the principal of any Security when due (whether at maturity or otherwise); or (c) default in the performance or breach of any other covenant or agreement contained in the Securities for a period of 90 days after the date on which written notice of such default requiring the Issuer to remedy the same and stating that such notice is a "Notice of Default" shall first have been given to the Issuer and the Paying Agent by the holders of at least 25% in principal amount of the Securities at the time Outstanding; or (d) an event of default occurring under any instrument of the Issuer under which there may be issued, or by which there may secured or evidenced, any indebtedness for money borrowed resulting in the acceleration of 6 such indebtedness, or any default occurring in payment of any such indebtedness at final maturity (and after the expiration of any applicable grace periods and the presentation of any debt instruments, if required); other than such indebtedness (i) which is payable solely out of the property or assets of a partnership, joint venture or similar entity of which the Issuer is a participant, or which is secured by a lien on the property or assets owned or held by such entity, without further recourse to or liability of the Issuer, or (ii) the principal of, and interest on, which, when added to the principal of and interest on all other such indebtedness (exclusive of indebtedness under clause (i) above), does not exceed $20,000,000; or (e) the entering of any final judgments for the payment of money aggregating more than $20,000,000 (not adequately covered by insurance) against the Company and remaining undischarged, unvacated, unbonded and unstayed for more than 90 days, except while being contested in good faith by appropriate proceedings; or (f) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Issuer in an involuntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Issuer a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Issuer under any applicable Federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Issuer or of any substantial part of the property of the Issuer, or ordering the winding up or liquidation of the affairs of the Issuer, and any such decree or order for relief or any such other decree or order shall continue unstayed and in effect for a period of 90 consecutive days; or (g) commencement by the Issuer of a voluntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Issuer to the entry of a decree or order for relief in respect of the Issuer in an involuntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Issuer, or the filing by the Issuer of a petition or answer or consent seeking reorganization or relief under any such applicable Federal or state law, or the consent by the Issuer to the filing of such petition or to the appointment of or the taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Issuer or of any substantial part of its property, or the making by the Issuer of an 7 assignment for the benefit of creditors, or the taking of action by the Issuer in furtherance of any such action; the registered holder of this Security may, at such holder's option, declare the principal of this Security and the interest accrued hereon to be due and payable immediately by written notice to the Issuer and the Paying Agent at its corporate trust office, and unless all such defaults shall have been cured by the Issuer prior to receipt of such written notice, the principal of this Security and the interest accrued thereon shall become and be immediately due and payable. 7. So long as any of the Securities are outstanding, the Issuer will not pledge, mortgage or hypothecate, or permit to exist, any mortgage, pledge or other lien upon, any property at any time directly owned by the Issuer, to secure any indebtedness for money borrowed which is incurred, issued, assumed or guaranteed by the Issuer ("Indebtedness"), without making effective provisions whereby the Securities shall be equally and ratably secured with any and all such Indebtedness and with any other Indebtedness similarly entitled to be equally and ratably secured; PROVIDED, HOWEVER, that this restriction shall not apply to or prevent the creation or existence of: (a) liens existing at the original date of issuance of the Securities; (b) purchase money liens which do not exceed the cost or value of the purchased property; (c) other liens not to exceed 10% of Consolidated Net Tangible Assets; and (d) liens granted in connection with extending, renewing, replacing or refinancing the Indebtedness (including, without limitation, increasing the principal amount of such Indebtedness) secured by liens described in the foregoing clauses (a) through (c). In the event that the Issuer shall propose to pledge, mortgage or hypothecate any property at any time directly owned by it to secure any Indebtedness, other than as permitted by subdivisions (a) to (d), inclusive, of this paragraph 7, the Issuer will prior thereto give written notice thereof to the Paying Agent, who shall give notice to the registered holders of the Securities in accordance with Section 13 of the Paying Agency Agreement, and the Issuer will, prior to or simultaneously with such pledge, mortgage or hypothecation, effectively secure all the Securities equally and ratably with such Indebtedness. 8 For purposes of the Securities, "CONSOLIDATED CURRENT ASSETS" and "CONSOLIDATED CURRENT LIABILITIES" shall mean such assets and liabilities of the Company on a consolidated basis as shall be determined in accordance with GAAP to constitute current assets and current liabilities, respectively, provided that inventory shall be valued at the lower of cost (using the first-in first-out method) or market. "CONSOLIDATED NET INCOME" for any period, shall mean the net income of the Company determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED NET TANGIBLE ASSETS" shall mean, as of the date of any determination thereof, Consolidated Total Assets as of such date less the sum of (i) Consolidated Current Liabilities, and (ii) assets properly classified as Intangible Assets. "CONSOLIDATED TANGIBLE NET WORTH" shall mean as of the date of any determination thereof, shareholders equity on a consolidated basis in accordance with GAAP, less Intangible Assets. "CONSOLIDATED TOTAL ASSETS" shall mean, as of the date of any determination thereof, the total amount of all assets of the Company determined on a consolidated basis in accordance with GAAP. "GAAP" shall mean Generally Accepted Accounting Principles in the United States at the time of delivery of this Security. "INTANGIBLE ASSETS" of any person shall mean, as of the date of any determination thereof, all assets properly classified as intangible assets in accordance with GAAP except for any intangible assets which are distribution or related contracts with an assignable use. "TANGIBLE ASSETS" of any person shall mean, as of the date of any determination thereof, the total amount of all assets (as determined in accordance with GAAP) of such person (less depreciation, depletion and other properly deductible valuation reserves) after deducting all Intangible Assets. 8. (a) The Issuer shall not consolidate with or merge into any other person or sell, convey, transfer or lease its properties and assets substantially as an entirety to any person, and the Issuer shall not permit any person to consolidate with or merge into the Issuer unless: (i) at the time of such consolidation, merger, sale or lease, no Event of Default hereunder shall have occurred and be continuing and (ii) the Issuer is the surviving or continuing corporation or the surviving or continuing corporation or 9 corporation which acquires by sale, conveyance, transfer or lease is incorporated in the United States of America or Canada and expressly assumes the payment and performance of all obligations of the Issuer under the Paying Agency Agreement and hereunder. (b) Except for the sale of all or substantially all of the assets of the Issuer pursuant to 8(a) above, and other than assets required to be sold to conform with governmental regulation, the Issuer will not sell or otherwise dispose of any assets if on a pro forma basis, the aggregate net book value of all such sales during the most recent 12-month period would exceed 10 percent of Consolidated Net Tangible Assets computed as of the end of the most recent quarter preceding such sale; PROVIDED, HOWEVER, that any such sales shall be disregarded for purposes of this 10 percent limitation if the proceeds are invested in assets in similar or related lines of business for the Issuer and, provided further, that the Issuer may sell or otherwise dispose of assets in excess of such 10 percent if the proceeds from such sales or dispositions, which are not reinvested as provided above, are retained by the Issuer as cash or cash equivalents. 9. The Issuer will not permit Consolidated Tangible Net Worth to be less than $400,000,000 plus 25 percent of Consolidated Net Income earned in and after the calendar quarter in which this Security is delivered at any time until the principal of, and interest on, this Security shall have been paid in full to the registered holder hereof, whether at maturity or otherwise. 10. As long as the Issuer is not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, at anytime, upon the request of a registered holder of this Security, the Issuer (or the Paying Agent upon request by and at the expense of the Issuer after being furnished such information by the Issuer) will promptly furnish or cause to be furnished "Rule 144A Information" (as defined below) to such holder or to a prospective purchaser of such Security designated by such holder in order to permit compliance by such holder with Rule 144A under the Act in connection with the resale of such Security by such holder. "Rule 144A Information" shall be such information as is specified pursuant to Rule l44A(d) (4) under the Act (or any successor provision thereto); PROVIDED, HOWEVER, that the Issuer shall not be required to provide more information than was required by Rule 144A as in effect on the date of the original issuance of the Securities but may elect to do so if necessary to comply with subsequent revisions of Rule 144A. The Issuer (or the Paying Agent upon request by and at the expense of the Issuer after being furnished such information by the Issuer) will furnish or cause to be furnished to registered holders of Securities, annual consolidated financial statements of the Issuer prepared in accordance with generally accepted accounting principles applied consistently (except as otherwise noted therein) with those of the prior year (together with notes thereto and a report thereon by an independent accountant of established national reputation), such statements to be so furnished as soon as reasonably available and in any event within 120 days after the end of the fiscal year covered 10 thereby. In addition, at the request of the registered holders of Securities, the Paying Agent (at the expense of the Issuer after being furnished such information by the Issuer) will furnish or cause to be furnished unaudited condensed consolidated comparative balance sheets, statements of income and statements of cash flows of the Issuer for each of the first three fiscal quarters and the corresponding quarter of the prior year prepared in accordance with generally accepted accounting principles applied consistently (except as otherwise noted therein). 11. If any mutilated Security is surrendered to the Paying Agent, the Issuer shall execute, and the Paying Agent shall authenticate and deliver in exchange therefor, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding. If there be delivered to the Issuer and the Paying Agent (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of each of them harmless, then, in the absence of notice to the Issuer or the Paying Agent that such Security has been acquired by a bona fide purchaser, the Issuer shall execute, and upon its request the Paying Agent shall authenticate and deliver in lieu of any such destroyed, lost or stolen Security a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. Upon the issuance of any new Security under this Paragraph 11, the Issuer may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and the expenses of the Paying Agent) connected therewith. Every new Security issued pursuant to this Paragraph 11 in lieu of any destroyed, lost or stolen Security, shall constitute an original additional contractual obligation of the Issuer, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone. Any new Security delivered pursuant to this Paragraph 11 shall be so dated that neither gain nor loss in interest shall result from such exchange. The provisions of this Paragraph 11 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 Securities. 12. Section 11 of the Paying Agency Agreement provides that, with certain exceptions as therein provided and by written consent of a majority in the aggregate principal amount of all Outstanding Securities (as defined in the Paying Agency Agreement), the Issuer and the Paying Agent may modify, amend or supplement the Paying Agency Agreement or the terms of the Securities or may give consents or 11 waivers or take other actions with respect thereto; PROVIDED, HOWEVER, that no such action may, without the consent of the holder of each Security affected thereby, (a) change the due date for the payment of the principal of or any installment of interest on any Security, (b) reduce the principal amount of any Security or the interest rate thereon, (c) change the coin or currency in which interest or principal in respect of Securities are payable, (d) modify the obligation of the Issuer to maintain an office or agency in the Borough of Manhattan, The City of New York, for the payment of principal and interest with respect to the Securities, or (e) reduce the proportion of the principal amount of Securities the consent of the holders of which is necessary to modify, amend or supplement the Paying Agency Agreement or the terms and conditions of the Securities or to make, take or give any request, demand, authorization, direction, notice, consent, waiver or other action provided hereby or thereby to be made, taken or given. Any such modification, amendment, supplement, consent, waiver or other action shall be conclusive and binding on the holder of this Security and on all future holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange for or in lieu hereof, whether or not notation thereof is made upon this Security. The Issuer and the Paying Agent may, without the consent of any holder of Securities, amend this Agreement or the Securities for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision thereof, or in any manner which the Issuer and the Paying Agent may determine that shall not be inconsistent with the Securities and shall not adversely affect the interest of any holder of Securities. 13. No reference herein to the Paying Agency Agreement and no provision of this Security or of the Paying Agency Agreement shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. 14. A. The Issuer may at its option, by Issuer Order (as defined in the Paying Agency Agreement) delivered to the Paying Agent, elect to have either subparagraph (b) or subparagraph (c) of this Paragraph 14 applied to the Outstanding Securities (as defined in the Paying Agency Agreement) upon compliance with the conditions set forth below in this Paragraph 14. 1. Upon the Issuer's exercise of the option provided in subparagraph (a) hereof applicable to this subparagraph (b), the Issuer shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "defeasance"). For this purpose, defeasance means that the Issuer shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities and to have satisfied all its other obligations under the Securities and the Paying Agency Agreement insofar as the Securities are concerned (and the Issuer and the Paying Agent shall execute proper instruments acknowledging the same), except for the following, which shall survive until 12 otherwise terminated or discharged hereunder: (i) the rights of holders of the Securities to receive, solely from the trust fund described in subparagraph (d) hereof and as more fully set forth in such paragraph, payments in respect of the principal of and any interest on the Securities when such payments are due, (ii) the Issuer's obligations with respect to the Securities under Sections 1(d), 2, 4(a), 5, 6, 7, 9, 10 and 14 of the Paying Agency Agreement and Paragraph 3, 4(a), 10 and 11 of the Securities and (iii) this Paragraph 14. Subject to compliance with this Paragraph 14, the Issuer may exercise its option under this subparagraph (b) notwithstanding the prior exercise of its option under subparagraph (c). 2. Upon the Issuer's exercise of the option provided in subparagraph (a) applicable to this subparagraph (c), the Issuer shall be released from its obligations under Paragraphs 6(c), 7, 8 and 9 of the Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"). For this purpose, covenant defeasance means that the Issuer may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Paragraph, whether directly or indirectly by reason of any reference elsewhere herein to any such Paragraph or by reason of any reference in any such Paragraph to any other provision herein or in any other document, but the remainder of the Issuer's obligations shall be unaffected thereby. 3. The following shall be the conditions to application of either subparagraph (b) or subparagraph (c) of this Paragraph 14 to the then Outstanding Securities: 1. The Issuer shall irrevocably have deposited or caused to be deposited with a trustee, who may be the Paying Agent and who shall agree to comply with the provisions of this Paragraph 14 applicable to it (the "Defeasance Trustee"), as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the holders of the Securities, (A) money in an amount, or (B) U.S. Government Obligations and/or Eligible Obligations (as hereinafter defined) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Defeasance Trustee, to pay and discharge, and which shall be applied by the Defeasance Trustee to pay and discharge, the principal of and each installment of interest on the Securities on the stated maturity of such principal or installment of interest in accordance with the terms of the Paying Agency Agreement and of this Security. For this purpose: "U.S. Government Obligations" means securities that are (x) direct obligations of 13 the United States of America for the payment of which its full faith and credit are pledged or (y) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the 1933 Act) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, PROVIDED that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt; and "Eligible Obligations" means interest bearing obligations as a result of the deposit of which the Securities are rated at the time of deposit in the highest generic long-term debt rating category assigned to legally defeased debt by one or more nationally recognized rating agencies. 2. In the case of an election under subparagraph (b), the Issuer shall have delivered to the Defeasance Trustee an opinion of counsel stating that (x) the Issuer has received from, or there has been published by, the U.S. Internal Revenue Service a ruling, or (y) since the date of the Paying Agency Agreement there has been a change in the applicable U.S. Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the holders of the Outstanding Securities will not recognize gain or loss for U.S. Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to U.S. Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred. 3. In the case of an election under subparagraph (c), the Issuer shall have delivered to the Defeasance Trustee an opinion of counsel to the effect that the holders of the Outstanding Securities will not recognize gain or loss for Federal income tax purposes as a result of such deposit and covenant defeasance and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and covenant defeasance had not occurred. 4. No Event of Default or event which with notice or lapse of time or both would become such an Event of Default (other than the events specified in subparagraphs 6(c), (d) and (e) hereof) shall have occurred and be continuing on 14 the date of such deposit or, insofar as subparagraphs 6(f) and (g) of the Securities are concerned, at any time during the period ending on the 121st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). 5. Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Issuer is a party or by which it is bound. 6. The Issuer shall have delivered to the Paying Agent and the Defeasance Trustee a certificate signed by an Authorized Officer (as defined in the Paying Agency Agreement) and an opinion of counsel, each stating that all conditions precedent provided for relating to either the defeasance under subparagraph (b) or the covenant defeasance under subparagraph (c) (as the case may be) have been complied with. 7. The Issuer shall have delivered to the Defeasance Trustee an opinion of counsel to the effect that such defeasance or covenant defeasance shall not result in the trust arising from such deposit constituting an investment company as defined in the Investment Company Act of 1940, as amended, or such trust shall be qualified under such act or exempt from regulation thereunder. 4. All money, U.S. Government Obligations and Eligible Obligations (including the proceeds thereof) deposited with the Defeasance Trustee pursuant to subparagraph (d) in respect of the Securities shall be held in trust and applied by the Defeasance Trustee, in accordance with the provisions of the Securities and the Paying Agency Agreement, to the payment, directly to the holders of the Securities, of all sums due and to become due thereon in respect of principal and any interest, but such money need not be segregated from other funds except to the extent required by law. Any money deposited with the Defeasance Trustee for the payment of the principal of or any interest on any Security and remaining unclaimed for two years after such principal or interest has become due and payable shall be paid to the Issuer upon Issuer Order; and the holder of such Security shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof, and all liability of the Defeasance Trustee with respect to such trust money shall thereupon cease. 5. If the Defeasance Trustee is unable to apply any money in accordance with subparagraph (b) or (c) by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Issuer's obligations under the Paying Agency Agreement and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Paragraph 14 until such time as the Defeasance Trustee is permitted to apply all such 15 money in accordance with subparagraph (b) or (c); PROVIDED, HOWEVER, that if the Issuer makes any payment of principal of or interest on any Security following the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the holders of such Securities to receive such payment from the money held by the Defeasance Trustee. 15. This Security shall be governed by and construed in accordance with the laws of the State of New York. 16 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 - . . . . . .Custodian . . . . . . (Custodian) (Minor) Under Uniform Gifts to Minors Act . . . . . . . . . . . . . . . . . (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Please print or typewrite name and address including zip code of Assignee and insert Taxpayer Identification No.) the within Note and all rights thereunder, hereby irrevocably constituting and appointing _______________________________ attorney to transfer said Note on the books of the Company, with full power of substitution in the premises. Date: x ----------------- --------------------------------------- Notice: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatever. 17 EX-4.5 9 a2042986zex-4_5.txt EXHIBIT 4.5 Exhibit 4.5 PROMISSORY NOTE, dated as of August 24, 2000, (this "NOTE") by EDISON MISSION ENERGY, a California corporation (the "BORROWER"), in favor of MIDWEST GENERATION, LLC, a Delaware limited liability company (the "LENDER"). The Borrower, for value received, hereby promises to pay to the order of the Lender, the sum of FOUR HUNDRED NINETY NINE MILLION FOUR HUNDRED FIFTY THOUSAND EIGHT HUNDRED DOLLARS ($499,450,800) (the "LOAN") in accordance with the terms hereof. 1. INTEREST. The Borrower agrees to pay to the Lender interest in respect of the unpaid principal amount of the Loan from the date hereof until the Loan shall be paid in full at an interest rate per annum equal to 8.30%, the initial interest payment to be made on November 24, 2000, payments thereafter payable in arrears on each 2nd day of January and July, until paid in full (unless such day is not a Business Day, in which event on the immediately preceding Business Day) (each a "PAYMENT DATE"); PROVIDED, HOWEVER, that any principal amount not paid when due and, to the extent permitted by applicable law, any interest not paid when due, in each case whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (both before as well as after judgment), shall bear interest payable upon demand (or, if no demand is made, on the last Business Day of each month) at a rate that is 2% per annum in excess of the rate of interest otherwise payable with respect to the Loan. Interest on the Loan should be computed on the basis of a year of 360 days and twelve 30-day months. In computing interest, the date of the making of the Loan applicable to the Loan shall be included, and the date of repayment of the Loan shall be excluded. In no event shall the interest rate payable on the Loan exceed the maximum rate of interest permitted to be charged under applicable law. 2. PRINCIPAL: REPAYMENT ON THE FINAL MATURITY DATE. The Borrower agrees to pay to the Lender the principal of the Loan in a series of installments on the respective dates and in the respective amounts as set forth in SCHEDULE 1 hereto on each Payment Date. All amounts of principal and interest thereon and any other amounts outstanding hereunder shall be repaid in full on the Final Maturity Date. The principal of the Loan may not be prepaid. Amounts borrowed hereunder and subsequently repaid or (to the extent permitted) prepaid may not be reborrowed. 3. PAYMENTS. The Borrower agrees to make payments of principal and interest in respect of this Note in lawful money of the United States of America in same day EME NOTE funds not later than 12:00 Noon (New York City time), without set-off (except as expressly provided in this Note), or counterclaim, free and clear of taxes. Each payment made hereunder shall be credited first to interest and fees then due and the remainder of such payment shall be credited to principal, and interest shall thereupon cease to accrue upon the principal so credited. Each of the Lender and any subsequent holder of this Note agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all amounts advanced and all principal and interest payments previously made hereunder; PROVIDED, HOWEVER, that the failure to make a notation of the Loan or payment made on this Note shall not limit or otherwise affect the obligation of the Borrower hereunder with respect to payments of principal or interest on this Note. 4. THE LOAN. (a) COMMITMENT TO MAKE THE LOAN; BORROWING MECHANICS. The Borrower shall deliver notice (a "NOTICE OF BORROWING") to Lender no later than 12:00 Noon (New York City time) at least one Business Day in advance of the Closing Date. Such Notice of Borrowing shall specify (i) the amount of the Loan, (ii) that no Event of Default or event that, after notice or after any applicable grace period has lapsed, or both, would constitute an Event of Default has occurred and is continuing and (iii) that the condition to funding set forth in Section 4(c), have been satisfied as of such date. The Lender shall have no obligation to make the Loan requested hereunder unless it receives a Notice of Borrowing in accordance with the terms of this Section. Upon funding of the Loan by the Lender in accordance with this Note pursuant to any such Notice of Borrowing, the Borrower shall have effected a borrowing hereunder in the amount of the Loan. A Notice of Borrowing shall be irrevocable on and after 2:00 p.m (New York City time) on the date the Notice of Borrowing is received and the Borrower shall be bound to make a borrowing in accordance therewith. The Lender shall make the proceeds of the Loan available to the Borrower on the Closing Date by causing an amount of same day funds equal to the amount of the Loan to be credited to such account of the Borrower as the Borrower shall specify to the Lender. (b) ADJUSTMENTS FOR WITHHOLDING, CAPITAL ADEQUACY, ETC. If the effect of the adoption, effectiveness, phase-in or applicability after the date hereof of any law, rule or regulation (including without limitation any reserve requirement or tax, duty, charge or withholding on or from payments due from the Borrower (but excluding taxation on the net income or profits or the Lender)), or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, is to reduce the rate of return on the capital of the Lender with respect to this Note or to increase the 2 cost to the Lender of making or maintaining amounts available under this Note, then the Borrower shall pay to the Lender such additional amount or amounts as will compensate the Lender on an after-tax basis for such reduction or increase. (c) CONDITION TO THE LOAN. The obligations of the Lender to make the Loan hereunder are subject to delivery by the Borrower of the Notice of Borrowing. 5. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender to make the Loan, the Borrower makes the following representations and warranties: (1) The Borrower (i) is validly organized and existing and in good standing under the laws of the State of California, (ii) has all requisite power and authority to conduct its business substantially as currently conducted by it and (iii) has all requisite power and authority to enter into and perform its obligations under this Note, except, with respect to clauses (ii) and (iii) to the extent that the failure to comply therewith would not reasonably be expected to have a material adverse effect on the Borrower's ability to perform its obligations under this Note. (2) This Note constitutes the Borrower's legal, valid and binding obligation enforceable in accordance with its terms (except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity). (3) The execution, delivery and performance by the Borrower of this Note do not: (i) contravene its Articles of Incorporation or By-laws, (ii) contravene any law, governmental regulation, court decree or order or material contractual obligation binding on or affecting it or (iii) result in, or require the creation or imposition of, any lien on any of its properties. (4) No part of the proceeds of the Loan will be used by the Borrower to purchase or carry any Margin Stock (as defined in Regulations T, U or X of the Federal Reserve Board) or for the purpose of reducing or retiring any indebtedness originally incurred to purchase or carry a margin security or margin stock or for any other purpose which might cause any of the transactions contemplated by this Note to constitute a "purpose credit" within the meaning of such Regulation T, U or X or for the purpose of purchasing or carrying any security, and the Borrower has not taken and will not take any action in connection with any of the transactions contemplated by this Note that would involve a violation of such Regulation T, U or X, or any other regulation of the Federal Reserve Board. 3 6. BORROWER COVENANTS. The Borrower covenants and agrees that until the Loan and all other obligations under this Note are paid in full: (a) the Borrower shall furnish to the Lender such information or documents (financial or otherwise) relating to the Borrower's ability to perform under this Note in the possession of the Borrower as the Lender may from time to time reasonably request; (b) the Borrower shall keep proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to this Note; and (c) the Borrower shall comply with all applicable laws, rules, statutes, regulations, decrees and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except where such noncompliance would not be reasonably be expected to have a material adverse effect on the Borrower's ability to perform its obligations under this Note. 7. EVENTS OF DEFAULT. Each of the following events, acts, occurrences or conditions shall constitute an "EVENT OF DEFAULT" under this Note: (a) The Borrower shall default in the payment when due of any principal of the Loan or the Borrower shall default (and such default shall continue unremedied for five Business Days) in the payment when due of interest on the Loan. (b) Any representation or warranty made by the Borrower herein or in any certificate or statement delivered pursuant hereto is or shall be incorrect when made in any material respect. (c) The Borrower shall fail to perform or observe any other agreement or covenant set forth herein or obligation arising hereunder and such failure shall continue unremedied for a period of thirty days after written notice thereof shall have been given to the Borrower by the Lender. (d) The Borrower shall: (i) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or a substantial portion of its property, or make a general assignment for the benefit of creditors; 4 (iii) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestration or other custodian for the Borrower or for a substantial part of its property, and such trustee, receiver, sequestration or other custodian shall not be discharged within sixty days, PROVIDED that nothing in this Note shall prohibit or restrict any right the Lender may have under applicable law to appear in any court conducting any relevant proceeding during such sixty-day period to preserve, protect and defend its rights under this Note (and the Borrower shall not object to any such appearance); (iv) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Borrower, and, if any such case or proceeding is not commenced by the Borrower, such case or proceeding shall be consented to or acquiesced in by the Borrower or shall result in the entry of an order for relief or shall remain for sixty days undismissed, PROVIDED that nothing in this Note shall prohibit or restrict any right the Lender may have under applicable law to appear in any court conducting any such case or proceeding during such sixty-day period to preserve, protect and defend its rights under this Note (and the Borrower shall not object to any such appearance); or (v) take any corporate action authorizing, or in furtherance of, any of the foregoing. (e) A default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any indebtedness of the Borrower (other than indebtedness incurred under this Note) or a default shall occur in the performance or observance of any obligation or condition with respect to such indebtedness if the effect of such default is to accelerate the maturity of any such indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such indebtedness, or any trustee or agent for such holders, to cause such indebtedness to become due and payable prior to its expressed maturity, in either case, such indebtedness having a principal amount, individually or in the aggregate, in excess of $20,000,000 (other than indebtedness described in clause (a) above). (f) Any judgment or order for the payment of money in excess of $50,000,000 (taking into account any insurance proceeds payable under a policy where 5 the insurer has accepted coverage without reservation) shall be rendered against the Borrower and either: (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order; or (ii) there shall be any period of fifteen consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. 8. REMEDIES. Upon the occurrence and during the continuance of any Event of Default, the Lender may in its sole discretion (except in the case of an Event of Default occurring under Section 7(d) above, in which case the following will occur automatically) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loan and any and all other obligations under this Note to be, and the same shall thereupon be, immediately due and payable with all additional interest from time to time accrued thereon and without presentation, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower. The Borrower is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set-off and apply any and all payments made with respect to Basic Lease Rent by the Borrower to Powerton Trust I under the Guaranty Agreement dated as of August 17, 2000 by the Borrower in favor of Powerton Trust I (as the same may be amended from time to time, the "EME GUARANTY"), against the obligations of the Borrower due this Note, provided, however, that following the occurrence of a Specified Event under and as defined in the EME Powerton (TI) Pledge Agreement, dated as of August 17, 2000, between the Lender and Citibank, N.A., as Collateral Agent, the Borrower shall not be entitled to set-off payments made by the Borrower under the EME Guaranty. 9. INDEMNIFICATION. The Borrower shall pay all out-of-pocket costs and expenses of all parties hereto in connection with the negotiation, preparation, execution, delivery, amendment or waiver of this Note, in connection with the preservation of rights under, and enforcement of, this Note, or in connection with any restructuring or rescheduling of the obligations hereunder. The Borrower shall indemnify the Lender, its officers, directors, partners, stockholders, employees, representatives and agents (each, an "INDEMNITEE") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any 6 kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for such Indemnitee in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the obligations) be imposed on, asserted against or incurred by any Indemnitee as a result of, or arising out of, or in any way related to or by reason of, (i) any of the transactions contemplated hereby or the execution, delivery or performance of this Note and (ii) the exercise by the Lender of its rights and remedies hereunder (but excluding, as to any Indemnitee, any such losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements incurred solely by reason of the gross negligence or willful misconduct of such Indemnitee as finally determined by a court of competent jurisdiction). The Borrower's obligations under this paragraph shall survive the termination of this Note and the payment of the obligations hereunder. 10. DEFINITIONS. "BUSINESS DAY" shall mean any day on which federal and state chartered banks in Wilmington, Delaware and New York are open for commercial banking business. "CLOSING DATE" shall mean August 24, 2000. "FINAL MATURITY DATE" shall mean January 2, 2016. "PARTY" or "PARTIES" shall mean the Borrower and, by virtue of its acceptance of this Note, the Lender. 11. MISCELLANEOUS. No failure or delay on the part of the Lender in exercising any right, power or privilege hereunder and no course of dealing between the parties hereto shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Lender would otherwise have. No notice to the Borrower in any case shall entitle the Borrower to any other or further notice in similar or other circumstances or constitute a waiver of the rights of the Lender to any other or further action in any circumstances without notice. This Note shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED, HOWEVER, that (i) the Borrower shall not assign its obligations under this Note without the prior written consent 7 of the Lender and (ii) the Lender shall give a prior written notice to the Borrower of any assignment of this Note. This Note may be amended, modified or waived only by an instrument in writing signed by the Lender and Borrower. THIS NOTE 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. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. EACH PARTY HERETO HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. EACH PARTY HERETO FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY PARTY HERETO HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH PARTY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS NOTE. EACH PARTY 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 NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) 8 OR ACTIONS OF ANY PARTY HERETO. EACH PARTY ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE OTHER PARTIES HERETO. [The remainder of this page is intentionally left blank.] 9 IN WITNESS WHEREOF, the Borrower has caused its duly authorized officer to execute and deliver this Note as of the date first above written. EDISON MISSION ENERGY By: /s/ John P. Finneran, Jr. ------------------------------- Name: John P. Finneran, Jr. Title: Vice President Notice Address: 18101 Von Karman Avenue Suite 1700 Irvine, CA 92616 Attention: General Counsel Telecopier No.: (949) 752-1420 10 SCHEDULE I PAYMENT SCHEDULE 11 EX-4.5-1 10 a2042986zex-4_51.txt EXHIBIT 4.5.1 Exhibit 4.5.1 SCHEDULE IDENTIFYING SUBSTANTIALLY IDENTICAL AGREEMENT(S) TO EXHIBIT 4.5 - ------------------------------------------------------------------------- Promissory Note ($285,849,200 ), dated as of August 24, 2000, by Edison Mission Energy in favor of Midwest Generation, LLC. This Promissory Note differs from Exhibit 4.17 in the following respects: In the Remedies section, Edison Mission Energy is authorized to set off and apply all payments made with respect to Basic Lease Rent by Edison Mission Energy to Powerton Trust II, against the obligations due under the Note. The Final Maturity Date is January 2, 2015 Promissory Note ($369,961,200 ), dated as of August 24, 2000, by Edison Mission Energy in favor of Midwest Generation, LLC. This Promissory Note differs from Exhibit 4.17 in the following respects: In the Remedies section, Edison Mission Energy is authorized to set off and apply all payments made with respect to Basic Lease Rent by Edison Mission Energy to Joliet Trust I, against the obligations due under the Note. The Final Maturity Date is July 2, 2014 Promissory Note ($211,738,800 ), dated as of August 24, 2000, by Edison Mission Energy in favor of Midwest Generation, LLC. This Promissory Note differs from Exhibit 4.17 in the following respects: In the Remedies section, Edison Mission Energy is authorized to set off and apply all payments made with respect to Basic Lease Rent by Edison Mission Energy to Joliet Trust II, against the obligations due under the Note. The Final Maturity Date is July 2, 2014 EX-4.6 11 a2042986zex-4_6.txt EXHIBIT 4.6 Exhibit 4.6 PROMISSORY NOTE, dated as of June 23, 2000, (this "NOTE") by EDISON MISSION ENERGY, a California corporation (the "BORROWER"), in favor of MIDWEST GENERATION, LLC, a Delaware limited liability company (the "LENDER"). The Borrower, for value received, hereby promises to pay to the order of the Lender, the sum of THREE HUNDRED MILLION DOLLARS ($300,000,000) (the "LOAN") in accordance with the terms hereof. The outstanding principal amount of the Loan shall be repaid by the Borrower, without premium or penalty, on the Final Maturity Date. The Borrower agrees to pay to the Lender interest in respect of the unpaid principal amount of the Loan from the date hereof until the Loan shall be paid in full at an interest rate per annum equal to (i) with respect to a Base Rate Loan, the Base Rate plus Applicable Margin or (ii) with respect to a LIBO Rate Loan, the LIBO Rate plus Applicable Margin; PROVIDED, HOWEVER, that any principal amount not paid when due and, to the extent permitted by applicable law, any interest not paid when due, in each case whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (both before as well as after judgment), shall bear interest payable upon demand at a rate that is 2% per annum in excess of the rate of interest otherwise payable with respect to the Loan. Subject to the preceding sentence, interest on the Loan shall be payable in arrears on and to each Interest Payment Date applicable to the Loan, upon any prepayment of the Loan (to the extent accrued on the amount being prepaid) and at maturity. The applicable basis for determining the rate of interest with respect to the Loan shall be selected by the Borrower initially at the time a Notice of Borrowing is given with respect to the Loan pursuant to SECTION 3(a). The basis for determining the interest rate with respect to the Loan may be changed from time to time pursuant to SECTION 3(c). If on any day the Loan is outstanding with respect to which notice has not been delivered to the Lender in accordance with the terms of this Note specifying the applicable basis for determining the rate of interest and no other rate of interest is expressly applicable hereunder, then for that day the Loan shall bear interest at the Base Rate. All computations of interest shall be made by the Lender on the basis of a 360-day year (365-day year in the case of a Base Rate Loan), for the actual number of days elapsed in the relevant period (including the first day but excluding the last day). In computing interest, the date of the making of the Loan or the first day of an Interest Period applicable to the Loan or, with respect to a Base Rate Loan being converted from a LIBO Rate Loan, as the case may be, shall be included, and the date of repayment of the Loan or the expiration date of an Interest Period applicable to the Loan or, with respect to a Base Rate Loan being converted to a LIBO Rate Loan, as the case may be, shall be excluded; PROVIDED that if the Loan is repaid on the same day on which it is made, one day's interest shall be paid on the amount of the Loan so repaid. In no event shall the interest rate payable on this Note exceed the maximum rate of interest permitted to be charged under applicable law. For LIBO Rate Loans, as soon as practicable after 11:00 A.M. (New York time) on each Interest Rate Determination Date, the Lender shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Loan for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower. i. PAYMENTS. All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds not later than 12:00 Noon (New York City time), on the date when due to the Lender at such account as the Lender may from time to time direct by prior written notice to the Borrower, and any funds received after such time shall for the purposes hereof, be deemed to have been paid on the next succeeding Business Day. Whenever any payment on this Note is stated to be due on a day that is not a Business Day, such payment shall instead be made on the next Business Day, and such extensions of time shall be included in the computation of interests payable on this Note; PROVIDED, HOWEVER, that if the day on which any payment relating to a LIBO Rate Loan is due is not a Business Day but is a day of the month after which no further Business Day occurs in such month, then the due date thereof shall be the next preceding Business Day. Each payment made hereunder shall be credited first to interest and fees then due and the remainder of such payment shall be credited to principal, and interest shall thereupon cease to accrue upon the principal so credited. Each of the Lender and any subsequent holder of this Note agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all amounts advanced and all principal payments previously made hereunder and of the date to which interest hereon has been paid; PROVIDED, HOWEVER, that the failure to make a notation of the Loan or payment made on this Note shall not limit or otherwise affect the obligation of the Borrower hereunder with respect to payments of principal or interest on this Note. ii. PAYMENTS AND REPAYMENT ON THE FINAL MATURITY DATE. The Borrower shall have the right, at any time and from time to time, upon notice delivered to the Lender no later than three Business Days' in advance of the date of the proposed prepayment in the case of a LIBO Rate Loan, and no later than one Business Day prior to the proposed prepayment in the case of a Base Rate Loan, to prepay the principal amount of the Loan in whole or in part, without premium or penalty; PROVIDED that each such prepayment shall be in a minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount; and PROVIDED FURTHER, HOWEVER, that prepayment of a LIBO Rate Loan on any day other than the last day of the Interest Period applicable thereto shall be subject to compliance with SECTION 3(d). Notice of prepayment having been given as aforesaid, the principal amount of the Loan shall become due and payable on the prepayment date specified in such notice in 2 the aggregate principal amount specified therein. Any prepayment or repayment hereunder shall be accompanied by accrued interest on the principal amount of the Note being prepaid or repaid to the date of prepayment or repayment and any amounts payable under SECTION 3(d). Any prepayment or repayment shall be applied in a manner which minimizes the amount of any payments required to be made by the Borrower pursuant to SECTION 3(d). All amounts of principal and interest thereon and any other amounts outstanding hereunder shall be repaid in full on the Final Maturity Date. Amounts borrowed hereunder and subsequently repaid or prepaid may not be reborrowed. iii. THE LOAN. (i) COMMITMENT TO MAKE THE LOAN; BORROWING MECHANICS. The Borrower shall deliver notice (a "NOTICE OF BORROWING") to Lender no later than 12:00 Noon (New York City time), at least three Business Days in advance of the Closing Date in the case of a LIBO Rate Loan, or at least one Business Day in advance of the Closing Date in the case of a Base Rate Loan, PROVIDED that such number of days may in the discretion of the Lender be reduced. Such Notice of Borrowing shall specify (i) the amount of the Loan, (ii) whether the Loan shall be a Base Rate Loan or a LIBO Rate Loan, (iii) that no Event of Default or event that, after notice or after any applicable grace period has lapsed, or both, would constitute an Event of Default has occurred and is continuing and (iv) that the condition to funding set forth in Section 3(h), have been satisfied as of such date. The Lender shall have no obligation to make the Loan requested hereunder unless it receives a Notice of Borrowing in accordance with the terms of this Section. Upon funding of the Loan by the Lender in accordance with this Note pursuant to any such Notice of Borrowing, the Borrower shall have effected a borrowing hereunder in the amount of the Loan. Except as otherwise provided in Section 3(f), a Notice of Borrowing shall be irrevocable on and after (x) the related Interest Rate Determination Date for a LIBO Rate Loan and (y) 2:00 p.m (New York City time) on the date the Notice of Borrowing is received for a Base Rate Loan and the Borrower shall be bound to make a borrowing in accordance therewith. The Lender shall make the proceeds of the Loan available to the Borrower on the Closing Date by causing an amount of same day funds equal to the amount of the Loan to be credited to such 3 account of the Borrower as the Borrower shall specify to the Lender. (ii) INTEREST PERIODS. The interest period (each an "INTEREST PERIOD") applicable to a LIBO Rate Loan shall be the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan and shall end on (but exclude) the day which numerically corresponds to such date one, two, three or six months (or such longer or shorter period as the Lender determines is available) thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), in either case as the Borrower may select in its relevant notice pursuant to the terms hereof; PROVIDED, HOWEVER, that: (i) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); (ii) no Interest Period may end later than the Final Maturity Date; (iii) the initial Interest Period for the Loan shall commence on the Closing Date, if the Loan is initially made as a LIBO Rate Loan, or on the date specified in the applicable Notice of Conversion/Continuation, if the Loan is converted to a LIBO Rate Loan; and (iv) in the case of immediately successive Interest Periods applicable to a LIBO Rate Loan continued as such automatically or pursuant to a Notice of Conversion/Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires. The Borrower may not request that the Loan be made, converted into, or continued as a LIBO Rate Loan if at the time of the funding, conversion or continuation of such Loan (as applicable) the Interest Period for the Loan would not comply with any of the limitations set forth above in this SECTION 3(b). (iii) CONVERSION OR CONTINUATION. Subject to the provisions of SECTION 3(g), the Borrower shall have the option (i) to convert at any time prior to the Final Maturity Date all or any part of the Loan equal to $5,000,000 and integral multiples of $1,000,000 in excess of that amount from a Loan bearing interest at a rate determined by reference to one 4 basis to a Loan bearing interest at a rate determined by reference to an alternative basis or (ii) upon the expiration of any Interest Period applicable to a LIBO Rate Loan before the Final Maturity Date, to continue all or any portion of such Loan equal to $5,000,000 and integral multiples of $1,000,000 in excess of that amount as a LIBO Rate Loan; PROVIDED that no Loan may be continued or converted to a LIBO Rate Loan if an Event of Default shall then exist and be continuing or if such Loan as continued or converted would have an Interest Period which would not comply with SECTION 3(b), PROVIDED, FURTHER, that if a LIBO Rate Loan is converted into a Base Rate Loan prior to the expiration date of an Interest Period applicable thereto the Lender shall be required to pay breakage costs in accordance with SECTION 3(e). If any Event of Default shall exist and be continuing, any outstanding LIBO Rate Loan shall automatically convert to a Base Rate Loan at the end of the Interest Period applicable thereto. The Borrower shall deliver a notice of any such conversion or continuation (a "NOTICE OF CONVERSION/CONTINUATION") to the Lender no later than 2:00 p.m. (New York City time) at least three Business Days in advance of the proposed conversion/continuation date. A Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount and type of the Loan to be converted/continued, (iii) the nature of the proposed conversion/continuation, (iv) in the case of a conversion to, or a continuation of, a LIBO Rate Loan, the requested Interest Period and (v) in the case of a conversion to, or a continuation of, a LIBO Rate Loan, that no Event of Default has occurred and is continuing. Except as otherwise provided in SECTION 3(f), a Notice of Conversion/Continuation for conversion to, or continuation of, a LIBO Rate Loan shall be irrevocable on and after the related Interest Rate Determination Date, and the Borrower shall be bound to effect a conversion or continuation in accordance therewith. To the extent the Borrower shall fail to deliver a Notice of Conversion/Continuation to the Lender no later than 2:00 p.m. (New York City time) at least three Business Days in advance of the expiration of any Interest Period, the applicable LIBO Rate Loan shall automatically convert to a Base 5 Rate Loan at the expiration of the applicable Interest Period. (iv) COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS. The Borrower shall compensate the Lender, upon request by the Lender (which request shall set forth in reasonable detail the basis for requesting such amounts) for all reasonable losses, expenses and liabilities (including, without limitation, any interest paid by the Lender to lenders of funds borrowed by it to make or carry LIBO Rate Loans and any loss, expense or liability sustained by the Lender in connection with the liquidation or re-employment of such funds) which the Lender may sustain: (i) if for any reason a borrowing of any LIBO Rate Loan does not occur on a date specified therefor in a Notice of Borrowing, or a conversion to or continuation of any LIBO Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation, (ii) if repayment in full of a LIBO Rate Loan or any prepayment or conversion of a LIBO Rate Loan occurs on a date that is not the last day of an Interest Period applicable to such Loan, (iii) if any prepayment of a LIBO Rate Loan is not made on any date specified in a notice of prepayment given by the Borrower, or (iv) as a consequence of any other default by the Borrower in the repayment of LIBO Rate Loans when required by the terms of this Note. Calculation of all amounts payable to the Lender under this SECTION 3(d) shall be made as though the Lender had actually funded each of its relevant LIBO Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of LIBO Rate in an amount equal to the amount of such Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of the Lender to a domestic office of the Lender in the United States of America; PROVIDED, HOWEVER, that the Lender may fund the Loan in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this SECTION 3(d). (v) ADJUSTMENTS FOR WITHHOLDING, CAPITAL ADEQUACY, ETC. If the effect of the adoption, effectiveness, phase-in or 6 applicability after the date hereof of any law, rule or regulation (including without limitation any reserve requirement or tax, duty, charge or withholding on or from payments due from the Borrower (but excluding taxation on the net income or profits or the Lender)), or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, is to reduce the rate of return on the capital of the Lender with respect to this Note or to increase the cost to the Lender of making or maintaining amounts available under this Note, then the Borrower shall pay to the Lender such additional amount or amounts as will compensate the Lender on an after-tax basis for such reduction or increase. (vi) ILLEGALITY OR IMPRACTICABILITY OF LIBO RATE LOANS. In the event that the Lender shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any LIBO Rate Loan, that by reason of circumstances arising after the date hereof affecting the Eurodollar market, adequate and fair means do not exist for ascertaining the interest rate applicable to such Loan on the basis provided for in the definition of LIBO Rate, the Lender shall on such date give notice (by telecopy or by telephone confirmed in writing) to the Borrower of such determination, whereupon (i) no Loan may be converted to a LIBO Rate Loan until such time as the Lender notifies the Borrower that the circumstances giving rise to such notice no longer exist (such notification not to be unreasonably withheld or delayed) and (ii) any Notice of Conversion/Continuation in respect of which such determination was made shall be deemed to be rescinded by the Borrower. If, after the date hereof, the introduction of, or any change in, any applicable law, rule or regulation, or the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, shall make it unlawful or impracticable for the Lender to maintain or fund any LIBO Rate Loan, the Lender shall notify the Borrower to such effect, and the Borrower shall pay or repay to the Lender in full the amount of each such Loan, together with accrued interest thereon to the date of repayment, or convert such Loan to a 7 Base Rate Loan either on (i) the next Interest Payment Date applicable to such Loan, if the Lender may lawfully continue to maintain and fund such Loan until such date or (ii) if earlier, the last day on which the Lender may lawfully continue to maintain and fund such Loan. The commitment on the date of such notice, unless Loans are being maintained under clause (i) of the preceding sentence, in which case such commitment shall terminate on the date of such notice to the extent such commitment is unutilized, and the remaining portion of such commitment shall be reduced to the extent each such Loan is repaid or converted on the next Interest Payment Date relating thereto. In connection with any repayment or conversion of a LIBO Rate Loan prior to the end of the Interest Period applicable thereto the Borrower shall be required to pay breakage costs in accordance with SECTION 3(e). (vii) CONDITION TO THE LOAN. The obligations of the Lender to make the Loan hereunder are subject to delivery by the Borrower of the Notice of Borrowing. iv. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender to make the Loan, the Borrower makes the following representations and warranties: (1) The Borrower (i) is validly organized and existing and in good standing under the laws of the State of California, (ii) has all requisite power and authority to conduct its business substantially as currently conducted by it and (iii) has all requisite power and authority to enter into and perform its obligations under this Note, except, with respect to clauses (ii) and (iii) to the extent that the failure to comply therewith would not reasonably be expected to have a material adverse effect on the Borrower's ability to perform its obligations under this Note. (2) This Note constitutes the Borrower's legal, valid and binding obligation enforceable in accordance with its terms (except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity). (3) The execution, delivery and performance by the Borrower of this Note do not: (i) contravene its Articles of Incorporation or By-laws, (ii) contravene any law, governmental regulation, court decree or order or material contractual obligation binding on or affecting it or (iii) result in, or require the creation or imposition of, any lien on any of its properties. 8 (4) No part of the proceeds of the Loan will be used by the Borrower to purchase or carry any Margin Stock (as defined in Regulations T, U or X of the Federal Reserve Board) or for the purpose of reducing or retiring any indebtedness originally incurred to purchase or carry a margin security or margin stock or for any other purpose which might cause any of the transactions contemplated by this Note to constitute a "purpose credit" within the meaning of such Regulation T, U or X or for the purpose of purchasing or carrying any security, and the Borrower has not taken and will not take any action in connection with any of the transactions contemplated by this Note that would involve a violation of such Regulation T, U or X, or any other regulation of the Federal Reserve Board. 5. BORROWER COVENANTS. The Borrower covenants and agrees that until the Loan and all other obligations under this Note are paid in full: (a) the Borrower shall furnish to the Lender such information or documents (financial or otherwise) relating to the Borrower's ability to perform under this Note in the possession of the Borrower as the Lender may from time to time reasonably request; (b) the Borrower shall keep proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to this Note; and (c) the Borrower shall comply with all applicable laws, rules, statutes, regulations, decrees and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except where such noncompliance would not be reasonably be expected to have a material adverse effect on the Borrower's ability to perform its obligations under this Note. 6. EVENTS OF DEFAULT. Each of the following events, acts, occurrences or conditions shall constitute an "EVENT OF DEFAULT" under this Note: (a) The Borrower shall default in the payment when due of any principal of the Loan or the Borrower shall default (and such default shall continue unremedied for five Business Days) in the payment when due of interest on the Loan. (b) Any representation or warranty made by the Borrower herein or in any certificate or statement delivered pursuant hereto is or shall be incorrect when made in any material respect. (c) The Borrower shall fail to perform or observe any other agreement or covenant set forth herein or obligation arising hereunder and such failure shall continue unremedied for a period of thirty days after written notice thereof shall have been given to the Borrower by the Lender. (d) The Borrower shall: 9 (i) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or a substantial portion of its property, or make a general assignment for the benefit of creditors; (iii) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestration or other custodian for the Borrower or for a substantial part of its property, and such trustee, receiver, sequestration or other custodian shall not be discharged within sixty days, PROVIDED that nothing in this Note shall prohibit or restrict any right the Lender may have under applicable law to appear in any court conducting any relevant proceeding during such sixty-day period to preserve, protect and defend its rights under this Note (and the Borrower shall not object to any such appearance); (iv) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Borrower, and, if any such case or proceeding is not commenced by the Borrower, such case or proceeding shall be consented to or acquiesced in by the Borrower or shall result in the entry of an order for relief or shall remain for sixty days undismissed, PROVIDED that nothing in this Note shall prohibit or restrict any right the Lender may have under applicable law to appear in any court conducting any such case or proceeding during such sixty-day period to preserve, protect and defend its rights under this Note (and the Borrower shall not object to any such appearance); or (v) take any corporate action authorizing, or in furtherance of, any of the foregoing. (e) A default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any indebtedness of the Borrower (other than indebtedness incurred under this Note) or a default shall occur in the performance or observance of any obligation or condition with respect to such indebtedness if the effect of such default is to accelerate the maturity of any such indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such indebtedness, or any trustee or agent for such holders, to cause such indebtedness to become due and payable prior to its expressed maturity, in either case, such indebtedness having a principal amount, individually or in the aggregate, in excess of $20,000,000 (other than indebtedness described in clause (a) above). 10 (f) Any judgment or order for the payment of money in excess of $20,000,000 (taking into account any insurance proceeds payable under a policy where the insurer has accepted coverage without reservation) shall be rendered against the Borrower and either: (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order; or (ii) there shall be any period of fifteen consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. 7. REMEDIES. Upon the occurrence and during the continuance of any Event of Default, the Lender may in its sole discretion (except in the case of an Event of Default occurring under clause (d) above, in which case the following will occur automatically) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loan and any and all other obligations under this Note to be, and the same shall thereupon be, immediately due and payable with all additional interest from time to time accrued thereon and without presentation, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower. The Borrower is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set-off and apply any and all payments made by the Borrower to EME/CDL Trust (the "TRUST") under the Guaranty Agreement dated as of June 23, 2000 by the Borrower in favor of the Trust and the Lender, against any and all of the obligations of the Borrower now or hereafter existing under this Note, although such obligations may be unmatured. 8. INDEMNIFICATION. Each party hereto shall pay all out-of-pocket costs and expenses of such party in connection with the negotiation, preparation, execution, delivery, amendment or waiver of this Note, in connection with the preservation of rights under, and enforcement of, this Note, or in connection with any restructuring or rescheduling of the obligations hereunder. Except as set forth in the previous sentence, the Borrower shall indemnify the Lender, its officers, directors, partners, stockholders, employees, representatives and agents (each, an "INDEMNITEE") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for such Indemnitee in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the obligations) be imposed on, asserted against or incurred by any Indemnitee as a result of, or arising out of, or in 11 any way related to or by reason of, (i) any of the transactions contemplated hereby or the execution, delivery or performance of this Note and (ii) the exercise by the Lender of its rights and remedies hereunder (but excluding, as to any Indemnitee, any such losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements incurred solely by reason of the gross negligence or willful misconduct of such Indemnitee as finally determined by a court of competent jurisdiction). The Borrower's obligations under this paragraph shall survive the termination of this Note and the payment of the obligations hereunder. 9. DEFINITIONS. "APPLICABLE MARGIN" shall mean, with respect to each of a Base Rate Loan and a LIBO Rate Loan: either (i) 0.7175% if the Borrower's Debt Rating shall be higher than BBB or Baa2 from S&P and Moody's, respectively or (ii) 1.0475% if the Borrower's Debt Rating shall be BBB or Baa2 or lower from S&P and Moody's, respectively. "BASE RATE" shall mean a fluctuating interest rate per annum equal at all times to the highest of: (a)the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s base rate; or (b)for any day, 1/2 of one percent per annum above the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Citibank, N.A. from three Federal funds brokers of recognized standing selected by it. "BASE RATE LOAN" shall mean a Loan bearing interest at a fluctuating rate determined by reference to the Base Rate plus Applicable Margin from time to time in effect. "BUSINESS DAY" shall mean any day on which federal and state chartered banks in Wilmington, Delaware and New York are open for commercial banking business and, solely with respect to determinations of Interest Periods for LIBO Rate Loans, dealings in U.S. dollars are carried on in the London interbank market. "DEBT RATING" shall mean, as to the Borrower, a rating by each of Moody's and S&P of Borrower's long-term debt which is not secured or supported by a guarantee, letter of credit or other form of credit enhancement. If Moody's or S&P shall have changed its system of classification after the date of this Note, the Borrower's Debt Rating shall be considered to be at or above a specified level if it is at or above the new rating which most closely corresponds to the specified level under the old rating system. 12 "FINAL MATURITY DATE" shall mean July 9, 2010. "INTEREST PAYMENT DATE" shall mean (i) in the case of a Base Rate Loan, the first day of each calendar month, (ii) in the case of any LIBO Rate Loan, the last day of the Interest Period applicable to such LIBO Rate Loan and (iii) the Final Maturity Date. "INTEREST PERIOD" has the meaning given such term in SECTION 3(b). "INTEREST RATE DETERMINATION DATE" shall mean each date for calculating the LIBO Rate, for purposes of determining the interest rate in respect of an Interest Period. The Interest Rate Determination Date in respect of calculating the LIBO Rate shall be the second Business Day prior to the first day of the related Interest Period. "LIBO RATE" shall mean, with respect to any Interest Period, (a) the Telerate LIBOR Rate applicable to such Interest Period or, if the Telerate LIBOR Rate ceases to be reported, the London Interbank Offered Rate applicable to such Interest Period, where: "LONDON INTERBANK OFFERED RATE" shall mean, with respect to each Interest Period, the average rate per annum equal to the average rate of interest at which deposits in U.S. dollars (in the approximate amount equal to the aggregate outstanding principal balance of the Loan, and for a period of time comparable to the applicable Interest Period) are offered to Citicorp North America, Inc. and two other major banks in London selected by Citicorp North America, Inc. in the London interbank market at approximately 11:00 a.m. (London time) two Business Days before the first day of such Interest Period for delivery on the first day of such Interest Period; and "TELERATE LIBOR RATE" shall mean, with respect to an Interest Period, the rate of interest per annum at which deposits in U.S. dollars are offered to major banks in the London interbank market at approximately 11:00 a.m. (London time) for a period of time comparable to the applicable Interest Period, as reported by the Telerate System page 3750 (or such other page as may replace such page 3750 on such system for the purpose of reporting London Interbank Offered Rates of major banks) under the heading for British Bankers Association Interest Settlement Rates in the column designated "USD" (U.S. Dollar), two Business Days before the first day of such Interest Period for delivery on the first day of such Interest Period. "LIBO RATE LOAN" shall mean any Loan under which interest accrues at the LIBO Rate plus the Applicable Margin. "MOODY'S" shall mean Moody's Investors Service, a division of Dun & Bradstreet Corporation, and its successors and assigns. "PERSON" shall mean an individual, corporation, partnership, joint venture, limited liability company, limited liability partnership, association, joint-stock company, trust, limited liability 13 company, unincorporated organization or any applicable foreign, federal, state, county, municipal or other government, quasi-government or regulatory authority, agency, board, body, commission, instrumentality, court or tribunal, or any political subdivision of any thereof, or any arbitrator or panel of arbitrators. "S&P" shall mean Standard & Poor's Ratings Services and its successors and assigns. 10. MISCELLANEOUS. No failure or delay on the part of the Lender in exercising any right, power or privilege hereunder and no course of dealing between the parties hereto shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Lender would otherwise have. No notice to the Borrower in any case shall entitle the Borrower to any other or further notice in similar or other circumstances or constitute a waiver of the rights of the Lender to any other or further action in any circumstances without notice. This Note shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED, HOWEVER, that the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Lender. THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES 14 HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the Borrower has caused its duly authorized officer to execute and deliver this Note as of the date first above written. EDISON MISSION ENERGY By: /s/ Mary Ellen Olson ------------------------- Name: Mary Ellen Olson Title: Vice President Notice Address: 18101 Von Karman Avenue Suite 1700 Irvine, CA 92616 Attention: Telecopier No.: With a copy to: 15 EX-10.15-1 12 a2042986zex-10_151.txt EX10-15.1 Exhibit 10.15.1 AMENDMENT ONE AMENDMENT ONE (this "AMENDMENT") dated as of August 17, 2000 by and among (i) EDISON MISSION ENERGY, ("EME"), (ii) CERTAIN COMMERCIAL LENDING INSTITUTIONS PARTY HERETO, (the "LENDERS") and (iii) BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION., as agent for the Lenders (in such capacity, the "AGENT"). WHEREAS, EME, the Lenders and the Administrative Agent have entered into that certain Second Amended and Restated Credit Agreement, dated as of October 11, 1996 (as heretofore amended, modified and supplemented, the "CREDIT AGREEMENT"), which set forth, INTER ALIA, certain covenants of EME; WHEREAS, EME and its Subsidiary Midwest Generation, LLC ("MIDWEST") desire to enter into the Leveraged Lease Transaction (as defined herein); and WHEREAS, EME has requested, and the Lenders and the Agent have agreed, to amend and waive certain provisions of the Credit Agreement so as to permit the Leveraged Lease Transaction; NOW, THEREFORE, the parties hereto agree as follows: Section 1. DEFINITIONS. Except as otherwise defined in this Amendment, terms defined in the Credit Agreement are used herein (and in the introductions and recitals hereto) as defined therein. Section 2. AMENDMENT TO THE CREDIT AGREEMENT. Subject to the satisfaction of the conditions precedent specified in Section 3 below, but effective as of the Amendment Effective Date, the Credit Agreement shall be amended as follows: (a) SECTION 1.1. of the Credit Agreement shall be amended by adding the following definitions: ""LEVERAGED LEASE BASIC DOCUMENTS" means the Basic Documents as defined in the Leveraged Lease Participation Agreement. AMENDMENT ONE TO CREDIT AGREEMENT "LEVERAGED LEASE PARTICIPATION AGREEMENT" means, collectively, (i) the Participation Agreement dated as of August 17, 2000 by and among Midwest, Edison Mission Energy, Powerton Trust I, Powerton Generation I, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustee; (ii) the Participation Agreement dated as of August 17, 2000 by and among Midwest, Edison Mission Energy, Powerton Trust II, Powerton Generation II, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustee; (iii) the Participation Agreement dated as of August 17, 2000 by and among Midwest, Edison Mission Energy, Joliet Trust I, Joliet Generation I, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustee; (iv) the Participation Agreement dated as of August 17, 2000 by and among Midwest, Edison Mission Energy, Joliet Trust II, Joliet Generation II, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustee. "LEVERAGED LEASE TRANSACTION" means the transaction pursuant to the Leveraged Lease Participation Agreement and the Leveraged Lease Basic Documents.". (b) SECTION 8.2.5. of the Credit Agreement shall be amended by (i) deleting the "and" at the end of SUBSECTION 8.2.5.(D) of the Credit Agreement; (ii) placing the following after the semicolon at the end of SUBSECTION 8.2.5.(E) of the Credit Agreement: "and"; (iii) adding SUBSECTION 8.2.5.(F) to SECTION 8.2.5. of the Credit Agreement as follows: "(f) Investments in Persons primarily engaged in the power generation, power sales or power transmissions business;" and (iv) changing the "(f)" in the subsection following the proviso in SECTION 8.2.5. of the Credit Agreement to "(g)". AMENDMENT ONE TO CREDIT AGREEMENT -2- (c) SECTION 8.2.7. of the Credit Agreement shall be amended by (i) deleting the period at the end of SUBSECTION 8.2.7.(B) of the Credit Agreement and (ii) adding the following language at the end of SUBSECTION 8.2.7.(B) of the Credit Agreement after the word "Investments": "or are used to purchase or repay Indebtedness ranking equal in right of payment to EME senior unsecured Indebtedness.". (d) SECTION 8.2.8. of the Credit Agreement shall be amended by adding the following sentence at the end of the section: "Notwithstanding the foregoing, the Leveraged Lease Transaction and the transactions contemplated by the Leveraged Lease Basic Documents shall be deemed not to be a Transaction with an Affiliate for the purposes of this SECTION 8.2.8.". (e) SECTION 8.2.9. of the Credit Agreement shall be amended by (i) adding the following after the word "Document" in the fourth line of SECTION 8.2.9. of the Credit Agreement: ", any Leveraged Lease Basic Document, any agreement with respect to any Indebtedness entered into by the Borrower or any of its Subsidiaries in connection with the Leveraged Lease Transaction". Section 3. CONDITIONS PRECEDENT. This Amendment shall not become effective until the date (the "AMENDMENT EFFECTIVE DATE") on which each of the parties hereto has received delivery of this Amendment duly executed and delivered by each other party hereto. Section 4. MISCELLANEOUS. Except as expressly amended hereby, all of the terms and provisions of the Credit Agreement are and shall remain in full force and effect. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be governed by, and construed in accordance with, the law of the State of New York. AMENDMENT ONE TO CREDIT AGREEMENT -3- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized. EDISON MISSION ENERGY By: /s/ Kevin M. Smith -------------------------- Name: Kevin M. Smith Title: Senior Vice President and Chief Financial Officer Date: August 3, 2000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent, Issuing Bank and Lender By: /s/ Katherine Kemerait Name: Katherine Kemerait Title: Principal Date: August 7, 2000 UBS, AG, By: /s/ Dorothy L. Mckinley ----------------------- Name: Dorothy L. McKinley Title: Director, Banking Product Services, US Date: August 9, 2000 AMENDMENT ONE TO CREDIT AGREEMENT BANK OF MONTREAL By: /s/ Cahal B. Carmody -------------------- Name: Cahal B. Carmody Title: Director Date: August 9, 2000 THE DAI-ICHI KANGYO BANK, LTD. By: /s/ Nobuyasu Fukatsu -------------------------- Name: Nobuyasu Fukatsu Title: General Manager Date: August 11, 2000 SOCIETE GENERALE By: /s/ David Bird -------------------------- Name: David Bird Title: Vice President Date: August 9, 2000 THE BANK OF NOVA SCOTIA By: /s/ John Quick -------------------------- Name: John Quick Title: Managing Director Date: August 9, 2000 AMENDMENT ONE TO CREDIT AGREEMENT THE CHASE MANHATTAN BANK By: /s/ Thomas L. Casey -------------------------- Name: Thomas L. Casey Title: Vice President Date: August 3, 2000 CITICORP USA, INC. By: /s/ Sandip Sen -------------------------- Name: Sandip Sen Title: Managing Director Attorney-In-Fact Date: August 9, 2000 CREDIT SUISSE FIRST BOSTON By: /s/ James P. Moran -------------------------- Name: James P. Moran Title: Director Date: August 7, 2000 By: /s/ David W. Kratovil ---------------------- Name: David W. Kratovil Title: Director Date: August 7, 2000 AMENDMENT ONE TO CREDIT AGREEMENT THE FUJI BANK, LIMITED By: /s/ Shinzo Nishitate -------------------------- Name: Shinzo Nishitate Title: Senior Vice President Date: August 8, 2000 KBC BANK N.V. By: /s/ Robert Snauffer -------------------------- Name: Robert Snauffer Title: First Vice President Date: August, 2000 By: /s/ Patrick A. Janssens ----------------------- Name: Patrick A. Janssens Title: Vice President Date: August, 2000 THE SANWA BANK, LIMITED By: /s/ Toshiko Boyd -------------------------- Name: Toshiko Boyd Title: Vice President Date: August 11, 2000 AMENDMENT ONE TO CREDIT AGREEMENT THE SUMITOMO BANK, LTD By: /s/ Al Galluzzo -------------------------- Name: Al Galluzzo Title: Senior Vice President Date: August 15, 2000 WELLS FARGO BANK, N.A. By: /s/ Catherine Wallace -------------------------- Name: Catherine Wallace Title: Vice President Date: August 10, 2000 AMENDMENT ONE TO CREDIT AGREEMENT EX-10.61-1 13 a2042986zex-10_611.txt EXHIBIT 10.61.1 Exhibit 10.61.1 AMENDMENT ONE AMENDMENT ONE (this "AMENDMENT") dated as of August 17, 2000 by and among (i) EDISON MISSION ENERGY ("EME"), (ii) CERTAIN COMMERCIAL LENDING INSTITUTIONS PARTY HERETO, (the "LENDERS") and (iii) CITICORP USA, INC., as Administrative Agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"). WHEREAS, EME, the Lenders and the Administrative Agent have entered into that certain Credit Agreement, dated as of March 18, 1999 (as heretofore amended, modified and supplemented, the "CREDIT AGREEMENT"), which sets forth, INTER ALIA, certain covenants of EME; WHEREAS, EME and its Subsidiary, Midwest Generation, LLC ("Midwest"), desire to enter into the Leveraged Lease Transaction (as defined herein); and WHEREAS, EME has requested, and the Lenders and the Administrative Agent have agreed, to amend certain provisions of the Credit Agreement so as to permit the Leveraged Lease Transaction; NOW, THEREFORE, the parties hereto agree as follows: Section 1. DEFINITIONS. Except as otherwise defined in this Amendment, terms defined in the Credit Agreement are used herein (and in the introductions and recitals hereto) as defined therein. Section 2. AMENDMENT TO THE CREDIT AGREEMENT. Subject to the satisfaction of the conditions precedent specified in Section 3 below, but effective as of the Amendment Effective Date, the Credit Agreement shall be amended as follows: (a) SECTION 1.1 of the Credit Agreement shall be amended by adding the following definitions in alphabetical order: AMENDMENT ONE TO CREDIT AGREEMENT ""LEVERAGED LEASE BASIC DOCUMENTS" means the Basic Documents as defined in the Leveraged Lease Participation Agreement. "LEVERAGED LEASE PARTICIPATION AGREEMENT" means, collectively, (i) the Participation Agreement to be entered into among Midwest Generation, LLC, the Borrower, Powerton Trust I, Powerton Generation I, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York , as Pass Through Trustee; (ii) the Participation Agreement to be entered into among Midwest Generation, LLC, the Borrower, Powerton Trust II, Powerton Generation II, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustee; (iii) the Participation Agreement to be entered into among Midwest Generation, LLC, the Borrower, Joliet Trust I, Joliet Generation I, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustee; and (iv) the Participation Agreement to be entered into among Midwest Generation, LLC, the Borrower, Joliet Trust II, Joliet Generation II, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustee. "LEVERAGED LEASE TRANSACTION" means the transaction consummated pursuant to the Leveraged Lease Participation Agreement and the Leveraged Lease Basic Documents.". (b) SECTION 7.2.5 of the Credit Agreement shall be amended by (i) deleting the "and" at the end of SUBSECTION 7.2.5(d) of the Credit Agreement; (ii) deleting the period at the end of SUBSECTION 7.2.5(e) of the Credit Agreement and replacing it with the following: "; and"; and (iii) adding SUBSECTION 7.2.5(f) to SECTION 7.2.5 of the Credit Agreement as follows: "(f) Investments in Persons primarily engaged in the power generation, power sales or power transmissions business.". AMENDMENT ONE TO CREDIT AGREEMENT -2- (c) SECTION 7.2.7 of the Credit Agreement shall be amended by (i) deleting the period at the end of SUBSECTION 7.2.7(b) of the Credit Agreement and (ii) adding the following language at the end of SUBSECTION 7.2.7(b) of the Credit Agreement after the word "Investments": "or are used to purchase or repay Indebtedness ranking equal in right of payment to the Indebtedness of the Borrower hereunder.". (d) SECTION 7.2.8 of the Credit Agreement shall be amended by adding the following sentence at the end of the section: "Notwithstanding the foregoing, the Leveraged Lease Transaction and the Leveraged Lease Basic Documents shall be deemed not to be contracts or arrangements with an Affiliate for the purposes of this SECTION 7.2.8.". (e) SECTION 7.2.9 of the Credit Agreement shall be amended by (i) adding the following after the word "excluding" in the second line of SECTION 7.2.9 of the Credit Agreement: "(i)"; and (ii) adding the following after the word "Indebtedness" in line four of SECTION 7.2.9 of the Credit Agreement: "and, (ii) any Leveraged Lease Basic Document and any agreement with respect to any Indebtedness entered into by the Borrower or any of its Subsidiaries in connection with the Leveraged Lease Transaction". Section 3. CONDITIONS PRECEDENT. This Amendment shall become effective and the Credit Agreement shall be amended on the date (the "AMENDMENT EFFECTIVE DATE") on which (a) the Administrative Agent shall have received from the Borrower and the Required Lenders a copy of this Amendment (whether the same or different copies) duly executed and delivered by the Borrower and the Required Lenders and (b) the Leveraged Lease Transaction shall have been consummated pursuant to the Leveraged Lease Basic Documents and the Leveraged Lease Participation Agreement in form and substance substantially similar to the versions in effect on the date hereof, with any material changes as the Administrative Agent shall have approved. Notwithstanding the preceding sentence, this Amendment shall not become effective and the Credit Agreement shall not be amended on the Amendment Effective Date (a) if a Default or an Event of Default has occurred and is continuing on such date and (b) unless, except as disclosed in the Borrower's filings with the Securities and Exchange Commission pursuant to the Exchange Act of 1934, as AMENDMENT ONE TO CREDIT AGREEMENT -3- amended, the representations and warranties of the Borrower contained in the Loan Documents are true and correct in all material respects as of the Amendment Effective Date with the same effect as though such representations and warranties had been made on and as of the Amendment Effective Date (except for such representations and warranties made as of a specified date, which shall be true and correct in all material respects as of such specified date). The Administrative Agent shall notify the Lenders of the Amendment Effective Date promptly following the effectiveness of this Amendment. Section 5. EXPENSES. The Borrower agrees to pay and reimburse the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the negotiation, execution and delivery of this Amendment, including the reasonable fees and expenses of counsel. Section 6. MISCELLANEOUS. Except as expressly amended hereby, all of the terms and provisions of the Credit Agreement are and shall remain in full force and effect. This Amendment may be executed in any number of counterparts and by facsimile signature, all of which taken together shall constitute one and the same original instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be governed by, and construed in accordance with, the law of the State of New York. AMENDMENT ONE TO CREDIT AGREEMENT -4- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized. EDISON MISSION ENERGY By: /s/ Gary Garcia ------------------------------- Name: Gary Garcia Title: Treasurer CITICORP USA, INC., as Administrative Agent and Initial Lender By: /s/ Sandip Sen ------------------------------- Name: Sandip Sen Title: Managing Director (Attorney-In-Fact) CREDIT SUISSE FIRST BOSTON, as Initial Lender By: /s/ James P. Moran ------------------------------- Name: James P. Moran Title: Director By: /s/ Bill O' Daly ------------------------------- Name: Bill O' Daly Title: Vice President AMENDMENT ONE TO CREDIT AGREEMENT LEHMAN COMMERCIAL PAPER INC., as Initial Lender By: /s/ Michele Swanson ------------------------------- Name: Michele Swanson Title: Authorized Signatory SOCIETE GENERALE, as Initial Lender By: /s/ David Bird ------------------------------- Name: David Bird Title: Vice President ABN AMRO BANK N.V., as Lender By: /s/ David B. Bryant ------------------------------- Name: David B. Bryant Title: Senior Vice President/ Managing Director By: /s/ Gregory Babaya ------------------------------- Name: Gregory Babaya Title: Assistant Vice President AUSTRALIA & NEW ZEALAND BANK, as Lender By: /s/ Richard M. Chinloy ------------------------------- Name: Richard M. Chinloy Title: Director AMENDMENT ONE TO CREDIT AGREEMENT BANCO DI NAPOLI, as Assignee By: Name: Title: UNION BANK OF CALIFORNIA, as Lender By: /s/ Dennis G. Blank ------------------------------- Name: Dennis G. Blank Title: Vice President BANK OF MONTREAL, as Lender By: /s/ Cahal B. Carmody ------------------------------- Name: Cahal B. Carmody Title: Director BANK OF NOVA SCOTIA, as Lender By: /s/ John Gluck ------------------------------- Name: John Gluck Title: Managing Director AMENDMENT ONE TO CREDIT AGREEMENT BARCLAYS BANK PLC, as Lender By: Name: Title: BAYERISCHE HYPO-UND VEREINSBANK AG, as Lender By: Name: Title: BAYERISCHE LANDESBANK GIROZENTRALE, as Lender By: /s/ Thomas von Kistowsky ------------------------------- Name: Thomas von Kistowsky Title: Senior Vice President / Branch Director By: /s/ Cornelia Wintergerst ------------------------------- Name: Cornelia Wintergerst Title: Vice President AMENDMENT ONE TO CREDIT AGREEMENT CREDIT LYONNAIS, as Lender BNP PARIBAS, as Lender By: Name: Title: COMMERZBANK AG, as Lender By: Name: Title: CREDIT INDUSTRIEL ET COMMERCIAL as Lender By: /s/ Marc Baraduc ------------------------------- Name: Marc Baraduc Title: Assistant Vice President By: /s/ Mark D. Palin ------------------------------- Name: Mark D. Palin Title: Vice President CREDIT LOCAL DE FRANCE, as Lender By: Name: Title: AMENDMENT ONE TO CREDIT AGREEMENT CREDIT LYONNAIS, as Lender By: Name: Title: DRESDNER BANK, as Lender By: /s/ Michael E. Higgins ---------------------------- Name: Michael E. Higgins Title: Vice President By: /s/ Andrew Cullinan ---------------------------- Name: Andrew Cullinan Title: Assistant Treasurer INDUSTRIAL BANK OF JAPAN, as Lender By: Name: Title: ING US CAPITAL CORP, as Lender By: Name: Title: AMENDMENT ONE TO CREDIT AGREEMENT NORDEUTSCHE LANDESBANK GIROZENTRALE, as Lender By: /s/ Bruno J-M Mejean ------------------------------- Name: Bruno J-M Mejean Title: Senior Vice President By: /s/ Stefanie Scholz ------------------------------- Name: Stefanie Scholz Title: A.T. CITIBANK, N.A., as Lender By: Name: Title: ROYAL BANK OF SCOTLAND, as Lender By: /s/ Derek Weir ------------------------------- Name: Derek Weir Title: Senior Vice President AMENDMENT ONE TO CREDIT AGREEMENT WESTDEUTSCHE LANDESBANK GIROZENTRALE, as Lender By: /s/ Michael P. Sassos ------------------------------- Name: Michael P. Sassos Title: Associate Director By: /s/ Cyril Derueloy ------------------------------- Name: Cyril Derueloy Title: Manager AMENDMENT ONE TO CREDIT AGREEMENT EX-10.65-1 14 a2042986zex-10_651.txt EXHIBIT 10.65.1 Exhibit 10.65.1 AMENDMENT ONE AMENDMENT ONE (this "AMENDMENT"), dated as of August 17, 2000, by and among EDISON MISSION ENERGY, (the "GUARANTOR"), EME FINANCE UK LIMITED (the "BORROWER"), the BANKS (as defined below) consenting hereto and BARCLAYS BANK PLC, as Facility Agent (the "FACILITY AGENT") for the Banks. WHEREAS, the Borrower, certain banks party thereto (the "BANKS"), Barclays Capital and Credit Suisse First Boston, as arrangers, and the Facility Agent have entered into that certain Coal and CAPEX Facility Agreement dated July 16, 1999 (the "FACILITY AGREEMENT"); WHEREAS, pursuant to the Facility Agreement the Guarantor issued that certain Guarantee, dated as of July 16, 1999 (the "GUARANTEE"), in favor of the Facility Agent, as Facility Agent for the Banks, which sets forth, INTER ALIA, certain covenants of the Guarantor; WHEREAS, pursuant to Clause 22 of the Facility Agreement, the consent of the Majority Banks and the Facility Agent is required for any amendment to the Guarantee; WHEREAS, the Guarantor and its Subsidiary, Midwest Generation, LLC ("MIDWEST"), desire to enter into the Leveraged Lease Transaction (as defined herein); and WHEREAS, the Guarantor has requested, and the Facility Agent and the Banks party hereto have agreed, to amend certain provisions of the Guarantee so as to permit the Leveraged Lease Transaction. NOW, THEREFORE, the parties hereto agree as follows: Section 1. DEFINITIONS. Except as otherwise defined in this Amendment, terms defined in the Guarantee are used herein (and in the introductions and recitals hereto) as defined therein. Section 2. AMENDMENT TO THE GUARANTEE. Subject to the satisfaction of the conditions precedent specified in Section 3 below, but effective as of the Amendment Effective Date, the Guarantee shall be amended as follows: AMENDMENT ONE TO GUARANTEE 1 (a) SECTION 1.1. of the Guarantee shall be amended by adding the following definitions: ""LEVERAGED LEASE BASIC DOCUMENTS" means the Operative Documents as defined in the Leveraged Lease Participation Agreement. "LEVERAGED LEASE PARTICIPATION AGREEMENT" means, collectively, (i) the Participation Agreement dated as of August 17, 2000 by and among Midwest Generation, LLC, the Guarantor, Powerton Trust I, Powerton Generation I, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustees; (ii) the Participation Agreement dated as of August 17, 2000 by and among Midwest Generation, LLC, the Guarantor, Powerton Trust II, Powerton Generation II, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustees; (iii) the Participation Agreement dated as of August 17, 2000 by and among Midwest Generation, LLC, the Guarantor, Joliet Trust I, Joliet Generation I, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustees; and (iv) the Participation Agreement dated as of August 17, 2000 by and among Midwest Generation, LLC, the Guarantor, Joliet Trust II, Joliet Generation II, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustees. "LEVERAGED LEASE TRANSACTION" means the transactions consummated pursuant to the Leveraged Lease Participation Agreement and the Leveraged Lease Basic Documents.". (b) SECTION 4.2.4. of the Guarantee shall be amended by (i) deleting the "and" at the end of SUBSECTION 4.2.4.(IV) of the Guarantee; (ii) deleting the period at the end of SUBSECTION 4.2.4.(V) of the Guarantee and replacing it with the following: "; and"; and (iii) adding SUBSECTION 4.2.4.(VI) to SECTION 4.2.4. of the Guarantee as follows: "(f) Investments in or on behalf of Persons primarily engaged in the power generation, power sales or power transmission business or in transactions related to such business.". AMENDMENT ONE TO GUARANTEE 2 (c) SECTION 4.2.6. of the Guarantee shall be amended by (i) deleting the period at the end of SUBSECTION 4.2.6.(II) of the Guarantee and (ii) adding the following language at the end of SUBSECTION 4.2.6.(II) of the Guarantee after the word "Investments": "or are used to purchase or repay Indebtedness ranking equal in right of payment to senior unsecured Indebtedness of the Guarantor.". (d) SECTION 4.2.7. of the Guarantee shall be amended by adding the following sentence at the end of the section: "Notwithstanding the foregoing, the Leveraged Lease Transaction and the transactions contemplated by the Leveraged Lease Basic Documents shall be deemed not to be a contract or arrangement with an Affiliate for the purposes of this SECTION 4.2.7.". (e) SECTION 4.2.8. of the Guarantee shall be amended by (i) adding the following after the word "Document" in the second line of SECTION 4.2.8. of the Guarantee: ", any Leveraged Lease Basic Document, any agreement with respect to any Indebtedness entered into by the Guarantor or any of its Subsidiaries in connection with the Leveraged Lease Transaction". Section 3. CONDITIONS PRECEDENT. This Amendment shall become effective and the Guarantee shall be amended on the date (the "AMENDMENT EFFECTIVE DATE") on which the Facility Agent shall have executed the Amendment and shall have received from the Guarantor, the Borrower and the Majority Banks a copy of this Amendment (whether the same or different copies) duly executed and delivered by the Guarantor, the Borrower and the Banks. Notwithstanding the preceding sentence, this Amendment shall not become effective and the Guarantee shall not be amended on the Amendment Effective Date (a) if a Potential Event of Default or an Event of Default has occurred and is continuing on such date and (b) unless, except as disclosed in the Guarantor's filings with the Securities and Exchange Commission pursuant to the Exchange Act of 1934, the representations and warranties of the Guarantor contained in the Loan Documents are true and correct in all material respects as of the Amendment Effective Date with the same effect as though such representations and warranties had been made on and as of the Amendment Effective Date (except for such representations and warranties made as of a specified date, which shall be true and correct in all material respects as of such specified date). The Facility Agent shall notify the Banks of the Amendment Effective Date promptly following the effectiveness of this Amendment. AMENDMENT ONE TO GUARANTEE 3 Section 4. MISCELLANEOUS. Except as expressly amended hereby, all of the terms and provisions of the Guarantee are and shall remain in full force and effect. This Amendment may be executed in any number of counterparts and by facsimile signature, all of which taken together shall constitute one and the same original instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be governed by, and construed in accordance with, the laws of England. [THE REST OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK] AMENDMENT ONE TO GUARANTEE 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized. EDISON MISSION ENERGY By: /s/ Cynthia S. Dubin ----------------------------- Name: Cynthia S. Dubin Title: Vice President Date: August 24, 2000 EME FINANCE UK LIMITED By: /s/ James Courtis - Pond Name: James Courtis - Pond Title: Director Date: August 24, 2000 BARCLAYS BANK PLC, as Facility Agent for the Banks party to the Coal and CAPEX Facility Agreement By: /s/ Duncan Nash ----------------------------- Name: Duncan Nash Title: Manager Date: August 22, 2000 BARCLAYS BANK PLC, on behalf of, and with the consent of, the Majority Banks By: /s/ Duncan Nash ----------------------------- Name: Duncan Nash Title: Manager Date: August 22, 2000 AMENDMENT ONE TO GUARANTEE 5 EX-10.84-1 15 a2042986zex-10_841.txt EXHIBIT 10.84.1 Exhibit 10.84.1 AMENDMENT ONE AMENDMENT ONE (this "AMENDMENT") dated as of August 17, 2000 by and among (i) EDISON MISSION ENERGY, ("EME"), (ii) CERTAIN COMMERCIAL LENDING INSTITUTIONS PARTY HERETO, (the "LENDERS") and (iii) BANK OF AMERICA, N.A.., as Administrative Agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"). WHEREAS, EME, the Lenders and the Administrative Agent have entered into that certain Credit Agreement, dated as of May 30, 2000 (as heretofore amended, modified and supplemented, the "CREDIT AGREEMENT"), which set forth, INTER ALIA, certain covenants of EME; WHEREAS, EME and its Subsidiary Midwest Generation, LLC ("MIDWEST") desire to enter into the Leveraged Lease Transaction (as defined herein); and WHEREAS, EME has requested, and the Lenders and the Administrative Agent have agreed, to amend and waive certain provisions of the Credit Agree ment so as to permit the Leveraged Lease Transaction; NOW, THEREFORE, the parties hereto agree as follows: Section 1. DEFINITIONS. Except as otherwise defined in this Amendment, terms defined in the Credit Agreement are used herein (and in the introductions and recitals hereto) as defined therein. Section 2. AMENDMENT TO THE CREDIT AGREEMENT. Subject to the satisfaction of the conditions precedent specified in Section 3 below, but effective as of the Amendment Effective Date, the Credit Agreement shall be amended as follows: (a) SECTION 1.1. of the Credit Agreement shall be amended by adding the following definitions: AMENDMENT ONE TO CREDIT AGREEMENT ""LEVERAGED LEASE BASIC DOCUMENTS" means the Basic Documents as defined in the Leveraged Lease Participation Agreement. "LEVERAGED LEASE PARTICIPATION AGREEMENT" means, collectively, (i) the Participation Agreement dated as of August 17, 2000 by and among Midwest, Edison Mission Energy, Powerton Trust I, Powerton Generation I, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustee; (ii) the Participation Agreement dated as of August 17, 2000 by and among Midwest, Edison Mission Energy, Powerton Trust II, Powerton Generation II, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustee; (iii) the Participation Agreement dated as of August 17, 2000 by and among Midwest, Edison Mission Energy, Joliet Trust I, Joliet Generation I, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustee; (iv) the Participation Agreement dated as of August 17, 2000 by and among Midwest, Edison Mission Energy, Joliet Trust II, Joliet Generation II, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass Through Trustee. "LEVERAGED LEASE TRANSACTION" means the transaction pursuant to the Leveraged Lease Participation Agreement and the Leveraged Lease Basic Documents.". (b) SECTION 7.2.5. of the Credit Agreement shall be amended by (i) deleting the "and" at the end of SUBSECTION 7.2.5.(d) of the Credit Agreement; (ii) deleting the period at the end of SUBSECTION 7.2.5.(e) of the Credit Agreement and replacing it with the following: "; and"; and (iii) adding SUBSECTION 7.2.5.(f) to SECTION 7.2.5. of the Credit Agreement as follows: "(f) Investments in Persons primarily engaged in the power generation, power sales or power transmissions business.". -2- (c) SECTION 7.2.7. of the Credit Agreement shall be amended by (i) deleting the period at the end of SUBSECTION 7.2.7.(b) of the Credit Agreement and (ii) adding the following language at the end of SUBSECTION 7.2.7.(b) of the Credit Agreement after the word "Investments": "or are used to purchase or repay Indebtedness ranking equal in right of payment to EME senior unsecured Indebtedness.". (d) SECTION 7.2.8. of the Credit Agreement shall be amended by adding the following sentence at the end of the section: "Notwithstanding the foregoing, the Leveraged Lease Transaction and the transactions contemplated by the Leveraged Lease Basic Documents shall be deemed not to be a Transaction with an Affiliate for the purposes of this SECTION 7.2.8.". Section 3. CONDITIONS PRECEDENT. This Amendment shall not become effective until the date (the "AMENDMENT EFFECTIVE DATE") on which each of the parties hereto has received delivery of this Amendment duly executed and delivered by each other party hereto. Section 4. MISCELLANEOUS. Except as expressly amended hereby, all of the terms and provisions of the Credit Agreement are and shall remain in full force and effect. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be governed by, and construed in accordance with, the law of the State of New York. -3- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized. EDISON MISSION ENERGY By: /s/ Kevin M. Smith ------------------ Name: Kevin M. Smith Title: SVP and Chief Financial Officer Date: August 3, 2000 BANK OF AMERICA, N.A., as Administrative Agent and Initial Lender By: /s/ Katherine Kemerait ---------------------- Name: Katherine Kemerait Title: Principal Date: August 7, 2000 KBC BANK N.V. By: /s/ Robert Snauffer ------------------- Name: Robert Snauffer Title: First Vice President Date: August, 2000 By: /s/ Patrick A. Janssens ----------------------- Name: Patrick A. Janssens Title: Vice President Date: August, 2000 BARCLAYS BANK PLC By: /s/ Sydney G. Dennis -------------------- Name: Sydney G. Dennis Title: Director Date: August, 2000 TORONTO DOMINION (TEXAS) INC. By: /s/ Lynn Chasin --------------- Name: Lynn Chasin Title: Vice President Date: August, 2000 UNICREDITO ITALIANO By: /s/ Gianfranco Bisagni ---------------------- Name: Gianfranco Bisagni Title: First Vice President Date: August 8, 2000 By: /s/ Saiyed A. Abbas ------------------- Name: Saiyed A. Abbas Title: Vice President Date: August 8, 2000 WESTDEUTSCHE LANDESBANK, GIROZENTRALE, NEW YORK BRANCH By: /s/ Duncan M. Robertson ----------------------- Name: Duncan M. Robertson Title: Director Date: August 8, 2000 By: /s/ Anthony Alessandro ---------------------- Name: Anthony Alessandro Title: Manager Date: August 8, 2000 EX-10.85 16 a2042986zex-10_85.txt EXHIBIT 10.85 Exhibit 10.85 EXECUTION COPY - -------------------------------------------------------------------------------- GUARANTEE DATED AS OF JUNE 23, 2000 IN FAVOR OF EME/CDL TRUST AND MIDWEST GENERATION, LLC MADE BY EDISON MISSION ENERGY, AS GUARANTOR - -------------------------------------------------------------------------------- GUARANTEE, dated as of June 23, 2000, (this "GUARANTEE") made by EDISON MISSION ENERGY, a California corporation (the "GUARANTOR") in favor of EME/CDL Trust, a Delaware business trust and lessor under the Lease referred to below (the "LESSOR") and Midwest Generation, LLC, a Delaware limited liability company and lessee under the Lease referred to below (the "LESSEE"). W I T N E S S E T H WHEREAS, the Lessor and Lessee are party to the Lease Agreement (as from time to time amended, supplemented, amended and restated or otherwise modified and in effect from time to time, the "LEASE") dated as of June 23, 2000 providing for the lease by the Lessor to the Lessee of the Leased Equipment. This Guarantee (i) guarantees the obligations of the Lessee to pay Rent (but excluding Supplemental Rent related to environmental liability as set forth herein), including Termination Value, under the Lease for the benefit of the Lessor and (ii) sets forth the obligations of Guarantor to reimburse the Lessee for certain payments made by Lessee under the Lease; and WHEREAS, the Lessor, the Lessee, the Guarantor, the Investor party to the Trust Agreement (the "INITIAL INVESTOR" and, together with any other Investors party to the Trust Agreement, the "INVESTORS"), Wilmington Trust Company (the "TRUSTEE"), the Persons listed as Noteholders on Schedule I thereto (the "NOTEHOLDERS"), Citicorp North America, Inc., as administrative agent (the "ADMINISTRATIVE AGENT") and Citicorp North America, Inc., as collateral agent (the "COLLATERAL AGENT") are party to the Participation Agreement (as from time to time amended, supplemented, amended and restated, or otherwise modified and in effect from time to time, the "PARTICIPATION AGREEMENT") dated as of June 23, 2000 which establishes certain rights and obligations of the parties to the synthetic lease financing of the Leased Equipment contemplated by the Lease; and WHEREAS, in connection with the Lease, the Lessor, Midwest Peaker Holdings, Inc., as Tranche A Noteholder, Citicorp Del-Lease, Inc. as Tranche B Noteholder and Citicorp North America, Inc., as Agent have entered into the Credit Agreement (as from time to time amended, supplemented, amended and restated, or otherwise modified and in effect from time to time, the "CREDIT AGREEMENT") dated as of June 23, 2000 providing for loans (the "LOANS") to be made by the Noteholders to the Lessor in an aggregate principal amount not to exceed two hundred and ninety-one million Dollars $291,000,000. Also in connection with the Lease, Citicorp Del-Lease, Inc. as Contributor and Investor and Wilmington Trust Company as Trustee have entered into the Amended and Restated Trust Agreement (as from time to time amended, supplemented, amended and restated, or otherwise modified and in effect from time to time, the "TRUST AGREEMENT") dated as of June 23, 2000 providing for an investment (the "INVESTOR CONTRIBUTION") to be made by the Initial Investor to the Lessor in an aggregate principal amount not to exceed nine million Dollars $9,000,000. Whereas the Lessor has granted to the Collateral Agent for the benefit of the Noteholders a security interest in the Trust Estate (as defined in the Participation Agreement and including, without limitation, a collateral assignment of the Lease and this Guarantee) as security for the Loans and certain other obligations. NOW, THEREFORE, for and in consideration of the premises and mutual covenants herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby covenant and agree as follows: ARTICLE 1. DEFINITIONS. 1.01 DEFINED TERMS. Each capitalized term used herein (including in the preamble and recitals hereto) and not otherwise defined herein shall have the definition assigned to that term in Appendix 1 to the Participation Agreement. 1.02 INTERPRETATION. The rules of interpretation set forth in Appendix 1 to the Participation Agreement shall apply MUTATIS MUTANDIS to this Guarantee as if set forth in full in this SECTION 1.02. ARTICLE 2. GUARANTEE. 2.01 THE GUARANTEE. The Guarantor hereby irrevocably guarantees to Lessor and its successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of Rent, including Termination Value, strictly in accordance with the terms of the Lease; PROVIDED, that the Guarantor's obligations hereunder shall not be subject to the limitation on liability set forth in SECTION 7.2 of the Participation Agreement; PROVIDED, FURTHER that the 2 Guarantor shall not be liable for any Supplemental Rent or otherwise, under any theory of law, with respect to any actual or potential environmental liability, including but not limited to, any actual or potential liability arising under or related to Environmental Laws or Hazardous Materials, whether past, present or future, from the ownership, operation or use of the Leased Equipment (such obligations being herein called the "GUARANTEED OBLIGATIONS"). The Guarantor hereby further agrees that if the Lessee shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any Guaranteed Obligation payable by it, the Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any Guaranteed Obligation, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. 2.02 OBLIGATIONS UNCONDITIONAL. The obligations of the Guarantor under SECTION 2.01 are absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Lessee under the Lease or any other agreement or instrument referred to therein, or any substitution, release or exchange of any other guarantee of or security for the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this SECTION 2.02 that the obligations of the Guarantor hereunder shall be absolute and unconditional, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantor hereunder, which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of the Basic Documents or any other agreement or instrument referred to therein shall be done or omitted; 3 (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under the Basic Documents or any other agreement or instrument referred to therein shall be waived or any other guarantee of a Guaranteed Obligation or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (iv) any lien or security interest granted to, or in favor of, the Lessor or any other Person as security for any of the Guaranteed Obligations shall fail to be perfected. The Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Lessor or any other Person exhaust any right, power or remedy or proceed against the Lessee under the Lease or any other agreement or instrument referred to therein, or against any other Person under any other guarantee of, or security for, the Guaranteed Obligations. 2.03 REINSTATEMENT. The obligations of the Guarantor under this Article 2 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Lessee in respect of any of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of a Guaranteed Obligation, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and the Guarantor agrees that it will indemnify the Lessor on demand for all reasonable costs and expenses (including fees of counsel) incurred by the Lessor in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 2.04 SUBROGATION. The Guarantor hereby agrees that until the payment and satisfaction in full of the Guaranteed Obligations it shall not exercise any right or remedy arising by reason of any performance by it of its guarantee in SECTION 2.01, whether by subrogation or otherwise, against the Lessee or any other guarantor of the Guaranteed Obligations or any security for the Guaranteed Obligations. 4 2.05 REMEDIES. The Guarantor agrees that, as between the Guarantor, on the one hand and the Lessee and the Lessor, on the other hand, the obligations of the Lessee under the Lease may be declared to be forthwith due and payable as provided in SECTION 15 of the Lease (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section) for purposes of SECTION 2.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Lessee and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by Lessee) shall forthwith become due and payable by the Guarantor for purposes of SECTION 2.01. 2.06. INSTRUMENT FOR THE PAYMENT OF MONEY. The Guarantor hereby acknowledges that the guarantee in this Article 2 constitutes an instrument for the payment of money, and consents and agrees that the Lessor, at its sole option, in the event of a dispute by the Guarantor in the payment of any moneys due hereunder, shall have the right to bring motion-action under New York CPLR Section 3213. 2.07 CONTINUING GUARANTEE. The guarantee in this Article is a continuing guarantee, and shall apply to all of the Guaranteed Obligations whenever arising. ARTICLE 3. ASSIGNMENT, ETC. 3.01 PAYMENTS UNDER ASSIGNMENT. The Lessor hereby irrevocably directs (it being understood and agreed that such direction shall be deemed to have been revoked after the Lien over the Trust Estate created under the Assignment Agreement shall have been fully discharged in accordance with its terms) the Guarantor, and the Guarantor agrees, to make all payments pursuant to, and in the manner set forth in, SECTION 2.01 hereof to the Lessor Account. ARTICLE 4. ADDITIONAL GUARANTOR PROVISIONS 4.01 OBLIGATION TO REIMBURSE LESSEE. Within 5 Business Days of the last day of each Fiscal Quarter (the "FISCAL QUARTER END"), the Guarantor shall pay to the Lessee an amount equal to the excess of (i) Rent payments (other than 5 Supplemental Rent payable by the Lessee pursuant to SECTION 6.7 of the Participation Agreement) actually made by the Lessee during such Fiscal Quarter LESS (ii) Excess Cashflow for the prior Fiscal Quarter calculated as of such date; PROVIDED, that Excess Cashflow shall be zero in the event that any of the conditions to Restricted Payments set forth in SECTION 8.2.7(b) of the Holdings Credit Agreement (or the correlative section of any credit facility that refinances or replaces the Holdings Credit Agreement) have not been satisfied as of such date. 4.02 PREPAYMENT UNDER INTERCOMPANY NOTE. The Guarantor covenants that it will not elect to prepay the principal amount of the Loan (as defined in the Intercompany Note), in whole or in part, prior to the Lease Expiration Date. The Guarantor further covenants that, after the Lease Expiration Date, it will not elect to prepay the Loan if the Lessee does not own the Leased Equipment. ARTICLE 5. MISCELLANEOUS. 5.01 NO WAIVER. No failure on the part of the Lessor or the Guarantor 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, and no single or partial exercise by the Lessor or the Guarantor of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and are not exclusive of any remedies provided by applicable law. 5.02 NOTICES. All notices, requests and other communications provided for herein (including, without limitation, any modifications of, or waivers under, this Guarantee) 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 Guarantee, all such communications shall be deemed to have been duly given (a) when received by certified mail or by an international courier, such as Federal Express, by such Person, at said address of such Person or (b) when transmitted by facsimile to the number specified below and the receipt confirmed telephonically by recipient, PROVIDED that such facsimile is promptly followed by a copy of such notice delivered to such Person by postage-prepaid certified mail, or by an international courier, such as Federal Express. 6 5.03 EXPENSES. The Guarantor agrees to pay to the Lessor all reasonable out-of-pocket expenses (including reasonable expenses for legal services of every kind) of, or incident to, the enforcement of any of the provisions of this Guarantee, and for the defending or asserting of rights and claims of the Lessor in respect thereof, by litigation or otherwise. 5.04 WAIVERS; ETC. The terms of this Guarantee may be waived, altered or amended only by an instrument in writing duly executed by the Lessor and the Guarantor. Any such amendment or waiver shall be binding upon the Lessor, the Lessee and the Guarantor. 5.05 SUCCESSORS AND ASSIGNS. This Guarantee shall be binding upon and inure to the benefit of the respective successors and assigns of each of the Lessor and the Guarantor. 5.06 COUNTERPARTS; INTEGRATION: EFFECTIVENESS. This Guarantee may be executed in any number of counterparts, all of which when taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Guarantee by signing any such counterpart. This Guarantee constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, written or oral, relating to the subject matter hereof. 5.07 SEVERABILITY. If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by applicable law, (a) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intentions of the parties hereto as nearly as may be possible and (b) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. 5.08 HEADINGS. Headings appearing herein are used solely for convenience of reference and are not intended to affect the interpretation of any provision of this Guarantee. 5.09 SPECIAL EXCULPATION. NO CLAIM MAY BE MADE BY ANY PARTY HERETO OR ANY OTHER PERSON AGAINST THE OTHER PARTY HERETO, THE LESSOR (OR ANY PERSON FOR 7 WHOSE BENEFIT THE LESSOR ACTS) 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 GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH AND EACH PARTY HERETO HEREBY WAIVES, RELEASES AND AGREES, FOR ITSELF AND THOSE WHO CLAIM THROUGH IT, 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. 5.10 WAIVER OF JURY TRIAL. EACH OF THE LESSOR (FOR ITSELF AND ON BEHALF OF EACH PERSON WHO CLAIMS THROUGH THE LESSOR) AND THE GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY. 5.11 NO THIRD PARTY BENEFICIARIES. THE AGREEMENTS OF THE PARTIES HERETO ARE SOLELY FOR THE BENEFIT OF THE LESSOR (AND EACH PERSON WHO CLAIMS THROUGH THE LESSOR), AND NO PERSON (OTHER THAN THE PARTIES HERETO AND THEIR SUCCESSORS AND ASSIGNS PERMITTED HEREUNDER) SHALL HAVE ANY RIGHTS HEREUNDER. 5.12 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Guarantee shall be governed by, and construed in accordance with, the law of the State of New York. The Guarantor hereby submits to the non-exclusive jurisdiction of the United States District Court for the Southern District of New York and of the Supreme Court of the State of New York sitting in New York County (including its Appellate Division) and of any other appellate court in the State of New York for the purposes of all legal proceedings arising out of or relating to this Guarantee or the transactions contemplated hereby. The Guarantor hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim 8 that any such proceeding brought in such a court has been brought in an inconvenient forum. 5.13 LIMITATIONS OF LIABILITY OF TRUSTEE. It is expressly understood and agreed by the parties hereto that this Guaranty is executed by Wilmington Trust Company, not individually or personally, but solely as Trustee under the Trust Agreement in the exercise of the power and authority conferred and vested in it as such Trustee, that each and all of the representations, undertakings and agreements herein made on the part of the Trustee or the Lessor are intended not as personal representations, undertakings and agreements by Wilmington Trust Company, or for the purpose or with the intention of binding Wilmington Trust Company, personally, but are made and intended for the purpose of binding only the Trust Estate, that nothing herein contained shall be construed as creating any liability of Wilmington Trust Company, or any incorporator or any past, present or future subscriber to the capital stock of, or stockholder, officer or director of Wilmington Trust Company, to perform any covenant either express or implied contained herein or in the other Basic Documents to which the Trustee or the Lessor is a party, and that so far as Wilmington Trust Company is concerned, any Person shall look solely to the Trust Estate for the performance of any obligation hereunder or thereunder or under any of the instruments referred to herein or therein; PROVIDED, that nothing contained in this SECTION shall be construed to limit in scope or substance any general corporate liability of Wilmington Trust Company as expressly provided in the Trust Agreement or in the Participation Agreement. 9 IN WITNESS WHEREOF, the parties hereto have caused this Guarantee to be duly executed and delivered as of the day and year first above written. EDISON MISSION ENERGY, as Guarantor By: /s/ John P. Finneran, Jr. -------------------------- Name: John P. Finneran, Jr. Title: Vice President Address for Notices: 18101 Von Karman Avenue Suite 1700 Irvine, CA 92616 Attention: Telecopier No.: EME/CDL TRUST, as Lessor BY WILMINGTON TRUST COMPANY, not in its individual capacity but solely as trustee for the EME/CDL Trust By: /s/ Kathleen A. Pedelini ------------------------ Name: Kathleen A. Pedelini Title: Administrative Account Manager Address for Notices: c/o Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, DE 19890 Attention: Corporate Trust Administration Telecopier No.: (302) 651-8882 10 MIDWEST GENERATION, LLC, as Lessee By: /s/ John P. Finneran, Jr. --------------------------- Name: John P. Finneran, Jr. Title: Vice President Address for Notices: One Financial Place 440 South LaSalle Street, Suite 3500 Chicago, Illinois 60605 Attn: Georgia R. Nelson WITH A COPY TO: Edison Mission Midwest Holdings Co. 18101 Von Karman Avenue Suite 1700 Irvine, CA 92616 Attention: Telecopier No.: 11 EX-10.86 17 a2042986zex-10_86.txt EXHIBIT 10.86 Exhibit 10.86 [COAL GENERATING STATIONS] POWER PURCHASE AGREEMENT DATED AS OF DECEMBER 15, 1999 BETWEEN COMMONWEALTH EDISON COMPANY AND MIDWEST GENERATION, LLC CRAWFORD, FISK, WAUKEGAN, WILL COUNTY, JOLIET AND POWERTON GENERATING STATIONS Table of Contents
Page 1. Definitions and Interpretation.............................................................1 (a) Definitions.......................................................................1 (b) Interpretation...................................................................12 (c) Legal Representation of Parties..................................................13 (d) Titles and Headings..............................................................13 2. Term......................................................................................14 3. Generating Capacity.......................................................................14 4. Electric Energy Supply....................................................................14 (a) Character........................................................................14 (b) Supply...........................................................................14 (c) Dispatch.........................................................................14 (d) Energy Imbalance.................................................................15 5. Metering; Billing; Payment................................................................15 (a) Metering.........................................................................15 (b) Meter Inaccuracies...............................................................15 (c) Billing..........................................................................16 (d) Billing Disputes.................................................................16 6. Operation of Reserved Units...............................................................17 (a) Standard of Operation............................................................17 (b) Electric Energy Generation.......................................................17 (c) Outages..........................................................................19 (d) Operating Characteristics........................................................20 (e) Fuel Source and Emissions Reports................................................21 (f) Records..........................................................................21 7. Compensation..............................................................................21 (a) Monthly Capacity Charge..........................................................21 (b) Energy Charge....................................................................22 (c) Start-Up and Support Charges.....................................................22 (d) Low Load Charges.................................................................25 (e) Ancillary Services...............................................................25 8. Testing...................................................................................25 9. Ancillary Services........................................................................26 10. Limitation of Liability...................................................................26 11. Disagreements.............................................................................28 (a) Administrative Committee Procedure...............................................28 (b) Arbitration......................................................................28 i (c) Obligations to Pay Charges and Perform...........................................30 (d) Preliminary Injunctive Relief....................................................30 (e) Settlement Discussions...........................................................31 12. Assignment: Transfer of Stations..........................................................31 (a) Assignment.......................................................................31 (b) Collateral Assignment............................................................31 (c) Transfer of Stations during the Term.............................................32 13. Call Options..............................................................................32 14. Default: Termination and Remedies.........................................................33 (a) Seller's Default.................................................................33 (b) ComEd Default....................................................................33 (c) Remedies and Remedies Cumulative.................................................34 (d) Extended Outage..................................................................34 15. Force Majeure.............................................................................35 (a) Force Majeure Event..............................................................35 (b) Obligations Under Force Majeure..................................................35 (c) Continued Payment Obligation.....................................................36 (d) Availability.....................................................................36 16. Representations and Warranties............................................................36 (a) Representations and Warranties of Seller.........................................36 (b) Representations and Warranties of ComEd..........................................37 17. Indemnification...........................................................................39 18. Notices...................................................................................39 19. Confidentiality...........................................................................41 20. Governing Law.............................................................................41 21. Partial Invalidity........................................................................42 22. Waivers...................................................................................42 23. Competitive Transition Charge.............................................................42 24. Entire Agreement and Amendments...........................................................42
ii APPENDICES Appendix A Equivalent Availability Factor Appendix B Design Limits Appendix C Source of Contracted Capacity Appendix D MAIN Guide Number 3A Appendix E EO Communications and Guidelines Appendix F Reporting Forms Appendix G Regulating Performance Value Methodology Appendix H GADS Cause Codes iii POWER PURCHASE AGREEMENT THIS POWER PURCHASE AGREEMENT (including Appendices, this "AGREEMENT") dated as of December 15, 1999, between COMMONWEALTH EDISON COMPANY, an Illinois corporation ("COMED"), and MIDWEST GENERATION, LLC, a Delaware limited liability company ("SELLER"; ComEd and Seller are sometimes referred to herein individually as a "PARTY" and collectively as the "PARTIES"); WITNESSETH: WHEREAS, ComEd owns electric facilities and is engaged in the generation, purchase, transmission, distribution and sale of electric energy; and WHEREAS, Seller intends to purchase and thereafter operate ComEd's existing Crawford, Fisk, Waukegan, Will County, Joliet and Powerton electric generation stations; and WHEREAS, ComEd desires to receive and purchase, and Seller desires to deliver and sell, electric capacity, energy and other generation-related services; and WHEREAS, ComEd desires to determine the dispatching of certain units at such stations as provided in this Agreement; 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, (ii) the terms defined elsewhere in this Agreement shall have the meanings therein so specified and (iii) the terms "AVAILABLE," "AVAILABLE HOURS," "EQUIVALENT AVAILABILITY FACTOR," "FORCED OUTAGE," "MAINTENANCE OUTAGE," "NET DEPENDABLE CAPACITY," "PLANNED OUTAGE," "PLANNED OUTAGE EXTENSION," "SERVICE HOURS" and "UNAVAIL- ABLE", and the associated terms referred to and used in the calculation of such terms, shall have the respective meanings assigned to such terms in Appendix A. "ADJUSTMENT FACTOR" means, with respect to a month, the factor (rounded to four decimal places) obtained from the following: (a) if such month is a Summer Month:
GROUP EAF ADJUSTMENT FACTOR --------- ----------------- Greater than or equal to 65% (Group EAF + 25)/100 Less than 65% Zero
(b) if such month is a Non-Summer Month:
GROUP EAF ADJUSTMENT FACTOR --------- ----------------- Greater than or equal to 65% (Group EAF + 35)/100 Less than 65% and greater (100 + [(Group EAF -65) x 2])/100 than 55% Less than 55% Zero
PROVIDED, HOWEVER that all outage hours and derating attributable to ComEd transmission system problems, outages or stability load restrictions shall be deemed Available Hours. "AFFECTED PARTY" has the meaning specified in Section 15(a). "ANCILLARY SERVICES" has the meaning set forth in Section 9. "ASSET SALE AGREEMENT" means the Asset Sale Agreement dated as of March 22, 1999, between ComEd and Seller, governing the transfer of the Stations from ComEd to Seller. "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 2 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. "BASE CAPACITY" means 5,656 megawatts. "BUSINESS DAY" means each weekday (Monday through Friday) except the days on which the following holidays are observed: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. "CALL OPTIONS" has the meaning set forth in Section 13. "CHANGE OF LAW" means the adoption, promulgation, modification or reinterpretation of any law, rule, regulation, ordinance, order or other Requirement of Law of any federal, state, county or local government, governmental agency, court, commission, department or other such entity which occurs subsequent to the date of execution of this Agreement but excluding any change in law relating to (i) taxation of net income or (ii) any requirement regarding reduction or control of nitrogen oxide (NOx), carbon dioxide or volatile organic materials under any Requirement of Law. "COLD START" means a Successful Start-Up of a Reserved Unit before which such Reserved Unit has been off-line for 48 hours or more. "COMED CONTROL AREA" means the ComEd electrical system bounded by interconnection (tie-line) metering and telemetry and wherein ComEd controls generation to maintain the system's interchange schedule with other control areas and contributes to frequency regulation of the interchange. "COMED EMS" means the electronic hardware and software owned by ComEd and known as the "ComEd Energy Management System." "COMED EVENT OF DEFAULT" has the meaning specified in Section 14(b). "COMED SYSTEM" means the electric transmission and distribution system owned by ComEd and its affiliates. "CONFIDENTIAL INFORMATION" has the meaning specified in Section 19. 3 "CONTRACT YEAR" means, in the case of the First Contract Year, the period beginning on the Effective Date and ending on the day prior to the first anniversary of such beginning date, if the Effective Date is the first day of a calendar month, or ending on the day prior to the first anniversary of the beginning of the month immediately following the Effective Date, if the Effective Date is not the first day of a month; and, in the case of subsequent Contract Years, means the period beginning on the day immediately following the end of the preceding Contract Year and ending on the day prior to the first anniversary of such beginning day. First Contract Year refers to the first such period commencing on the Effective Date; Second Contract Year refers to the second such period; and so on. "CONTRACTED CAPACITY" means, with respect to a Contract Year, the aggregate megawatts of generating capacity from the generating units identified for such Contract Year in Appendix C. "DEFAULT RATE" means (i) the "Prime Rate" as published from time to time in the "Money Rates" section of The Wall Street Journal, plus (ii) 2.5% (250 basis points) per annum. "DESIGN LIMITS" means, with respect to a Reserved Unit, the items listed in Appendix B with respect to such Reserved Unit. "EFFECTIVE DATE" means the date of this Agreement. "ELECTRIC ENERGY" has the meaning specified in Section 4(a). "EMERGENCY CONDITION" means a condition or situation which (i) in the sole judgment of ComEd (or any ISO) presents an imminent physical threat of danger to life, or significant threat to health or property, (ii) in the sole judgment of ComEd (or any ISO) could cause a significant disruption on or significant damage to the ComEd System (or any material portion thereof) or the transmission system of a third party (or any material portion thereof) directly interconnected to the ComEd System, (iii) in the sole judgment of Seller could cause significant damage to the equipment that constitutes a Station (or any material portion thereof) or (iv) in the sole judgment of ComEd could cause significant damage to the equipment located in the switchyard associated with a Station (or any material portion of such switchyard). "ENERGY CHARGE" means an amount determined under Section 7(b) in respect of a month. 4 "EO" means ComEd's Electric Operations Department. "EO GENERATION DISPATCHER" means the Person so designated from time to time by ComEd as contemplated in Appendix E. Notice provisions for the EO Generation Dispatcher are contained in Appendix E. "EXCESS START" means, with respect to a Reserved Unit, a Successful Start-Up of such Reserved Unit after the cumulative number of Cold Starts, Warm Starts and Hot Starts for such Reserved Unit for a Contract Year equals twenty. "FERC" means the Federal Energy Regulatory Commission. "FORCE MAJEURE EVENT" has the meaning specified in Section 15(a). "GOVERNMENTAL ACTION" has the meaning specified in Section 15(a). "GROUP" means, with respect to a Contract Year, all of the Reserved Units for such Contract Year. "GROUP EAF" means the Equivalent Availability Factor of the Group, subject to the following adjustment and clarifications: (i) to the extent that Seller declares a Substitute Unit to be Available to ComEd for the generation of Electric Energy, the Available generating capacity of such Substitute Unit may be used to offset the Unavailable generating capacity of a Reserved Unit (up to (i) if such calculation is being performed for a Summer Month, 75% of the Net Dependable Capacity of such Reserved Unit as set forth in Appendix B or (ii) if such calculation is being per formed for a Non-Summer Month, 65% of the Net Dependable Capacity of such Reserved Unit as set forth in Appendix B) for purposes of calculating Group EAF; (ii) for clarity and the avoidance of doubt, hours attributable to Planned Outages (including extensions), Maintenance Outages (including extensions) and Forced Outages shall be Unavailable hours for the purposes of calculating Group EAF; and (iii) Availability of a Reserved Unit shall be measured on the Station side of the Point of Delivery unless an event on the Station side of the Point of Delivery has caused equipment on the transmission system side of the Point of Delivery to be malfunctional or nonfunctional. "HOT START" means a Successful Start-Up of a Reserved Unit before which such Reserved Unit has been off-line for eight hours or less. 5 "INTERCONNECTION AGREEMENT" means the Facilities, Interconnection and Easement Agreement dated as of the Effective Date between ComEd and Seller with respect to a Station. "ISO" means any Person that becomes responsible under applicable FERC guidelines for the transmission system to which a Station is connected. "LENDERS" means (i) any person or entity that, from time to time, has made loans to Seller, its permitted successors or permitted assigns for the financing or refinancing of a Station or which are secured by a Station, (ii) any holder of such indebtedness, (iii) any trustee on behalf of any such holders or (iv) any Person who purchases a Station in connection with a sale-leaseback or other lease arrangement in which the Seller is the lessee of such Station pursuant to a net lease. "LOW LOAD CHARGES" means an amount determined under Section 7(d) in respect of a month. "MAIN" means the Mid-America Interconnected Network. "MINIMUM LOAD" means the "Minimum Operating Level" for a Reserved Unit (below which it cannot operate in a stable manner with or without support fuel) as set forth in Appendix B. Minimum Load for a Reserved Unit shall be measured in net megawatts. "MONTHLY CAPACITY CHARGE" means an amount determined under Section 7(a) in respect of a month. "NERC" means the North American Electric Reliability Council. "NON-SUMMER CALL CAPACITY CHARGE" means, with respect to a Non-Summer Month in a given Contract Year, the charge per megawatt-month determined from the following table: 6
------------------------------------------------------------ CHARGE PER MEGAWATT - CONTRACT YEAR MONTH ------------------------------------------------------------ 1 $1,843 ------------------------------------------------------------ 2 1,890 ------------------------------------------------------------ 3 1,940 ------------------------------------------------------------ 4 2,663 ------------------------------------------------------------ 5 2,663 ------------------------------------------------------------
"NON-SUMMER CAPACITY CHARGE" means, with respect to a Non-Summer Month in a given Contract Year, the charge per megawatt-month determined from the following table:
------------------------------------------------------------ CHARGE PER MEGAWATT - CONTRACT YEAR MONTH ------------------------------------------------------------ 1 $1,500 ------------------------------------------------------------ 2 1,500 ------------------------------------------------------------ 3 1,500 ------------------------------------------------------------ 4 1,375 ------------------------------------------------------------ 5 1,375 ------------------------------------------------------------
"NON-SUMMER CAPACITY PAYMENT" means, for a Non-Summer Month, the sum of the following calculations for each Reserved Unit during such month: (i) if such Reserved Unit is identified in Appendix C as a source of Contracted Capacity for such month, the result of (a) the product of (1) the Net Dependable Capacity of such Reserved Unit (as set forth in Appendix B), multiplied by (2) the Non-Summer Capacity Charge for such month, multi plied by (3) the Adjustment Factor for such month, minus (b) the Regulation Adjustment for such Reserved Unit for such month and 7 (ii) if such Reserved Unit has been identified by ComEd through the exercise of a Call Option as a source of Reserved Option Capacity for such month, the result of (a) the product of (1) Net Dependable Capacity of such Reserved Unit (as set forth in Appendix B), multiplied by (2) the Non- Summer Call Capacity Charge for such month, multiplied by (3) the Adjust ment Factor for such month, minus (b) the Regulation Adjustment for such Reserved Unit for such month. "NON-SUMMER MONTH" means any month other than a Summer Month. "OPTION UNIT" means, with respect to a Contract Year, a generating unit that is not identified in Appendix C as a source of Contracted Capacity for such Contract Year; PROVIDED, HOWEVER, with respect to each Contract Year after the Third Contract Year, if such generating unit was an Option Unit in a preceding Contract Year and was not reserved in such preceding Contract Year through the exercise by ComEd of a Call Option pursuant to Section 13, then such generating unit shall not be an Option Unit in the Contract Year in question. "PERSON" means any individual, corporation, partnership, joint venture, limited liability company, association, joint stock company, trust, unincorporated organization, entity, government or other political subdivision. "POINT OF DELIVERY" means the point of Electric Energy delivery from the Station in which such Reserved Unit is located to the ComEd System specified in the Interconnection Agreement for such Station. "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 United States of America 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 United States of America. "REGULATION ADJUSTMENT" means, with respect to a Reserved Unit for a given month, (i) if the Adjustment Factor for such Reserved Unit for such month is zero or 8 the Service Hours for such Reserved Unit for such month are less than seventy-two, an amount equal to zero, or (ii) in all other cases, an amount equal to the RPV Adjustment. "REQUIREMENT OF LAW" means any foreign, federal, state and local laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued or promul gated 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. "RESERVED CAPACITY" means, with respect to a Contract Year, the sum of the Contracted Capacity and the Reserved Option Capacity for such Contract Year. "RESERVED OPTION CAPACITY" means, with respect to a particular Contract Year, the aggregate Net Dependable Capacity (as set forth in Appendix B) of any Option Units reserved as a result of the exercise of a Call Option pursuant to Section 13. "RESERVED UNIT" means each, and "RESERVED UNITS" means all, of the generating units (i) identified in Appendix C as the source of the Contracted Capacity for a given Contract Year and (ii) identified by ComEd in connection with the exercise of a Call Option as the source of Reserved Option Capacity for such Contract Year. "RPV" means, with respect to a Reserved Unit, its (together with any Substi tute Unit substituted for such Reserved Unit) "regulating performance value," which shall be calculated by ComEd EMS on a monthly basis in accordance with the methodology set forth in Appendix G. "RPV ADJUSTMENT" means, with respect to a Reserved Unit for a given month, the amount determined from the following: 9
RPV Adjustment -------------- If (RPVmin - RPVact) is less than zero [(RPVmin - RPVact) x $5,330] If (RPVmin - RPVact) is zero zero If RPVmin - RPVact) is greater than [(RPVmin - RPVact) x $5,330] zero
For purposes of the foregoing calculation, the term "RPVMIN" means the "Unit RPV" listed for such Reserved Unit in Appendix B; and the term "RPVACT" means the actual RPV calculated by ComEd EMS for such Reserved Unit for such month. "SELLER'S EVENT OF DEFAULT" has the meaning specified in Section 14(a). "START-UP AND SUPPORT CHARGES" means an amount determined under Section 7(c) in respect of a month. "STATIONS" means the Crawford, Fisk, Waukegan, Will County, Joliet and Powerton generating stations being conveyed to Seller pursuant to the Asset Sale Agreement. "SUBSTITUTE UNIT" means a generating unit (other than a combustion turbine generating unit or peaker subject to a power purchase agreement with ComEd) within the ComEd Control Area which is not a Reserved Unit under this Agreement at the time in question. "SUCCESSFUL START-UP" means causing, at the request of ComEd, a generating unit to achieve electrical synchronization with the transmission provider's system to which the Station containing such unit is interconnected and to maintain at least the Minimum Load for such generating unit for a period of twelve hours. "SUMMER CALL CAPACITY CHARGE" means, with respect to a Summer Month in a given Contract Year, the charge per megawatt-month determined from the follow ing table: 10
------------------------------------------------------------ CHARGE PER MEGAWATT - CONTRACT YEAR MONTH ------------------------------------------------------------ 1 $14,700 ------------------------------------------------------------ 2 15,120 ------------------------------------------------------------ 3 15,520 ------------------------------------------------------------ 4 21,300 ------------------------------------------------------------ 5 21,300 ------------------------------------------------------------
"SUMMER CAPACITY CHARGE" means, with respect to a Summer Month in a given Contract Year, the charge per megawatt-month determined from the following table:
------------------------------------------------------------ CHARGE PER MEGAWATT - CONTRACT YEAR MONTH ------------------------------------------------------------ 1 $12,000 ------------------------------------------------------------ 2 12,000 ------------------------------------------------------------ 3 12,000 ------------------------------------------------------------ 4 11,000 ------------------------------------------------------------ 5 11,000 ------------------------------------------------------------
"SUMMER CAPACITY PAYMENT" means, for a Summer Month, the sum of the following calculations for each Reserved Unit during such month: (i) f such Reserved Unit is identified in Appendix C as a source of Contracted Capacity for such month, the result of (a) the product of (1) the Net Dependable Capacity of such Reserved Unit (as set forth in Appendix B), multiplied by (2) the Summer Capacity Charge for such month, multiplied by (3) the Adjustment Factor for such month, minus (b) the Regulation Adjustment for such Reserved Unit for such month and 11 (ii) if such Reserved Unit has been identified by ComEd as a source of Reserved Option Capacity for such month, the result of (a) the product of (1) the Net Dependable Capacity of such Reserved Unit (as set forth in Appendix B), multiplied by (2) the Summer Call Capacity Charge for such month, multiplied by (3) the Adjustment Factor for such month, minus (b) the Regulation Adjustment for such Reserved Unit for such month. "SUMMER MONTH" means each of June, July, August and September. "SUMMER PERIOD" means the period from May 15 through September 15 or, if the Effective Date or the Termination Date falls from May 15 through September 15 of a given year, then for the resulting shorter period for such year. "TERM" has the meaning specified in Section 2. "TERMINATION DATE" means the earlier of (i) the day immediately preceding the fifth anniversary of the Effective Date if the Effective Date is the first day of a month and otherwise the day immediately preceding the fifth anniversary of the first day of the month immediately following the Effective Date and (ii) the date on which this Agreement is terminated by a Party pursuant to its terms. "WARM START" means a Successful Start-Up of a Reserved Unit before which such Reserved Unit has been off-line for more than eight hours, but less than 48 hours. (b) INTERPRETATION. In this Agreement, unless a clear contrary intention appears: (i) the singular includes the plural 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 capac ity excludes such Person in any other capacity or individually; (iii) reference to any gender includes each other gender; (iv) reference to any agreement (including this Agreement), document, instrument or tariff means such agreement, document, instrument 12 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. 13 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), 6(f) (Records), 10 (Limitation of Liability), 11 (Disagreements), 14 (Default, Termination and Remedies), and 16 (Indemnification) shall survive the termination 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 Net Dependable Capacity of the Reserved Units during a Contract Year to be not less than the Reserved Capacity for such Contract Year. 4. ELECTRIC ENERGY SUPPLY (a) CHARACTER. All electric energy which Seller shall sell and deliver to ComEd from a Reserved Unit (or a Substitute Unit) hereunder (such electric energy being referred to herein as the "ELECTRIC ENERGY") shall be consistent with the requirements of Section 5.7 of the Interconnection Agreement applicable to the Stations. (b) SUPPLY. Subject to the terms and conditions of this Agreement, Seller shall make available at the Point of Delivery for a Reserved Unit to ComEd for delivery and sale, and ComEd may receive and purchase from Seller, Electric Energy. If a Reserved Unit is not Available, Seller may use a Substitute Unit to fulfil such obligation; PROVIDED HOWEVER, that (i) if such Substitute Unit is not located within the Station in which such Unavailable Reserved Unit is located, Seller shall be responsible for arranging transmission service for delivery to such Station from such Substitute Unit and (ii) such Substitute Unit shall have an RPV not less than the Unavailable Reserved Unit. ComEd shall not be obligated to receive or purchase any Electric Energy from Seller except such Electric Energy as is dispatched by ComEd pursuant to Section 4(c). (c) DISPATCH. ComEd may dispatch the delivery of Electric Energy from each Reserved Unit (or Substitute Unit) in accordance with the provisions set forth in Appendix E at a rate up to such Reserved Unit's Net Dependable 14 Capacity as set forth in Appendix B or such Substitute Unit's Net Dependable Capacity, as the case may be (or such greater or lesser rate as Seller may from time to time declare to be Available in accordance with Section 3 of Appendix E), at any time when such Reserved Unit is so declared by Seller to be Available. (d) ENERGY IMBALANCE. ComEd shall hold Seller harmless from any energy imbalance charges that result from ComEd's dispatch orders under this Agreement. 5. METERING; BILLING; PAYMENT (a) METERING. All Electric Energy delivered by Seller to ComEd from a Station under this Agreement shall be metered at billing meter installations provided, installed, owned, maintained and tested as provided in Section 5.18 of the Interconnection Agreement applicable to such Station. At Sellers option and expense, back-up meters and associated metering equipment independent of the Metering Equipment may be installed at the Station; and such back-up meters and metering equipment shall be used in accordance with the practices and procedures established by the Parties for billing adjustments of discovered billing meter inaccuracies. Any such back-up meters may be tested by ComEd at Seller's expense, and any inaccuracies shall be handled as provided in Section 5.18 of the Interconnection Agreement. All Electric Energy delivered by Seller to ComEd from a Substitute Unit not located at a Station shall be metered at billing meter installations provided, installed, owned, maintained and tested by ComEd, if available, and otherwise at the billing meter installation available at the site where the Substitute Unit is located. In the event that ComEd's billing meters are not in service, ComEd will use meter information from the meters it uses for dispatch for the period that the billing meters are unavailable and provide the information to Seller. As soon as practicable but in any event no later than five Business Days after the end of each calendar month, ComEd shall provide Seller with information from the billing meter installations owned or controlled by ComEd for Seller's use in preparing billing statements and Seller shall have the right to witness such meter readings and testing. (b) METER INACCURACIES. ComEd shall provide to Seller copies of all routine meter calibration test results. If any test of the billing meters by ComEd or Seller discloses an inaccuracy of more than 0.5% fast or 0.5% slow, then a billing adjustment shall be made to correct for the inaccuracy. For purpose of the billing adjustment, if the inaccuracy is traceable to a specific event or occurrence at a reasonably ascertainable time, then the adjustment shall extend back to that time; 15 otherwise, it shall be assumed that the error has existed for a period equal to one-half of the time elapsed since the meter was installed or one-half of the time since the last meter test, whichever is later. At any metering location, should the billing meter at any time fail to register, the delivered Electric Energy shall be determined by ComEd from the best available data, unless Seller objects within 30 days. Such disagree ments shall be resolved pursuant to Section 11. (c) 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 ComEd for the amounts due in respect of such month under Section 7, which statement shall contain reasonable detail showing the manner in which the Monthly Capacity Charge, Energy Charge, Start-Up and Support Charges and Low Load Charges were determined. Billings for Electric Energy shall be based on ComEd revenue quality meter information or, if such meters are not yet in service, on information from the meters that ComEd uses for dispatch. The amount due to Seller as shown on any such monthly statement rendered by Seller shall be paid by ComEd within fifteen Business Days after the date such statement is rendered to ComEd by electronic means to an account specified by Seller. Any amount not paid when due shall bear interest from the due date until paid at the Default Rate. (d) BILLING DISPUTES. (i) If ComEd questions or contests the amount of any amount claimed by Seller to be due under Section 7 of this Agreement, ComEd 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(d)(ii). (ii) In the event that ComEd, 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 ComEd, within fifteen Business Days following receipt by Seller of such notice from ComEd, of the amount of any error and the amount of any reimbursement that ComEd is entitled to receive in respect of such alleged error. Any disputes not resolved within fifteen Business Days after Seller's receipt of notice from ComEd shall be resolved in accordance with 16 Section 11. Upon determination of the correct amount of any reimbursement, such amount shall be promptly paid by Seller. (iii) Reimbursements made by Seller to ComEd under this Section 5(d) 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 RESERVED UNITS (a) STANDARD OF OPERATION. Consistent with Prudent Utility Practice, Seller shall operate each Reserved Unit in accordance with (i) the applicable 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 applicable to the Station in which such Reserved Unit is located; and (iii) all applicable Requirements of Law. Seller will maintain all certifications, permits, licenses and approvals necessary to operate and maintain each Reserved Unit and to perform its obligations under this Agreement during the Term. (b) ELECTRIC ENERGY GENERATION. (i) During a Contract Year, ComEd shall have the right to receive and purchase Electric Energy represented by the Reserved Capacity of the Reserved Units for such Contract Year. To the extent that ComEd has not dispatched the full Reserved Capacity of, the Reserved Units, Seller may sell the electric energy represented by such undispatched Reserved Capacity to third parties subject to the following requirements: (w) if such undispatched Reserved Capacity relates to a Reserved Unit which: (i) has been synchronized to the ComEd System and is delivering Electric Energy at the request of ComEd, the EO Generation Dispatcher must have released such capacity to Seller and any sales of electric energy from such capacity shall be cancellable by Seller upon not more than ten minutes notice through GCM from the EO Generation Dispatcher; or 17 (ii) is off-line at the request of the EO Generation Dispatcher, then any sales of electric energy from such capacity shall be cancellable by Seller upon not more than twenty-four hours notice through GCM from the EO Generation Dispatcher; (x) Seller shall be responsible for arranging transmission service for any deliveries of electric energy contemplated by any such sales to third parties (it being understood that this Agreement does not grant any rights of access to, or use of, any transmission service); (y) the delivery of electric energy contemplated by any such sales to third parties shall be in accordance with the provisions of the applicable Interconnection Agreement; and (z) Seller shall schedule the sale of any energy so released through EO and shall respond to any recall of such energy by EO within the applicable time period specified in Section 6(b)(i)(w). No sales of electric energy shall be made to any Person from a Reserved Unit (or any portion thereof) declared by Seller to be Unavailable. (ii) In the event that a Reserved Unit shall have electric generation capacity in excess of its Net Dependable Capacity set forth in Appendix B, Seller may offer and sell such capacity and associated electric energy to third parties on such terms as Seller shall determine in its sole discretion. Seller shall be responsible for arranging transmission service for any deliveries of electric energy contemplated by any such sales to third parties (it being understood that this Agreement does not grant any rights of access to, or use of, any transmission service); and the delivery of electric energy contemplated by any such sales shall be in accordance with the provisions of the applicable Interconnection Agreement. It is further understood that, in the event that any such sales to third parties shall be made and there shall be a derating in the associated Reserved Unit, such sales to third parties shall be curtailed in full before any curtailment of Electric Energy dispatched by ComEd from such Reserved Unit as a result of such derating. (iii) Seller may not sell Ancillary Services with respect to any undispatched Reserved Capacity referred to in Section 6(b)(i) or with respect to any excess capacity referred to in Section 6(b)(ii). 18 (c) OUTAGES (i) PLANNED OUTAGES. On or prior to the Effective Date, Seller shall submit to ComEd a proposed schedule of Planned Outages (including Planned Ratings) scheduled by Seller for the following three Contract Years for the Reserved Units and the Option Units, which schedule shall be supplemented by Seller every six months following the Effective Date by notice to the EO Generation Dispatcher 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 a Summer Period. Such schedule, and each supple ment thereto, shall indicate the planned start and completion dates for each Planned Outage shown during the period covered thereby and the amount of generating capacity that will be affected. Within sixty days of receipt of such schedule or any supplement thereto, ComEd may request reasonable modifications therein. Seller and ComEd shall work together to schedule Planned Outages to meet their mutual requirements; however, it is understood that in the event of a disagreement on such scheduling, ComEd will have the right to resolve such disagreements as it reasonably determines to be appropriate in accordance with Prudent Utility Practice. In addition, ComEd may at any time request, and Seller shall make, changes to such schedule or any such supplement if ComEd deems such changes to be necessary, PROVIDED THAT, Seller shall not be required in connection with any such changes to split a single Planned Outage into more than one outage or to reduce the duration of a Planned Outage; PROVIDED FURTHER that, except for changes requested during the first six months of the Term, such changes do not affect any Planned Outages during the six months immediately following Seller's receipt of such request; and PROVIDED FURTHER, that if Seller reasonably incurs increased costs as a result of ComEd's request to reschedule a Planned Outage, ComEd shall reimburse Seller for the actual, documented increased out-of-pocket costs. At least one week prior to any Planned Outage, Seller shall orally notify the EO Generation Dispatcher of the expected start date of such Planned Outage, the amount of generating capacity at the Reserved Units which will not be available to ComEd during such Planned Outage, and the expected comple tion date of such Planned Outage. Seller shall orally notify the EO Genera tion Dispatcher promptly 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. 19 (ii) MAINTENANCE OUTAGES. To the extent that during any Contract Year Seller needs to schedule a Maintenance Outage, Seller shall notify the EO Generation Dispatcher of such outage and shall plan such outage of generating capacity and use reasonable efforts to accommodate the requirements and service obligations of ComEd. Notice of a proposed Maintenance Outage shall include the expected start date of the outage, the amount of unavailable generating capacity of the Reserved Units and the expected completion date of the outage, and shall be given to ComEd at the time the need for the outage is determined by Seller. ComEd shall promptly respond to such notice and may request reasonable modifications in the schedule for the outage to accommodate the requirements and service obligations of ComEd. Seller shall use reasonable efforts to comply with such requested modifications and shall, if requested by ComEd, reschedule its Maintenance Outages, PROVIDED THAT it may do so in accordance with Prudent Utility Practice. Seller shall notify the EO Generation Dispatcher promptly of any subsequent changes in such generating capacity not available to ComEd or any subsequent changes in such outage completion date. As soon as practicable, any such notifications given orally shall be confirmed in writing. (iii) FORCED OUTAGES. Seller shall provide to the EO Generation Dispatcher immediately an oral report of any Forced Outage (including Forced Deratings) of the Reserved Units, which report shall include the amount of generating capacity at the Reserved Units unavailable because of such Forced Outage and the expected return date of such generating capacity, and shall update such report promptly by notice to the EO Generation Dispatcher as necessary to advise ComEd of changed circumstances. As soon as practicable, all such oral reports shall be confirmed in writing. (iv) INFORMATION RELATED TO OUTAGES. In addition to the foregoing, Seller shall provide to the EO Generation Dispatcher information relating to outages of generating capacity at the Stations which would affect Seller's ability to deliver Electric Energy from any Reserved Unit. (d) OPERATING CHARACTERISTICS. The operating characteristics of each Reserved Unit shall be consistent with the Design Limits for such Reserved Unit set forth in Appendix B 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 by the Parties. Seller shall 20 reduce, curtail or interrupt electrical generation at the Stations in accordance with Prudent Utility Practice or take other appropriate action in accordance with the applicable provisions of the applicable Interconnection Agreement which in the reasonable judgment of ComEd may be necessary to operate, maintain and protect the ComEd 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 equipment at a Station during an Emergency Condition. (e) FUEL SOURCE AND EMISSIONS REPORTS. Seller shall provide ComEd with information concerning Seller's fuel sources and emissions (including carbon dioxide, nitrous oxides and sulfur dioxide emissions) as reasonably requested by ComEd in order to allow ComEd 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. (f) RECORDS. Each Party shall keep and maintain all records as may be necessary or useful in performing or verifying any calculations or charges 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 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 and its agents, including auditors, shall have the right, upon thirty days written notice prior to the end of an applicable three calendar year period to request copies of such records. Each Party shall provide such copies, at the other Party's expense, within thirty days of receipt of such notice or shall make such records available to the other Party and its agents, including auditors, in accordance with the foregoing provisions of this Section. 7. COMPENSATION ComEd shall pay to Seller, in respect of each calendar month during the Term, the following amounts: (a) MONTHLY CAPACITY CHARGE. A Monthly Capacity Charge equal to the Summer Capacity Payment, if such month is a Summer Month, or the Non-Summer Capacity Payment, if such month is a Non-Summer Month; PROVIDED, HOWEVER, if the first month of the First Contract Year is a partial month (as a result of 21 the Effective Date occurring during a month), the amount payable under this Section 7(a) in respect of such partial month shall be prorated by multiplying it by a fraction, the numerator of which is the number of days from the Effective Date through the last day of such month and the denominator of which is the total number of days in such month. (b) ENERGY CHARGE. An amount equal to the product of (x) the Electric Energy (expressed in megawatt hours) sold to ComEd under this Agreement during such month, multiplied by (y) the megawatt hour charge applicable to such Electric Energy as determined from the following table:
ENERGY CHARGE ($/MEGAWATT HOUR) CONTRACT YEAR CONTRACTED CAPACITY RESERVED OPTION CAPACITY - ------------- ------------------- ------------------------ 1 $15 $18 2 15.50 18.50 3 16 19 4 17 20 5 17 20
(c) START-UP AND SUPPORT CHARGES. An amount equal to the sum of: (1) the product of (x) the number of Cold Starts for each Reserved Unit during such month, multiplied by (y) the Cold Start Charge for such Reserved Unit shown in the following table, plus (2) the product of (x) the number of Warm Starts for each Reserved Unit, multiplied by (y) the Warm Start Charge for such Reserved Unit shown in the following table, plus (3) the product of (x) the number of Hot Starts for each Reserved Unit during such month, multiplied by (y) the Hot Start Charge for such Reserved Unit shown in the following table, plus 22 (4) the product of (x) the number of Excess Starts for each Reserved Unit during such month, multiplied by (y) $5,000, plus (5) the product of (x) the number of hours during such month that a Reserved Unit is operated at the request of ComEd within the Support Load Range, if any, shown in the following table, multiplied by (y) the Support Charge for such Reserved Unit shown in the following table; PROVIDED, HOWEVER, that the Support Charge shall be zero if, due to a derating (not directed by ComEd), the Reserved Unit is unable to operate above the specified Support Load Range. 23
COLD WARM HOT SUPPORT SUPPORT START START START LOAD CHARGE CHARGE CHARGE CHARGE RANGE (NET ($/HOUR) RESERVED UNIT MW) Crawford Unit 7 $10,000 $5,000 $3,700 65-98 $300 Crawford Unit 8 7,400 5,500 4,600 44-111 300 Fisk Unit l9 13,700 8,300 5,700 30-120 500 Waukegan Unit 6 5,900 4,000 1,200 * * Waukegan Unit 7 6,400 3,500 2,300 122-150 200 Waukegan Unit 8 5,900 4,000 2,700 63-111 1,000 Will County Unit l 2,800 1,500 1,500 * * Will County Unit 2 2,800 1,500 1,400 * * Will County Unit 3 8,000 5,500 3,300 36-93 200 Will County Unit 4 14,400 10,500 7,500 50-180 500 Joliet Unit 6 4,200 3,500 3,400 * * Joliet Unit 7 7,9001 6,5002 4,3003 60-137 400 Joliet Unit 8 7,9001 6,5002 4,3003 60-137 400 Powerton Unit 5 21,4004 17,5005 14,4006 * * Powerton Unit 6 21,4004 17,5005 14,4006 * *
- ----------------------- * Not applicable 1 $2,500 for second boiler. 2 $2,000 for second boiler. 3 $1,300 for second boiler. 4 $15,000 for second boiler. 5 $12,000 for second boiler. 6 $10,600 for second boiler. 24 (d) LOW LOAD CHARGES. An amount equal to the sum of the following calculations for each generating unit identified in the following table (if then a Reserved Unit) for such month: the product of (1) the number of megawatt hours during such month that such generating unit was operated at the request of ComEd within the range set forth opposite such unit in such table and (2) the Low Load Charge set forth opposite such unit in such table; PROVIDED, HOWEVER, that no Low Load Charge shall be due if, due to a derating (not directed by ComEd), such Reserved Unit is unable to operate above the Low Load Range specified in the table below.
LOW LOAD CHARGE GENERATING UNIT LOAD RANGE (NET MWS) ($ PER MEGAWATT-HOUR) --------------------------------------------------------------------------------- Fisk Unit 19 30-60 $1.50 --------------------------------------------------------------------------------- Will County Unit 4 50-100 1.00 --------------------------------------------------------------------------------- Joliet Units 7 & 8 56-75 2.00 --------------------------------------------------------------------------------- Powerton Units 5 130-220 3.00 & 6 ---------------------------------------------------------------------------------
(e) ANCILLARY SERVICES. There shall not be any additional charges payable by ComEd or otherwise in respect of the Ancillary Services described in Section 9. 8. TESTING Capability evaluations of the Reserved Units may be conducted by ComEd at reasonable intervals. Such evaluations shall consist of a period of one hour during which ComEd may request the Net Dependable Capacity of a Reserved Unit (as set forth in Appendix B) to generate Electric Energy for delivery to the ComEd System. Once a test period has been initiated, it must last one hour unless ComEd and the general manager at the Station in which the Reserved Unit is located mutually agree to a shorter duration. In addition, ComEd may request not more than once per Contract Year that a Reserved Unit undergo a generating test as specified in Guide No. 3A of MAIN (a copy of which is attached as Appendix D). 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, ComEd shall have the right to 25 retest the affected Reserved Unit upon prior notice to Seller. Seller shall have the right to retest any Reserved Unit after the failure of any test performed at the request of ComEd pursuant to this Section 8. 9. ANCILLARY SERVICES. As directed by ComEd, Seller shall provide the following additional services (the "ANCILLARY SERVICES") with respect to the Reserved Capacity of the Reserved Units (subject to any sale(s) of electric energy made by Seller to third parties to the extent permitted under Section 6(b)(i) or (ii)): (a) Reactive supply and voltage control from generation sources (b) Regulation and frequency response (c) Operating reserve - spinning (d) Operating reserve - supplemental The requirements of these services shall be as stated in ComEd's Open Access Transmission Tariff as filed with FERC, and any other Requirements of Law and any requirements of MAIN, NERC, any ISO and any successors to the functions thereof. 10. LIMITATION OF LIABILITY 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 (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. Notwithstanding the foregoing provisions of this Section or any other Section hereof, if (i) ComEd dispatches the delivery of Electric Energy from a Reserved Unit in accordance with the provisions hereof (other than during a 26 ComEd Event of Default under Section 14(b)(i)) and Seller fails to provide the Electric Energy so dispatched by ComEd, or (ii) if Seller fails to declare a Reserved Unit Available at its Net Dependable Capacity (as set forth in Appendix B), and, during such failure, Seller sells or provides electric energy from the Reserved Unit to any Person other than ComEd (including Seller but excluding provision or use of electric energy by Seller solely for use at the Station in which the Reserved Unit is located), ComEd shall, in addition to any rights it has to an adjustment of payments otherwise due hereunder or to terminate this Agreement, be entitled to reimbursement by Seller for all of ComEd's out-of-pocket costs related to or resulting from such failure by Seller, including: (w) the costs to purchase and transmit electric energy in substitu tion for the subject Electric Energy to the extent such costs exceed the costs that would have been due hereunder had, in the case of a failure under clause (i) above, Seller provided the Electric Energy dispatched by ComEd, or the costs to purchase and transmit electric energy in substitution for the Net Dependable Capacity (as set forth in Appendix B) from the subject Reserved Unit to the extent such costs exceed the costs that would have been due hereunder had, in the case of a failure under clause (ii) above, Seller declared such Reserved Unit Available and ComEd had dispatched Electric Energy from such Reserved Unit in each case in an amount inclusive of the electric energy sold to such Person; (x) any and all amounts paid (whether in the form of cash pay ments, bill credits, tariff adjustments or otherwise) by ComEd to its customers pursuant to statute, tariff, order of a tribunal of competent jurisdiction or other Requirement of Law because ComEd was unable to provide electric energy to any of its customers to the extent that all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller; (y) attorneys', consultants' and witnesses' fees incurred by ComEd in connection with a regulatory or judicial investigation or proceeding of any kind related to or resulting from an inability of ComEd to provide electric energy to any of its customers to the extent that all or any part of such inabil- 27 ity could reasonably have been expected to have been avoided absent such failure by Seller; and (z) any other amounts owed to third parties because of ComEd's inability to deliver electric energy if all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller. In addition, if ComEd is unable to provide electric energy to any customer or third party and all or part of such inability could reasonably have been expected to have been avoided absent such failure by Seller, ComEd will suffer significant damages in addition to its out-of-pocket costs, the quantification of which is difficult to ascertain. Accordingly, if ComEd is unable to provide electric energy to any customer or third party and all or any part such inability could reasonably have been expected to have been avoided absent such failure by Seller, and, during such failure by Seller, Seller sells or provides electric energy from the subject Reserved Unit to any Person other than ComEd (including Seller but excluding provision or use of electric energy by Seller solely for use at the Station in which the Reserved Unit is located), Seller shall pay for each occurrence, in addition to the out-of-pocket costs described above, liquidated damages to ComEd in the amount of $25,000 for each megawatt of Net Dependable Capacity (as set forth in Appendix B) for the relevant Reserved Unit. 11. DISAGREEMENTS (a) ADMINISTRATIVE COMMITTEE PROCEDURE. Except to the extent otherwise provided in Section 5(d), if any disagreement arises on matters concerning this Agreement, the disagreement shall be referred to one representative of each Party, who shall attempt to timely resolve the disagreement. If such representatives can resolve the disagreement, such resolution shall be reported in writing to and shall be binding upon the Parties. If such representatives cannot resolve the disagreement within a reasonable time, or a Party fails to appoint a representative within 10 days of written notice of the existence of a disagreement, then the matter shall proceed to arbitration as provided in Section 11(b). (b) ARBITRATION. If pursuant to Section 11(a), the Parties are unable to resolve a disagreement arising on a matter pertaining to this Agreement, such disagreement shall be settled by arbitration in Chicago, Illinois. The arbitration shall be governed by the United States Arbitration Act (9 U.S.C.ss.1 ET SEQ.), and any award issued pursuant to such arbitration may be enforced in any court of competent 28 jurisdiction. 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. Arbitration shall be conducted as follows: (i) Either Party may give the other Party written notice in sufficient detail of the disagreement and the specific provision of this Agreement under which the disagreement arose. The demand for arbitration must be made within a reasonable time after the disagreement has arisen. In no event may the demand for arbitration be made if the institution of legal or equitable proceedings based on such disagreement is barred by the applicable statute of limitations. Any arbitration related to this Agreement may be consolidated with any other arbitration proceedings related to this Agreement. (ii) 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 days, each shall then appoint one person to serve as an arbitrator and the two 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 arbitrators shall determine all matters by majority vote; PROVIDED, HOWEVER, if the two arbitrators ap pointed by the Parties are unable to agree upon the appointment of the third arbitrator within five 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 days thereafter, then either of the Parties upon written notice to the other may require 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. (iii) The Parties shall have sixty days from the appointment of the arbitrator(s) to perform discovery and present evidence and argument to the arbitrator(s). During that period, the arbitrator(s) 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 arbitrator(s) shall use all reasonable means to expedite discovery and to sanction noncompliance 29 with reasonable discovery requests or any discovery order. The arbitrator(s) 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 arbitrator(s) shall have forty-five 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 arbitrator(s) 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 expressly excluded hereunder. (v) The arbitrator(s) shall give a written decision to the Parties stating their findings of fact and conclusions of law, and shall furnish to each Party a copy thereof signed by him (them) within five calendar days from the date of their determination. The arbitrator's(s') decision shall be final and binding upon the Parties. (vi) Each Party shall pay the cost of the arbitrator(s) with respect to those issues as to which they do not prevail, as determined by the arbitrator(s). (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 by arbitration as provided in Section 11(b), Seller shall continue to operate the Reserved Units in a manner consistent with the applicable provisions of this Agreement and ComEd shall continue to pay all charges and perform all other obligations required in accordance with the applicable provi sions of this Agreement. (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 compe tent 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. 30 (e) 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. 12. ASSIGNMENT; TRANSFER OF STATIONS (a) ASSIGNMENT. 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 or delayed. Notwithstanding the foregoing, ComEd shall have the right to assign its rights and obligations hereunder without the consent of Seller to (i) any entity that has a net worth of at least $500 million and credit ratings for long-term secured debt from Standard & Poor's Ratings Group of BBB- or higher and from Moody's Investors Service, Inc. of Baa3 or higher or (ii) any affiliate of ComEd. 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 Seller (or any entity or entities directly or indirectly holding a majority of the outstanding voting equity interests of Seller) to any party other than an affiliate controlled by, or under common control with, Seller shall be deemed an assignment of this Agreement. (b) COLLATERAL ASSIGNMENT. Notwithstanding the above, ComEd hereby consents to the assignment by Seller of a security interest in this Agreement to any Lenders; PROVIDED THAT Owner shall have provided notice of any such assignment to ComEd. ComEd further agrees to execute documentation to evidence such consent, PROVIDED it shall have no obligation to waive any of its rights under this Agreement. ComEd 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 in any material respect or termi nated (except for termination pursuant to the terms of this Agreement) without the consent of Lenders, which consent as to amendments shall not be unreasonably withheld or delayed, (ii) Lenders shall be given notice of, and a reasonable time period (but in no event more than the time period provided to Seller) to cure, any Seller breach or default of this Agreement, (iii) if a Lender forecloses, takes a deed in 31 lieu or otherwise exercises its remedies pursuant to any security documents, that ComEd shall, at Lender's request, 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 (PROVIDED either (i) such proposed assignee is creditworthy and possesses experience and skill in the operation of electric generation plants or (ii) ComEd consents to the assignment to such proposed as signee, which consent shall not be unreasonably withheld (it being understood that ComEd 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 a Station(s), (v) that ComEd shall accept performance in accordance with this Agreement by Lender(s) or its (their) nominee, (vi) that ComEd shall make all payments to an account designated by Lender(s), and (vii) that ComEd shall make representations and warranties to Lender(s) as Lender(s) may reasonably request with regard to (A) ComEd's corporate existence, (B) ComEd's corporate authority to execute, deliver, and perform this Agreement, (C) the binding nature of this Agreement on ComEd, (D) receipt of regulatory approvals by ComEd with respect to its performance under this Agreement, and (E) whether any defaults by Owner are known by ComEd then to exist under this Agreement. (c) TRANSFER OF STATIONS DURING THE TERM. Prior to the Termination Date, Seller shall not sell or otherwise transfer any interest in any Station to any Person without first obtaining ComEd's written consent, which consent shall not be unreasonably withheld or delayed and may be conditioned upon the transferee's assumption of the obligations of Seller under this Agreement in respect of such Station. No such assignment shall relieve Seller from its obligations hereunder, unless otherwise agreed to by ComEd in writing. Any such sale or transfer without consent under this Section 12 shall be null and void. 13. CALL OPTIONS Subject to the notice and other requirements contained in this Section 13, ComEd shall have the right with respect to each Contract Year to reserve some or all of the generating capacity represented by the Option Units for such Contract Year (such reservation rights being referred to herein collectively as the "CALL OPTIONS" and individually as a "CALL OPTION"). A Call Option may be exercised with respect to a Contract Year as to one or more of the Option Units for such Contract Year, PROVIDED any such exercise shall be as to full generating units. ComEd shall exercise a Call 32 Option with respect to a particular Contract Year by providing written notice of such exercise to Seller by no later than the Effective Date, in the case of the First Contract Year, and no later than one hundred eighty (180) days before the first day of any succeeding Contract Year. Such notice shall contain (i) a statement that ComEd is exercising a Call Option or Call Options, (ii) the Contract Year or Contract Years with respect to which the Call Option or Call Options being exercised relate, and (iii) an identification of the Option Unit(s) for the applicable Contract Year with respect to which ComEd is exercising such Call Option or Call Options. 14. DEFAULT; TERMINATION AND REMEDIES. (a) SELLER'S 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 ComEd in breach of this Agree ment, shall constitute an event of default by Seller ("SELLER'S 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 ten Business Days after receipt of written notice thereof; (ii) Seller shall without reasonable cause abandon or wilfully desert a Station in which there is a Reserved Unit for a period in excess of 24 hours; (iii) Seller's Bankruptcy; 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 which failure materially and adversely affects ComEd, and if reasonably capable of remedy, is not remedied within 60 days after ComEd has given written notice to Seller of such failure and requiring its remedy; PROVIDED, HOWEVER, that if such remedy cannot reasonably be cured within such period of 60 days, such failure shall not constitute a Seller's Event of Default if Seller has promptly commenced and is diligently proceeding to cure such default. (b) COMED 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 ComEd ("COMED EVENT OF DEFAULT"): 33 (i) ComEd fails to pay any amount due from it pursuant to Section 7 hereof on the due date thereof and such failure is not remedied within ten Business Days after receipt of written notice thereof; (ii) ComEd fails to pay any sum (other than one set forth in subsec tion (i) above) due from it hereunder on the due date thereof and such failure is not remedied within fifteen days after Seller has given written notice to ComEd of such failure and requiring its remedy; (iii) ComEd's Bankruptcy; or (iv) ComEd 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 60 days after Seller has given written notice to ComEd of such failure and requiring its remedy; PROVIDED, HOWEVER, that if such remedy cannot reasonably be cured within such period of 60 days, such failure shall not constitute a ComEd Event of Default if ComEd has promptly commenced and is diligently proceeding to cure such default. (c) REMEDIES AND REMEDIES CUMULATIVE. (i) Upon the occurrence and during the continuation of a ComEd Event of Default or a Seller's Event of Default, the non-defaulting party may at its discretion (A) terminate this Agreement upon 30 days prior written notice to the Party in default and (B) exercise any other rights and remedies available at law or in equity. (ii) If a ComEd Event of Default under Section 14(b)(i) has occurred and is continuing, Seller shall have the right to sell the electric energy represented by the Contracted Capacity of the Reserved Units on a daily basis during the continuance of such ComEd Event of Default to third parties. (d) EXTENDED OUTAGE. ComEd may terminate this Agreement as to a Station upon thirty days prior written notice to Seller if an outage (including an outage caused by, or resulting from, a Force Majeure Event) at such Reserved Unit(s) prevents Seller from substantially performing its obligations hereunder in respect of such Reserved Unit(s) for a consecutive period of 120 days, PROVIDED that if Seller 34 demonstrates that it has taken significant steps toward remediating the circumstances which led to such outage and certifies in writing to ComEd that such outage will end within 300 days of its commencement (and such outage in fact ends within such 300 days), then ComEd may not so terminate this Agreement. 15. FORCE MAJEURE (a) FORCE MAJEURE EVENT. For the purposes of this Agreement, "FORCE MAJEURE EVENT" means any unforeseeable 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; (iii) strike or other labor dispute; (iv) war, insurrection or riot; (v) acts of, or failure to act by, legislative, judicial or regulatory agencies or officials (collectively, "GOVERNMENTAL ACTION"); and (vi) Change of Law. (b) OBLIGATIONS UNDER FORCE MAJEURE. (i) If the Affected 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, then, during the continuance of such inability, the obligation of such Party to perform the obligations so affected shall be suspended. (ii) The Affected Party shall give written notice of such Force Majeure Event to the other Party as soon as practicable after such event 35 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 shall, with all reasonable dispatch, take all steps reasonably necessary to resume the obligation(s) previously suspended. (iii) Notwithstanding the foregoing, an Affected Party shall not be excused under this Section 15(b) for (x) any non-performance of its obliga tions under this Agreement having a greater scope or longer period than is justified by the Force Majeure Event or (y) the performance of obligations that arose prior to the Force Majeure Event. Nothing contained herein shall be construed as requiring an Affected Party to settle any strike, lockout or other labor dispute in which it may be involved. (c) CONTINUED PAYMENT OBLIGATION. A Party's obligation to make payments already owing pursuant to this Agreement shall not be suspended by a Force Majeure Event. (d) AVAILABILITY. Notwithstanding this Section 15, outages or deratings of Reserved Units caused by, or attributable to, Force Majeure Events shall be considered periods that the affected capacity is Unavailable unless such Force Majeure Event is an event described in clause (ii) or (iv) of Section 15(a) (in which case, such affected capacity shall be considered Available at 75% of the Net Depend able Capacity (as set forth in Appendix B) of the affected Reserved Unit(s) for the duration of such Force Majeure Event during a Summer Month and at 65% of such Net Dependable Capacity for the duration of such Force Majeure Event during a Non- Summer Month). 16. REPRESENTATIONS AND WARRANTIES (a) REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby makes the following representations and warranties to ComEd: (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 con ducted and to enter into this Agreement and carry out the transactions contem- 36 plated 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 Board of Directors or equity holders other than that which has been obtained (evidence of which shall be, if it has not heretofore not been, delivered to ComEd). (iii) The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and com pliance 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. (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. (vi) Seller has all governmental approvals necessary for it to perform its obligations under this Agreement. (b) REPRESENTATIONS AND WARRANTIES OF COMED. ComEd hereby makes the following representations and warranties to Seller: (i) ComEd is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois, is qualified to do business in the State of Illinois and has the legal power and authority to own its 37 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 ComEd of this Agreement have been duly authorized by all necessary corporate action, and do not and will not require any consent or approval of ComEd's Board of Directors or shareholders other than that which has been obtained (evidence of which shall be, if it has not heretofore been, delivered to Seller). (iii) The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and com pliance 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 ComEd 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 obliga tion of ComEd 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 ComEd, threatened action or proceeding affecting ComEd before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. (vi) ComEd has all governmental approvals necessary for it to perform its obligations under this Agreement. 38 17. 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 caused by the gross negligence or wilful 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 attribut able to the gross negligence or wilful misconduct of, or breach of this Agreement by, the Party seeking indemnification hereunder. Title, and all risk relating to, all Electric Energy purchased by ComEd under this Agreement from a Reserved Unit shall pass to ComEd at the Point of Delivery for such Reserved Unit. ComEd shall indemnify Seller for liability from Electric Energy once sold and delivered at such Point of Delivery; and Seller shall indemnify ComEd for liability from Electric Energy prior to its delivery at such Point of Delivery. 18. 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 sent by facsimile transmission, delivered or sent to the address set forth below or such other address as the receiving Party may from time to time designate by written notice: If to ComEd, to: Commonwealth Edison Company One First National Plaza, 37th Floor 10 South Dearborn Street Chicago, Illinois 60603 Attention: Senior Vice President - Transmission Facsimile No.: (312) 394-3110 Confirmation No.: (312) 394-3172 with a copy to: Commonwealth Edison Company 39 Law Department Room 1535 125 South Clark Street Chicago, Illinois 60603 Attention: Associate General Counsel- Corporate and Commercial Facsimile No. (312) 394-3950 Confirmation No.: (312) 394-5400 If to Seller, to: Midwest Generation, LLC One Financial Place - Suite 3500 440 South LaSalle Street Chicago, Illinois 60605 Attention: President Facsimile No.: (312) 583-6000 Confirmation No.: (312) 583-6111 with a copy to: Edison Mission Marketing & Trading Inc. 18101 Von Karman Avenue - Suite 1700 Irvine, California 92612 Attention: Bulk Power Operations Fax No.: (949) 798-7425 Confirmation No.: (949) 798-7421 and Edison Mission Energy 18101 Von Karman Avenue - Suite 1700 Irvine, California 92612 Attention: General Counsel Fax No.: (949) 757-0807 Confirmation No.: (949) 798-7902 40 and Edison Mission Energy 18101 Von Karman Avenue - Suite 1700 Irvine, California 92612 Attention: Assistant General Counsel Fax No.: (949) 757-0807 Confirmation No.: (949) 798-7937 All notices shall be effective when received. 19. CONFIDENTIALITY Each Party agrees that it will treat in confidence all documents, materials and other information marked "Confidential," "Proprietary" or with a similar designation 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 any financing or refinancing, or its permitted assignees or transferees and in the case of ComEd, to its affiliates, or to its counsel, accountants, financial advisors, tax advisors or insurance consultants, or its permitted assignees or transferees). 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. 20. GOVERNING LAW Except as provided in Section 11, this Agreement shall be deemed to be an Illinois contract and shall be construed in accordance with and governed by the laws of Illinois without regard to its conflicts of laws provisions. 41 21. PARTIAL INVALIDITY Wherever possible, each provision hereof shall be interpreted in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such invalid, illegal or unenforceable provision or provisions or any other provisions hereof, unless such a construction would be unreasonable. In the event that such a construction would be unreasonable or would deprive a Party of a material benefit under this Agreement, the Parties shall seek to amend this Agreement to remove the invalid provision and otherwise provide the benefit unless prohibited by any Require ments of Law. 22. WAIVERS The failure of either Party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of a Party thereafter to enforce each and every such provision. A waiver under this Agreement must be in writing and state that it is a waiver. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. 23. COMPETITIVE TRANSITION CHARGE. The Parties acknowledge that Seller has satisfied its Competitive Transition Charge (as defined in the Illinois Public Utilities Act) obligations with respect to the Stations by prepayment, which was included in the Purchase Price paid under the Asset Sale Agreement. 24. ENTIRE AGREEMENT AND AMENDMENTS. Except as provided in the Asset Sale Agreement and the Interconnection Agreements, 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. 42 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date set forth at the beginning of this Agreement. COMMONWEALTH EDISON COMPANY By /s/ ROBERT J. MANNING --------------------------------- Name: Robert J. Manning Title: Executive Vice President MIDWEST GENERATION, LLC By /s/ GEORGIA R. NELSON --------------------------------- Name: Georgia R. Nelson Title: President 43 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- APPENDIX A EQUIVALENT AVAILABILITY FACTOR - ------------------------------------------------------------------------------- OPERATION AND OUTAGE STATES - ------------------------------------------------------------------------------- AVAILABLE State in which a unit is capable of providing service, whether or not it is actually in service, regardless of the capacity level that can be provided. FORCED DERATING (D1, D2, D3) An unplanned component failure (immediate, delayed, postponed) or other condition that requires the load on the unit be reduced immediately, within six hours, or before the end of the next weekend. FORCED OUTAGE (U1, U2, U3, SF) An unplanned component failure (immediate, delayed, postponed, startup failure) or other condition that requires the unit be removed from service immediately, within six hours, or before the end of the next weekend. MAINTENANCE DERATING (D4) The removal of a component for scheduled repairs that can be deferred beyond the end of the next weekend, but requires a capacity reduction before the next Planned Outage. MAINTENANCE OUTAGE (MO) The removal of a unit from service to perform work on specific components that can be deferred beyond the end of the next weekend, but requires the unit be removed from service before the next planned outage. Typically, MOs may occur any time during the year, have flexible start dates, and may or may not have predetermined durations. MAINTENANCE OUTAGE EXTENSION (SE OF MO) The extension of a Maintenance Outage (MO). PLANNED DERATING (PD) The removal of a component for repairs that is sched uled well in advance and has a predetermined duration. PLANNED OUTAGE (PO) The removal of a 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, testing). PLANNED OUTAGE EXTENSION (SE OF P0) The extension of a Planned Outage (PO). RESERVE SHUTDOWN (RS) A state in which the unit was available for service but not electrically connected to the transmission system for economic reasons. SCHEDULED DERATING EXTENSION (DE) The extension of a maintenance or planned derating. UNAVAILABLE State in which a unit is not capable of operation because of the failure of a component, external restriction, testing, work being performed, or some other adverse condition. A-1 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TIME - ------------------------------------------------------------------------------- AVAILABLE HOURS (AH) Sum of all Service Hours (SH) and Reserve Shutdown Hours (RSH), or Period Hours (PH) less Planned Outage Hours (POH), Forced Outage Hours (FOH), and Maintenance Outage Hours (MOH). EQUIVALENT PLANNED DERATED HOURS (EPDH) The product of Planned Derated Hours (PDH) and Size of Reduction, divided by Net Maximum Capacity (NMC). EQUIVALENT SEASONAL DERATED HOURS (ESEDH) Net Maximum Capacity (NMC) less Net De pendable Capacity (NDC), multiplied by Avail able Hours (AH) and divided by Net Maximum Capacity (NMC). EQUIVALENT UNPLANNED DERATED HOURS (EUDH) The product of Unplanned Derated Hours (UDH) and Size of Reduction, divided by Net Maximum Capacity (NMC). FORCED OUTAGE HOURS (FOH) Sum of all hours experienced during Forced Outages (U1, U2, U3, SF). MAINTENANCE OUTAGE HOURS (MOH) Sum of all hours experienced during Mainte nance Outages (MO) and Maintenance Outage Extensions (SE of MO). PERIOD HOURS (PH) Number of hours a unit was in the active state. A unit generally enters the active state on its service date. PLANNED DERATED HOURS (PDH) Sum of all hours experienced during Planned Deratings (PD) and Scheduled Derating Exten sions (DE) of any Planned Deratings (PD). PLANNED OUTAGE HOURS (POH) Sum of all hours experienced during Planned Outages (PO) and Planned Outage Extensions (SE of PO). RESERVE SHUTDOWN HOURS (RSH) Total number of hours the unit was available for service but not electrically connected to the transmission system for economic reasons. SERVICE HOURS (SH) Total number of hours a unit was electrically connected to the transmission system. UNAVAILABLE HOURS (UH) Sum of all Forced Outage Hours (FOH), Mainte nance Outage Hours (MOH), and Planned Out age Hours (POH). UNPLANNED DERATED HOURS (UDH) Sum of all hours experienced during Forced Deratings (D1, D2, D3), Maintenance Deratings (D4), and Scheduled Derating Extensions (DE) of any Maintenance Deratings (D4). A-2 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CAPACITY AND ENERGY - ------------------------------------------------------------------------------- NET DEPENDABLE CAPACITY (NDC) GDC less the unit capacity (MW) utilized for that unit's station service or auxiliaries. NET MAXIMUM CAPACITY (NMC) GMC less the unit capacity (MW) utilized for that unit's station service or auxiliaries. GROSS DEPENDABLE CAPACITY (GDC) GMC modified for seasonal limitations over a specified period of time. GROSS MAXIMUM CAPACITY (GMC) Maximum capacity (MW) a unit can sustain over a specified period of time when not restricted by seasonal or other deratings. EQUATIONS EQUIVALENT AVAILABILITY FACTOR (EAF): [(AH - (EUDH + EPDH + ESEDH))/PH] x 100 (%) A-3 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- APPENDIX B DESIGN LIMITS THE DESIGN LIMITS LISTED BELOW SHALL BE APPLICABLE TO ANY DISPATCH UNDER THIS AGREEMENT OF THE INDICATED GENERATING UNITS BY COMED:
- ----------------------------------------------------------------------------------------------------------------------------- NET MINIMUM OPERATING MINIMUM TIME DEPENDABLE LEVEL BETWEEN RAMP RATE CAPACITY (NET MW) DISPATCHED STARTS RANGE RAMP RATE UNIT GENERATING UNIT (MW)(1) WITH(2) WITHOUT(3) (HOURS)(4) (GROSS MWS) (MW/MINUTE) RPV - ----------------------------------------------------------------------------------------------------------------------------- ASSET GROUP A: - ----------------------------------------------------------------------------------------------------------------------------- Crawford Unit 7 216 65 98 20 70-90 2 12.8 110-234 3 - ----------------------------------------------------------------------------------------------------------------------------- Crawford Unit 8 326 44 111 20 50-65 2.5 13.4 130-265 3 - ----------------------------------------------------------------------------------------------------------------------------- Fisk Unit 19 326 30 120 20 130-330 3 7.3 - ----------------------------------------------------------------------------------------------------------------------------- Waukegan Unit 6 100 -- 42 20 45-112 1 5.7 - ----------------------------------------------------------------------------------------------------------------------------- Waukegan Unit 7 328 122 150 20 160-220 3 7.2 220-300 5 300-330 3 - ----------------------------------------------------------------------------------------------------------------------------- Waukegan Unit 8 361 63 (gas 111 20 160-220 4 6.5 only) 220-300 5 300-317 2 - ----------------------------------------------------------------------------------------------------------------------------- Will County Unit 1 156 -- 44 20 50-70 1 2.3 90-167 2 - -----------------------------------------------------------------------------------------------------------------------------
B-1 Coal Stations Power Purchase Agreement Appendices - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------- NET MINIMUM OPERATING MINIMUM TIME DEPENDABLE LEVEL BETWEEN RAMP RATE CAPACITY (NET MW) DISPATCHED STARTS RANGE RAMP RATE UNIT GENERATING UNIT (MW)(1) WITH(2) WITHOUT(3) (HOURS)(4) (GROSS MWS) (MW/MINUTE) RPV - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- Will County Unit 2 154 -- 45 20 50-70 1 4.1 90-167 2 - ----------------------------------------------------------------------------------------------------------------------------- Will County Unit 3 262 36 93 20 40-60 1 9.9 100-278 5 - ----------------------------------------------------------------------------------------------------------------------------- Will County Unit 4 520 43 170 20 50-70 1 10.8 120-180 1 180-400 5 400-475 5 475-515 3 515-542 1 - ----------------------------------------------------------------------------------------------------------------------------- ASSET GROUP B: - ----------------------------------------------------------------------------------------------------------------------------- Joliet Unit 6 314 -- 20 120-150 3 7.7 80 150-319 3 - ----------------------------------------------------------------------------------------------------------------------------- Joliet Unit 7 522 60 137 20 120-265 5 10.7 265-531 5 - ----------------------------------------------------------------------------------------------------------------------------- Joliet Unit 8 522 61 138 20 120-265 5 18 265-550 5 - ----------------------------------------------------------------------------------------------------------------------------- Powerton Unit 5 769 -- (1 blrs) 132 36 150-190 3 17.6 -- (2 blrs) 324 190-375 3 375-750 8 - -----------------------------------------------------------------------------------------------------------------------------
B-2 Coal Stations Power Purchase Agreement Appendices - -------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------- NET MINIMUM OPERATING MINIMUM TIME DEPENDABLE LEVEL BETWEEN RAMP RATE CAPACITY (NET MW) DISPATCHED STARTS RANGE RAMP RATE UNIT GENERATING UNIT (MW)(1) WITH(2) WITHOUT(3) (HOURS)(4) (GROSS MWS) (MW/MINUTE) RPV - ----------------------------------------------------------------------------------------------------------------------------- Powerton Unit 6 769 -- (1 blrs) 132 36 150-190 3 21.9 -- (2 blrs) 324 190-375 3 375-750 8 - -----------------------------------------------------------------------------------------------------------------------------
(1) Winter net megawatts. (2) With support fuel. (3) Without support fuel. (4) Except during an Emergency Condition affecting the ComEd System and for instances where ComEd and Seller agree on a price to induce Seller to cycle a unit under the indicated time. B-3
Coal Stations Power Purchase Agreement Appendices - --------------------------------------------------------------------------------------------------------------------------------- APPENDIX C SOURCE OF CONTRACTED CAPACITY ================================================================================================================================= NET DEPENDABLE FIRST SECOND THIRD FOURTH FIFTH IDENTIFICATION OF CAPACITY CONTRACT YEAR CONTRACT YEAR CONTRACT YEAR CONTRACT YEAR CONTRACT YEAR GENERATING UNIT (MWS) (MWS)(1) (MWS)(1) (MWS)(1) (MWS)(1) (MWS)(1) ================================================================================================================================= Waukegan Unit 6 100 100 - --------------------------------------------------------------------------------------------------------------------------------- Waukegan Unit 7 328 328 328 328 328 328 - --------------------------------------------------------------------------------------------------------------------------------- Waukegan Unit 8 361 361 361 361 - --------------------------------------------------------------------------------------------------------------------------------- Fisk Unit 19 326 - --------------------------------------------------------------------------------------------------------------------------------- Crawford Unit 7 216 216 - --------------------------------------------------------------------------------------------------------------------------------- Crawford Unit 8 326 326 326 326 326 326 - --------------------------------------------------------------------------------------------------------------------------------- Will County Unit 1 156 156 156 156 - --------------------------------------------------------------------------------------------------------------------------------- Will County Unit 2 154 154 - --------------------------------------------------------------------------------------------------------------------------------- Will County Unit 3 262 262 262 262 - --------------------------------------------------------------------------------------------------------------------------------- Will County Unit 4 520 520 520 520 520 520 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSET GROUP A 2,749 2,423 1,953 1,953 1,174 1,174 - --------------------------------------------------------------------------------------------------------------------------------- C-1 Coal Stations Power Purchase Agreement Appendices - --------------------------------------------------------------------------------------------------------------------------------- ================================================================================================================================= NET DEPENDABLE FIRST SECOND THIRD FOURTH FIFTH IDENTIFICATION OF CAPACITY CONTRACT YEAR CONTRACT YEAR CONTRACT YEAR CONTRACT YEAR CONTRACT YEAR GENERATING UNIT (MWS) (MWS)(1) (MWS)(1) (MWS)(1) (MWS)(1) (MWS)(1) ================================================================================================================================= Joliet Unit 6 314 - --------------------------------------------------------------------------------------------------------------------------------- Joliet Unit 7 522 522 522 - --------------------------------------------------------------------------------------------------------------------------------- Joliet Unit 8 522 522 522 522 522 522 - --------------------------------------------------------------------------------------------------------------------------------- Powerton Unit 5 769 769 769 769 - --------------------------------------------------------------------------------------------------------------------------------- Powerton Unit 6 769 769 769 769 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSET GROUP 2,896 2,582 2,582 2,060 522 522 B ================================================================================================================================= (1) AN ENTRY INDICATES A GENERATING UNIT CONSTITUTING A PART OF CONTRACTED CAPACITY FOR THE SPECIFIED CONTRACT YEAR.
C-2 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- APPENDIX D MAIN GUIDE NUMBER 3A 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. XXV. 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. D-1 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- XXVI. 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 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. XXVIII. 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- D-2 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- 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 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. XXVIII. 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 D-3 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- 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 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 D-4 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- 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 tempera ture 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. XXIX. 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: D-5 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- 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. 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: D-6 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- 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. D-7 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- APPENDIX E EO 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 ComEd, (ii) to establish the nature and content of communications relating to availability of the Reserved 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 as well as transmission system security and stability. 2. COMMUNICATIONS LINK. (a) For the dispatch of the Reserved Units, the Parties shall establish and maintain an electronic communications link between each Station and EO, which shall be used for communication as contemplated by this Agreement. Such electronic communications link shall utilize ComEd's Generation Commercial Management ("GCM") software or such other software as ComEd shall supply during the term of this Agreement. In the event that the electronic communica tions link for the dispatch of the Reserved Units shall be unavailable for any reason, dedicated telephone lines established and maintained by the parties shall be used. Seller will notify EO as soon as possible of any disruption or unavailability of the electronic communications link, the dedicated telephone lines or standard telephone lines. The Parties shall also establish and maintain a radio system for communications, which radio system shall be used in the event that the aforementioned communications methods are unavailable. Seller shall cooperate in performing periodic tests of the radio system as from time to time directed by the EO Dispatcher. Seller shall notify EO promptly of any problems with said radio system. (b) Telephone numbers are set forth below for the indicated persons: EO Generation Dispatcher (630) 691-4744 EO Transmission Dispatcher (630) 691-4772 EO Operation Supervisor (630) 691-4730 EO Generation Dispatch Supervisor (630) 691-4693 EO facsimile transmission number (630) 691-4899 E-1 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- The alternate office for EO will be used as a backup in the event that the normal office of EO is not operational. The telephone numbers of the alternate office are (815) 727-5902, 5903, and the facsimile transmission number is (815) 727-5745. 3. CONTENT OF COMMUNICATIONS. (a) To the extent that events are known or anticipated and not otherwise available to ComEd through GCM, Seller shall provide to the EO Generation Dispatcher information regarding the availability of the Reserved Units, including information regarding the following matters: (i) conditions, issues or events which may affect the output or reliability of the Reserved Units; (ii) time of day (based on a twenty-four hour clock) when a Reserved Unit is placed on the line and taken off the line; (iii) changes of rated capacity of a Reserved Unit, when it is known that such changes have taken place or will take place; (iv) Reserved 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) the availability, or lack of availability, of the automated governor control or the automatic voltage regulators on a Reserved Unit and the times in which it will, or will not, be available for operation and the reason for such limitations; (vi) conditions at the Station or a Reserved Unit that could affect the present or anticipated load following capability of a Reserved Unit, including problems related to fuel, coal belts and coal handling, fires, loss of essential equipment and opacity excedences; (vii) when required testing or other operational work could limit the availability or maneuverability of a Reserved Unit; (viii) Seller's desire to declare a Substitute Unit to replace Unavailable Capacity, including the capacity and schedule of energy and ramping ability; and E-2 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- (ix) Seller's desire to request the release of energy from undispatched on-line capacity of a Reserved Unit or an off-line Reserved Unit under the circumstances provided in Section 6(b)(i) of this Agree ment. As it becomes available or anticipated, such information shall be made available to the EO Generation Dispatcher. 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 the EO Generation Dispatch Supervisor. (b) Seller shall use GCM for the purposes of reporting Reserved Unit capability, ramp rates and loading blocks, outages and deratings. In the event that GCM shall not be available for the purposes of reporting Reserved Unit availability, Seller shall use the forms attached as Appendix F for such reports. Such forms consist of the following elements and shall be completed and transmitted by facsimile transmission to the EO Generation Dispatcher: (i) Form "Page 1," "[Station Name] Offer Data," is the cover sheet to be used for all facsimile transmissions; (ii) Form "Page 2," "Generating Capability," is the sheet to be used to report with respect to each Reserved Unit (1) its net generating capability for the period beginning 12:00 a.m., Midnight (000 hours) (Chicago time) the following day and (2) derating and outage information (which shall be reported using the GADS cause codes set forth in Appendix H), which sheet shall be completed and transmitted daily by 11:00 p.m. (2300 hours) (Chicago time); (iii) Form "Pages 3 and 4," "Loading (and De-loading) Rates and Breakpoints," is the sheet to be used for reporting Reserved Unit ramp rates between discreet load breakpoints for such unit's output in the raise (loading) and lower (de-loading) directions, which sheets shall be completed and transmitted whenever changes to scheduled parameters occur (e.g., capability, minimum, maximum and fuel type); and (iv) Form "Page 5," "ComEd Production Data Bank Derat ing/Outage Code Adjustments," is the sheet to be used for reporting any requested adjustments to previously transmitted outage and/or derating codes on Form "Page 2", which sheet shall be completed as necessary and E-3 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- transmitted via facsimile transmission to the Production Data Bank Administration at the address indicated on the sheet. ComEd shall acknowledge receipt of any such facsimile transmissions by signing the "Page 1" cover sheet 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 ComEd for at least 36 months, after which they may be destroyed. (b) Seller shall provide information regarding Reserved Unit availability by telephone on a daily basis to ComEd's Wholesale Energy Trading Organization. 4. DISPATCH; OPERATIONS. (a) The EO Generation Dispatcher shall issue dispatch orders on behalf of ComEd, which orders shall be given by the EO Generation Dispatcher to Seller. Following receipt by Seller of any such order, Seller shall, if such order is received electronically through GCM, acknowledge such receipt electronically through GCM, or if such order is received verbally, repeat back the content of such order to the EO Generation Dispatcher, in either case to confirm receipt and understanding of such order. (a) Seller shall perform the following tasks in order to assist in meeting the dispatch needs of the ComEd system: (i) maintain the Reserved Units on Automatic Generation Control ("AGC") as directed by the EO Generation Dispatcher and to the extent possible, given the generating unit and the operating conditions of the ComEd system; (ii) regulate load at the ramp rate within the ramp rate range set forth in Appendix B for such Reserved Unit unless (1) operation at such ramp rate or within in such range would negatively impact such Reserved Unit, its reliability or its ability to meet performance obligations (such as environmental regulatory compliance) or (2) ComEd requests a different ramp rate or ramp rate range which Seller agrees to provide; (iii) maintain Reserved Unit control systems and subsystems so as to be able to meet the ramp rate specified in Appendix B for such Reserved Unit within the specified ramp rate range; PROVIDED, HOWEVER, E-4 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- when such Reserved Unit is not on AGC, such unit shall be ramped at the ramp rates within the specified ranges specified in Appendix B for such Reserved Unit or as reasonably requested by the EO Generation Dis patcher, to the extent that it is possible to do so without impacting the reliability or availability of such unit; and (iv) bring the Reserved Units to their minimum load limits set forth in Appendix B as requested by the EO Generation Dispatcher, and Seller shall promptly notify the EO Generation Dispatcher if such Reserved Unit(s) are unable for any reason to achieve these minimum load limits. Reserved Units shall be capable of ramping between their regular minimums and maximum loads unless the EO Generation Dispatcher is otherwise notified of any limitations. Should the EO Generation Dispatcher initiate a reserve emergency alarm, Seller shall start a ramp to full reported capability and any testing in progress that was formerly approved by the EO Generation Dispatcher will be discontinued in accordance with Prudent Utility Practice until such time that testing has less potential to impact the integrity of the ComEd System. Seller shall take reasonable precautions to ensure that generating capacity is not lost when such capacity is important to the integrity of the ComEd System. Seller shall use reasonable efforts to cooperate with the EO Generation Dispatcher to delay or reschedule tests due to system conditions. 5. REGULATING PERFORMANCE VALUE. Seller shall measure the maneuverability, which incorporates ramp rate, of the Reserved Units using the Regulating Performance Value ("RPV") methodology described in Appendix G. The minimum RPV for each Reserved Unit is identified in Appendix B as "Unit RPV." E-5
Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------------------------------------------------ APPENDIX F Page 1: REPORTING FORMS ________________ OFFER DATA Generator Name DATA APPLICABLE FOR AVAILABILITY DECLARATION FOR THE PERIOD OF PM/AM, / / TO PM/AM, / / ----- ----------- ----- ----------- TO: ComEd Electric Operations FAX No. (630) 691-4697 Generation Dispatch Telephone No. (630) 691-4693 Generation Coordinator (630) 691-4730 Operations Supervisor - ------------------------------------------------------------------------------------------------------------------------ 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 ___/___/___ -- - ------------------------------------------------------------------------------------------------------------------------ Full Submission Number of Pages Including Cover Page / / --------- Partial Submission / / 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: ------------------------------------------------------------------------------------------------------------- ======================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------ F-1 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------------------------------------------------ Acknowledgment by ComEd (Signa- ture) --------------------------------------------------------------------- Electric Operations (Title) --------------------------------------------------------------------- Acknowledgment date and time ------------------------------------------------------------------------------------------- _______________ OFFER DATA Availability Declaration Period Commencing _____PM/AM, __/__/__ TO __PM/AM, - --/--/-- GENERATING CAPABILITY UNIT _________________________ Maximum Gross Generating Capability __________ MW Minimum Gross Generating Capability __________ MW Maximum VAR Capability __________ MW Deratings: Time Time Cause MS Start____ Date__/__/__ Stop_____ Date Code:_____ _____ _ __/__/__ Cause MS Start____ Date__/__/__ Stop_____ Date Code:_____ _____ _ __/__/__ Cause MS Start____ Date__/__/__ Stop_____ Date Code:_____ _____ _ __/__/__ Cause MS Start____ Date__/__/__ Stop_____ Date Code:_____ _____ _ __/__/__ F-2 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------------------------------------------------ Minimum: Time Time Cause MS Start____ Date__/__/__ Stop_____ Date Code:_____ _____ _ __/__/__ Cause MS Start____ Date__/__/__ Stop_____ Date Code:_____ _____ _ __/__/__ Fuel: Time: Time: Fuel Type:_____ MS Start____ Date__/__/__ Stop_____ Date ----- - --/--/-- Fuel Type:_____ MS Start____ Date__/__/__ Stop_____ Date ----- - --/--/-- Notes: ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ D - Derate, O - Out of Service, M - Maintenance, S - Scheduled
F-3
Coal Stations Power Purchase Agreement Appendices - --------------------------------------------------------------------------------------------------- _______________ OFFER DATA Generator Name Availability Declaration Period Commencing _____PM/AM, __/__/__ TO __PM/AM, - --/--/-- LOADING RATES AND BREAKPOINTS - --------------------------------------------------------------------------------------------------- UNIT LOADING RANGE RAMP RATE BREAKPOINTS* NUMBER MIN MAX MW/MIN MW - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
F-4 Coal Stations Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- * Breakpoint is defined at load level at which unit must hold and start/stop unit auxiliary equipment Notes: -------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- F-5
Coal Stations Power Purchase Agreement Appendices - --------------------------------------------------------------------------------------------------- _______________ OFFER DATA Generator Name Availability Declaration Period Commencing _____PM/AM, __/__/__ TO __PM/AM, - --/--/-- DE-LOADING RATES AND BREAKPOINTS - --------------------------------------------------------------------------------------------------- UNIT DE-LOADING RANGE RAMP RATE BREAKPOINTS* NUMBER MIN MAX MW/MIN MW - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
F-6 Coal Stations Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- * Breakpoint is defined at load level at which unit must hold and start/stop unit auxiliary equipment Notes: -------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- F-7
Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------------------------------------------- ComEd PRODUCTION DATA BANK DERATING/OUTAGE CODE ADJUSTMENTS STATION:_______________ UNIT: _______________ DATE: __/__/__ DERATING CODE/OUTAGE CODE - ------------------------------------------------------------------------------------------------------------------- HOUR Code MW Derating Code MW Derating - ------------------------------------------------------------------------------------------------------------------- 1:00 a.m. - ------------------------------------------------------------------------------------------------------------------- 2:00 a.m. - ------------------------------------------------------------------------------------------------------------------- 3:00 a.m. - ------------------------------------------------------------------------------------------------------------------- 4:00 a.m. - ------------------------------------------------------------------------------------------------------------------- 5:00 a.m. - ------------------------------------------------------------------------------------------------------------------- 6:00 a.m. - ------------------------------------------------------------------------------------------------------------------- 7:00 a.m. - ------------------------------------------------------------------------------------------------------------------- 8:00 a.m. - ------------------------------------------------------------------------------------------------------------------- 9:00 a.m. - ------------------------------------------------------------------------------------------------------------------- 10:00 a.m. - ------------------------------------------------------------------------------------------------------------------- 11:00 a.m. - ------------------------------------------------------------------------------------------------------------------- 12:00 a.m. - ------------------------------------------------------------------------------------------------------------------- 1:00 p.m. - ------------------------------------------------------------------------------------------------------------------- 2:00 p.m. - ------------------------------------------------------------------------------------------------------------------- 3:00 p.m. - ------------------------------------------------------------------------------------------------------------------- 4:00 p.m. - ------------------------------------------------------------------------------------------------------------------- 5:00 p.m. - ------------------------------------------------------------------------------------------------------------------- 6:00 p.m. - ------------------------------------------------------------------------------------------------------------------- 7:00 p.m. - ------------------------------------------------------------------------------------------------------------------- 8:00 p.m. - ------------------------------------------------------------------------------------------------------------------- 9:00 p.m. - ------------------------------------------------------------------------------------------------------------------- 10:00 p.m. - ------------------------------------------------------------------------------------------------------------------- 11:00 p.m. - ------------------------------------------------------------------------------------------------------------------- 12:00 p.m. - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Reasons for Change: - ------------------------------------------------------------------------------------------------------------------- GADS Cause Code: --------------------------------------------------------------------------------------------------- GADS Event Type: --------------------------------------------------------------------------------------------------- Description of Event: ---------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- INSTRUCTIONS: Use this form for derating/outage code adjustments only Remember to fill out the GADS data section F-8 Coal Stations Power Purchase Agreement Appendices - ------------------------------------------------------------------------------------------------------------------- Send this form to the Production Data Bank Administration, Room 250, 1411 Opus Place, Downers Grove, Illinois 60515 Submitted: _____________________________ Telephone: ____________________ Date: ___/___/___ Electric Operations Approval: __________ Telephone: 630-691-4693 Date: ___/___/___ Approved: ______________________________ Date: ___/___/___ Fossil Support Vice President
F-9 Coal Stations Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- APPENDIX G REGULATING PERFORMANCE VALUE METHODOLOGY REGULATING PERFORMANCE VALUE by Howard F. Illian, Bulk Power Operations, and Ray W. Rathsam, VISTA, December 11, 1995 The maneuverability of Commonwealth Edison generating units is measured by a method called REGULATING PERFORMANCE VALUE, RPVP. RPVp is designed to effectively measure the relative contribution of each generating unit to the total system regulation. For the first time regulation will be viewed not as control provided to follow a system disturbance, but rather as control to follow repetitive system disturbances. These repetitive disturbances are considered to result in a sinusoidal signal that the control system is required to follow. As a result, the control requested from each generating unit can also be represented as a sinusoidal signal. A unit providing system control under the direction of the Economic Generation Control (EGC) system will move up and down to the control pulses sent to the unit by the EMS computer. That sinusoidal movement can be described by a frequency component, Period, and a peak to peak Amplitude. This is shown in Figure 1. [GRAPHIC] For a given Period the greater the Amplitude that a unit can follow, the greater the unit's contribution to total system control. Therefore, representing the ability of each unit on the system to follow a simple sine wave with a single number will accurately represent G-1 Coal Stations Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- the relative ability of that unit to contribute to the control of the CECo system. This is what RPVp attempts to measure. The EMS computer is currently collecting data on a number of specific parameters for each generating unit while it is on EGC. Some of these measured parameters are used to calculate the RPVp value. Variable #1: ARR = Average Telemetered Dialed In Ramp Rate This variable is the telemetered, time weighted, average value of the ramp rate that is dialed into the EGC console at the generating unit control room weighted by the time the unit is actually on EGC. Variable #2: OR% = Average Observed Raise Ramp Rate Percent This variable is the percentage of the telemetered dialed in raise ramp rate that the unit actually provides while on EGC. It is limited to maximum value of 100% since the logic in the EGC system will not ramp a unit faster than the Telemetered Dialed In Ramp Rate. Variable #3: OL% = Average Observed Lower Ramp Rate Percent This variable is the percentage of the telemetered dialed in lower ramp rate that the unit actually provides while on EGC. IT is limited to maximum value of 100% since the logic in the EGC system will not ramp a unit faster than the Telemetered Dialed In Ramp Rate. Variable #4: LTR = Average Lower to Raise Turn Around Time This variable is the average amount of time it takes to turn the unit around from moving down to moving up while it is on EGC. Variable #5: RTL = Average Raise to Lower Turn Around Time This variable is the average amount of time it takes to turn the unit around from moving up to moving down while it is on EGC. Variable #6: MWR = Average Telemetered Megawatt Range This variable is the telemetered, time weighted, average of the range provided by the high and low limits dialed into the EGC console G-2 Coal Stations Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- at the generating unit control room weighted by the time the unit is actually on EGC. Variable #7: RPVRP = Raw Regulating Performance Value This variable represents the peak to peak amplitude that a generating unit with the above variables could provide during a ten minute period as limited by the MWR. It is calculated by weight averaging the daily raw RPV with the daily effective % time on control. K the RPVRP IS greater than the MWR, the RPVRP IS set to the value of the MWR as an upper limit. Variable #8: TC % = Percent of Time on Control This variable is the time the unit is on control as a percentage of time that it is operating and could be available for control. Variable #9: RPVP = Regulating Performance Value This is the final measure of regulating performance and represents the effective relative contribution of the generating unit to system control. Using the above variables, the value for RPVRP and RPVP are calculated using the following equations to indicate the Amplitude of control available from the unit. RPVRP = [l0-LTR -RTL][ARR /2 ][0L% + OR%] /200 (1) RPVP = RPVRP X TC% (2) In simple terms, the RPVRP and RPVp are measures of the peak to peak movement of a generating unit following a full sinusoidal wave during a ten minute period. This can be seen from Figure 2. G-3 Coal Stations Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- [GRAPHIC] This result is then multiplied by the percentage of time on control to give the REGULATING PERFORMANCE VALUE,RPVP. Station contributions to system regulation are derived by summing the RPVs from the generating units at the station. Division contributions to system regulation are derived by summing the R PVs from all of the stations in the division. Over the last few years a strong correlation has been shown between the total system RPV and A1/A2 control performance. During that same period it was discovered that not only is the peak to peak magnitude an appropriate measure, but that unless that sinusoid is balanced, the effective peak to peak value will be limited by the smaller of either the raise or lower portion of the sinusoid. It was also recognized that uncertainty was highly detrimental to performance. As a result the above equations have been modified to measure the smaller of the two halves and to penalize unpredictability of the response. The latest method of measuring RPVp uses the following modified variables and equations: Variable #1': SRR = Smallest Telemetered Dialed In Ramp Rate G-4 Coal Stations Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- This variable is the smallest telemetered value of the ramp rate that is dialed into the EGC console at the generating unit control room each hour, average weighted by the time the unit is actually on EGC. Variable #2': OR% = Average Observed Raise Ramp Rate Percent This variable is the percentage of the telemetered dialed in raise ramp rate that the unit actually provides while on EGC in response to control dispatched. It is limited to maximum value of 100% since the logic in the EGC system will not ramp a unit faster than the Telemetered Dialed In Ramp Rate. Variable #2A: DR = Portion of Time Unit is Available to be Dispatched for Raise This variable is the portion of the time that the unit actually accepts raise signals while on EGC. When multiplied by the new variable 2' It results in the same value as the old variable 2. Variable #3': OL% = Average Observed Lower Ramp Rate Percent This variable is the percentage of the telemetered dialed in lower ramp rate that the unit actually provides while on EGC in response to control dispatched. It is limited to maximum value of 100% since the toni0~c! ~ha FGC system will not ramp a unit faster than the Telelmetered Dialed In Ramp Rate. Variable #3A: D L = Portion of Time Unit is Available to be Dispatched for Lower This variable is the portion of the time that the unit actually accepts lower signals while on EGC. When multiplied by the new variable 3' It results in the same value as the old variable 3. When the above variables are substituted into the new equation, the value of RPVp is calculated with the following equations: RPVRP = MIN[(5 -LTR)(SRR)(OR%)(DR ),(5 - RTL)(SRR)(O L%)( DL, )] /100 (3) RPVP = RPVRP X TC% (4) The value of RPVRP is still limited by the value of MWR as it was previously. G-5 Coal Stations Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- APPENDIX H GADS CAUSE CODES H-1 C.E.Co. G.P. No. 354 Appendix E Page 1 of 16 SYSTEM POWER SUPPLY (SPS) DERATING AND OUTAGE REASON CODING SYSTEM PURPOSE - The purpose of this system is to correctly utilize planned, maintenance and unplanned deratings and to simplify the reason code data interpretation. This system follows NERC/GADS as well as INPO Guidelines. I. Unit Classifications A. Available - Unit is on line or in reserve shutdown. All events for this class will be deratings. B. Unavailable - Unit is in an outage. The major cause is given by an outage reason code. All other events during this period are classified as deratings. II. Event Designations A. Derating - Exists whenever a unit is limited to a power level less than its gross maximum capacity. The equipment causing the derating must not be the cause of a unit outage. 1. Unplanned - Designated by reason code beginning with "D". The equipment may or may not be out of service. 2. Maintenance - Designated by a reason code beginning with "M". The equipment may or may not be out of service. A maintenance derating is one which may be postponed beyond the end of the next weekend. The distinction between a maintenance derating and outage is made by determining whether or not the unit is available. 3. Planned - Designated by a reason code beginning with "S". The equipment may or may not be out of service. A planned derating is one which is planned at least four weeks in advance. The distinction between a planned derating and outage is made by determining whether or not the unit is available. C.E.Co. G.P. No. 354 Appendix E Page 2 of 16 B. Outage - Exists when a unit is not synchronized to the grid system and not in a reserve shutdown state. 1. Forced Unplanned - Designated by a reason code beginning with "0". The equipment corresponding to the reason code is the sole cause of the unit forced outage. Only one "0" code may exist at a time. B. Outage (Continued) Note: There is one exception to the above rules. For multiboiler units at Joliet 29 and Powerton, outages pertain to each boiler also. For example, if an "0" code exists, depending on the reason, it could mean that boiler 1, boiler 2, both boiler 1 and 2, or the unit is out of service. Depending on which event is occurring, more than one "0", "M" or "S" code may exist at a time. 2. Maintenance - Designated by a reason code beginning with "M". The equipment corresponding to the reason code is the sole cause of the unit maintenance outage. No "0" code may exist during this period. A maintenance outage must be able to be postponed beyond the end of the next weekend and must be completed before the next planned outage. The cause of the maintenance outage is the "M" code with the highest magnitude of derating of all other "D", "S", and "M" codes that may be simultaneously occurring. 3. Planned - Designated by a reason code beginning with "S". The equipment corresponding to the reason code is the sole cause of the planned outage. A planned outage must be scheduled at least four weeks in advance and usually lasts several weeks. Usually no other derating code exists during this period. C. Reserve Shutdown - Exists when a unit is available for service but is not synchronized due to lack of load demand. D. Non-curtailing - Designated by an "N" code except for nuclear ramp-up limitation after SPS load drop. A non-curtailing event is an event that C.E.Co. G.P. No. 354 Appendix E Page 3 of 16 exists when equipment is removed from service for maintenance, testing, or other purposes that does not result in an outage or derating on the unit. It can also exist when the unit operates at less than full capacity due to system dispatch requirements or is in reserve shutdown if the following conditions are met: 1. Consent of SPS obtained. 2. The available capacity of the unit is not further reduced as a result of the event. 3. The work can be stopped or completed and the unit can reach the desired capacity level if and when it is needed by SPS. C.E.Co. G.P. No. 354 Appendix E Page 3 of 16
SPS DERATING REASON CODES INDEX ON PAGE OF THIS CODE APPENDIX DESCRIPTION - -------------------------------------------- ----------------------- -------------------------------------------- DASH-DWAT 10 SYSTEM PROBLEMS - ASH, COAL HANDLING, GOVERNOR, PRECIP., DEMIN., WASTEWATER DB-DBFU 4 BOILERS, FUELS, IGNITORS DBLE-DBTU 5 LEAKS - TUBE CONDITION DC, DF, DH, DM, DO 8 CYCLONE, FAN, HEATER, MILL, BURNER DG-DGVI, DR-DRFU 6 GENERATORS, REACTORS DP, DSG, DV 9 PUMP, STEAM GENERATOR, VALVES DT-DTVI 7 TURBINES DECP-DMAN, DOPE, DPOL, DTEM, 11 SPECIAL ITEMS - COOLING WA DRTX, RFUE-RTST TER, POLLUTION, TRANSMISSION AND MISC. EB, SBO1, SOVL 14 SCHEDULED AND ECONOMIC OUTAGES AND OVERHAULS DPDX 12 BLACK START DIESEL PEAKERS DPKX 13 FAST START PEAKING UNITS
NOTE: **** ON EXHIBITS INDICATES A SECONDARY REASON IS REQUIRED.
C.E.Co. G.P. No. 354 Appendix E Page 5 of 16 SPS DERATING CODES MAJOR EQUIPMENT DERATE CODE M OR O/S CODE DESCRIPTION - --------------------------- -------------------------- ---------------------------------------------- M N DB M OB GENERAL PROBLEMS WITH BOILERS NOT SPECIFICALLY COVERED. M N DB 1 M OB 1 M N DB 2 M OB 2 DB EPA OB EPA EPA REGULATIONS CANNOT BE MET. N DB TEST BOILER TESTING DB AUX UNIT BLR. BEING USED AS AUX. BLR. M OBCL CHEMICAL CLEANING OR ASH REMOVAL M OBCL 1 BEING DONE TO IMPROVE THE BOILER M OBCL 2 OPERATION M N DBCO OBCO M N DBCO 1 OBCO 1 CONTROL PROBLEMS ASSOCIATED WITH THE M N DBCO 2 OBCO 2 BOILER MASTER OR ERRATIC BOILER OPERATION N DBCO TEST BOILER CONTROL TESTING DBFO M OBFO FOULING NOT SPECIFICALLY ATTRIBUTED TO DBFO 1 M OBFO 1 CYCLONES, SOOT BLOWING PRECIPITATORS OR DBFO 2 M OBFO 2 THE ASH HANDLING SYSTEMS DBFU **** FUEL PROBLEMS RELATED TO THE FUEL AND THE FUEL HANDLING SYSTEMS. DBFU BTU OBFU BTU LOW BTU FUEL N DBFU CONS OBFU CONS CONSERVING FUEL, LACK OF FUEL. DBFU FROZ OBFU FROZ FROZEN FUEL. DBFU MIX BLENDING OF FUEL. DBFU NONE OBFU NONE NO FUEL AVAILABLE. DBFU WET OBFU WET HIGH MOISTURE CONTENT. OBIG IGNITION DIFFICULTIES DURING STARTUP, PRE OBIG 1 VENTING LIGHTOFF OBIG 2
C.E.Co. G.P. No. 354 Appendix E Page 6 of 16 SPS DERATING CODES MAJOR EQUIPMENT DERATE CODE M OR O/S CODE DESCRIPTION - ----------------------------- -------------------------- ---------------------------------------------- M N DBLE M OBLE BOILER LEAKS THAT ARE SIGNIFICANT TO CAUSE M N DBL1 M OBLE1 A DERATING OR OUTAGE. INDICATE LEAK M N DBL2 M OBLE2 LOCATION IN THE SECONDARY REASON M N DBLE BOTM M OBLE BOTM BOTTOM LEAK M N DBL1 BOTM M OBL1 BOTM M N DBL2 BOTM M OBL2 BOTM M N DBLE CYCL M OBLE CYCL CYCLONE LEAK M N DBL1 CYCL M OBL1 CYCL M N DBL2 CYCL M OBL2 CYCL M N DBLE ECON M OBLE ECON ECONOMIZER LEAK M N DBL1 ECON M OBL1 ECON M N DBL2 ECON M OBL2 ECON M N DBLE NOSE M OBLE NOSE NOSE TUBE LEAK M N DBL1 NOSE M OBL1 NOSE M N DBL2 NOSE M OBL2 NOSE M N DBLE REHE M OBLE REHE REHEAT LEAK M N DBL1 REHE M OBL1 REHE M N DBL2 REHE M OBL2 REHE M N DBLE SUPR M OBLE SUPR SUPERHEATER M N DBL1 SUPR M OBL1 SUPR M N DBL2 SUPR M OBL2 SUPR M N DBLE TOP M OBLE TOP TOP M N DBL1 TOP M OBL1 TOP M N DBL2 TOP M OBL2 TOP M N DBLE WALL M OBLE WALL WALL TUBE M N DBL1 WALL M OBL1 WALL M N DBL2 WALL M OBL2 WALL N DBSI SILICA PROBLEMS CAUSING A DERATING DBTE TEMPERATURE PROBLEMS CAUSED BY POOR ATTEMPERATION OR FIRING DIFFICULTIES
C.E.Co. G.P. No. 354 Appendix E Page 7 of 16 SPS DERATING CODES MAJOR EQUIPMENT DERATE CODE M OR O/S CODE DESCRIPTION - ----------------------------- -------------------------- ---------------------------------------------- M N DBLE M OBLE BOILER LEAKS THAT ARE SIGNIFICANT TO CAUSE DBTU TUBE CONDITION SUCH THAT OPERATING UNIT AT HIGHER PRESSURE WOULD REDUCE UNIT'S RELIABILITY S M N DG S M OG GENERATORS - GENERAL PROBLEMS NOT SPECIFICALLY COVERED. S M OG INSP GENERATOR INSPECTION. S M N DGCO S M OGCO COOLING PROBLEM, NOT ASSOCIATED WITH THE COOLERS. S M N DGCO SEAL S M OGCO SEAL HYDROGEN SEALS OR SEAL OIL SYSTEM (IRON HORSE) PROBLEMS. OGFA FAULT IN GENERATOR OR BUS DUCT. N DGVI OGVI VIBRATION CAUSED BY ELECTRICAL OR MECHANICAL PROBLEMS. DR S M OR REACTORS GENERAL PROBLEMS. DR NRC OR NRC NRC REQUIRES UNIT O/S OR DERATED. DR ADMN OR ADMN ADMINISTRATION OPERATING CONSTRAINT. S M N DRSU SURVEILLANCES S M N DRTE S M ORTE MISC. TECHNICAL SPECIFICATIONS NOT COVERED ELSEWHERE. N R TDO DERATING DUE TO TEMP. DISPATCH ORDER S M N DRCO S M ORCO CONTROL PROBLEMS WITH THE REACTOR. S M N DRCO DRIV S M ORCO DRIV CONTROL ROD DRIVE PROBLEMS. DFRU **** ORFU **** FUEL PROBLEMS. DRFU CONS ORFU CONS FUEL CONSERVATION DRFU DEPL ORFU DEPL FUEL DEPLETION S DRFU PREC ORFU PREC PRECONDITIONING S M N DFRU RODP M S ORFU RODP ROD PATTERN S M N DRFU SCRM M S ORFU SCRM SCRAM REACTIVITY DRFU THRM ORFU THRM THERMAL LIMITS
C.E.Co. G.P. No. 354 Appendix E Page 8 of 16 SPS DERATING CODES MAJOR EQUIPMENT DERATE CODE M OR O/S CODE DESCRIPTION - ----------------------------- -------------------------- ---------------------------------------------- DRFU XENO ORFU XENO XENON RESTRICTION DRFU MINP RAMP-UP LIMITATION AFTER LOAD DROP N REG NUCLEAR UNIT REGULATING SYSTEM LOAD (NONCURTAILING ONLY) N U FOLL NUCLEAR UNIT OUT OF ECONOMIC ORDER DUE TO RAMP RATE LIMITATIONS N U RAMP DUE TO LOW SYSTEM DEMAND THE NUCLEAR UNIT CANNOT DROP LOAD AS LOW AS THE SYSTEM REQUIRES
C.E.Co. G.P. No. 354 Appendix E Page 9 of 16 SPS DERATING CODES MAJOR EQUIPMENT REACTORS DERATE CODE M OR O/S CODE DESCRIPTION - ----------------------------- -------------------------- ---------------------------------------------- DRFU XENO ORFU XENO XENON RESTRICTION S M N DT S M OT TURBINES - GENERAL PROBLEMS NOT SPECIFICALLY COVERED. N DTBL S M OTBL BLADING PROBLEMS DUE TO MISSING BLADES, BLADE INSPECTION OR REPAIR. DTCO CONDUCTIVITY PROBLEMS DTEF EFFICIENCY - TURBINE NOT UP TO STANDARD BECAUSE OF A PROBLEM NOT DEFINED. N DTLE S M OTLE STEAM LEAK ANYWHERE ON THE TURBINE OR ASSOCIATED PIPING. S OTRN TURNING GEAR PROBLEMS OR REPAIRS KEEPING THE UNIT OFF SYSTEM. DTVI S M OTVI VIBRATION PROBLEMS CAUSING A DERATING OR OUTAGE FOR BALANCING OR INSPECTION.
C.E.Co. G.P. No. 354 Appendix E Page 10 of 16 SPS DERATING CODES MAJOR EQUIPMENT REACTORS DERATE CODE M OR O/S CODE DESCRIPTION - --------------------------- -------------------------- ---------------------------------------------- M N DC M OC CYCLONE PROBLEMS CAUSED BY SLAG, LEAKS OR ITEMS NOT COVERED BELOW. M N DC FEED M OC FEED FEEDER REPAIRS ONLY. M N DC ROTS M OC ROTS ROTARY SEAL REPAIRS ONLY. M N DCO M OCO CONDENSER PROBLEMS INVOLVING REPAIRS TO LEAKS, CLEANING, OR VACUUM. S M N DCO SCRN S M OCO SCREEN PROBLEMS. DCOO **** OCOO **** COOLER PROBLEMS. S M N DCOO H2 S M OCOO H2 HYDROGEN COOLER. S M N DCOO H2O S M OCOO H2O HEAT EXCHANGER, FOR WATER COOLED STATOR. S M N DCOO OIL S M OCOO OIL OIL AUXILIARY EQUIPMENT DERATE CODE M OR O/S CODE DESCRIPTION - --------------------------- -------------------------- ---------------------------------------------- M N DF **** M OF **** FAN PROBLEMS. M N DF ID M OF ID INDUCED DRAFT. M N DF IDB M OF IDB INDUCED DRAFT BOOSTER. M N DF FD M OF FD FORCED DRAFT. M N DF GASR M OF GASR GAS RECIRCULATION. M N DH **** M OH **** HEATER PROBLEMS. M N DH AIR M OH AIR AIR M N DH AIRP M OH AIRP AIR PREHEATER S M N DH DC S M OH DC DIRECT CONTACT S M N DH HP S M OH HP HIGH PRESSURE S M N DH LP S M OH LP LOW PRESSURE S M N DH MSRE S M OH MSRE MOISTURE SEPARATOR REHEATER S M N DH SAPH S M OH SAPH STEAM AIR PREHEATER M N DM M OM MILL PROBLEMS OF ANY KIND M N DM FEED M OM FEED FEEDER PROBLEMS ONLY M N DO M OO BURNER PROBLEMS OF ANY KIND S M N DP **** S M OP **** PUMP PROBLEMS. M N DP BF M OP BF BOILER FEED. M N DP BWCP M OP BWCP BOILER WATER CIRCULATING. S M N DP CB S OP CB CONDENSATE BOOSTER. S M N DP CD S M OP CD CONDENSATE.
C.E.Co. G.P. No. 354 Appendix E Page 11 of 16 SPS DERATING CODES MAJOR EQUIPMENT REACTORS DERATE CODE M OR O/S CODE DESCRIPTION - --------------------------- -------------------------- ---------------------------------------------- S M N DP CW S M OP CW CIRCULATING WATER. S M N DP FW S M OP FW FEEDWATER S M N DP HTRD S M OP HTRD HEATER DRAIN. M N DP RBF M OP RBF RESERVE BOILER FEED. S M N DP RC S M OP RC REACTOR COOLING PUMP. S M N DP RF S M OP RF REACTOR FEED. S M N DP RR S M RR REACTOR RECIRCULATING. S M N DP STAT S M OP STAT STATOR COOLING. S M N DSG S M OSG STEAM GENERATOR PROBLEMS DSG TEMP OSG TEMP STEAM GENERATOR TEMP. LIMITATION DSG CHEM OSG CHEM STEAM GENERATOR CHEMISTRY PROBLEM. S M N DV **** S M OV **** VALVE PROBLEMS. S M N DV ATMP S M OV ATMP ATTEMPERATION. S M N DV BIAS S M OV BIAS BIAS. S M N DV BYPS S M OV BYPS BYPASS. S M N DV CONT S M OV CONT CONTROL. S M N DV EXTR S M OV EXTR EXTRACTION. S N DV INTE S M OV INTE INTERCEPT. S M N DV MCIV S M OV MCIV MAIN CYCLE ISOLATION VALVE. S M N DV MSIV S M OV MSIV MAIN STEAM ISOLATION. S M N DV MSSV S M OV MSSV MAIN STEAM STOP. S M N DV RELF S M OV RELF RELIEF. S M N DV SAFE S M OV SAFE SAFETY. S M N DV STOP S M OV STOP STOP. S M N DV VENT S M OV VENT VENT. M N DASH M OASH ASH HANDLING SYSTEM, SILO FIRES, PLUGGED ASH LINES, UNLOADING EQUIPMENT AND POLLUTION PROBLEMS. DASH EPA OASH EPA EPA REGULATIONS. S M N DAUX **** S M OAUX **** AUXILIARY POWER EQUIPMENT PROBLEM S M N DAUX BUS S M OAUX BUS BUS. S M N DAUX DESL S M OAUX DESL DIESEL GENERATOR. S M N DAUX SWGR S M OAUX SWGR SWITCHGEAR. S M N DAUX TRAN S M OAUX TRAN AUXILIARY TRANSFORMER. DECC OECC EMERGENCY CORE COOLING SYSTEM PROBLEMS DECC NRC OECC NRC NRC REGULATIONS. S M N DEX S M OEX EXCITERS OR VOLTAGE REGULATOR PROBLEMS.
C.E.Co. G.P. No. 354 Appendix E Page 12 of 16 SPS DERATING CODES MAJOR EQUIPMENT REACTORS DERATE CODE M OR O/S CODE DESCRIPTION - --------------------------- -------------------------- ---------------------------------------------- M N DFUS **** M OFUS **** FUEL DELIVERY SYSTEM PROBLEM. M N DFUS BELT M OFUS BELT BELT. M N DFUS BRGE M OFUS BRGE BARGE. M N DFUS BUNK M OFUS BUNK BUNKER. M N DFUS COND M OFUS COND CONDITIONER. M N DFUS CRSH M OFUS CRSH CRASHER. M N DFUS DOCK M OFUS DOCK DOCK. M N DFUS DUMP M OFUS DUMP CAR DUMPER. M N DFUS MANP M OFUS MANP MANPOWER. M N DFUS PIPE M OFUS PIPE OIL PIPING. M N DFUS PUMP M OFUS PUMP OIL PUMP & HEATER SET. M N DFUS PUSH M OFUS PUSH PUSHER. M N DFUS TANK M OFUS TANK OIL TANK. M N DFUS TRIP M OFUS TRIP TRIPPER OR ANY OTHER FUEL PROBLEMS. S M N DGO S M OGO GOVERNOR OR EHC SYSTEM PROBLEMS WITH THE FUTURE TURBINE. M N DPR M OPR PRECIPITATOR SYSTEM PROBLEM-BROKEN WIRES, DUST BUILDUP, FULL HOPPER. M N DPR EPA M OPR EPA EPA REGULATIONS M N DSB M OSB SOOT BLOWING SYSTEM PROBLEM. M N DWAT **** M OWAT **** WATER SUPPLY PROBLEMS. S M N DWAT DEMI S M OWAT DEMI DEMINERALIZER PROBLEMS. S M N DWAT MAKE S M OWAT MAKE INSUFFICIENT MAKEUP. S M N DWAT POLI S M OWAT POLI POLISHER PROBLEMS. S M N DWAT WAST S M OWAT WAST WASTEWATER SYSTEM PROBLEMS. DECP FULL UNIT CAPACITY UNAVAILABLE. REASON NOT COVERED BY SPECIFIC DERATING. DMAN OMAN MANPOWER SHORTAGE. DOPE OOPE OPERATING ERROR. N OSTR FAIL UNIT STARTUP TIME NOT IN +15 -30 WINDOW N OBL1 FAIL STARTUP TIME NOT IN +15 -30 WINDOW N OBL2 FAIL STARTUP TIME NOT IN +15 -30 WINDOW DPOL **** OPOL **** POLLUTION PROBLEMS. N DPOL EPA OPOL EPA EPA REGULATIONS. N DPOL OFFG OPOL OFFG OFF GAS.
C.E.Co. G.P. No. 354 Appendix E Page 13 of 16 SPS DERATING CODES MAJOR EQUIPMENT REACTORS DERATE CODE M OR O/S CODE DESCRIPTION - --------------------------- -------------------------- ---------------------------------------------- N DPOL OZON OPOL OZON OZONE CONCENTRATIONS. N DPOL RADW OPOL RADW RADIATION WASTE. N DPOL STAC OPOL STAC STACK OPACITY. N DPOL SULF OPOL SULF HIGH SO2 OR SO3 CONCENTRATON. N DTEM **** OTEM **** COOLING WATER PROBLEM. N DTEM CANA OTEM CANA CANAL N DTEM EPA OTEM EPA EPA REGULATIONS (KINCAID/QUAD-CITIES ONLY) N DTEM LAKE OTEM LAKE LAKE N DTEM RIVR OTEM RIVR RIVER N DTEM TOWR OTEM TOWR COOLING TOWER PROBLEMS. DTRX **** OTRX **** TRANSMISSION PROBLEMS. DTRX ICE OTRX ICE ICE. DTRX OVLD OTRX OVLD OVERLOAD. S M N DTRX UNTR S M OTRX UNTR UNIT TRANSFORMER. S M N DTRX VOLT S M OTRX VOLT VOLTAGE. N DTRX ZONE OTRX ZONE ZONE. S M OTRX UBRK UNIT BREAKER. NOTE: ALL REASON CODES BELOW MUST HAVE NEGATIVE VALUES. - ---- DERATE CODE M OR O/S CODE DESCRIPTION - --------------------------- -------------------------- ---------------------------------------------- RFUE GAS RECOVERABLE MW BURNING GAS RFUE OIL RECOVERABLE MEGAWATTS BURNING OIL. RTST RATING TEST OR OPERATION ABOVE OFFICIAL UNIT RATING.
C.E.Co. G.P. No. 354 Appendix E Page 14 of 16 SPS DERATING CODES BLACK START DIESEL PEAKERS DERATE CODE M OR O/S CODE DESCRIPTION - --------------------------- -------------------------- ---------------------------------------------- DPDX **** OPDX **** DIESEL DERATING OR OUTAGE. A SECONDARY REASON IS ALWAYS REQUIRED. X = UNIT NUMBER M N DPDX AUXT M OPTX AUXT AUXILIARY TRANSFORMER M N DPDX BATT M OPDX BATT BATTERY AND CHARGING SYSTEM M N DPDX CONT M OPDX CONT ENGINE CONTROL SYSTEM M N DPDX COOL M OPDX COOL COOLING SYSTEM M OPDX ENEX ENGINE EXCHANGE M N DPDX ENGE M OPDX ENGE ENGINE PROBLEM OPDX EROR OPERATING OR MAINTENANCE ERROR OPDX EXPL UNIT OR COMPONENT EXPLOSION OPDX FIRE FIRE M N DPDX FUEL M OPDX FUEL FUEL SYSTEM M N DPDX GENR M OPDX GENR GENERATOR PROBLEM M N DPDX GOV M OPDX GOV GOVERNOR PROBLEM M N DPDX INAS M OPDX INAS AIR INLET SYSTEM M N DPDX LUBR M OPDX LUBR LUBRICATION PROBLEM M N DPDX MAIN M OPDX MAIN MAIN TRANSFORMER OPDX NADS NATURAL DISASTER TO PLANT M OPDX OVHL OVERHAUL N DPDX REGS OPDX REGS NOISE OR ENVIRONMENTAL REGULATION M N DPDX STRT M OPDX STRT STARTER SYSTEM N DPDX TEST TESTING OF INDIVIDUAL UNITS M N DPDX TUCH M OPDX TUCH TURBO-CHARGER M N DPDX VIBS M OPDX VIBS VIBRATION PROBLEM
LOCATIONS - FISK UNIT 20, JOLIET UNIT 9
C.E.Co. G.P. No. 354 Appendix E Page 15 of 16 SPS DERATING CODES FAST START PEAKING UNITS DERATE CODE M OR O/S CODE DESCRIPTION - --------------------------- -------------------------- ---------------------------------------------- DPKX **** OPKX **** PEAKER DERATING OR OUTAGE. A SECONDARY REASON IS ALWAYS REQUIRED. X = UNIT BLOCK NUMBER M N DPKX AUXT M OPKX AUXT BLOCK TRANSFORMER M N DPKX BATT M OPKX BATT BATTERY AND CHARGING SYSTEM M N DPKX BEAR M OPKX BEAR BEARING PROBLEM (NOT VIBRATION) M OPKX CLNG TURBINE CLEANING M N DPKX COMP M OPKX COMP COMPRESSOR PROBLEM M N DPKX CONT M OPKX CONT CONTROLS AND INSTRUMENTATION M N DPKX COOL M OPKX COOL COOLING SYSTEM M OPKX ENEX ENGINE EXCHANGE OPKX EROR OPERATING OR MAINTENANCE ERROR M N DPKX EROS M OPKX EROS AIRBORNE PARTICULATE EROSION M N DPKX EXCR M OPKX EXCR EXCITER PROBLEM M N DPKX EXHT M OPKX EXHT EXHAUST EQUIPMENT OPKX EXPL EXPLOSION OPKX FIRE FIRE M N DPKX FUEL M OPKX FUEL FUEL SYSTEM M N DPKX GENR M OPKX GENR GENERATOR PROBLEM N DPKX HEGT M OPKX HEGT HIGH EXHAUST GAS TEMPS. M N DPKX IGNT M OPKX IGNT IGNITION SYSTEM M N DPKX INAS M OPKX INAS INLET AIAR SYSTEM M N DPKX LUBR M OPKX LUBR LUBRICATION PROBLEM M N DPKX MAIN M OPKX MAIN MAIN TRANSFORMER OPKX NADS NATURAL DISASTER TO PLANT M OPKX OVHL OVERHAUL M N DPKX REDC M OPKX REDC REDUCTION SPEED GEAR N DPKX REGS OPKX REGS NOISE OR ENVIRONMENTAL REGULATIONS M N DPKX SULF M OPKX SULF SULFURIZATION EROSION FROM FUEL N DPKX TEST TESTING M N DPKX TURB M OPKX TURB TURBINE PROBLEM M N DPKX TURN M OPKX TURN TURNING GEAR M N DPKX VIBS M OPKX VIBS VIBRATION PROBLEM
LOCATIONS - BLOOM, CALUMET, CRAWFORD, ELECTRIC JUNCTION, FISK, JOLIET 6, LOMBARD, SABROOKE, WAUKEGAN
C.E.Co. G.P. No. 354 Appendix E Page 16 of 16 SPS OUTAGE CODES CODE DESCRIPTION - --------------------------- --------------------------------- ECONOMIC BOILER OUTAGES ARRANGED WITH LOAD DISPATCHER EB 1 ECONOMIC OUTAGE ON BOILER #1 EB 2 ECONOMIC OUTAGE OF BOILER #2 SCHEDULED OUTAGES ARRANGED BY OVERHAUL SCHEDULING COMMITTEE SBO1 BOILER OVERHAUL #1 BOILER SBO2 BOILER OVERHAUL #2 BOILER SMNT SCHEDULED MAINTENANCE SNEW NON-COMM. UNIT (VALUE MUST BE- SOVL UNIT OVERHAUL)
EX-10.87 18 a2042986zex-10_87.txt EXHIBIT 10.87 Exhibit 10.87 [COLLINS STATION] POWER PURCHASE AGREEMENT DATED AS OF DECEMBER 15, 1999 BETWEEN COMMONWEALTH EDISON COMPANY AND MIDWEST GENERATION, LLC COLLINS GENERATING STATION TABLE OF CONTENTS
PAGE ---- 1. Definitions and Interpretation...........................................................................1 (a) Definitions.....................................................................................1 (b) Interpretation..................................................................................9 (c) Legal Representation of Parties................................................................10 (d) Titles and Headings............................................................................10 2. Term....................................................................................................10 3. Generating Capacity.....................................................................................10 4. Electric Energy Supply..................................................................................10 (a) Character......................................................................................10 (b) Supply.........................................................................................10 (c) Dispatch.......................................................................................10 (d) Energy Imbalance...............................................................................11 5. Metering; Billing; Payment..............................................................................11 (a) Metering.......................................................................................11 (b) Meter Inaccuracies.............................................................................11 (c) Billing........................................................................................11 (d) Billing Disputes...............................................................................12 6. Operation of Reserved Units.............................................................................12 (a) Standard of Operation..........................................................................12 (b) Electric Energy Generation.....................................................................12 (c) Outages........................................................................................14 (i) Planned Outages.......................................................................14 (ii) Maintenance Outages...................................................................15 (iii) Forced Outages........................................................................15 (iv) Information Related to Outages........................................................15 (d) Operating Characteristics......................................................................15 (e) Fuel Source and Emissions Reports..............................................................16 (f) Records........................................................................................16 7. Compensation............................................................................................16 (a) Monthly Charges................................................................................16 (i) Monthly Capacity Charge...............................................................16 (ii) Energy Charge.........................................................................16 (iii) Start-Up and Support Charges..........................................................17 -i- PAGE ---- (iv) Low Load Charges......................................................................17 (v) Ancillary Services....................................................................18 (b) Minimum Take True-Up...........................................................................18 8. Testing.................................................................................................18 9. Ancillary Services......................................................................................18 10. Limitation of Liability.................................................................................19 11. Disagreements...........................................................................................20 (a) Administrative Committee Procedure.............................................................20 (b) Arbitration....................................................................................21 (c) Obligations to Pay Charges and Perform.........................................................22 (d) Preliminary Injunctive Relief..................................................................22 (e) Settlement Discussions.........................................................................22 12. Assignment; Transfer of Station.........................................................................23 (a) Assignment.....................................................................................23 (b) Collateral Assignment..........................................................................23 (c) Transfer of Station during the Term............................................................24 13. Termination by ComEd with respect to Certain Generating Units...........................................24 14. Default; Termination and Remedies.......................................................................24 (a) Seller's Default...............................................................................24 (b) ComEd Default..................................................................................25 (c) Remedies and Remedies Cumulative...............................................................25 (d) Extended Outage................................................................................26 (e) Terminations Under Section 13..................................................................26 15. Force Majeure...........................................................................................26 16. Representations and Warranties..........................................................................27 (a) Representations and Warranties of Seller.......................................................27 (b) Representations and Warranties of ComEd........................................................28 17. Indemnification.........................................................................................29 18. Notices.................................................................................................29 -ii- PAGE ---- 19. Confidentiality.........................................................................................31 20. Governing Law...........................................................................................31 21. Partial Invalidity......................................................................................32 22. Waivers.................................................................................................32 23. Competitive Transition Charge...........................................................................32 24. Entire Agreement and Amendments.........................................................................32
APPENDICES Appendix A Equivalent Availability Factor Appendix B Design Limits Appendix C MAIN Guide Number 3A Appendix D EO Communications and Guidelines Appendix E Reporting Forms Appendix F Regulating Performance Value Methodology Appendix G GADS Cause Codes -iii- POWER PURCHASE AGREEMENT THIS POWER PURCHASE AGREEMENT (including Appendices, this "AGREEMENT") dated as of December 15, 1999, between COMMONWEALTH EDISON COMPANY, an Illinois corporation ("COMED"), and MIDWEST GENERATION, LLC, a Delaware limited liability company ("SELLER"; ComEd 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, ComEd owns electric facilities and is engaged in the generation, purchase, transmission, distribution and sale of electric energy; and WHEREAS, Seller intends to purchase and thereafter operate ComEd's Collins electric generation station; and WHEREAS, ComEd desires to receive and purchase, and Seller desires to deliver and sell, electric capacity, energy and other generation-related services; and WHEREAS, ComEd desires to determine the dispatching of the units at such station as provided in this Agreement; 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, (ii) the terms defined elsewhere in this Agreement shall have the meanings therein so specified and (iii) the terms "AVAILABLE," "AVAILABLE HOURS," "EQUIVALENT AVAILABILITY FACTOR," "FORCED OUTAGE," "MAINTENANCE OUTAGE," "NET DEPENDABLE CAPACITY," "PLANNED OUTAGE," "PLANNED OUTAGE EXTENSION," "SERVICE HOURS" and "UNAVAILABLE", and the associated terms referred to and used in the calculation of such terms, shall have the respective meanings assigned to such terms in Appendix A. "ADJUSTMENT FACTOR" means, with respect to a month, the factor (rounded to four decimal places) obtained from the following: (a) if such month is a Summer Month:
GROUP EAF ADJUSTMENT FACTOR --------- ----------------- Greater than or equal to 90% (100 + [(Group EAF - 90) x 2])/100 Greater than or equal to 70% (Group EAF + 10)/100 but less than 90% Greater than or equal to 50% (80 + [(Group EAF - 70) x but less than 70% 4])/100 Less than 50% Zero (b) if such month is a Non-Summer Month: GROUP EAF ADJUSTMENT FACTOR --------- ----------------- Greater than or equal to 50% (Group EAF + 25)/100 Less than 50% Zero
provided, however that all outage hours and derating attributable to ComEd transmission system problems, outages or stability load restrictions shall be deemed Available Hours. "AFFECTED PARTY" has the meaning specified in Section 15(a). "AGC" means Automatic Generation Control. "ANCILLARY SERVICES" has the meaning set forth in Section 9. "ASSET SALE AGREEMENT" means the Asset Sale Agreement dated as of March 22, 1999, between ComEd and Seller, governing the transfer of the Station from ComEd to Seller. "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. "BUSINESS DAY" means each weekday (Monday through Friday) except the days on which the following holidays are observed: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. 2 "CHANGE OF LAW" means the adoption, promulgation, modification or reinterpretation of any law, rule, regulation, ordinance, order or other Requirement of Law of any federal, state, county or local government, governmental agency, court, commission, department or other such entity which occurs subsequent to the date of execution of this Agreement but excluding any change in law relating to (i) taxation of net income or (ii) any requirement regarding reduction or control of nitrogen oxide (NOx), carbon dioxide or volatile organic materials under any Requirement of Law. "COLD START" means a Successful Start-Up of a Reserved Unit before which such Reserved Unit has been off-line for 48 hours or more. "COMED CONTROL AREA" means the ComEd electrical system bounded by interconnection (tie-line) metering and telemetry and wherein ComEd controls generation to maintain the system's interchange schedule with other control areas and contributes to frequency regulation of the interchange. "COMED EMS" means the electronic hardware and software owned by ComEd and known as the "ComEd Energy Management System." "COMED EVENT OF DEFAULT" has the meaning specified in Section 14(b). "COMED SYSTEM" the electric transmission and distribution system owned by ComEd and its affiliates. "CONFIDENTIAL INFORMATION" has the meaning specified in Section 18. "CONTRACT YEAR" means, in the case of the First Contract Year, the period beginning on the Effective Date and ending on the day prior to the first anniversary of such beginning date, if the Effective Date is the first day of a calendar month, or ending on the day prior to the first anniversary of the beginning of the month immediately following the Effective Date, if the Effective Date is not the first day of a month; and, in the case of subsequent Contract Years, means the period beginning on the day immediately following the end of the preceding Contract Year and ending on the day prior to the first anniversary of such beginning day. First Contract Year refers to the first such period commencing on the Effective Date; Second Contract Year refers to the second such period; and so on. "DEFAULT RATE" means (i) the "Prime Rate" as published from time to time in the "Money Rates" section of THE WALL STREET JOURNAL, plus (ii) 2.5% (250 basis points) per annum. "DESIGN LIMITS" means, with respect to a Reserved Unit, the items listed in Appendix B with respect to such Reserved Unit. 3 "EFFECTIVE DATE" means the date of this Agreement. "ELECTRIC ENERGY" has the meaning specified in Section 4(a). "EMERGENCY CONDITION" means a condition or situation which (i) in the sole judgment of ComEd (or any ISO) presents an imminent physical threat of danger to life, or significant threat to health or property, (ii) in the sole judgment of ComEd (or any ISO) could cause a significant disruption on or significant damage to the ComEd 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 could cause significant damage to the equipment that constitutes the Station (or any material portion thereof) or (iv) in the sole judgment of ComEd could cause significant damage to the equipment located in the switchyard associated with the Station (or any material portion of such switchyard). "ENERGY CHARGE" means an amount determined under Section 7(a)(ii) in respect of a month. "EO" means ComEd's Electric Operations Department. "EO GENERATION DISPATCHER" means the Person so designated from time to time by ComEd as contemplated in Appendix D. Notice provisions for the EO Generation Dispatcher are contained in Appendix D. "EQUIVALENT AVAILABILITY ADJUSTMENT FACTOR" means, for a Contract Year, one minus the sum of (i) the product of 0.17 multiplied by the number of Summer Months in such Contract Year in which the Equivalent Availability Factor of the Reserved Units is less than 80%, plus (ii) the product of 0.04 multiplied by the number of Non-Summer Months in such Contract Year in which the Equivalent Availability Factor of the Reserved Units is less than 80%. Any adjustment pursuant to the foregoing in respect of a partial month during the First Contract Year (as the result of the Effective Date occurring during a month) shall be prorated by multiplying it by a fraction, the numerator of which is the number of days from the Effective Date through the last day of such month and the denominator of which is the total number of days in such month. "FERC" means the Federal Energy Regulatory Commission. "FORCE MAJEURE EVENT" has the meaning specified in Section 15(a). "GOVERNMENTAL ACTION" has the meaning specified in Section 15(a). "GROUP" means, with respect to a Contract Year, all of the Reserved Units for such Contract Year. 4 "GROUP EAF" means the Equivalent Availability Factor of the Group, subject to the following adjustment and clarifications: (i) to the extent that Seller declares a Substitute Unit to be Available to ComEd for the generation of Electric Energy, the Available generating capacity of such Substitute Unit may be used to offset the Unavailable generating capacity of a Reserved Unit (up to (i) if such calculation is being performed for a Summer Month, 90% of the Net Dependable Capacity of such Reserved Unit as set forth in Appendix B or (ii) if such calculation is being performed for a Non-Summer Month, 75% of the Net Dependable Capacity of such Reserved Unit as set forth in Appendix B) for purposes of calculating Group EAF; (ii) for clarity and the avoidance of doubt, hours attributable to Planned Outages (including extensions), Maintenance Outages (including extensions) and Forced Outages shall be Unavailable hours for the purposes of calculating Group EAF; and (iii) Availability of a Reserved Unit shall be measured on the Station side of the Point of Delivery unless an event on the Station side of the Point of Delivery has caused equipment on the transmission system side of the Point of Delivery to be malfunctional or nonfunctional. "HOT START" means a Successful Start-Up of a Reserved Unit before which such Reserved Unit has been off-line for eight hours or less. "INTERCONNECTION AGREEMENT" means the Facilities, Interconnection and Easement Agreement dated as of the Effective Date between ComEd and Seller with respect to the Station. "ISO" means any Person that becomes responsible under applicable FERC guidelines for the transmission system to which the Station is connected. "LENDERS" means (i) any person or entity that, from time to time, has made loans to Seller, its permitted successors or permitted assigns for the financing or refinancing of a Station or which are secured by a Station, (ii) any holder of such indebtedness, (iii) any trustee on behalf of any such holders or (iv) any Person who purchases a Station in connection with a sale-leaseback or other lease arrangement in which the Seller is the lessee of such Station pursuant to a net lease. "LOW LOAD CHARGES" means an amount determined under Section 7(a)(iv) in respect of a month. "MAIN" means the Mid-America Interconnected Network. "MINIMUM LOAD" means the "Minimum Operating Level" for a Reserved Unit (below which it cannot operate in a stable manner) as set forth in Appendix B. Minimum Load for a Reserved Unit shall be measured in net megawatts. 5 "MINIMUM ENERGY AMOUNT" means, with respect to a Contract Year, the product of (i) 3,000,000 megawatt hours, multiplied by (ii) a fraction, the numerator of which is the Reserved Capacity for such Contract Year and the denominator of which is the 2,698 megawatts. "MINIMUM TAKE TRUE-UP" means (i) the product of the Minimum Energy Amount for a Contract Year, multiplied by the Equivalent Availability Adjustment Factor for such Contract Year, multiplied by the megawatt hour charge for such Contract Year, as determined from the table in Section 7(a)(ii), less (ii) the aggregate amounts paid or payable by ComEd to Seller under Section 7(a)(ii) in respect of the months (including, in the case of the First Contract Year, any partial month) constituting such Contract Year. "MONTHLY CAPACITY CHARGE" means an amount determined under Section 7(a) in respect of a month. "NERC" means the North American Electric Reliability Council. "NON-SUMMER MONTH" means any month other than a Summer Month. "NON-SUMMER CAPACITY CHARGE" means, with respect to a Non-Summer Month, (i) $1,667 per megawatt-month during the First through Third Contract Years and (ii) $2,083 per megawatt-month during the Fourth and Fifth Contract Years. "NON-SUMMER CAPACITY PAYMENT" means, for a Non-Summer Month, the sum of the following calculations for each Reserved Unit during such month: the result of (i) the product of (a) the Net Dependable Capacity of such Reserved Unit as determined from Appendix B, multiplied by (b) the Non-Summer Capacity Charge for such month, multiplied by (c) the Adjustment Factor for such month, minus (ii) the Regulation Adjustment for such Reserved Unit for such month. "PERSON" means any individual, corporation, partnership, joint venture, limited liability company, association, joint stock company, trust, unincorporated organization, entity, government or other political subdivision. "POINT OF DELIVERY" means the point of Electric Energy delivery from the Station to the ComEd System specified in the Interconnection Agreement. "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 United States of America 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 6 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 United States of America. "REGULATION ADJUSTMENT" means, with respect to a Reserved Unit for a given month, (i) if the Adjustment Factor for such Reserved Unit for such month is zero or the Service Hours for such Reserved Unit for such month are less than twenty-four, an amount equal to zero, or (ii) in all other cases, an amount equal to the RPV Adjustment. "REQUIREMENT OF LAW" means any foreign, 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. "RESERVED CAPACITY" means, with respect to a Contract Year, the aggregate Net Dependable Capacity of the Reserved Units (as set forth in Appendix B). "RESERVED UNIT" means each, and "RESERVED UNITS" means all, of the generating units of the Station except those units with respect to which this Agreement has been terminated in accordance with Section 13. "RAW RPV" means, with respect to a Reserved Unit, its (together with any Substitute Unit substituted for such Reserved Unit) "regulating performance value," which shall be calculated by ComEd EMS on a monthly basis in accordance with the methodology set forth in Appendix G. "RPVACT" means, with respect to a Reserved Unit for a given month, the product of Raw RPV x [(hours on AGC)/(Service Hours - Start-Up Adjustment)] For purposes of the foregoing calculation, the term "START-UP ADJUSTMENT" means, with respect to a given month, the sum of: [(2 hours) x (the number of Hot Starts in such month)] + [(4 hours) x (the number of Warm Starts in such month)]+ [(6 hours) x (the number of Cold Starts in such month)]. "RPV ADJUSTMENT" means, with respect to a Reserved Unit for a given month, the amount determined from the following:
RPV Adjustment -------------- If (RPVmin - RPVact) is less than zero [(RPVmin - RPVact) x $5,330)] If (RPVmin - RPVact) is zero zero 7 If (RPVmin - RPVact) is greater [(RPVmin - RPVact) x $5,330] than zero
For purposes of the foregoing calculation, the term "RPVMIN" means the "Unit RPV" listed for such Reserved Unit in Appendix B. "SELLER'S EVENT OF DEFAULT" has the meaning specified in Section 14(a). "START-UP AND SUPPORT CHARGES" means an amount determined under Section 7(a)(iii). "STATION" means the Collins generating station being conveyed to Seller pursuant to the Asset Sale Agreement. "SUBSTITUTE UNIT" means a generating unit (other than a combustion turbine generating unit or peaker that is subject to a power purchase agreement with ComEd) within the ComEd Control Area which is not a Reserved Unit under this Agreement at the time in question. "SUCCESSFUL START-UP" means causing, at the request of ComEd, a generating unit to achieve electrical synchronization with the transmission provider's system to which the Station is interconnected and to maintain at least the Minimum Load for such generating unit for a period of two hours. "SUMMER CAPACITY CHARGE" means, with respect to a Summer Month, (i) $6,666 per megawatt-month during the First through Third Contract Years and (ii) $8,333 per megawatt-month during the Fourth and Fifth Contract Years. "SUMMER CAPACITY PAYMENT" means, for a Summer Month, the sum of the following calculations for each Reserved Unit during such month: the result of (i) the product of (a) the Net Dependable Capacity of such Reserved Unit, multiplied by (b) the Summer Capacity Charge for such month, multiplied by (c) the Adjustment Factor for such month, minus (ii) the Regulation Adjustment for such Reserved Unit for such month. "SUMMER MONTH" means each of June, July, August and September. "SUMMER PERIOD" means the period from May 15 through September 15 or, if the Effective Date or the Termination Date falls from May 15 through September 15 of a given year, then for the resulting shorter period for such year. "TERM" has the meaning specified in Section 2. 8 "TERMINATION DATE" means the earlier of (i) the day immediately preceding the fifth anniversary of the Effective Date if the Effective Date is the first day of a month and otherwise the day immediately preceding the fifth anniversary of the first day of the month immediately following the Effective Date and (ii) the date on which this Agreement is terminated by a Party pursuant to its terms. "WARM START" means a Successful Start-Up of a Reserved Unit before which such Reserved Unit has been off-line for more than eight hours, but less than 48 hours. (b) INTERPRETATION. In this Agreement, unless a clear contrary intention appears: (i) the singular includes the plural 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; (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". 9 (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. 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), 6(f) (Records), 10 (Limitation of Liability), 11 (Disagreements), 14 (Default, Termination and Remedies), and 16 (Indemnification) shall survive the termination 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 Net Dependable Capacity of the Reserved Units during a Contract Year to be not less than the Reserved Capacity for such Contract Year. 4. ELECTRIC ENERGY SUPPLY (a) CHARACTER. All electric energy which Seller shall sell and deliver to ComEd from a Reserved Unit (or a Substitute Unit) hereunder (such electric energy being referred to herein as the "ELECTRIC ENERGY") shall be consistent with the requirements of Section 5.7 of the Interconnection Agreement. (b) SUPPLY. Subject to the terms and conditions of this Agreement, Seller shall make available at the Point of Delivery to ComEd for delivery and sale, and ComEd may receive and purchase from Seller, Electric Energy. If a Reserved Unit is not Available, Seller may use a Substitute Unit to fulfil such obligation; PROVIDED, HOWEVER, that (i) if such Substitute Unit is not located within the Station, Seller shall be responsible for arranging transmission service for delivery to the Station from such Substitute Unit and (ii) such Substitute Unit shall have an RPVmin not less than the Unavailable Reserved Unit. ComEd shall not be obligated to receive or purchase any Electric Energy from Seller except such Electric Energy as is dispatched by ComEd pursuant to Section 4(c). (c) DISPATCH. ComEd may dispatch the delivery of Electric Energy from each Reserved Unit (or Substitute Unit) in accordance with the provisions set forth in Appendix D at a rate up to such Reserved Unit's Net Dependable Capacity as set forth in Appendix B or such Substitute Unit's Net Dependable Capacity, as the case may be (or such greater or lesser rate as 10 Seller may from time to time declare to be Available in accordance with Section 3 of Appendix D), at any time when such Reserved Unit is so declared by Seller to be Available. (d) ENERGY IMBALANCE. ComEd shall hold Seller harmless from any energy imbalance charges that result from ComEd's dispatch orders under this Agreement. 5. METERING; BILLING; PAYMENT (a) METERING. All Electric Energy delivered by Seller to ComEd from the Station under this Agreement shall be metered at billing meter installations provided, installed, owned, maintained and tested as provided in Section 5.18 of the Interconnection Agreement. At Sellers option and expense, back-up meters and associated metering equipment independent of the Metering Equipment may be installed at the Station and such back-up meters and metering equipment shall be used in accordance with the practices and procedures established by the Parties for billing adjustments of discovered billing meter inaccuracies. Any such back-up meters may be tested by ComEd at Seller's expense, and any inaccuracies shall be handled as provided in Section 5.18 of the Interconnection Agreement. All Electric Energy delivered by Seller to ComEd from a Substitute Unit not located at the Station shall be metered at billing meter installations provided, installed, owned, maintained and tested by ComEd, if available, and otherwise at the billing meter installation available at the site where the Substitute Unit is located. In the event that ComEd's billing meters are not in service, ComEd will use meter information from the meters it uses for dispatch for the period that the billing meters are unavailable and provide the information to Seller. As soon as practicable but in any event no later than five Business Days after the end of each calendar month, ComEd shall provide Seller with information from the billing meter installations owned or controlled by ComEd for Seller's use in preparing billing statements and Seller shall have the right to witness such meter readings and testing. (b) METER INACCURACIES. ComEd shall provide to Seller copies of all routine meter calibration test results. If any test of the billing meters by ComEd or Seller discloses an inaccuracy of more than 0.5% fast or 0.5% slow, then a billing adjustment shall be made to correct for the inaccuracy. For purpose of the billing adjustment, if the inaccuracy is traceable to a specific event or occurrence at a reasonably ascertainable time, then the adjustment shall extend back to that time; otherwise, it shall be assumed that the error has existed for a period equal to one-half of the time elapsed since the meter was installed or one-half of the time since the last meter test, whichever is later. At any metering location, should the billing meter at any time fail to register, the delivered Electric Energy shall be determined by ComEd from the best available data, unless Seller objects within 30 days. Such disagreements shall be resolved pursuant to Section 11. (c) 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 ComEd for the amounts due in respect of such month under Section 7, which statement shall contain reasonable detail showing the manner in which the Monthly Capacity Charge, Energy Charge, Start-Up and Support Charges, Low Load Charges and any Minimum Take True-Up were determined. 11 Billings for Electric Energy shall be based on ComEd revenue quality meter information or, if such meters are not yet in service, on information from the meters that ComEd uses for dispatch. The amount due to Seller as shown on any such monthly statement rendered by Seller shall be paid by ComEd within fifteen Business Days after the date such statement is rendered to ComEd by electronic means to an account specified by Seller. Any amount not paid when due shall bear interest from the due date until paid at the Default Rate. (d) BILLING DISPUTES. (i) If ComEd questions or contests the amount of any amount claimed by Seller to be due under Section 7 of this Agreement, ComEd 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(d)(ii). (ii) In the event that ComEd, 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 ComEd, within fifteen Business Days following receipt by Seller of such notice from ComEd, of the amount of any error and the amount of any reimbursement that ComEd is entitled to receive in respect of such alleged error. Any disputes not resolved within fifteen Business Days after Seller's receipt of notice from ComEd shall be resolved in accordance with Section 11. Upon determination of the correct amount of any reimbursement, such amount shall be promptly paid by Seller. (iii) Reimbursements made by Seller to ComEd under this Section 5(d) 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 RESERVED UNITS (a) STANDARD OF OPERATION. Consistent with Prudent Utility Practice, Seller shall operate each Reserved Unit in accordance with (i) the applicable 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 maintain all certifications, permits, licenses and approvals necessary to operate and maintain each Reserved Unit and to perform its obligations under this Agreement during the Term. (b) ELECTRIC ENERGY GENERATION. (i) During a Contract Year, ComEd shall have the right to receive and purchase Electric Energy represented by the Reserved Capacity of each Reserved Unit for such Contract Year. To the extent that ComEd has not dispatched the full Reserved Capacity of 12 the Reserved Units, Seller may sell the electric energy represented by such undispatched Reserved Capacity to third parties subject to the following requirements: (w) if such undispatched Reserved Capacity relates to a Reserved Unit which: (i) has been synchronized to the ComEd System and is delivering Electric Energy at the request of ComEd, the EO Generation Dispatcher must have released such undispatched capacity to Seller and any sales of electric energy from such capacity shall be cancellable by Seller upon not more than ten minutes notice through GCM from the EO Generation Dispatcher; (ii) is off-line at the request of the EO Generation Dispatcher and is operating in a two-hour start-up standby mode at the request of ComEd, then any sales of electric energy from such undispatched capacity shall be cancellable by Seller upon not more than two hours notice through GCM from the EO Generation Dispatcher; (iii) is off-line at the request of the EO Generation Dispatcher and is operating in an eight-hour start-up standby mode at the request of ComEd, then any sales of electric energy from such undispatched capacity shall be cancellable by Seller upon not more than eight hours notice through GCM from the EO Generation Dispatcher; or (iv) is off-line at the request of the EO Generation Dispatcher and is not operating in a start-up standby mode at the request of ComEd, then any sales of electric energy from such undispatched capacity shall be cancellable by Seller upon not more than twenty-four hours notice through GCM from the EO Generation Dispatcher. (x) Seller shall be responsible for arranging transmission service for any deliveries of electric energy contemplated by any such sales to third parties (it being understood that this Agreement does not grant any rights of access to, or use of, any transmission service); (y) the delivery of electric energy contemplated by any such sales to third parties shall be in accordance with the provisions of the Interconnection Agreement; and (z) Seller shall schedule the sale of any energy so released through EO and shall respond to any recall of such energy by EO within the applicable time period specified in Section 6(b)(i)(w). No sales of electric energy shall be made to any Person from a Reserved Unit (or any portion thereof) declared by Seller to be Unavailable. 13 (ii) In the event that a Reserved Unit shall have electric generation capacity in excess of its Net Dependable Capacity set forth in Appendix B, Seller may offer and sell such capacity and associated electric energy to third parties on such terms as Seller shall determine in its sole discretion. Seller shall be responsible for arranging transmission service for any deliveries of electric energy contemplated by any such sales to third parties (it being understood that this Agreement does not grant any rights of access to, or use of, any transmission service); and the delivery of electric energy contemplated by any such sales to third parties shall be in accordance with the provisions of the Interconnection Agreement. It is further understood that, in the event that any such sales to third parties shall be made and there shall be a derating in the associated Reserved Unit, such sales shall be curtailed in full before any curtailment of Electric Energy dispatched by ComEd from such Reserved Unit as a result of such derating. (iii) Seller may not sell Ancillary Services with respect to any undispatched Reserved Capacity referred to in Section 6(b)(i) or with respect to any excess capacity referred to in Section 6(b)(ii). (c) OUTAGES (i) PLANNED OUTAGES. On or prior to the Effective Date, Seller shall submit to ComEd a proposed schedule of Planned Outages (including Planned Deratings) scheduled by Seller for the following three Contract Years for the Reserved Units at the Station, which schedule shall be supplemented by Seller every six months following the Effective Date by notice to the EO Generation Dispatcher 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 a Summer Period. Such schedule, and each supplement thereto, shall indicate the planned start and completion dates for each Planned Outage shown during the period covered thereby and the amount of generating capacity that will be affected. Within sixty days of receipt of such schedule or any supplement thereto, ComEd may request reasonable modifications therein. Seller and ComEd shall work together to schedule Planned Outages to meet their mutual requirements; however, it is understood that in the event of a disagreement on such scheduling, ComEd will have the right to resolve such disagreements as it reasonably determines to be appropriate in accordance with Prudent Utility Practice. In addition, ComEd may at any time request, and Seller shall make, changes to such schedule or any such supplement if ComEd deems such changes to be necessary, PROVIDED THAT, Seller shall not be required in connection with any such change to split a single Planned Outage into more than one outage or to reduce the duration of a Planned Outage; PROVIDED FURTHER that, except for changes requested during the first six months of the Term, such changes do not affect any Planned Outages during the six months immediately following Seller's receipt of such request; and PROVIDED FURTHER, that if Seller reasonably incurs increased costs as a result of ComEd's request to reschedule a Planned Outage, ComEd shall reimburse Seller for the actual, documented increased out-of-pocket costs. At least one week prior to any Planned Outage, Seller shall orally notify the EO Generation Dispatcher of the expected start date of 14 such Planned Outage, the amount of generating capacity at the Reserved Units which will not be available to ComEd during such Planned Outage, and the expected completion date of such Planned Outage. Seller shall orally notify the EO Generation Dispatcher promptly 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, Seller shall notify the EO Generation Dispatcher of such outage and shall plan such outage of generating capacity and use reasonable efforts to accommodate the requirements and service obligations of ComEd. Notice of a proposed Maintenance Outage shall include the expected start date of the outage, the amount of unavailable generating capacity of the Reserved Units and the expected completion date of the outage, and shall be given to ComEd at the time the need for the outage is determined by Seller. ComEd shall promptly respond to such notice and may request reasonable modifications in the schedule for the outage to accommodate the requirements and service obligations of ComEd. Seller shall use reasonable efforts to comply with such requested modifications and shall, if requested by ComEd, reschedule its Maintenance Outages, PROVIDED THAT it may do so in accordance with Prudent Utility Practice. Seller shall notify the EO Generation Dispatcher promptly of any subsequent changes in such generating capacity not available to ComEd or any subsequent changes in such outage completion date. As soon as practicable, any such notifications given orally shall be confirmed in writing. (iii) FORCED OUTAGES. Seller shall provide to the EO Generation Dispatcher immediately an oral report of any Forced Outage (including Forced Deratings) of the Reserved Units, which report shall include the amount of generating capacity at the Reserved Units unavailable because of such Forced Outage and the expected return date of such generating capacity, and shall update such report by notice to the EO Generation Dispatcher promptly as necessary to advise ComEd of changed circumstances. As soon as practicable, all such oral reports shall be confirmed in writing. (iv) INFORMATION RELATED TO OUTAGES. In addition to the foregoing, Seller shall provide to the EO Generation Dispatcher information relating to outages of generating capacity at the Station which would affect Seller's ability to deliver Electric Energy from any Reserved Unit. (d) OPERATING CHARACTERISTICS. The operating characteristics of each Reserved Unit shall be consistent with the Design Limits for such Reserved Unit set forth in Appendix B 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 by the Parties. Seller shall reduce, curtail or interrupt electrical generation at the Station 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 ComEd may be necessary 15 to operate, maintain and protect the ComEd 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 equipment at the Station during an Emergency Condition. (e) FUEL SOURCE AND EMISSIONS REPORTS. Seller shall provide ComEd with information concerning Seller's fuel sources and emissions (including carbon dioxide, nitrous oxides and sulfur dioxide emissions) as reasonably requested by ComEd in order to allow ComEd 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. (f) RECORDS. Each Party shall keep and maintain all records as may be necessary or useful in performing or verifying any calculations or charges 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 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 and its agents, including auditors, shall have the right, upon thirty days written notice prior to the end of an applicable three calendar year period to request copies of such records. Each Party shall provide such copies, at the other Party's expense, within thirty days of receipt of such notice or shall make such records available to the other Party and its agents, including auditors, in accordance with the foregoing provisions of this Section. 7. COMPENSATION (a) MONTHLY CHARGES. ComEd shall pay to Seller, in respect of each calendar month during the Term, the following amounts: (i) MONTHLY CAPACITY CHARGE. A Monthly Capacity Charge equal to the Summer Capacity Payment, if such month is a Summer Month, or the Non-Summer Capacity Payment, if such month is a Non-Summer Month; PROVIDED, HOWEVER, if the first month of the First Contract Year is a partial month (as a result of the Effective Date occurring during a month), the amount payable under this Section 7(a)(i) in respect of such partial month shall be prorated by multiplying it by a fraction, the numerator of which is the number of days from the Effective Date through the last day of such month and the denominator of which is the total number of days in such month. (ii) ENERGY CHARGE. An amount equal to the product of (x) the Electric Energy (expressed in megawatt hours) sold to ComEd under this Agreement during such month, multiplied by (y) the megawatt hour charge applicable to such Electric Energy as determined from the following table: 16
Energy Charge ============================================== Contract Year ($/Megawatt Hour) 1 $30 2 31 3 32 4 33 5 34
(iii) START-UP AND SUPPORT CHARGES. An amount equal to the sum of: (1) the product of (x) the number of Cold Starts for each Reserved Unit during such month, multiplied by (y) $10,700, plus (2) the product of (x) the number of Warm Starts for each Reserved Unit during such month, multiplied by (y) $7,500, plus (3) the product of (x) the number of Hot Starts for each Reserved Unit during such month, multiplied by (y) $3,700, plus (4) the product of (x) the number of hours (if any) during such month that a Reserved Unit was operated in the two-hour start-up standby mode at the request of ComEd, multiplied by (y) a fraction, the numerator of which is $30,000 and the denominator of which is 24, plus (5) the product of (x) the number of hours (if any) during such month that a Reserved Unit was operated in the eight-hour start-up standby mode at the request of ComEd, multiplied by (y) a fraction, the numerator of which is $15,000 and the denominator of which is 24. (iv) LOW LOAD CHARGES. An amount equal to the sum of the following calculations for each Reserved Unit during such month: the product of (1) the number of megawatt hours (if any) during such month that such Reserved Unit was operated at the request of ComEd within the range set forth opposite such Reserved Unit in the following table and (2) the Low Load Charge set forth opposite such Reserved Unit in such table; PROVIDED, HOWEVER, that no Low Load Charge shall be due if, due to a derating (not directed by ComEd), the Reserved Unit is unable to operate above the Low Load Range specified in the table below. 17
================================================================ Generating Unit Load Range Low Load Charge (Net MWs) ($ per Megawatt-hour) ================================================================ Unit 1 44-78 $15 ---------------------------------------------------------------- Unit 2 42-78 15 ---------------------------------------------------------------- Unit 3 24 GREATER THAN OR EQUAL TO 45 40 45 GREATER THAN OR EQUAL TO 79 10 ---------------------------------------------------------------- Unit 4 24 GREATER THAN OR EQUAL TO 45 40 45 GREATER THAN OR EQUAL TO 79 10 ---------------------------------------------------------------- Unit 5 24 GREATER THAN OR EQUAL TO 45 40 45 GREATER THAN OR EQUAL TO 79 10 ================================================================
(v) ANCILLARY SERVICES. There shall not be any additional charges payable by ComEd or otherwise in respect of the Ancillary Services described in Section 9. (b) MINIMUM TAKE TRUE-UP. The amount otherwise payable under Section 7(a)(ii) in respect of the last month of a Contract Year shall be subject to upward adjustment to reflect the Minimum Take True-Up, if any. 8. TESTING Capability evaluations of the Reserved Units may be conducted by ComEd at reasonable intervals. Such evaluations shall consist of a period of one hour during which ComEd may request the Net Dependable Capacity of a Reserved Unit to generate Electric Energy for delivery to the ComEd System. Once a test period has been initiated, it must last one hour unless ComEd and the Station general manager mutually agree to a shorter duration. In addition, ComEd may request not more than once per Contract Year that a Reserved Unit undergo a generating test as specified in Guide No. 3A of MAIN (a copy of which is attached as Appendix C). 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, ComEd shall have the right to retest the affected Reserved Unit upon prior notice to Seller. Seller shall have the right to retest any Reserved Unit after the failure of any test performed at the request of ComEd pursuant to this Section 8. 9. ANCILLARY SERVICES As directed by ComEd, Seller shall provide the following additional services (the "ANCILLARY SERVICES") with respect to the Reserved Capacity (subject to any sale(s) of electric energy made by Seller to third parties to the extent permitted under Section 6(b)(i) or (ii)): 18 (a) Reactive supply and voltage control from generation sources (b) Regulation and frequency response (c) Operating reserve - spinning (d) Operating reserve - supplemental The requirements of these services shall be as stated in ComEd's Open Access Transmission Tariff as filed with FERC, and any other Requirements of Laws and any requirements of MAIN, NERC, any ISO and any successors to the functions thereof. 10. LIMITATION OF LIABILITY 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 affiliates' 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. Notwithstanding the foregoing provisions of this Section or any other Section hereof, if (i) ComEd dispatches the delivery of Electric Energy from a Reserved Unit in accordance with the provisions hereof (other than during a ComEd Event of Default under Section 14(b)(i)) and Seller fails to provide all of the Electric Energy so dispatched by ComEd, or (ii) if Seller fails to declare a Reserved Unit Available at its Net Dependable Capacity, and, during such failure, Seller sells or provides electric energy from the Reserved Unit to any Person other than ComEd (including Seller but excluding provision or use of electric energy by Seller solely for use at the Station), ComEd shall, in addition to any rights it has to an adjustment of payments otherwise due hereunder or to terminate this Agreement, be entitled to reimbursement by Seller for all of ComEd's out-of-pocket costs related to or resulting from such failure by Seller, including: (w) the costs to purchase and transmit electric energy in substitution for the subject Electric Energy to the extent such costs exceed the costs that would have been due hereunder had, in the case of a failure under clause (i) above, Seller provided the Electric Energy dispatched by ComEd, or the costs to purchase and transmit electric energy in substitution for the Net Dependable Capacity (as set forth in Appendix B) from the subject 19 Reserved Unit to the extent such costs exceed the costs that would have been due hereunder had, in the case of a failure under clause (ii) above, Seller declared such Reserved Unit Available and ComEd had dispatched Electric Energy from such Reserved Unit in each case in an amount inclusive of the electric energy sold to such Person; (x) any and all amounts paid (whether in the form of cash payments, bill credits, tariff adjustments or otherwise) by ComEd to its customers pursuant to statute, tariff, order of a tribunal of competent jurisdiction or other Requirement of Law because ComEd was unable to provide electric energy to any of its customers to the extent that all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller; (y) attorneys', consultants' and witnesses' fees incurred by ComEd in connection with a regulatory or judicial investigation or proceeding of any kind related to or resulting from an inability of ComEd to provide electric energy to any of its customers to the extent that all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller; and (z) any other amounts owed to third parties because of ComEd's inability to deliver electric energy if all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller. In addition, if ComEd is unable to provide electric energy to any customer or third party and all or part of such inability could reasonably have been expected to have been avoided absent such failure by Seller, ComEd will suffer significant damages in addition to its out-of-pocket costs, the quantification of which is difficult to ascertain. Accordingly, if ComEd is unable to provide electric energy to any customer or third party and all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller, and, during such failure by Seller, Seller sells or provides electric energy from the subject Reserved Unit to any Person other than ComEd (including Seller but excluding provision or use of electric energy by Seller solely for use at the Station), Seller shall pay for each occurrence, in addition to the out-of-pocket costs described above, liquidated damages to ComEd in the amount of $25,000 for each megawatt of Net Dependable Capacity (as set forth in Appendix B) for the relevant Reserved Unit. 11. DISAGREEMENTS (a) ADMINISTRATIVE COMMITTEE PROCEDURE. Except to the extent otherwise provided in Section 5(d), if any disagreement arises on matters concerning this Agreement, the disagreement shall be referred to one representative of each Party, who shall attempt to timely resolve the disagreement. If such representatives can resolve the disagreement, such resolution shall be reported in writing to and shall be binding upon the Parties. If such representatives cannot resolve the disagreement within a reasonable time, or a Party fails to appoint a representative within 10 days 20 of written notice of the existence of a disagreement, then the matter shall proceed to arbitration as provided in Section 11(b). (b) ARBITRATION. If pursuant to Section 11(a), the Parties are unable to resolve a disagreement arising on a matter pertaining to this Agreement, such disagreement shall be settled by arbitration in Chicago, Illinois. The arbitration shall be governed by the United States Arbitration Act (9 U.S.C. Section 1 ET SEQ.), and any award issued pursuant to such arbitration may be enforced in any court of competent jurisdiction. 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. Arbitration shall be conducted as follows: (i) Either Party may give the other Party written notice in sufficient detail of the disagreement and the specific provision of this Agreement under which the disagreement arose. The demand for arbitration must be made within a reasonable time after the disagreement has arisen. In no event may the demand for arbitration be made if the institution of legal or equitable proceedings based on such disagreement is barred by the applicable statute of limitations. Any arbitration related to this Agreement may be consolidated with any other arbitration proceedings related to this Agreement. (ii) 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 days, each shall then appoint one person to serve as an arbitrator and the two 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 arbitrators shall determine all matters by majority vote; PROVIDED, HOWEVER, if the two arbitrators appointed by the Parties are unable to agree upon the appointment of the third arbitrator within five 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 days thereafter, then either of the Parties upon written notice to the other may require 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. (iii) The Parties shall have sixty days from the appointment of the arbitrator(s) to perform discovery and present evidence and argument to the arbitrator(s). During that period, the arbitrator(s) 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 arbitrator(s) shall use all reasonable means to expedite discovery and to sanction noncompliance with reasonable discovery requests or any discovery order. The arbitrator(s) 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, 21 the arbitrator(s) shall have forty-five 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 arbitrator(s) 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 or any right or remedy expressly provided hereunder, or provide any right or remedy that has been expressly excluded hereunder. (v) The arbitrator(s) shall give a written decision to the Parties stating their findings of fact and conclusions of law, and shall furnish to each Party a copy thereof signed by him (them) within five calendar days from the date of their determination. The arbitrator's(s') decision shall be final and binding upon the Parties. (vi) Each Party shall pay the cost of the arbitrator(s) with respect to those issues as to which they do not prevail, as determined by the arbitrator(s). (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 by arbitration as provided in Section 11(b), Seller shall continue to operate the Reserved Units in a manner consistent with the applicable provisions of this Agreement and ComEd shall continue to pay all charges and perform all other obligations required in accordance with the applicable provisions of this Agreement. (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) 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. 22 12. ASSIGNMENT; TRANSFER OF STATION (a) ASSIGNMENT. 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 or delayed. Notwithstanding the foregoing, ComEd shall have the right to assign its rights and obligations hereunder without the consent of Seller to (i) any entity that has a net worth of at least $500 million and credit ratings for long-term secured debt from Standard & Poor's Ratings Group of BBB- or higher and from Moody's Investors Service, Inc. of Baa3 or higher or (ii) any affiliate of ComEd. 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 Seller (or any entity or entities directly or indirectly holding a majority of the outstanding voting equity interests of Seller) to any party other than an affiliate controlled by, or under common control with, Seller shall be deemed an assignment of this Agreement. (b) COLLATERAL ASSIGNMENT. Notwithstanding the above, ComEd hereby consents to the assignment by Seller of a security interest in this Agreement to any Lenders; PROVIDED THAT Owner shall have provided notice of any such assignment to ComEd. ComEd further agrees to execute documentation to evidence such consent, PROVIDED it shall have no obligation to waive any of its rights under this Agreement. ComEd 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 in any material respect or terminated (except for termination pursuant to the terms of this Agreement) without the consent of Lenders, which consent as to amendments shall not be unreasonably withheld or delayed, (ii) Lenders shall be given notice of, and a reasonable time period (but in no event more than the time period provided 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 ComEd shall, at Lender's request, 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 (PROVIDED either (i) such proposed assignee is creditworthy and possesses experience and skill in the operation of electric generation plants or (ii) ComEd consents to the assignment to such proposed assignee, which consent shall not be unreasonably withheld (it being understood that ComEd 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 a Station(s), (v) that ComEd shall accept performance in accordance with this Agreement by Lender(s) or its (their) nominee, (vi) that ComEd shall make all payments to an account designated by Lender(s), and (vii) that ComEd shall make representations and warranties to Lender(s) as Lender(s) may reasonably request with regard to (A) ComEd's corporate existence, (B) ComEd's corporate authority to execute, deliver, and perform this Agreement, (C) the binding nature of this Agreement on ComEd, (D) receipt of regulatory approvals by ComEd with respect to its performance under this Agreement, and (E) whether any defaults by Owner are known by ComEd then to exist under this Agreement. 23 (c) TRANSFER OF STATION DURING THE TERM. Prior to the Termination Date, Seller shall not sell or otherwise transfer any interest in the Station to any Person without first obtaining ComEd's written consent, which consent shall not be unreasonably withheld or delayed and may be conditioned upon the transferee's assumption of the obligations of Seller under this Agreement in respect of the Reserved Units. No such assignment shall relieve Seller from its obligations hereunder, unless otherwise agreed to by ComEd in writing. Any such sale or transfer without consent under this Section 12 shall be null and void. 13. TERMINATION BY COMED WITH RESPECT TO CERTAIN GENERATING UNITS Subject to the notice and other requirements contained in this Section 13, ComEd shall have the right, in its sole discretion, with respect to each of the Third Contract Year, the Fourth Contract Year and the Fifth Contract Year, to terminate this Agreement with respect to any generating unit or units located at the Station (such rights to terminate being referred to herein collectively as "TERMINATION OPTIONS" and individually as a "TERMINATION OPTION"). ComEd may exercise a Termination Option with respect to the Third, Fourth and/or Fifth Contract Years by providing written notice of such exercise to Seller by no later than 90 days before the first day of the applicable Contract Year. Such notice shall contain (i) a statement that ComEd is exercising a Termination Option or Termination Options and (ii) the Contract Year or Contract Years with respect to which the Termination Option or Termination Options being exercised relate. Such termination(s) shall become effective as of the first day of the earliest Contract Year with respect to which such termination(s) relate, and at such time this Agreement shall terminate and be of no further force or effect with respect to the generating unit or units so terminated, PROVIDED THAT, the provisions of Sections 6(e) (Fuel Source and Emissions), 6(f) (Records), 10 (Limitation of Liability), 11 (Disagreements), 14 (Default, Termination and Remedies), and 16 (Indemnification) shall survive such termination(s), and PROVIDED FURTHER, that any such termination(s) shall have no effect on this Agreement as it relates to the generating unit or units that are not terminated in accordance with this Section 13. 14. DEFAULT; TERMINATION AND REMEDIES (a) SELLER'S 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 ComEd in breach of this Agreement, shall constitute an event of default by Seller ("SELLER'S 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 ten Business Days after receipt of written notice thereof; (ii) Seller shall without reasonable cause abandon or wilfully desert the Station for a period in excess of 24 hours; (iii) Seller's Bankruptcy; or 24 (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 which failure materially and adversely affects ComEd, and if reasonably capable of remedy, is not remedied within 60 days after ComEd has given written notice to Seller of such failure and requiring its remedy; PROVIDED, HOWEVER, that if such remedy cannot reasonably be cured within such period of 60 days, such failure shall not constitute a Seller's Event of Default if Seller has promptly commenced and is diligently proceeding to cure such default. (b) COMED 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 ComEd ("COMED EVENT OF DEFAULT"): (i) ComEd fails to pay any amount due from it pursuant to Section 7 hereof on the due date thereof and such failure is not remedied within ten Business Days after receipt of written notice thereof; (ii) ComEd fails to pay any sum (other than one set forth in subsection (i) above) due from it hereunder on the due date thereof and such failure is not remedied within fifteen days after Seller has given written notice to ComEd of such failure and requiring its remedy; (iii) ComEd's Bankruptcy; or (iv) ComEd 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 60 days after Seller has given written notice to ComEd of such failure and requiring its remedy; PROVIDED, HOWEVER, that if such remedy cannot reasonably be cured within such period of 60 days, such failure shall not constitute a ComEd Event of Default if ComEd has promptly commenced and is diligently proceeding to cure such default. (c) REMEDIES AND REMEDIES CUMULATIVE. (i) Upon the occurrence and during the continuance of a ComEd Event of Default or a Seller's Event of Default, the non-defaulting party may at its discretion (A) terminate this Agreement upon 30 days prior written notice to the Party in default and (B) exercise any other rights and remedies available at law or in equity. (ii) If a ComEd Event of Default under Section 14(b)(i) has occurred and is continuing, Seller shall have the right to sell the electric energy represented by the Reserved Capacity on a daily basis during the continuance of such ComEd Event of Default to third parties. 25 (d) EXTENDED OUTAGE. ComEd may terminate this Agreement upon thirty days prior written notice to Seller if an outage (including an outage caused by, or resulting from, a Force Majeure Event) at the Station prevents Seller from substantially 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 outage and certifies in writing to ComEd that such outage will end within 300 days of its commencement (and such outage in fact ends within such 300 days), then ComEd may not so terminate this Agreement. (e) TERMINATIONS UNDER SECTION 13. This Agreement shall terminate at such time as all of the generating units located at the Station are terminated by ComEd in accordance with Section 13, PROVIDED THAT, the provisions of Sections 6(e) (Fuel Source and Emissions), 6(f) (Records), 10 (Limitation of Liability), 11 (Disagreements), 14 (Default, Termination and Remedies), and 16 (Indemnification) shall survive such termination. 15. FORCE MAJEURE (a) FORCE MAJEURE EVENT. For the purposes of this Agreement, "FORCE MAJEURE EVENT" means any unforeseeable 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; (iii) strike or other labor dispute; (iv) war, insurrection or riot; (v) acts of, or failure to act by, legislative, judicial or regulatory agencies or officials (collectively, "GOVERNMENTAL ACTION"); and (vi) Change of Law. (b) OBLIGATIONS UNDER FORCE MAJEURE. (i) If the Affected 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, then, during the continuance of such inability, the obligation of such Party to perform the obligations so affected shall be suspended. 26 (ii) The Affected Party 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 shall, with all reasonable dispatch, take all steps reasonably necessary to resume the obligation(s) previously suspended. (iii) Notwithstanding the foregoing, an Affected Party shall not be excused under this Section 15(b) for (x) any nonperformance of its obligations under this Agreement having a greater scope or longer period than is justified by the Force Majeure Event or (y) the performance of obligations that arose prior to the Force Majeure Event. Nothing contained herein shall be construed as requiring an Affected Party to settle any strike, lockout or other labor dispute in which it may be involved. (c) CONTINUED PAYMENT OBLIGATION. A Party's obligation to make payments already owing pursuant to this Agreement shall not be suspended by a Force Majeure Event. (d) AVAILABILITY. Notwithstanding this Section 15, outages or deratings of Reserved Units caused by, or attributable to, Force Majeure Events shall be considered periods that the affected capacity is Unavailable unless such Force Majeure Event is an event described in clause (ii) or (iv) of Section 15(a) (in which case, such affected capacity shall be considered Available at 90% of the Net Dependable Capacity (as set forth in Appendix B) of the affected Reserved Unit(s) for the duration of such Force Majeure Event during a Summer Month and at 75% of such Net Dependable Capacity for the duration of such Force Majeure Event during a Non-Summer Month). 16. REPRESENTATIONS AND WARRANTIES (a) REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby makes the following representations and warranties to ComEd: (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 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 Board of Directors or equity holders other than that which has been obtained (evidence of which shall be, if it has not heretofore been, delivered to ComEd). 27 (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. (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. (vi) Seller has all governmental approvals necessary for it to perform its obligations under this Agreement. (b) REPRESENTATIONS AND WARRANTIES OF COMED. ComEd hereby makes the following representations and warranties to Seller: (i) ComEd is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois, 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 ComEd of this Agreement have been duly authorized by all necessary corporate action, and do not and will not require any consent or approval of ComEd's Board of Directors or shareholders other than that which has been obtained (evidence of which shall be, if it has not heretofore been, delivered to Seller). (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 28 incorporation or bylaws, or any deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or instrument to which ComEd 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 ComEd 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 ComEd, threatened action or proceeding affecting ComEd before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. (vi) ComEd has all governmental approvals necessary for it to perform its obligations under this Agreement. 17. 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 caused by the gross negligence or wilful 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 wilful misconduct of, or breach of this Agreement by, the Party seeking indemnification hereunder. Title, and all risk relating to, all Electric Energy purchased by ComEd under this Agreement shall pass to ComEd at the Point of Delivery. ComEd shall indemnify Seller for liability from Electric Energy once sold and delivered at the Point of Delivery; and Seller shall indemnify ComEd for liability from Electric Energy prior to its delivery at such Point of Delivery. 18. 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 sent by facsimile, delivered or sent to the address set forth below or such other address as the receiving Party may from time to time designate by written notice: 29 If to ComEd, to: Commonwealth Edison Company One First National Plaza, 37th Floor 10 South Dearborn Street Chicago, Illinois 60603 Attention: Senior Vice President-Transmission Facsimile No.: (312) 394-3110 Confirmation No.: (312) 394-3172 with a copy to: Commonwealth Edison Company Law Department Room 1535 125 South Clark Street Chicago, Illinois 60603 Attention: Associate General Counsel- Corporate and Commercial Facsimile No.: (312) 394-3950 Confirmation No.: (312) 394-5400 If to Seller, to: Midwest Generation, LLC One Financial Place - Suite 3500 440 South LaSalle Street Chicago, Illinois 60605 Attention: President Facsimile No.: (312) 583-6000 Confirmation No.: (312) 583-6111 with a copy to: Edison Mission Marketing & Trading Inc. 18101 Von Karman Avenue - Suite 1700 Irvine, California 92612 Attention: Bulk Power Operations Facsimile No.: (949) 798-7425 Confirmation No.: (949) 798-7421 and 30 Edison Mission Energy 18101 Von Karman Avenue - Suite 1700 Irvine, California 92612 Attention: General Counsel Facsimile No.: (949) 757-0807 Confirmation No.: (949) 798-7902 and Edison Mission Energy 18101 Von Karman Avenue - Suite 1700 Irvine, California 92612 Attention: Assistant General Counsel Facsimile No.: (949) 757-0807 Confirmation No.: (949) 798-7937 All notices shall be effective when received. 19. CONFIDENTIALITY Each Party agrees that it will treat in confidence all documents, materials and other information marked "Confidential," "Proprietary" or with similar designation 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 any financing or refinancing, or its permitted assignees or transferees; and in the case of ComEd, to its affiliates, or to its counsel, accountants, financial advisors, tax advisors or insurance consultants, or its permitted assignees or transferees). 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. 20. GOVERNING LAW Except as provided in Section 11, this Agreement shall be deemed to be an Illinois contract and shall be construed in accordance with and governed by the laws of Illinois without regard to its conflicts of laws provisions. 31 21. PARTIAL INVALIDITY Wherever possible, each provision hereof shall be interpreted in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such invalid, illegal or unenforceable provision or provisions or any other provisions hereof, unless such a construction would be unreasonable. In the event that such a construction would be unreasonable or would deprive a Party of a material benefit under this Agreement, the Parties shall seek to amend this Agreement to remove the invalid provision and otherwise provide the benefit unless prohibited by any Requirements of Law. 22. WAIVERS The failure of either Party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of a Party thereafter to enforce each and every such provision. A waiver under this Agreement must be in writing and state that it is a waiver. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. 23. COMPETITIVE TRANSITION CHARGE The Parties acknowledge that Seller has satisfied its Competitive Transition Charge (as defined in the Illinois Public Utilities Act) obligations with respect to the Stations by prepayment, which was included in the Purchase Price paid under the Asset Sale Agreement. 24. ENTIRE AGREEMENT AND AMENDMENTS Except as provided in the Asset Sale Agreement and the Interconnection Agreement, 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. 32 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date set forth at the beginning of this Agreement. COMMONWEALTH EDISON COMPANY By: /S/ ROBERT J. MANNING -------------------------------- Name: Robert J. Manning Title: Executive Vice President MIDWEST GENERATION, LLC By: /S/ GEORGIA R. NELSON -------------------------------- Name: Georgia R. Nelson Title: President 33 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- APPENDIX A EQUIVALENT AVAILABILITY FACTOR - ---------------------------------- OPERATION AND OUTAGE STATES - ---------------------------------- AVAILABLE State in which a unit is capable of providing service, whether or not it is actually in service, regardless of the capacity level that can be provided. FORCED DERATING (DL, D2, D3) An unplanned component failure (immediate, advance, postponed) or other condition that requires the load on the unit be reduced immediately, within six hours, or before the end of the next weekend. FORCED OUTAGE (U1, U2, U3, SF) An unplanned component failure (immediate, delayed, postponed, startup failure) or other condition that requires the unit be removed from service immediately, within six hours, or before the end of the next weekend. MAINTENANCE DERATING (D4) That removal of a component for scheduled repairs that can be deferred beyond the end of the next weekend, but requires a capacity reduction before the next Planned Outage. MAINTENANCE OUTAGE (MO) The removal of a unit from service to perform work on specific components that can be deferred beyond the end of the next weekend, but requires the unit be removed from service before the next planned outage. Typically, MOs may occur any time during the year, have flexible start dates, and may or may not have predetermined durations. MAINTENANCE OUTAGE EXTENSION (SE OF MO) The extension of a Maintenance Outage (MO). PLANNED DERATING (PD) The removal of a component for repairs that is scheduled well in advance and has a predetermined duration. PLANNED OUTAGE (PO) The removal of a 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, testing). PLANNED OUTAGE EXTENSION (SE OF PO) The extension of a Planned Outage (PO). RESERVE SHUTDOWN (RS) A state in which the unit was available for service but not electronically connected to the transmission system for economic reasons. SCHEDULED DERATING EXTENSION (DE) The extension of a maintenance or planned derating. UNAVAILABLE State in which a unit is not capable of operation because of the failure of a component, external restriction, testing, work being performed, or some other adverse condition. A-1 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- - --------------------------- TIME - --------------------------- AVAILABLE HOURS (AH) Sum of all Service Hours (SH) and Reserve Shutdown Hours (RSH), or Period Hours (PH) less Planned Outage Hours (POH), Forced Outage Hours (FOH), and Maintenance Outage Hours (MOH) EQUIVALENT PLANNED DERATED HOURS (EPDH) The product of Planned Derated Hours (PDH) and Size of Reduction, divided by Net Maximum Capacity (NMC). EQUIVALENT SEASONAL DERATED HOURS (ESEDH) Net Maximum Capacity (NMC) less Net Dependable Capacity (NDC), multiplied by Available Hours (AH) and divided by Net Maximum Capacity (NMC). EQUIVALENT UNPLANNED DERATED HOURS (EUDH) The product of Unplanned Derated Hours (UDH) and Size of Reduction, divided by Net Maximum Capacity (NMC). FORCED OUTAGE HOURS (FOH) Sum of all hours experienced during Forced Outages (U1, U2, U3, SF). MAINTENANCE OUTAGE HOURS (MOH) Sum of all hours experienced during Maintenance Outages (MO) and Maintenance Outage Extensions (SE of MO). PERIOD HOURS (PH) Number of hours a unit was in the active state. A unit generally enters the active state on its service date. PLANNED DERATED HOURS (PDH) Sum of all hours experienced during Planned Deratings (PD) and Scheduled Derating Extensions (DE) of any Planned Deratings (PD). PLANNED OUTAGE HOURS (POH) Sum of all hours experienced during Planned Outages (PO) and Planned Outage Extensions (SE of PO). RESERVE SHUTDOWN HOURS (RSH) Total number of hours the unit was available for service but not electronically connected to the transmission system for economic reasons. SERVICE HOURS (SH) Total number of hours a unit was electrically connected to the transmission system. UNAVAILABLE HOURS (UH) Sum of all Forced Outage Hours (FOH), Maintenance Outage Hours (MOH), and Planned Outage Hours (POH). UNPLANNED DERATED HOURS (UDH) Sum of all hours experienced during Forced Deratings (D1, D2, D3), Maintenance Deratings (D4), and Scheduled Derating Extensions (DE) of any Maintenance Deratings (D4). A-2 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- - ------------------------------ CAPACITY AND ENERGY - ------------------------------ NET DEPENDABLE CAPACITY (NDC) GDC less the unit capacity (MW) utilized for that unit's station service or auxiliaries. NET MAXIMUM CAPACITY (NMC) GMC less the unit capacity (MW) utilized for that unit's station service or auxiliaries. GMC GROSS DEPENDABLE CAPACITY (GDC) GMC modified for seasonal limitations over a specified period of time. GROSS MAXIMUM CAPACITY (GMC) Maximum capacity (MW) a unit can sustain over a specified period of time when not restricted by seasonal or other deratings. EQUATIONS EQUIVALENT AVAILABILITY FACTOR (EAF): [(AH) - (EUDH + EPDH + ESEDH))/PH] x 100(%) A-3 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- APPENDIX B DESIGN LIMITS The Design Limits listed below shall be applicable to any dispatch of the Reserved Units by ComEd:
======================================================================================================== NET MINIMUM MINIMUM TIME RAMP DEPENDABLE OPERATING BETWEEN RAMP RATE RATE COMMITTED CAPACITY LEVEL DISPATCHED RANGE (MW/ UNIT UNIT (MW)1 (NET MW) STARTS (HOURS)2 (GROSS MWS) MINUTE) RPV3 ======================================================================================================== Collins Unit 1 554 44 2 50-100 7 28 130-500 12 500-550 3 ======================================================================================================== Collins Unit 2 554 42 2 50-100 7 28 130-500 12 500-550 3 ======================================================================================================== Collins Unit 3 530 24 2 50-100 7 27.8 130-500 15 500-530 3 ======================================================================================================== Collins Unit 4 530 25 2 50-100 5 17 130-500 8 500-530 2 ======================================================================================================== Collins Unit 5 530 25 2 50-100 5 17 130-500 8 500-530 2 ========================================================================================================
(1) Winter net megawatts. (2) Except during an Emergency Condition affecting the ComEd System and for instances where ComEd and Seller agree on a price to induce Seller to cycle a unit under the indicated time. B-1 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- APPENDIX C MAIN GUIDE NUMBER 3A 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 C-1 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- 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 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; C-2 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- 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 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. C-3 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- 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. C-4 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- 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. 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. C-5 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- 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. C-6 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- APPENDIX D EO 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 ComEd, (ii) to establish the nature and content of communications relating to availability of the Reserved 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 as well as transmission system security and stability. 2. COMMUNICATIONS LINK. (a) For the dispatch of the Reserved Units, the Parties shall establish and maintain an electronic communications link between the Station and EO, which shall be used for communication as contemplated by this Agreement. Such electronic communications link shall utilize ComEd's Generation Commercial Management ("GCM") software or such other software as ComEd shall supply during the term of this Agreement. In the event that the electronic communications link for the dispatch of the Reserved Units shall be unavailable for any reason, dedicated telephone lines established and maintained by the parties shall be used. Seller will notify EO as soon as possible of any disruption or unavailability of the electronic communications link, the dedicated telephone lines or standard telephone lines. The Parties shall also establish and maintain a radio system for communications, which radio system shall be used in the event that the aforementioned communications methods are unavailable. Seller shall cooperate in performing periodic tests of the radio system as from time to time directed by the EO Dispatcher. Seller shall notify EO promptly of any problems with said radio system. (b) Telephone numbers are set forth below for the indicated persons: EO Generation Dispatcher (630) 691-4744 EO Transmission Dispatcher (630) 691-4772 EO Operation Supervisor (630) 691-4730 EO Generation Dispatch Supervisor (630) 691-4693 EO facsimile transmission number (630) 691-4899 The alternate office for EO will be used as a backup in the event that the normal office of EO is not operational. The telephone numbers of the alternate office are (815) 727-5902, 5903, and the facsimile transmission number is (815) 727-5745. 3. CONTENT OF COMMUNICATIONS. (a) To the extent that events are known or anticipated and not otherwise available to ComEd through GCM, Seller shall provide to the EO D-1 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- Generation Dispatcher information regarding the availability of the Reserved Units, including information regarding the following matters: (i) conditions, issues or events which may affect the output or reliability of the Reserved Units; (ii) time of day (based on a twenty-four hour clock) when a Reserved Unit is placed on the line and taken off the line; (iii) changes of rated capacity of a Reserved Unit, when it is known that such changes have taken place or will take place; (iv) Reserved 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) the availability, or lack of availability, of the automated governor control or the automatic voltage regulators on a Reserved Unit and the times in which it will, or will not, be available for operation and the reason for such limitations; (vi) conditions at the Station or a Reserved Unit that could affect the present or anticipated load following capability of a Reserved Unit, including problems related to fuel, fires, loss of essential equipment and opacity excedences; (vii) when required testing or other operational work could limit the availability or maneuverability of a Reserved Unit; (viii) Seller's desire to declare a Substitute Unit to replace Unavailable Capacity, including the capacity and schedule of energy and ramping ability; and (ix) Seller's desire to request the release of energy from undispatched on-line capacity of a Reserved Unit or an off-line Reserved Unit under the circumstances provided in Section 6(b)(i) of this Agreement. As it becomes available or anticipated, such information shall be made available to the EO Generation Dispatcher. 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 the EO Generation Dispatch Supervisor. (b) Seller shall use GCM for the purposes of reporting Reserved Unit capability, ramp rates and loading blocks, outages and deratings. In the event that GCM shall not be available D-2 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- for the purposes of reporting Reserved Unit availability, Seller shall use the forms attached as Appendix E for such reports. Such forms consist of the following elements and shall be completed and transmitted by facsimile transmission to the EO Generation Dispatcher: (i) Form "Page 1," "Collins Station Offer Data," is the cover sheet to be used for all facsimile transmissions; (ii) Form "Page 2," "Generating Capability," is the sheet to be used to report with respect to each Reserved Unit (1) its net generating capability for the period beginning 12:00 a.m., Midnight (000 hours) (Chicago time) the following day and (2) derating and outage information (which shall be reported using the GADS cause codes set forth in Appendix G), which sheet shall be completed and transmitted daily by 11:00 p.m. (2300 hours) (Chicago time); (iii) Form "Pages 3 and 4," "Loading (and De-loading) Rates and Breakpoints," is the sheet to be used for reporting Reserved Unit ramp rates between discreet load breakpoints for such unit's output in the raise (loading) and lower (de-loading) directions, which sheets shall be completed and transmitted whenever changes to scheduled parameters occur (e.g., capability, minimum, maximum and fuel type); and (iv) Form "Page 5," "ComEd Production Data Bank Derating/Outage Code Adjustments," is the sheet to be used for reporting any requested adjustments to previously transmitted outage and/or derating codes on Form "Page 2", which sheet shall be completed as necessary and transmitted via facsimile transmission to the Production Data Bank Administration at the address indicated on the sheet. ComEd shall acknowledge receipt of any such facsimile transmissions by signing the "Page 1" cover sheet 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 ComEd for at least 36 months, after which they may be destroyed. (c) Seller shall provide information regarding Reserved Unit availability by telephone on a daily basis to ComEd's Wholesale Energy Trading Organization. 4. DISPATCH; OPERATIONS. (a) The EO Generation Dispatcher shall issue dispatch orders on behalf of ComEd, which orders shall be given by the EO Generation Dispatcher to Seller. Following receipt by Seller of any such order, Seller shall, if such order is received electronically through GCM, acknowledge such receipt electronically through GCM, or if such order is received verbally, repeat back the content of such order to the EO Generation Dispatcher, in either case to confirm receipt and understanding of such order. D-3 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- (b) Seller shall perform the following tasks in order to assist in meeting the dispatch needs of the ComEd system: (i) maintain the Reserved Units on Automatic Generation Control ("AGC") as directed by the EO Generation Dispatcher and to the extent possible, given the generating unit and the operating conditions of the ComEd system; (ii) regulate load at the ramp rate within the ramp rate range set forth in Appendix B for such Reserved Unit unless (1) operation at such ramp rate within such range would negatively impact such Reserved Unit, its reliability or its ability to meet performance obligations (such as environmental regulatory compliance) or (2) ComEd requests a different ramp rate or a ramp rate range which Seller agrees to provide; (iii) maintain Reserved Unit control systems and subsystems so as to be able to meet the ramp rate specified in Appendix B for such Reserved Unit within the specified ramp rate range; provided, however, when such Reserved Unit is not on AGC, such unit shall be ramped at the ramp rates within the specified ranges specified in Appendix B for such Reserved Unit or as reasonably requested by the EO Generation Dispatcher, to the extent that it is possible to do so without impacting the reliability or availability of such unit; and (iv) bring the Reserved Units to their minimum load limits set forth in Appendix B as requested by the EO Generation Dispatcher, and Seller shall promptly notify the EO Generation Dispatcher if such Reserved Unit(s) are unable for any reason to achieve these minimum load limits. Reserved Units shall be capable of ramping between their regular minimums and maximum loads unless the EO Generation Dispatcher is otherwise notified of any limitations. Should the EO Generation Dispatcher initiate a reserve emergency alarm, Seller shall start a ramp to full reported capability and any testing in progress that was formerly approved by the EO Generation Dispatcher will be discontinued in accordance with Prudent Utility Practice until such time that testing has less potential to impact the integrity of the ComEd System. Seller shall take reasonable precautions to ensure that generating capacity is not lost when such capacity is important to the integrity of the ComEd System. Seller shall use reasonable efforts to cooperate with the EO Generation Dispatcher to delay or reschedule tests due to system conditions. 5. REGULATING PERFORMANCE VALUE. Seller shall measure the maneuverability, which incorporates ramp rate, of the Reserved Units using the Regulating Performance Value ("RPV") methodology described in Appendix F. The minimum RPV for each Reserved Unit is identified in Appendix B as "Unit RPV." D-4 Collins Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- APPENDIX E REPORTING FORMS PAGE 1: COLLINS OFFER DATA Generator Name DATA APPLICABLE FOR AVAILABILITY DECLARATION FOR THE PERIOD OF ___ PM/AM, __/__/__ TO ___ PM/AM, __/__/__ TO:ComEd Electric Operations FAX No. (630) 691-4697 Generation Dispatch Telephone No. (630) 691-4693 Generation Coordinator (630) 691-4730 Operations Supervisor - ------------------------------------------------------------------------------- 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 ___/___/___ - ---------------------------------------------------------------------- -------- Full Submission / / Number of Pages Including Cover Page --------- Partial Submission / / 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 ComEd (Signature) Electric Operations ------------------------------ (Title) ------------------------------ Acknowledgment date and time --------------------------------------------------- E-1 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------
PAGE 2: COLLINS OFFER DATA Availability Declaration Period Commencing ____ PM/AM, __/__/__ TO ____ PM/AM, __/__/__
GENERATING CAPABILITY UNIT --------------------------------------- Maximum Gross Generating Capability MW ------------------ Minimum Gross Generating Capability MW ------------------ Maximum VAR Capability ---------------------- Deratings: Time Time Cause Code: ____ MW______ Start Date__ /__/__ Stop Date __ /__/__ ---- ----- Cause Code: ____ MW______ Start Date__/__/__ Stop Date __ /__/__ ---- ----- Cause Code: ____ MW______ Start Date__/__/__ Stop Date __ /__/__ ---- ----- Cause Code: ____ MW______ Start Date__/__/__ Stop Date __ /__/__ ---- ----- Minimum: Time Time Cause Code: _____ MW______ Start Date__ /__/__ Stop Date __ /__/__ ---- ----- Cause Code: _____ MW______ Start Date__ /__/__ Stop Date __ /__/__ ---- ----- Fuel: Time Time Fuel Type: _____ MW_______ Start Date__ /__/__ Stop Date __ /__/__ ---- ----- Fuel Type: _____ MW_______ Start Date__ /__/__ Stop Date __ /__/__ ---- ----- Notes: ------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- D - Derate, O - Out of Service, M - Maintenance, S - Scheduled E-2 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------
PAGE 3: COLLINS OFFER DATA Generator Name Availability Declaration Period Commencing ____ PM/AM, __/__/__ TO ____ PM/AM, __/__/__
LOADING RATES AND BREAKPOINTS - ------------------------------------------------------------------------------- UNIT NUMBER LOADING RANGE RAMP RATE BREAKPOINTS* MIN MAX MW/MIN MW - -------------- ----------------------- ------------------ --------------------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - ------------------------------------------------------------------------------- * Breakpoint is defined at load level at which unit must hold and start/stop unit auxiliary equipment Notes: ------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- E-3 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------
PAGE 4: COLLINS OFFER DATA Generator Name Availability Declaration Period Commencing ____PM/AM,__/__/__TO ____PM/AM,__/__/__
DE-LOADING RATES AND BREAKPOINTS - ------------------------------------------------------------------------------- UNIT NUMBER LOADING RANGE RAMP RATE BREAKPOINTS* MIN MAX MW/MIN MW - -------------- ----------------------- ------------------ --------------------- - -------------- ----------------------- ------------------ --------------------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - -------------- ----------- ----------- ------------------ --------- ----------- - ------------------------------------------------------------------------------- * Breakpoint is defined at load level at which unit must hold and start/stop unit auxiliary equipment Notes: ------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- E-4 Collins Power Purchase Agreement Appendices - ------------------------------------------------------------------------------- PAGE 5: COMED PRODUCTION DATA BANK DERATING/OUTAGE CODE ADJUSTMENTS STATION: COLLINS UNIT: ________ DATE: __/__/__ DERATING/OUTAGE CODE - ------------------------------------------------------------------------------- HOUR Code MW Derating Code MW Derating - -------------- -------------- ----------------- ------------- ----------------- 1:00a.m. - -------------- -------------- ----------------- ------------- ----------------- 2:00a.m. - -------------- -------------- ----------------- ------------- ----------------- 3:00a.m. - -------------- -------------- ----------------- ------------- ----------------- 4:00a.m. - -------------- -------------- ----------------- ------------- ----------------- 5:00a.m. - -------------- -------------- ----------------- ------------- ----------------- 6:00a.m. - -------------- -------------- ----------------- ------------- ----------------- 7:00a.m. - -------------- -------------- ----------------- ------------- ----------------- 8:00a.m. - -------------- -------------- ----------------- ------------- ----------------- 9:00a.m. - -------------- -------------- ----------------- ------------- ----------------- 10:00a.m. - -------------- -------------- ----------------- ------------- ----------------- 11:00a.m. - -------------- -------------- ----------------- ------------- ----------------- 12:00a.m. - -------------- -------------- ----------------- ------------- ----------------- 1:00p.m. - -------------- -------------- ----------------- ------------- ----------------- 2:00p.m. - -------------- -------------- ----------------- ------------- ----------------- 3:00p.m. - -------------- -------------- ----------------- ------------- ----------------- 4:00p.m. - -------------- -------------- ----------------- ------------- ----------------- 5:00p.m. - -------------- -------------- ----------------- ------------- ----------------- 6:00p.m. - -------------- -------------- ----------------- ------------- ----------------- 7:00p.m. - -------------- -------------- ----------------- ------------- ----------------- 8:00p.m. - -------------- -------------- ----------------- ------------- ----------------- 9:00p.m. - -------------- -------------- ----------------- ------------- ----------------- 10:00p.m. - -------------- -------------- ----------------- ------------- ----------------- 11:00p.m. - -------------- -------------- ----------------- ------------- ----------------- 12:00p.m. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Reasons for Change: ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- GADS Cause Code: -------------------------------------------------------------- GADS Event Type: -------------------------------------------------------------- Description of Event: --------------------------------------------------------- ----------------------------------------------------------------------------- - ------------------------------------------------------------------------------- INSTRUCTIONS: Use this form for derating/outage code adjustments only Remember to fill out the GADS data section Send this form to the Production Data Bank Administration, Room 250, 1411 Opus Place, Downers Grove, Illinois 60515 Submitted: Telephone: Date: __/__/__ ------------------------- ---------------- Electric Operations Approval: Telephone: 630-691-4693 Date: __/__/__ ------ Approved: Date: __/__/__ -------------------------- Fossil Support Vice President E-5 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- APPENDIX F REGULATING PERFORMANCE VALUE METHODOLOGY REGULATING PERFORMANCE VALUE by Howard F. Illian, Bulk Power Operations, and Ray W. Rathsam, VISTA, December 11, 1995 The maneuverability of Commonwealth Edison generating units is measured by a method called REGULATING PERFORMANCE VALUE, RPVp. RPVp is designed to effectively measure the relative contribution of each generating unit to the total system regulation. For the first time regulation will be viewed not as control provided to follow a system disturbance, but rather as control to follow repetitive system disturbances. These repetitive disturbances are considered to result in a sinusoidal signal that the control system is required to follow. As a result, the control requested from each generating unit can also be represented as a sinusoidal signal. A unit providing system control under the direction of the Economic Generation Control (EGC) system will move up and down to the control pulses sent to the unit by the EMS computer. That sinusoidal movement can be described by a frequency component, Period, and a peak to peak Amplitude. This is shown in Figure 1. Graphic Picture Figure 1 For a given Period the greater the Amplitude that a unit can follow, the greater the unit's contribution to total system control. Therefore, representing the ability of each unit on the system to follow a simple sine wave with a single number will accurately represent the relative ability of that unit to contribute to the control of the CECo system. This is what RPVp attempts to measure. The EMS computer is currently collecting data on a number of specific parameters for each generating unit while it is on EGC. Some of these measured parameters are used to calculate the RPVp value. Variable #1: ARR = Average Telemetered Dialed In Ramp Rate This variable is the telemetered, time weighted, average value of the ramp rate that is dialed into the EGC console at the generating unit control room weighted by the time the unit is actually on EGC. F-1 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- Variable #2: OR% = Average Observed Raise Ramp Rate Percent This variable is the percentage of the telemetered dialed in raise ramp rate that the unit actually provides while on EGC. It is limited to maximum value of 100% since the logic in the EGC system will not ramp a unit faster than the Telemetered Dialed In Ramp Rate. Variable #3: OL% = Average Observed Lower Ramp Rate Percent This variable is the percentage of the telemetered dialed in lower ramp rate that the unit actually provides while on EGC. It is limited to maximum value of 100% since the logic in the EGC system will not ramp a unit faster than the Telemetered Dialed In Ramp Rate. Variable #4: LTR = Average Lower to Raise Turn Around Time This variable is the average amount of time it takes to turn the unit around from moving down to moving up while it is on EGC. Variable #5: RTL = Average Raise to Lower Turn Around Time This variable is the average amount of time it takes to turn the unit around from moving up to moving down while it is on EGC. Variable #6: MWR = Average Telemetered Megawatt Range This variable is the telemetered, time weighted, average of the range provided by the high and low limits dialed into the EGC console at the generating unit control room weighted by the time the unit is actually on EGC. Variable #7: RPVRP = Raw Regulating Performance Value This variable represents the peak to peak amplitude that a generating unit with the above variables could provide during a ten minute period as limited by the MWR. It is calculated by weight averaging the daily raw RPV with the daily effective % time on control. K the RPVRP IS greater than the MWR, the RPVRP IS set to the value of the MWR as an upper limit. Variable #8: TC% = Percent of Time on Control This variable is the time the unit is on control as a percentage of time that it is operating and could be available for control. F-2 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- Variable #9: RPVp = Regulating Performance Value This is the final measure of regulating performance and represents the effective relative contribution of the generating unit to system control. Using the above variables, the value for RPVRP and RPVP are calculated using the following equations to indicate the Amplitude of control available from the unit. RPVRP = [10-LTR -RTL][ARR/2][OL% + OR%]/200(1) RPVP = RPVRP x TC%(2) In simple terms, the RPVRP and RPVp are measures of the peak to peak movement of a generating unit following a full sinusoidal wave during a ten minute period. This can be seen from Figure 2. F-3 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- [Graphic Figure] Figure 2 This result is then multiplied by the percentage of time on control to give the REGULATING PERFORMANCE VALUE, RPVp. Station contributions to system regulation are derived by summing the RPVs from the generating units at the station. Division contributions to system regulation are derived by summing the RPVs from all of the stations in the division. Over the last few years a strong correlation has been shown between the total system RPV and A1/A2 control performance. During that same period it was discovered that not only is the peak to peak magnitude an appropriate measure, but that unless that sinusoid is balanced, the effective peak to peak value will be limited by the smaller of either the raise or lower portion of the sinusoid. It was also recognized that uncertainty was highly detrimental to performance. As a result the above equations have been modified to measure the smaller of the two halves and to penalize unpredictability of the response. The latest method of measuring RPVp uses the following modified variables and equations: Variable #1': SRR = Smallest Telemetered Dialed In Ramp Rate This variable is the smallest telemetered value of the ramp rate that is dialed into the EGC console at the generating unit control room each hour, average weighted by the time the unit is actually on EGC. Variable #2': OR% = Average Observed Raise Ramp Rate Percent This variable is the percentage of the telemetered dialed in raise ramp rate that the unit actually provides while on EGC in response to control dispatched. It is limited to maximum value of 100% since the logic in the EGC system will not ramp a unit faster than the Telemetered Dialed In Ramp Rate. Variable #2A: DR = Portion of Time Unit is Available to be Dispatched for Raise This variable is the portion of the time that the unit actually accepts raise signals while on EGC. When multiplied by the new variable 2' It results in the same value as the old variable 2. F-4 Collins Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- Variable #3': OL% = Average Observed Lower Ramp Rate Percent This variable is the percentage of the telemetered dialed in lower ramp rate that the unit actually provides while on EGC in response to control dispatched. It is limited to maximum value of 100% since the ??? in the FGC system will not ramp a unit faster than the Telelmetered Dialed In Ramp Rate. Variable #3A: D L = PORTION OF TIME UNIT IS AVAILABLE TO BE DISPATCHED FOR LOWER This variable is the portion of the time that the unit actually accepts lower signals while on EGC. When multiplied by the new variable 3' It results in the same value as the old variable 3. When the above variables are substituted into the new equation, the value of RPVp is calculated with the following equations: RPVRP = MIN[(5 -LTR)(SRR)(OR%)(DR ),(5 - RTL)(SRR)(OL%)( DL,)]/100 (3) RPVP = RPVRP X TC% (4) The value of RPVRP is still limited by the value of MWR as it was previously. F-5
C.E.Co. G.P. No. 354 Appendix E Page 1 SPS DERATING REASON CODES INDEX ON PAGE CODE OF THIS APPENDIX DESCRIPTION - ------------------------ -------------------- ------------------------------------------------- DASH-DWAT 10 SYSTEM PROBLEMS - ASH, COAL HANDLING, GOVERNOR, PRECIP., DEMIN., WASTEWATER DB-DBFU 4 BOILERS, FUELS, IGNITORS DBLE-DBTU 5 LEAKS - TUBE CONDITION DC, DF, DH, DM, DO 8 CYCLONE, FAN, HEATER, MILL, BURNER DG-DGVI, DR-DRFU 6 GENERATORS, REACTORS DP, DSG, DV 9 PUMP, STEAM GENERATOR, VALVES DT-DTVI 7 TURBINES DECP-DMAN, DOPE, DPOL, DTEM, 11 SPECIAL ITEMS - COOLING WATER, POLLUTION, TRANSMISSION AND MISC. DRTX, RFUE-RTST EB, SBO1, SOVL 14 SCHEDULED AND ECONOMIC OUTAGES AND OVERHAULS DPDX 12 BLACK START DIESEL PEAKERS DPKX 13 FAST START PEAKING UNITS
NOTE: '*****' ON EXHIBITS INDICATES A SECONDARY REASON IS REQUIRED.
C.E.Co. G.P. No. 354 Appendix E Page 2 SPS DERATING CODES MAJOR EQUIPMENT DEBATE CODE M OR O/S CODE DESCRIPTION - ------------------- ---------------- ----------------------------------------------- M N DB M OB GENERAL PROBLEMS WITH BOILERS NOT SPECIFICALLY COVERED. M N DB 1 M OB 1 M N DB 2 M OB 2 DB EPA OB EPA EPA REGULATIONS CANNOT BE MET. N DB TEST BOILER TESTING DB AUX UNIT BLR. BEING USED AS AUX. BLR. M OBCL CHEMICAL CLEANING OR ASH REMOVAL M OBCL 1 BEING DONE TO IMPROVE THE BOILER M OBCL 2 OPERATION M N DBCO OBCO CONTROL PROBLEMS ASSOCIATED WITH M N DBCO 1 OBCO 1 THE BOILER MASTER OR ERRATIC M N DBCO 2 OBCO 2 BOILER OPERATION N DBCO TEST BOILER CONTROL TESTING DBFO M OBFO FOULING NOT SPECIFICALLY DBFO 1 M OBFO 1 ATTRIBUTED TO CYCLONES, SOOT BLOWING DBFO 2 M OBFO 2 PRECIPITATORS OR THE ASH HANDLING SYSTEMS DBFU **** FUEL PROBLEMS RELATED TO THE FUEL AND THE FUEL HANDLING SYSTEMS. DBFU BTU OBFU BTU LOW BTU FUEL N DBFU CONS OBFU CONS CONSERVING FUEL, LACK OF FUEL. DBFU FROZ OBFU FROZ FROZEN FUEL DBFU MIX BLENDING OF FUEL. DBFU NONE OBFU NONE NO FUEL AVAILABLE. DBFU WET OBFU WET HIGH MOISTURE CONTENT. OBIG IGNITION DIFFICULTIES DURING OBIG 1 STARTUP, PREVENTING LIGHTOFF OBIG 2
C.E. Co. G.P. No. 354 Appendix E Page 3 SPS OPERATING CODES MAJOR EQUIPMENT DERATE CODE M OR O/S CODE DESCRIPTION - -------------------- -------------------- --------------------------------------------------- M N DBLE M OBLE BOILER LEAKS THAT ARE SIGNIFICANT M N DBL1 M OBLE1 TO CAUSE A DERATING OR OUTAGE. M N DBL2 M OBLE2 INDICATE LEAK LOCATION IN THE SECONDARY REASON M N DBLE BOTM M OBLE BOTM BOTTOM LEAK M N DBL1 BOTM M OBL1 BOTM M N DBL2 BOTM M OBL2 BOTM M N DBLE CYCL M OBLE CYCL CYCLONE LEAK M N DBL1 CYCL M OBL1 CYCL M N DBL2 CYCL M OBL2 CYCL M N DBLE ECON M OBLE ECON ECONOMIZER LEAK M N DBL1 ECON M OBL1 ECON M N DBL2 ECON M OBL2 ECON M N DBLE NOSE M OBLE NOSE NOSE TUBE LEAK M N DBL1 NOSE M OBL1 NOSE M N DBL2 NOSE M OBL2 NOSE M N DBLE REHE M OBLE REHE REHEAT LEAK M N DBLJ REHE M OBL1 REHE M N DBL2 REHE M OBL2 REHE M N DBLE SUPR M OBLE SUPR SUPERHEATER M N DBL1 SUPR M OBL1 SUPR M N DBL2 SUPR M OBL2 SUPR M N DBLE TOP M OBLE TOP TOP M N DBL1 TOP M OBL1 TOP M N DBL2 TOP M OBL2 TOP M N DBLE WALL M OBLE WALL WALL TUBE M N DBL1 HALL M OBL1 WALL M N DBL2 HALL M OBL2 WALL N DBSI SILICA PROBLEMS CAUSING A DERATING DBTU TEMPERATURE PROBLEMS CAUSED BY POOR ATTEMPERATION OR FIRING DIFFICULTIES DBTU TUBE CONDITION SUCH THAT OPERATING UNIT AT HIGHER PRESSURE WOULD REDUCE UNIT'S RELIABILITY
C.E. Co. G.P. No. 354 Appendix E Page 4 SPS DERATING CODES MAJOR EQUIPMENT DERATE CODE M OR O/S CODE DESCRIPTION - -------------------- -------------------- --------------------------------------------------- S M N DG S M OG GENERATORS - GENERAL PROBLEMS NOT SPECIFICALLY COVERED. S M OG INSP GENERATOR INSPECTION. S M N DGCO S M OGCO COOLING PROBLEM, NOT ASSOCIATED WITH THE COOLERS. S M N DGCO SEAL S M OGCO SEAL HYDROGEN SEALS OR SEAL OIL SYSTEM (IRON HORSE) PROBLEMS. OGFA FAULT IN GENERATOR OR BUS DUCT. N DGVI OGVI VIBRATION CAUSED BY ELECTRICAL OR MECHANICAL PROBLEMS. DR S M OR REACTORS GENERAL PROBLEMS. DR NRC OR NRC NRC REQUIRES UNIT O/S OR DERATED. DR ADMN OR ADMN ADMINSTRATION OPERATING CONSTRAINT. S M N DRSU SURVEILLANCES S M N DRTE S M ORTE MISC. TECHNICAL SPECIFICATIONS NOT COVERED ELSEWHERE. N R TDO DERATING DUE TO TEMP. DISPATCH ORDER S M N DRCO S M ORCO CONTROL PROBLEMS WITH THE REACTOR. S M N DRCO DRIV S M ORCO DRIV CONTROL ROD DRIVE PROBLEMS. DRFU **** ORFU **** FUEL PROBLEMS. DRFU CONS ORFU CONS FUEL CONSERVATION DRFU DEPL ORFU DEPL FUEL DEPLETION S DRFU PREC ORFU PREC PRECONDITIONING S M N DRFU RODP M S ORFU RODP ROD PATTERN S M N DRFU SCRM M S ORFU SCRM SCRAM REACTIVITY DRFU THRM M S ORFU THRH THERMAL LIMITS DRFU XENO ORFU XENO XENON RESTRICTION DRFU MINP RAMP - UP LIMITATION AFTER LOAD DROP N REG NUCLEAR UNIT REGULATING SYSTEM LOAD (NONCURTAILING ONLY) N U FOLL NUCLEAR UNIT OUT OF ECONOMIC ORDER DUE TO RAMP RATE LIMITATIONS N U RAMP DUE TO LOW SYSTEM DEMAND THE NUCLEAR UNIT CANNOT DROP LOAD AS LOW AS THE SYSTEM REQUIRES
C.E. Co. G.P. No. 354 Appendix E Page 5 SPS DERATING CODES MAJOR EQUIPMENT REACTORS DERATE CODE M OR O/S CODE DESCRIPTION - -------------------- -------------------- --------------------------------------------------- S M N DT S M OT TURBINES - GENERAL PROBLEMS NOT SPECIFICALLY COVERED. N DTBL S M OTBL BLADING PROBLEMS DUE TO MISSING BLADES, BLADE INSPECTION OR REPAIR. DTCO CONDUCTIVITY PROBLEMS DTEF EFFICIENCY - TURBINE NOT UP TO STANDARD BECAUSE OF A PROBLEM NOT DEFINED. N DTLE S M OTLE STEAM LEAK ANYWHERE ON THE TURBINE OR ASSOCIATED PIPING. S OTRN TURNING GEAR PROBLEMS OR REPAIRS KEEPING THE UNIT OFF SYSTEM. DTVI S M OTVI VIBRATION PROBLEMS CAUSING A DERATING OR OUTAGE FOR BALANCING OR INSPECTION.
C.E.Co. G.P. No. 354 Appendix E Page 6 SPS DERATING CODES MAJOR EQUIPMENT REACTORS
DERATE CODE M OR O/S CODE DESCRIPTION - -------------------- --------------------- ----------------------------------------- M N DC M OC CYCLONE PROBLEMS CAUSED BY SLAG. LEAKS OR ITEMS NOT COVERED BELOW. M N DC FEED M OC FEED FEEDER REPAIRS ONLY. M N DC ROTS M OC ROTS ROTARY SEAL REPAIRS ONLY. M N DCO N OCO CONDENSER PROBLEMS INVOLVING REPAIRS TO LEAKS, CLEANING, OR VACUUM. S M N DCO SCRN S M OCO SCRN SCREEN PROBLEMS. DCOO **** OCOO **** COOLER PROBLEMS. S M N DCOO H2 S M OCOO H2 HYDROGEN COOLER. S M N DCOO H20 S M OCOO H2O HEAT EXCHANGER, FOR WATER COOLED STATOR. S M N DCOO OIL S M OCOO OIL OIL
ANCILLARY EQUIPMENT
DERATE CODE M OR O/S CODE DESCRIPTION - -------------------- --------------------- ----------------------------------------- M N DF **** M OF **** FAN PROBLEMS. M N DF ID M OF ID INDUCED DRAFT. M N DF IDB M OF IDB INDUCED DRAFT BOOSTER. M N DF FD M OF FD FORCED DRAFT. M N DF GASR M OF GASR GAS RECIRCULATION. M N DH M OH **** HEATER PROBLEMS M N DH AIR M OH AIR AIR M N DH AIRP M OH AIRP AIR PREHEATER S M N DH DC S M OH DC DIRECT CONTACT S M N DH HP S M OH HP HIGH PRESSURE S M N DH LP S M OH LP LOW PRESSURE S M N DH MSRE S M OH MSRE MOISTURE SEPARATOR REHEATER S M N DH SAPH S M OH SAPH STEAM AIR PREHEATER M N DM M OM MILL PROBLEMS OF ANY KIND M N DM FEED M OM FEED FEEDER PROBLEMS ONLY M N DO M OO BURNER PROBLEMS OF ANY KIND
C.E.Co. G.P. No. 354 Appendix E Page 7 SPS DERATING CODES AUXILIARY EQUIPMENT
DERATE CODE M OR O/S CODE DESCRIPTION - -------------------- --------------------- ----------------------------------------- S M N DP **** S M OP PUMP PROBLEMS. M N DP BF M OP BF BOILER FEED. M N DP BWCP M OP BWCP BOILER WATER CIRCULATING. S M N DP CB S M OP CB CONDENSATE BOOSTER. S M N DP CD S M OP CD CONDENSATE. S M N DP CW S m OP CW CIRCULATING WATER. S M N DP FW S M OP FW FEEDWATER S M N DP HTRD S M OP HTRD HEATER DRAIN. M N DP RBF M OP RBF RESERVE BOILER FEED. S M N DP RC S m OP RC REACTOR COOLING PUMP S M N DP RF S M OP RF REACTOR FEED. S M N DP RR S M RR REACTOR RECIRCULATING. S M N DP STAT S M OP STAT STATOR COOLING. S M N DSG S M OSG STEAM GENERATOR PROBLEMS DSG TEMP OSG TEMP STEAM GENERATOR TEMP. LIMITATION DSG CHEM OSG CHEM STEAM GENERATOR CHEMISTRY PROBLEM. S M N DV **** S M OV **** VALVE PROBLEMS. S M N DV ATMP S M OV ATMP ATTEMPERATION. S M N DV BIAS S M OV BIAS BIAS. S M N DV BYPS S M OV BYPS BYPASS. S M N DV CONT S M OV CONT CONTROL. S M N DV EXTR S M OV EXTR EXTRACTION. S M N DV INTE S M OV INTE INTERCEPT. S M N DV MCIV S M OV MCIV MAIN CYCLE ISOLATION VALVE. S M N DV MSIV S M OV MSIV MAIN STEAM ISOLATION. S M N DV MSSV S M OV MSSV MAIN STEAM STOP. S M N DV RELF S M OV RELF RELIEF. S M N DV SAFE S M OV SAFE SAFETY. S M N DV STOP S M OV STOP STOP. S M N DV VENT S M OV VENT VENT.
C.E.Co. G.P. No. 354 Appendix E Page 8 SPS DERATING CODES SYSTEMS DERATE CODE M OR O/S CODE DESCRIPTION - -------------------- ---------------------- --------------------------------------------------- M N DASH M OASH ASH HANDLING SYSTEM. SILO FIRES. PLUGGED ASH LINES, UNLOADING EQUIPMENT AND POLLUTION PROBLEMS. DASH EPA OASH EPA EPA REGULATIONS. S M N DAUX **** S M OAUX **** AUXILIARY POWER EQUIPMENT PROBLEM S M N DAUX BUS S M OAUX BUS BUS. S M N DAUX DESL S M OAUX DESL DIESEL GENERATOR. S M N DAUX SWGR S M OAUX SWGR SWITCHGEAR. S M N DAUX TRAN S M OAUX TRAN AUXILIARY TRANSFORMER. DECC O ECC EMERGENCY CORE COOLING SYSTEM PROBLEMS DECC NRC O ECC NRC NRC REGULATIONS. S M N DEX S M O EX EXCITERS OR VOLTAGE REGULATOR PROBLEMS. M N DFUS **** M OFUS **** FUEL DELIVERY SYSTEM PROBLEM. M N DFUS BELT M OFUS BELT BELT. M N DFUS BRGE M OFUS BRGE BARGE. M N DFUS BUNK M OFUS BUNK BUNKER. M N DFUS COND M OFUS COND CONDITIONER. M N DFUS CRSH M OFUS CRSH CRASHER. M N DFUS DOCK M OFUS DOCK DOCK. M N DFUS DUMP M OFUS DUMP CAR DUMPER. N DFUS MANP OFUS MANP MANPOWER. M N DFUS PIPE M OFUS PIPE OIL PIPING. M N DFUS PUMP M OFUS PUMP OIL PUMP & HEATER SET. M N DFUS PUSH M OFUS PUSH PUSHER. M N DFUS TANK M OFUS TANK OIL TANK. M N DFUS TRIP M OFUS TRIP TRIPPER OR ANY OTHER FUEL PROBLEMS. S M N DGO S M OGO GOVERNOR OR EHC SYSTEM PROBLEMS WITH THE FUTURE TURBINE. M N DPR M OPR PRECIPITATOR SYSTEM PROBLEM-BROKEN WIRES. DUST BUILDUP, FULL HOPPER. M N DPR EPA M OPR EPA EPA REGULATIONS M N DSB M OSB SOOT BLOWING SYSTEM PROBLEM. M N DWAT **** M OWAT **** WATER SUPPLY PROBLEMS. S M N DWAT DEMI S M OWAT DEMI DEMINERALIZER PROBLEMS. S M N DWAT MAKE S M OWAT MAKE INSUFFICIENT MAKEUP. S M N DWAT POLI S M OWAT POLI POLISHER PROBLEMS. S M N DWAT WAST S M OWAT WAST WASTEWATER SYSTEM PROBLEMS.
C.E.Co. G.P. No. 354 Appendix E Page 9 SPS DERATING CODES SPECIAL ITEMS DERATE CODE M OR O/S CODE DESCRIPTION - -------------------- ---------------------- --------------------------------------------------- DECP FULL UNIT CAPACITY UNAVAILABLE. REASON NOT COVERED BY SPECIFIC DERATING. DKAN OMAN MANPOWER SHORTAGE. DOPE OOPE OPERATING ERROR.* N OSTR FAIL UNIT STARTUP TIME NOT IN +15 -30 WINDOW N OBL1 FAIL STARTUP TIME NOT IN +15 -30 WINDOW N OBL2 FAIL STARTUP TIME NOT IN +15 -30 WINDOW DPOL **** OPOL **** POLLUTION PROBLEMS. N DPOL EPA OPOL EPA EPA REGULATIONS. N DPOL OFFG OPOL OFFG OFF GAS. N DPOL OZON OPOL OZON OZONE CONCENTRATIONS. N DPOL RADW OPOL RADW RADIATION WASTE. N DPOL STAC OPOL STAC STACK OPACITY. DPOL SULF OPOL. SULF HIGH SO2 OR SO3 CONCENTRATION. N DTEM **** OTEM **** COOLING WATER PROBLEM. N DTEM CANA OTEM CANA CANAL N DTEM EPA OTEM EPA EPA REGULATIONS (KINCAID/QUAD-CITIES ONLY) N DTEM LAKE OTEM LAKE LAKE N DTEM RIVR OTEM RIVIR RIVER N DTEM TOWR OTEM TOWR COOLING TOWER PROBLEMS. DTRX **** OTRX **** TRANSMISSION PROBLEMS. DTRX ICE OTRX ICE ICE. DTRX OVLD OTRX OVLD OVERLOAD. S M N DTRX UNTR S M OTRX UNTR UNIT TRANSFORMER. S M N DTRX VOLT S M OTRX VOLT VOLTAGE. N DTRX ZONE OTRX ZONE ZONE. S M OTRX UBRK UNIT BREAKER. NOTE: ALL REASON CODES BELOW MUST HAVE NEGATIVE VALUES. DERATE CODE M OR O/S CODE DESCRIPTION - -------------------- ---------------------- --------------------------------------------------- RFUE GAS RECOVERABLE MW BURNING GAS RFUE OIL RECOVERABLE MEGAWATTS BURNING OIL. RTST RATING TEST OR OPERATION ABOVE OFFICIAL UNIT RATING.
C.E.Co. G.P.No.354 Appendix E Page 10 SPS DERATING CODES ------------------ BLACK START DIESEL PEAKERS --------------------------
DERATE CODE M OR O/S CODE DESCRIPTION - --------------- ---------------- ------------------------------------------------- DPDX **** OPDX **** DIESEL DERATING OR OUTAGE. A SECONDARY REASON IS ALWAYS REQUIRED. X = UNIT NUMBER M N DPDX AUXT M OPTX AUXT AUXILIARY TRANSFORMER M N DPDX BATT M OPDX BATT BATTERY AND CHARGING SYSTEM M N DPDX CONT M OPDX CONT ENGINE CONTROL SYSTEM M N DPDX COOL M OPDX COOL COOLING SYSTEM M OPDX ENEX ENGINE EXCHANGE M N DPDX ENGE M OPDX ENGE ENGINE PROBLEM OPDX EROR OPERATING OR MAINTENANCE ERROR OPDX EXPL UNIT OR COMPONENT EXPLOSION OPDX FIRE FIRE M N DPDX FUEL M OPDX FUEL FUEL SYSTEM M N DPDX GENR M OPDX GENR GENERATOR PROBLEM M N DFDX GOV M OPDX GOV GOVERNOR PROBLEM M N DPDX INAS M OPDX INAS AIR INLET SYSTEM M N DPDX LUBR M OPDX LUBR LUBRICATION PROBLEM M N DPDX MAIN M OPDX MAIN MAIN TRANSFORMER OPDX NADS NATURAL DISASTER TO PLANT M OPDX OVHL OVERHAUL N DPDX REGS OPDX REGS NOISE OR ENVIRONMENTAL REGULATION M N DPDX STRT M OPDX STRT STARTER SYSTEM N DPDX TEST TESTING OF INDIVIDUAL UNITS M N DPDX TUCH M OPDX TUCH TURBO-CHARGER M N DPDX VIBS M OPDX VIBS VIBRATION PROBLEM LOCATIONS- FISK UNIT 20, JOLIET UNIT 9 C.E.Co. G.P.No.354 Appendix E Page 11 SPS DERATING CODES ------------------ FAST START PEAKING UNITS ------------------------ DERATE CODE M OR O/S CODE DESCRIPTION - --------------- ---------------- ------------------------------------------------- DPKX **** OPKX **** PEAKER DERATING OR OUTAGE. A SECONDARY REASON IS ALWAYS REQUIRED. X = UNIT BLOCK NUMBER M N DPKX AUXT M OPKX AUXT BLOCK TRANSFORMER M N DPKX BATT M OPKX BATT BATTERY AND CHARGING SYSTEM M N DPKX BEAR M OPKX BEAR BEARING PROBLEM (NOT VIBRATION) M OPKX CLNG TURBINE CLEANING M N DPKX COMP M OPKX COMP COMPRESSOR PROBLEM M N DPKX CONT M OPKX CONT CONTROLS AND INSTRUMENTATION M N DPKX COOL M OPKX COOL COOLING SYSTEM M OPKX ENEX ENGINE EXCHANGE OPKX EROR OPERATING OR MAINTENANCE ERROR M N DPKX EROS M OPKX EROS AIRBORNE PARTICULATE EROSION M N DPKX EXCR M OPKX EXCR EXCITER PROBLEM M N DPKX EXHT M OPKX EXHT EXHAUST EQUIPMENT OPKX EXPL EXPLOSION OPKX FIRE FIRE M N DPKX FUEL M OPKX FUEL FUEL SYSTEM M N DPKX GENR M OPKX GENR GENERATOR PROBLEM N DPKX HEGT M OPKX HEGT HIGH EXHAUST GAS TEMPS. M N DPKX IGNT M OPKX IGNT IGNITION SYSTEM M N DPKX INAS M OPKX INAS INLET AIR SYSTEM M N DPKX LUBR M OPKX LUBR LUBRICATION PROBLEM M N DPKX MAIN M OPKX MAIN MAIN TRANSFORMER OPKX NADS NATURAL DISASTER TO PLANT M OPKX OVHL OVERHAUL M N DPKX REDC M OPKX REDC REDUCTION SPEED GEAR N DPKX REGS OPKX REGS NOISE OR ENVIRONMENTAL REGULATIONS M N DPKX SULF M OPKX SULF SULFURIZATION EROSION FROM FUEL N DPKX TEST TESTING M N DPKX TURB M OPKX TURB TURBINE PROBLEM M N DPKX TURN M OPKX TURN TURNING GEAR M N DPKX VIBS M OPKX VIBS VIBRATION PROBLEM LOCATIONS- BLOOM, CALUMET. CRAWFORD, ELECTRIC JUNCTION, FISK, JOLIET 6, LOMBARD, SABROOKE, WAUKEGAN C.E.Co. G.P.No.354 Appendix E Page 12 SPS OUTAGE CODES ---------------- CODE DESCRIPTION - --------------- ------------------------------------------------- ECONOMIC BOILER OUTAGES ARRANGED WITH LOAD DISPATCHER EB 1 ECONOMIC OUTAGE ON BOILER #1 EB 2 ECONOMIC OUTAGE ON BOILER #2 SCHEDULED OUTAGES ARRANGED BY OVERHAUL SCHEDULING COMMITTEE SBO1 BOILER OVERHAUL #1 BOILER SBO2 BOILER OVERHAUL #2 BOILER SMNT SCHEDULE D MAINTENANCE SNEW NON-COMM. UNIT (VALUE MUST BE- SOVL UNIT OVERHAUL)
EX-10.87-1 19 a2042986zex-10_871.txt EXHIBIT 10.87.1 Exhibit 10.87.1 AMENDMENT NO. 1 TO THE POWER PURCHASE AGREEMENT Dated as of December 15, 1999 Between Commonwealth Edison Company and Midwest Generation, LLC Collins Generating Station AMENDMENT NO. 1 TO THE COLLINS GENERATING STATION POWER PURCHASE AGREEMENT Dated as of December 15, 1999 Between Commonwealth Edison Company and Midwest Generation, LLC 1. PARTIES: The parties to this Amendment are MIDWEST GENERATION, LLC ("Seller"), a Delaware limited liability company, and COMMONWEALTH EDISON COMPANY ("ComEd"), an Illinois corporation, sometimes hereinafter referred to individually as "Party" and collectively as "Parties". 2. RECITALS: This Amendment is made with reference to the following facts, among others: 2.1 The parties entered into the Power Purchase Agreement for Collins Station ("Collins PPA") dated as of December 15, 1999 pursuant to which ComEd has the right to purchase Electric Energy from the Collins Station. 2.2 The parties desire to amend the Collins PPA to modify the Minimum Energy Amount for the Second through the Fifth Contract Years (inclusive), and to provide for an Annual Settlement Payment (as hereinafter defined). 3. DEFINITIONS: Except as specifically provided in this Amendment, terms used herein with initial capitalization shall have the respective meanings set forth in the Collins PPA. 4. EFFECTIVE DATE: The effectiveness of this Amendment shall be conditioned upon the receipt of the consents of certain entities which have extended financing to Seller (including Collins Trust I, Collins Trust II, Collins Trust III and Collins Trust IV); PROVIDED that this Amendment shall not become effective if such consents are not received by December 31, 2000 and Seller so notifies ComEd prior to January 15, 2001. Upon the receipt of such consents, this Amendment shall be deemed effective as of June 23, 2000; provided, however, that if the Federal Energy Regulatory Commission ("FERC") enters into a hearing to determine whether this Amendment is just 1 and reasonable, it shall not become effective until the date when an order subject to judicial review has been issued by the FERC determining this Amendment to be just and reasonable without changes or new conditions unacceptable to either Party. 5. AMENDMENT: 5.1. The definition of the term "Minimum Energy Amount" in Section 1 of the Collins PPA is hereby amended to read in its entirety as follows: "`MINIMUM ENERGY AMOUNT' means (a) with respect to the First Contract Year, the product of (i) 3,000,000 megawatt hours, multiplied by (ii) a fraction, the numerator of which is the Reserved Capacity for the First Contract Year and the denominator is 2,698 megawatts and (b) for all subsequent Contract Years, the product of (i) 2,700,000 megawatt hours, multiplied by (ii) a fraction, the numerator of which is the Reserved Capacity for such Contract Year and the denominator is 2,698 megawatts." 5.2 Section 1 of the Collins PPA is hereby amended to add the following new definition of "Annual Settlement Amount": "`ANNUAL SETTLEMENT AMOUNT,' for a Contract Year, means a payment to be made by ComEd to compensate Seller for natural gas costs (commodity only), to the extent that the commodity price of natural gas consumed in generating megawatts at ComEd's request above the Minimum Energy Amount for such Contract Year is greater than $2.52 per MMBTU, after deducting therefrom the amount by which such commodity price is less than $2.52 per MMBTU. Such Annual Settlement Amount shall be calculated as follows: ANNUAL SETTLEMENT = SUM{ (DGP - DGC) x CCT x 12,000 / 1000} for all subsequent days in such Contract Year once the Minimum Energy Amount for such Contract Year has been met. WHERE: DGP ($/ MMBTU) = Daily Gas Price - Chicago City Gate Average as reported by Natural Gas Institute in their Daily Gas Price Index Publication. 2 DGC ($ / MMBTU) =$2.52. CCT (MWHr) = Daily Collins Net Generation requested by ComEd (excludes generation sold to third parties by Seller). 12,000 (BTU / NKWHR)= Collins Station True-up Defined Heat Rate. 5.3 Section 5 of the Collins PPA is hereby amended add a new subsection (e) to read as follows: "(e) ANNUAL SETTLEMENT AMOUNT PAYMENT. ComEd shall pay Seller within thirty days after the end of each Contract Year the Annual Settlement Amount for such Contract Year, PROVIDED ComEd has received from Seller a calculation of such Annual Settlement Amount at least fifteen (15) days before its due date. Seller shall provide a schedule indicating actual natural gas costs (commodity only) incurred by it during such Contract Year versus $2.52 per MMBTU and calculating the Annual Settlement Payment, if any, due. 5.4 Section 7 of the Collins PPA is hereby amended by adding a new subsection (c) to read as follows: "(c) ComEd shall pay to Seller, with respect to each Contract Year, the Annual Settlement Amount, if any, for such Contract Year." 3 6. SIGNATURE CLAUSE: The signatories hereto represent that they are authorized to enter into this Agreement on behalf of the Party for which they sign. This Amendment is hereby executed as of the 12th day of July, 2000. MIDWEST GENERATION, LLC By: /s/ Georgia R. Nelson ------------------------- Name: Georgia R. Nelson Title: President COMMONWEALTH EDISON COMPANY By: /s/ Paul A. Elbert ------------------------- Name: Paul A. Elbert Title: Executive Vice President 4 EX-10.87-2 20 a2042986zex-10_872.txt EXHIBIT 10.87.2 Exhibit 10.87.2 [COLLINS STATION] POWER PURCHASE AGREEMENT DATED AS OF DECEMBER 15, 1999 AS AMENDED AND RESTATED AS OF SEPTEMBER 13, 2000 BETWEEN COMMONWEALTH EDISON COMPANY AND MIDWEST GENERATION, LLC COLLINS GENERATING STATION TABLE OF CONTENTS
PAGE ---- 1. DEFINITIONS AND INTERPRETATION 1 (a) DEFINITIONS 1 (b) INTERPRETATION 9 (c) LEGAL REPRESENTATION OF PARTIES 9 (d) TITLES AND HEADINGS 10 2. TERM 10 3. GENERATING CAPACITY 10 (a) CHARACTER 10 (b) SUPPLY 10 (c) DISPATCH 10 (d) ENERGY IMBALANCE 10 5. METERING; BILLING; PAYMENT 11 (a) METERING 11 (b) METER INACCURACIES 11 (c) BILLING 11 (d) BILLING DISPUTES. 12 (d) BILLING DISPUTES 12 (e) ANNUAL SETTLEMENT AMOUNT PAYMENT 12 6. OPERATION OF RESERVED UNITS 12 (a) STANDARD OF OPERATION 12 (b) ELECTRIC ENERGY GENERATION. 12 (b) ELECTRIC ENERGY GENERATION 12 (c) OUTAGES 14 (i) PLANNED OUTAGES 14 (ii) MAINTENANCE OUTAGES 15 (iii) FORCED OUTAGES 15 (iv) INFORMATION RELATED TO OUTAGES 15 (d) OPERATING CHARACTERISTICS 15 (e) FUEL SOURCE AND EMISSIONS REPORTS 15 (f) RECORDS 16 7. COMPENSATION 16 (a) MONTHLY CHARGES 16 (i) MONTHLY CAPACITY CHARGE 16 (ii) ENERGY CHARGE 16 (iii) START UP AND SUPPORT CHARGES 16 (iv) LOW LOAD CHARGES 17
-i- (v) ANCILLARY SERVICES 17 MINIMUM TAKE TRUE-UP 17 8. TESTING 18 9. ANCILLARY SERVICES 18 10. LIMITATION OF LIABILITY 18 (a) ADMINISTRATIVE COMMITTEE PROCEDURE 20 (b) ARBITRATION 20 (c) OBLIGATIONS TO PAY CHARGES AND PERFORM 21 (d) PRELIMINARY INJUNCTIVE RELIEF 21 (e) SETTLEMENT DISCUSSIONS 22 12. ASSIGNMENT; TRANSFER OF STATION 22 (a) ASSIGNMENT 22 (b) COLLATERAL ASSIGNMENT 22 (c) TRANSFER OF STATION DURING THE TERM 23 13. TERMINATION BY COMED WITH RESPECT TO CERTAIN UNITS 23 14. DEFAULT; TERMINATION AND REMEDIES 23 (a) SELLER'S DEFAULT 23 (b) COMED DEFAULT 24 (c) REMEDIES AND REMEDIES CUMULATIVE 24 (e) TERMINATIONS UNDER SECTION 13 25 15. FORCE MAJEURE 25 16. REPRESENTATIONS AND WARRANTIES 26 17. INDEMNIFICATION 28 18. NOTICES 28 19. CONFIDENTIALITY 30 20. GOVERNING LAW 30 21. PARTIAL INVALIDITY 30 22. WAIVERS 31 24. ENTIRE AGREEMENT AND AMENDMENTS 31
-ii- APPENDICES Appendix A Equivalent Availability Factor Appendix B Design Limits Appendix C MAIN Guide Number 3A Appendix D EO Communications and Guidelines Appendix E Reporting Forms Appendix F Regulating Performance Value Methodology Appendix G GADS Cause Codes POWER PURCHASE AGREEMENT THIS POWER PURCHASE AGREEMENT (including Appendices, this "AGREEMENT") dated as of December 15, 1999, as amended and restated as of September 13, 2000, between COMMONWEALTH EDISON COMPANY, an Illinois corporation ("COMED"), and MIDWEST GENERATION, LLC, a Delaware limited liability company ("SELLER"; ComEd 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 the Collins electric generation station; WHEREAS, ComEd desires to receive and purchase, and Seller desires to deliver and sell, electric capacity, energy and other generation-related services; WHEREAS, ComEd desires to determine the dispatching of the units at such station as provided in this Agreement; WHEREAS, the Parties are parties to a Power Purchase Agreement for the Collins electric generation station dated as of December 15, 1999, as amended as of July 12, 2000 ("PPA"); and WHEREAS, the Parties have agreed to amend further the PPA in certain respects and to integrate said amendment and the prior amendment into a restated agreement. 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, (ii) the terms defined elsewhere in this Agreement shall have the meanings therein so specified and (iii) the terms "AVAILABLE," "AVAILABLE HOURS," "EQUIVALENT AVAILABILITY FACTOR," "FORCED OUTAGE," "MAINTENANCE OUTAGE," "NET DEPENDABLE CAPACITY," "PLANNED OUTAGE," "PLANNED OUTAGE EXTENSION," "SERVICE HOURS" and "UNAVAILABLE", and the associated terms referred to and used in the calculation of such terms, shall have the respective meanings assigned to such terms in Appendix A. "ADJUSTMENT FACTOR" means, with respect to a month, the factor (rounded to four decimal places) obtained from the following: (a) if such month is a Summer Month:
GROUP EAF ADJUSTMENT FACTOR --------- ----------------- Greater than or equal to 90% (100 +[(Group EAF - 90) x 2]) /100 Greater than or equal to 70% (Group EAF + 10)/100 but less than 90% Greater than or equal to 50% but (80 + [(Group EAF - 70) x less than 70% 4])/100 Less than 50% Zero
(b) if such month is a Non-Summer Month:
GROUP EAF ADJUSTMENT FACTOR --------- ----------------- Greater than or equal to 50% (Group EAF + 25)/100 Less than 50% Zero
provided, however that all outage hours and derating attributable to ComEd transmission system problems, outages or stability load restrictions shall be deemed Available Hours. "AFFECTED PARTY" has the meaning specified in Section 15(a). "AGC" means Automatic Generation Control. "ANCILLARY SERVICES" has the meaning set forth in Section 9. "ANNUAL SETTLEMENT AMOUNT," for a Contract Year, means a payment to be made by ComEd to compensate Seller for natural gas costs (commodity only), to the extent that the commodity price of natural gas consumed in generating megawatts at ComEd's request above the Minimum Energy Amount for such Contract Year is greater than $2.52 per MMBTU, after deducting therefrom the amount by which such commodity price is less than $2.52 per MMBTU. Such Annual Settlement Amount shall be calculated as follows: ANNUAL SETTLEMENT = SUM{ (DGP - DGC) x CCT x 12,000 / 1000} for all subsequent days in such Contract Year once the Minimum Energy Amount for such Contract Year has been met. WHERE: DGP ($/ MMBTU) = Daily Gas Price - Chicago City Gate Average as reported by Natural Gas Institute in their Daily Gas Price Index Publication. DGC ($ / MMBTU) = $2.52. CCT (MWHr) = Daily Collins Net Generation requested by ComEd (excludes generation sold to third parties by Seller). 2 12,000 (BTU / NKWHR)= Collins Station True-up Defined Heat Rate. "ASSET SALE AGREEMENT" means the Asset Sale Agreement dated as of March 22, 1999, between ComEd and Seller, governing the transfer of the Station from ComEd to Seller. "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. "BUSINESS DAY" means each weekday (Monday through Friday) except the days on which the following holidays are observed: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. "CHANGE OF LAW" means the adoption, promulgation, modification or reinterpretation of any law, rule, regulation, ordinance, order or other Requirement of Law of any federal, state, county or local government, governmental agency, court, commission, department or other such entity which occurs subsequent to the date of execution of this Agreement but excluding any change in law relating to (i) taxation of net income or (ii) any requirement regarding reduction or control of nitrogen oxide (NOx), carbon dioxide or volatile organic materials under any Requirement of Law. "COLD START" means a Successful Start-Up of a Reserved Unit before which such Reserved Unit has been off-line for 48 hours or more. "COMED CONTROL AREA" means the ComEd electrical system bounded by interconnection (tie-line) metering and telemetry and wherein ComEd controls generation to maintain the system's interchange schedule with other control areas and contributes to frequency regulation of the interchange. "COMED EMS" means the electronic hardware and software owned by ComEd and known as the "ComEd Energy Management System." "COMED EVENT OF DEFAULT" has the meaning specified in Section 14(b). "COMED SYSTEM" the electric transmission and distribution system owned by ComEd and its affiliates. "CONFIDENTIAL INFORMATION" has the meaning specified in Section 18. "CONTRACT YEAR" means, in the case of the First Contract Year, the period beginning on the Effective Date and ending on the day prior to the first anniversary of such beginning date, if the Effective Date is the first day of a calendar month, or ending 3 on the day prior to the first anniversary of the beginning of the month immediately following the Effective Date, if the Effective Date is not the first day of a month; and, in the case of subsequent Contract Years, means the period beginning on the day immediately following the end of the preceding Contract Year and ending on the day prior to the first anniversary of such beginning day. First Contract Year refers to the first such period commencing on the Effective Date; Second Contract Year refers to the second such period; and so on. "DEFAULT RATE" means (i) the "Prime Rate" as published from time to time in the "Money Rates" section of THE WALL STREET JOURNAL, plus (ii) 2.5% (250 basis points) per annum. "DESIGN LIMITS" means, with respect to a Reserved Unit, the items listed in Appendix B with respect to such Reserved Unit. "EFFECTIVE DATE" means December 15, 1999. "ELECTRIC ENERGY" has the meaning specified in Section 4(a). "EMERGENCY CONDITION" means a condition or situation which (i) in the sole judgment of ComEd (or any ISO) presents an imminent physical threat of danger to life, or significant threat to health or property, (ii) in the sole judgment of ComEd (or any ISO) could cause a significant disruption on or significant damage to the ComEd 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 could cause significant damage to the equipment that constitutes the Station (or any material portion thereof) or (iv) in the sole judgment of ComEd could cause significant damage to the equipment located in the switchyard associated with the Station (or any material portion of such switchyard). "ENERGY CHARGE" means an amount determined under Section 7(a)(ii) in respect of a month. "EO" means ComEd's Electric Operations Department. "EO GENERATION DISPATCHER" means the Person so designated from time to time by ComEd as contemplated in Appendix D. Notice provisions for the EO Generation Dispatcher are contained in Appendix D. "EQUIVALENT AVAILABILITY ADJUSTMENT FACTOR" means, for a Contract Year, one minus the sum of (i) the product of 0.17 multiplied by the number of Summer Months in such Contract Year in which the Equivalent Availability Factor of the Reserved Units is less than 80%, plus (ii) the product of 0.04 multiplied by the number of Non-Summer Months in such Contract Year in which the Equivalent Availability Factor of the Reserved Units is less than 80%. Any adjustment pursuant to the foregoing in respect of a partial month during the First Contract Year (as the result of the Effective Date occurring during a month) shall be prorated by multiplying it by a fraction, the numerator 4 of which is the number of days from the Effective Date through the last day of such month and the denominator of which is the total number of days in such month. For the First Contract Year, only the months of August 2000 through December 2000, if the Equivalent Availability Factor of the Reserved Units is less than 80% for such month, will be used in calculating the Equivalent Availability Adjustment Factor. "FERC" means the Federal Energy Regulatory Commission. "FORCE MAJEURE EVENT" has the meaning specified in Section 15(a). "GOVERNMENTAL ACTION" has the meaning specified in Section 15(a). "GROUP" means, with respect to a Contract Year, all of the Reserved Units for such Contract Year. "GROUP EAF" means the Equivalent Availability Factor of the Group, subject to the following adjustment and clarifications: (i) to the extent that Seller declares a Substitute Unit to be Available to ComEd for the generation of Electric Energy, the Available generating capacity of such Substitute Unit may be used to offset the Unavailable generating capacity of a Reserved Unit (up to (i) if such calculation is being performed for a Summer Month, 90% of the Net Dependable Capacity of such Reserved Unit as set forth in Appendix B or (ii) if such calculation is being performed for a Non-Summer Month, 75% of the Net Dependable Capacity of such Reserved Unit as set forth in Appendix B) for purposes of calculating Group EAF; (ii) for clarity and the avoidance of doubt, hours attributable to Planned Outages (including extensions), Maintenance Outages (including extensions) and Forced Outages shall be Unavailable hours for the purposes of calculating Group EAF; and (iii) Availability of a Reserved Unit shall be measured on the Station side of the Point of Delivery unless an event on the Station side of the Point of Delivery has caused equipment on the transmission system side of the Point of Delivery to be malfunctional or nonfunctional. "HOT START" means a Successful Start-Up of a Reserved Unit before which such Reserved Unit has been off-line for eight hours or less. "INTERCONNECTION AGREEMENT" means the Facilities, Interconnection and Easement Agreement dated as of the Effective Date between ComEd and Seller with respect to the Station. "ISO" means any Person that becomes responsible under applicable FERC guidelines for the transmission system to which the Station is connected. "LENDERS" means (i) any person or entity that, from time to time, has made loans to Seller, its permitted successors or permitted assigns for the financing or refinancing of a Station or which are secured by a Station, (ii) any holder of such indebtedness, (iii) any trustee on behalf of any such holders or (iv) any Person who purchases a Station in connection with a sale-leaseback or other lease arrangement in which the Seller is the lessee of such Station pursuant to a net lease. 5 "LOW LOAD CHARGES" means an amount determined under Section 7(a)(iv) in respect of a month. "MAIN" means the Mid-America Interconnected Network. "MINIMUM LOAD" means the "Minimum Operating Level" for a Reserved Unit (below which it cannot operate in a stable manner) as set forth in Appendix B. Minimum Load for a Reserved Unit shall be measured in net megawatts. "MINIMUM ENERGY AMOUNT" means, (a) with respect to the First Contract Year, the product of (i) 2,000,000 megawatt hours, multiplied by (ii) a fraction, the numerator of which is the Reserved Capacity for the First Contract Year and the denominator is 2,698 megawatts and (b) for all subsequent Contract Years, the product of (i) 2,700,000 megawatt hours, multiplied by (ii) a fraction, the numerator of which is the Reserved Capacity for such Contract Year and the denominator is 2,698 megawatts. "MINIMUM TAKE TRUE-UP" means (i) the product of the Minimum Energy Amount for a Contract Year, multiplied by the Equivalent Availability Adjustment Factor for such Contract Year, multiplied by the megawatt hour charge for such Contract Year, as determined from the table in Section 7(a)(ii), less (ii) the aggregate amounts paid or payable by ComEd to Seller under Section 7(a)(ii) in respect of the months (including, in the case of the First Contract Year, any partial month) constituting such Contract Year. "MONTHLY CAPACITY CHARGE" means an amount determined under Section 7(a) in respect of a month. "NERC" means the North American Electric Reliability Council. "NON-SUMMER MONTH" means any month other than a Summer Month. "NON-SUMMER CAPACITY CHARGE" means, with respect to a Non-Summer Month, (i) $1,667 per megawatt-month during the First through Third Contract Years and (ii) $2,083 per megawatt-month during the Fourth and Fifth Contract Years. "NON-SUMMER CAPACITY PAYMENT" means, for a Non-Summer Month, the sum of the following calculations for each Reserved Unit during such month: the result of (i) the product (a) the Net Dependable Capacity of such Reserved Unit as determined from Appendix B, multiplied by (b) the Non-Summer Capacity Charge for such month, multiplied by (c) the Adjustment Factor for such month, minus (ii) the Regulation Adjustment for such Reserved Unit for such month. "PERSON" means any individual, corporation, partnership, joint venture, limited liability company, association, joint stock company, trust, unincorporated organization, entity, government or other political subdivision. "POINT OF DELIVERY" means the point of Electric Energy delivery from the Station to the ComEd System specified in the Interconnection Agreement. 6 "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 United States of America 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 United States of America. "REGULATION ADJUSTMENT" means, with respect to a Reserved Unit for a given month, (i) if the Adjustment Factor for such Reserved Unit for such month is zero or the Service Hours for such Reserved Unit for such month are less than twenty-four, an amount equal to zero, or (ii) in all other cases, an amount equal to the RPV Adjustment. "REQUIREMENT OF LAW" means any foreign, 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. "RESERVED CAPACITY" means, with respect to a Contract Year, the aggregate Net Dependable Capacity of the Reserved Units (as set forth in Appendix B). "RESERVED UNIT" means each, and "RESERVED UNITS" means all, of the generating units of the Station except those units with respect to which this Agreement has been terminated in accordance with Section 13. "RAW RPV" means, with respect to a Reserved Unit, its (together with any Substitute Unit substituted for such Reserved Unit) "regulating performance value," which shall be calculated by ComEd EMS on a monthly basis in accordance with the methodology set forth in Appendix G. "RPVACT" means, with respect to a Reserved Unit for a given month, the product of Raw RPV x [(hours on AGC)/(Service Hours - Start-Up Adjustment)] For purposes of the foregoing calculation, the term "START-UP ADJUSTMENT" means, with respect to a given month, the sum of : [(2 hours) x (the number of Hot Starts in such month)] + [(4 hours) x (the number of Warm Starts in such month)] + [(6 hours) x (the number of Cold Starts in such month)]. "RPV ADJUSTMENT" means, with respect to a Reserved Unit for a given month, the amount determined from the following: 7
RPV ADJUSTMENT -------------- If (RPVmin - RPVact) is less than zero [(RPVmin - RPVact) x $5,330)] If (RPVmin - RPVact) is zero zero If (RPVmin - RPVact) is greater than zero [(RPVmin - RPVact) x $5,330]
For purposes of the foregoing calculation, the term "RPVMIN" means the "Unit RPV" listed for such Reserved Unit in Appendix B. "SELLER'S EVENT OF DEFAULT" has the meaning specified in Section 14(a). "START-UP AND SUPPORT CHARGES" means an amount determined under Section 7(a)(iii). "STATION" means the Collins generating station being conveyed to Seller pursuant to the Asset Sale Agreement. "SUBSTITUTE UNIT" means a generating unit (other than a combustion turbine generating unit or peaker that is subject to a power purchase agreement with ComEd) within the ComEd Control Area which is not a Reserved Unit under this Agreement at the time in question. "SUCCESSFUL START-UP" means causing, at the request of ComEd, a generating unit to achieve electrical synchronization with the transmission provider's system to which the Station is interconnected and to maintain at least the Minimum Load for such generating unit for a period of two hours. "SUMMER CAPACITY CHARGE" means, with respect to a Summer Month, (i) $6,666 per megawatt-month during the First through Third Contract Years and (ii) $8,333 per megawatt-month during the Fourth and Fifth Contract Years. "SUMMER CAPACITY PAYMENT" means, for a Summer Month, the sum of the following calculations for each Reserved Unit during such month: the result of (i) the product of (a) the Net Dependable Capacity of such Reserved Unit, multiplied by (b) the Summer Capacity Charge for such month, multiplied by (c) the Adjustment Factor for such month, minus (ii) the Regulation Adjustment for such Reserved Unit for such month. "SUMMER MONTH" means each of June, July, August and September. "SUMMER PERIOD" means the period from May 15 through September 15 or, if the Effective Date or the Termination Date falls from May 15 through September 15 of a given year, then for the resulting shorter period for such year. "TERM" has the meaning specified in Section 2. 8 "TERMINATION DATE" means the earlier of (i) the day immediately preceding the fifth anniversary of the Effective Date if the Effective Date is the first day of a month and otherwise the day immediately preceding the fifth anniversary of the first day of the month immediately following the Effective Date and (ii) the date on which this Agreement is terminated by a Party pursuant to its terms. "WARM START" means a Successful Start-Up of a Reserved Unit before which such Reserved Unit has been off-line for more than eight hours, but less than 48 hours. (b) INTERPRETATION. In this Agreement, unless a clear contrary intention appears: (i) the singular includes the plural 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; (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 9 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. 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), 6(f) (Records), 10 (Limitation of Liability), 11 (Disagreements), 14 (Default, Termination and Remedies), and 16 (Indemnification) shall survive the termination 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 Net Dependable Capacity of the Reserved Units during a Contract Year to be not less than the Reserved Capacity for such Contract Year. 4. ELECTRIC ENERGY SUPPLY (a) CHARACTER. All electric energy which Seller shall sell and deliver to ComEd from a Reserved Unit (or a Substitute Unit) hereunder (such electric energy being referred to herein as the "ELECTRIC ENERGY") shall be consistent with the requirements of Section 5.7 of the Interconnection Agreement. (b) SUPPLY. Subject to the terms and conditions of this Agreement, Seller shall make available at the Point of Delivery to ComEd for delivery and sale, and ComEd may receive and purchase from Seller, Electric Energy. If a Reserved Unit is not Available, Seller may use a Substitute Unit to fulfil such obligation; PROVIDED, HOWEVER, that (i) if such Substitute Unit is not located within the Station, Seller shall be responsible for arranging transmission service for delivery to the Station from such Substitute Unit and (ii) such Substitute Unit shall have an RPVmin not less than the Unavailable Reserved Unit. ComEd shall not be obligated to receive or purchase any Electric Energy from Seller except such Electric Energy as is dispatched by ComEd pursuant to Section 4(c). (c) DISPATCH. ComEd may dispatch the delivery of Electric Energy from each Reserved Unit (or Substitute Unit) in accordance with the provisions set forth in Appendix D at a rate up to such Reserved Unit's Net Dependable Capacity as set forth in Appendix B or such Substitute Unit's Net Dependable Capacity, as the case may be (or such greater or lesser rate as Seller may from time to time declare to be Available in accordance with Section 3 of Appendix D), at any time when such Reserved Unit is so declared by Seller to be Available. (d) ENERGY IMBALANCE. ComEd shall hold Seller harmless from any energy imbalance charges that result from ComEd's dispatch orders under this Agreement. 10 5. METERING; BILLING; PAYMENT (a) METERING. All Electric Energy delivered by Seller to ComEd from the Station under this Agreement shall be metered at billing meter installations provided, installed, owned, maintained and tested as provided in Section 5.18 of the Interconnection Agreement. At Sellers option and expense, back-up meters and associated metering equipment independent of the Metering Equipment may be installed at the Station; and such back-up meters and metering equipment shall be used in accordance with the practices and procedures established by the Parties for billing adjustments of discovered billing meter inaccuracies. Any such back-up meters may be tested by ComEd at Seller's expense, and any inaccuracies shall be handled as provided in Section 5.18 of the Interconnection Agreement. All Electric Energy delivered by Seller to ComEd from a Substitute Unit not located at the Station shall be metered at billing meter installations provided, installed, owned, maintained and tested by ComEd, if available, and otherwise at the billing meter installation available at the site where the Substitute Unit is located. In the event that ComEd's billing meters are not in service, ComEd will use meter information from the meters it uses for dispatch for the period that the billing meters are unavailable and provide the information to Seller. As soon as practicable but in any event no later than five Business Days after the end of each calendar month, ComEd shall provide Seller with information from the billing meter installations owned or controlled by ComEd for Seller's use in preparing billing statements and Seller shall have the right to witness such meter readings and testing. (b) METER INACCURACIES. ComEd shall provide to Seller copies of all routine meter calibration test results. If any test of the billing meters by ComEd or Seller discloses an inaccuracy of more than 0.5% fast or 0.5% slow, then a billing adjustment shall be made to correct for the inaccuracy. For purpose of the billing adjustment, if the inaccuracy is traceable to a specific event or occurrence at a reasonably ascertainable time, then the adjustment shall extend back to that time; otherwise, it shall be assumed that the error has existed for a period equal to one-half of the time elapsed since the meter was installed or one-half of the time since the last meter test, whichever is later. At any metering location, should the billing meter at any time fail to register, the delivered Electric Energy shall be determined by ComEd from the best available data, unless Seller objects within 30 days. Such disagreements shall be resolved pursuant to Section 11. (c) 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 ComEd for the amounts due in respect of such month under Section 7, which statement shall contain reasonable detail showing the manner in which the Monthly Capacity Charge, Energy Charge, Start-Up and Support Charges, Low Load Charges and any Minimum Take True-Up were determined. Billings for Electric Energy shall be based on ComEd revenue quality meter information or, if such meters are not yet in service, on information from the meters that ComEd uses for dispatch. The amount due to Seller as shown on any such monthly statement rendered by Seller shall be paid by ComEd within fifteen Business Days after the date such statement is rendered to ComEd by electronic means to an account specified by Seller. Any amount not paid when due shall bear interest from the due date until paid at the Default Rate. 11 (d) BILLING DISPUTES. (i) If ComEd questions or contests the amount of any amount claimed by Seller to be due under Section 7 of this Agreement, ComEd 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(d)(ii). (ii) In the event that ComEd, 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 ComEd, within fifteen Business Days following receipt by Seller of such notice from ComEd, of the amount of any error and the amount of any reimbursement that ComEd is entitled to receive in respect of such alleged error. Any disputes not resolved within fifteen Business Days after Seller's receipt of notice from ComEd shall be resolved in accordance with Section 11. Upon determination of the correct amount of any reimbursement, such amount shall be promptly paid by Seller. (iii) Reimbursements made by Seller to ComEd under this Section 5(d) 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. (e) ANNUAL SETTLEMENT AMOUNT PAYMENT. ComEd shall pay Seller within thirty days after the end of each Contract Year the Annual Settlement Amount for such Contract Year, PROVIDED ComEd has received from Seller a calculation of such Annual Settlement Amount at least fifteen (15) days before its due date. Seller shall provide a schedule indicating actual natural gas costs (commodity only) incurred by it during such Contract Year versus $2.52 per MMBTU and calculating the Annual Settlement Payment, if any, due. 6. OPERATION OF RESERVED UNITS (a) STANDARD OF OPERATION. Consistent with Prudent Utility Practice, Seller shall operate each Reserved Unit in accordance with (i) the applicable 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 maintain all certifications, permits, licenses and approvals necessary to operate and maintain each Reserved Unit and to perform its obligations under this Agreement during the Term. (b) ELECTRIC ENERGY GENERATION. (i) During a Contract Year, ComEd shall have the right to receive and purchase Electric Energy represented by the Reserved Capacity of each Reserved Unit for such Contract Year. To the extent that ComEd has not dispatched the full Reserved 12 Capacity of the Reserved Units, Seller may sell the electric energy represented by such undispatched Reserved Capacity to third parties subject to the following requirements: (w) if such undispatched Reserved Capacity relates to a Reserved Unit which: (i) has been synchronized to the ComEd System and is delivering Electric Energy at the request of ComEd, the EO Generation Dispatcher must have released such undispatched capacity to Seller and any sales of electric energy from such capacity shall be cancelable by Seller upon not more than ten minutes notice through GCM from the EO Generation Dispatcher; (ii) is off-line at the request of the EO Generation Dispatcher and is operating in a two-hour start-up standby mode at the request of ComEd, then any sales of electric energy from such undispatched capacity shall be cancelable by Seller upon not more than two hours notice through GCM from the EO Generation Dispatcher; (iii) is off-line at the request of the EO Generation Dispatcher and is operating in an eight-hour start-up standby mode at the request of ComEd, then any sales of electric energy from such undispatched capacity shall be cancelable by Seller upon not more than eight hours notice through GCM from the EO Generation Dispatcher; or (iv) is off-line at the request of the EO Generation Dispatcher and is not operating in a start-up standby mode at the request of ComEd, then any sales of electric energy from such undispatched capacity shall be cancelable by Seller upon not more than twenty-four hours notice through GCM from the EO Generation Dispatcher. (x) Seller shall be responsible for arranging transmission service for any deliveries of electric energy contemplated by any such sales to third parties (it being understood that this Agreement does not grant any rights of access to, or use of, any transmission service); (y) the delivery of electric energy contemplated by any such sales to third parties shall be in accordance with the provisions of the Interconnection Agreement; and (z) Seller shall schedule the sale of any energy so released through EO and shall respond to any recall of such energy by EO within the applicable time period specified in Section 6(b)(i)(w). (i) No sales of electric energy shall be made to any Person from a Reserved Unit (or any portion thereof) declared by Seller to be Unavailable. (ii) In the event that a Reserved Unit shall have electric generation capacity in excess of its Net Dependable Capacity set forth in Appendix B, Seller may offer and sell such capacity and associated electric energy to third parties on such terms as Seller shall 13 determine in its sole discretion. Seller shall be responsible for arranging transmission service for any deliveries of electric energy contemplated by any such sales to third parties (it being understood that this Agreement does not grant any rights of access to, or use of, any transmission service); and the delivery of electric energy contemplated by any such sales to third parties shall be in accordance with the provisions of the Interconnection Agreement. It is further understood that, in the event that any such sales to third parties shall be made and there shall be a derating in the associated Reserved Unit, such sales shall be curtailed in full before any curtailment of Electric Energy dispatched by ComEd from such Reserved Unit as a result of such derating. (iii) Seller may not sell Ancillary Services with respect to any undispatched Reserved Capacity referred to in Section 6(b)(i) or with respect to any excess capacity referred to in Section 6(b)(ii). (c) Outages (i) PLANNED OUTAGES. On or prior to the Effective Date, Seller shall submit to ComEd a proposed schedule of Planned Outages (including Planned Deratings) scheduled by Seller for the following three Contract Years for the Reserved Units at the Station, which schedule shall be supplemented by Seller every six months following the Effective Date by notice to the EO Generation Dispatcher 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 a Summer Period. Such schedule, and each supplement thereto, shall indicate the planned start and completion dates for each Planned Outage shown during the period covered thereby and the amount of generating capacity that will be affected. Within sixty days of receipt of such schedule or any supplement thereto, ComEd may request reasonable modifications therein. Seller and ComEd shall work together to schedule Planned Outages to meet their mutual requirements; however, it is understood that in the event of a disagreement on such scheduling, ComEd will have the right to resolve such disagreements as it reasonably determines to be appropriate in accordance with Prudent Utility Practice. In addition, ComEd may at any time request, and Seller shall make, changes to such schedule or any such supplement if ComEd deems such changes to be necessary, PROVIDED THAT, Seller shall not be required in connection with any such change to split a single Planned Outage into more than one outage or to reduce the duration of a Planned Outage; PROVIDED FURTHER that, except for changes requested during the first six months of the Term, such changes do not affect any Planned Outages during the six months immediately following Seller's receipt of such request; and PROVIDED FURTHER, that if Seller reasonably incurs increased costs as a result of ComEd's request to reschedule a Planned Outage, ComEd shall reimburse Seller for the actual, documented increased out-of-pocket costs. At least one week prior to any Planned Outage, Seller shall orally notify the EO Generation Dispatcher of the expected start date of such Planned Outage, the amount of generating capacity at the Reserved Units which will not be available to ComEd during such Planned Outage, and the expected completion date of such Planned Outage. Seller shall orally notify the EO Generation Dispatcher promptly 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. 14 (ii) MAINTENANCE OUTAGES. To the extent that during any Contract Year Seller needs to schedule a Maintenance Outage, Seller shall notify the EO Generation Dispatcher of such outage and shall plan such outage of generating capacity and use reasonable efforts to accommodate the requirements and service obligations of ComEd. Notice of a proposed Maintenance Outage shall include the expected start date of the outage, the amount of unavailable generating capacity of the Reserved Units and the expected completion date of the outage, and shall be given to ComEd at the time the need for the outage is determined by Seller. ComEd shall promptly respond to such notice and may request reasonable modifications in the schedule for the outage to accommodate the requirements and service obligations of ComEd. Seller shall use reasonable efforts to comply with such requested modifications and shall, if requested by ComEd, reschedule its Maintenance Outages, PROVIDED THAT it may do so in accordance with Prudent Utility Practice. Seller shall notify the EO Generation Dispatcher promptly of any subsequent changes in such generating capacity not available to ComEd or any subsequent changes in such outage completion date. As soon as practicable, any such notifications given orally shall be confirmed in writing. (iii) FORCED OUTAGES. Seller shall provide to the EO Generation Dispatcher immediately an oral report of any Forced Outage (including Forced Deratings) of the Reserved Units, which report shall include the amount of generating capacity at the Reserved Units unavailable because of such Forced Outage and the expected return date of such generating capacity, and shall update such report by notice to the EO Generation Dispatcher promptly as necessary to advise ComEd of changed circumstances. As soon as practicable, all such oral reports shall be confirmed in writing. (iv) INFORMATION RELATED TO OUTAGES. In addition to the foregoing, Seller shall provide to the EO Generation Dispatcher information relating to outages of generating capacity at the Station which would affect Seller's ability to deliver Electric Energy from any Reserved Unit. (d) OPERATING CHARACTERISTICS. The operating characteristics of each Reserved Unit shall be consistent with the Design Limits for such Reserved Unit set forth in Appendix B 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 by the Parties. Seller shall reduce, curtail or interrupt electrical generation at the Station 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 ComEd may be necessary to operate, maintain and protect the ComEd 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 equipment at the Station during an Emergency Condition. (e) FUEL SOURCE AND EMISSIONS REPORTS. Seller shall provide ComEd with information concerning Seller's fuel sources and emissions (including carbon dioxide, nitrous oxides and sulfur dioxide emissions) as reasonably requested by ComEd in order to allow ComEd 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 15 Commerce Commission) in respect of such information to governmental bodies, customers or other Persons. (f) RECORDS. Each Party shall keep and maintain all records as may be necessary or useful in performing or verifying any calculations or charges 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 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 and its agents, including auditors, shall have the right, upon thirty days written notice prior to the end of an applicable three calendar year period to request copies of such records. Each Party shall provide such copies, at the other Party's expense, within thirty days of receipt of such notice or shall make such records available to the other Party and its agents, including auditors, in accordance with the foregoing provisions of this Section. 7. COMPENSATION (a) MONTHLY CHARGES. ComEd shall pay to Seller, in respect of each calendar month during the Term, the following amounts: (i) MONTHLY CAPACITY CHARGE. A Monthly Capacity Charge equal to the Summer Capacity Payment, if such month is a Summer Month, or the Non-Summer Capacity Payment, if such month is a Non-Summer Month; PROVIDED, HOWEVER, if the first month of the First Contract Year is a partial month (as a result of the Effective Date occurring during a month), the amount payable under this Section 7(a)(i) in respect of such partial month shall be prorated by multiplying it by a fraction, the numerator of which is the number of days from the Effective Date through the last day of such month and the denominator of which is the total number of days in such month. (ii) ENERGY CHARGE. An amount equal to the product of (x) the Electric Energy (expressed in megawatt hours) sold to ComEd under this Agreement during such month, multiplied by (y) the megawatt hour charge applicable to such Electric Energy as determined from the following table:
ENERGY CHARGE ======================================= Contract ($/Megawatt Hour) Year 1 $30 2 31 3 32 4 33 5 34
(iii) START UP AND SUPPORT CHARGES. an amount equal to the sum of: 16 (1) the product of (x) the number of Cold Starts for each Reserved Unit during such month, multiplied by (y) $10,700, plus (2) the product of (x) the number of Warm Starts for each Reserved Unit during such month, multiplied by (y) $7,500, plus (3) the product of (x) the number of Hot Starts for each Reserved Unit during such month, multiplied by (y) $3,700, plus (4) the product of (x) the number of hours (if any) during such month that a Reserved Unit was operated in the two-hour start-up standby mode at the request of ComEd, multiplied by (y) a fraction, the numerator of which is $30,000 and the denominator of which is 24, plus. (5) the product of (x) the number of hours (if any) during such month that a Reserved Unit was operated in the eight-hour start-up standby mode at the request of ComEd, multiplied by (y) a fraction, the numerator of which is $15,000 and the denominator of which is 24. (iv) LOW LOAD CHARGES. An amount equal to the sum of the following calculations for each Reserved Unit during such month: the product of (1) the number of megawatt hours (if any) during such month that such Reserved Unit was operated at the request of ComEd within the range set forth opposite such Reserved Unit in the following table and (2) the Low Load Charge set forth opposite such Reserved Unit in such table; PROVIDED, HOWEVER, that no Low Load Charge shall be due if, due to a derating (not directed by ComEd), the Reserved Unit is unable to operate above the Low Load Range specified in the table below.
--------------------------------------------------------------- GENERATING UNIT LOAD RANGE LOW LOAD CHARGE (NET MWS) ($ PER MEGAWATT-HOUR) --------------------------------------------------------------- Unit 1 44-78 $15 --------------------------------------------------------------- Unit 2 42-78 15 --------------------------------------------------------------- Unit 3 24chi45 40 45chi79 10 --------------------------------------------------------------- Unit 4 25chi45 40 45chi79 10 --------------------------------------------------------------- Unit 5 25chi45 40 45chi79 10 ---------------------------------------------------------------
(v) ANCILLARY SERVICES. There shall not be any additional charges payable by ComEd or otherwise in respect of the Ancillary Services described in Section 9. (b) MINIMUM TAKE TRUE-UP. The amount otherwise payable under Section 7(a)(ii) in respect of the last month of a Contract Year shall be subject to upward adjustment to reflect the Minimum Take True-Up, if any. 17 (c) ANNUAL SETTLEMENT AMOUNT. ComEd shall pay to Seller, with respect to each Contract Year, the Annual Settlement Amount, if any, for such Contract Year. (d) AGREED UPON ADJUSTMENTS. Seller will reduce ComEd's monthly charges by $1,062,500 for each of the four months September 2000 through December 2000. 8. TESTING Capability evaluations of the Reserved Units may be conducted by ComEd at reasonable intervals. Such evaluations shall consist of a period of one hour during which ComEd may request the Net Dependable Capacity of a Reserved Unit to generate Electric Energy for delivery to the ComEd System. Once a test period has been initiated, it must last one hour unless ComEd and the Station general manager mutually agree to a shorter duration. In addition, ComEd may request not more than once per Contract Year that a Reserved Unit undergo a generating test as specified in Guide No. 3A of MAIN (a copy of which is attached as Appendix C). 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, ComEd shall have the right to retest the affected Reserved Unit upon prior notice to Seller. Seller shall have the right to retest any Reserved Unit after the failure of any test performed at the request of ComEd pursuant to this Section 8. 9. ANCILLARY SERVICES As directed by ComEd, Seller shall provide the following additional services (the "ANCILLARY SERVICES") with respect to the Reserved Capacity (subject to any sale(s) of electric energy made by Seller to third parties to the extent permitted under Section 6(b)(i) or (ii)): (a) Reactive supply and voltage control from generation sources (b) Regulation and frequency response (c) Operating reserve - spinning (d) Operating reserve - supplemental The requirements of these services shall be as stated in ComEd's Open Access Transmission Tariff as filed with FERC, and any other Requirements of Laws and any requirements of MAIN, NERC, any ISO and any successors to the functions thereof. 10. LIMITATION OF LIABILITY 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 (including intentional acts, errors or omissions, negligence, indemnity, strict liability or otherwise). A Party's liability under this 18 Agreement shall be limited to direct, actual damages, and all other damages at law or in equity are waived. Notwithstanding the foregoing provisions of this Section or any other Section hereof, if (i) ComEd dispatches the delivery of Electric Energy from a Reserved Unit in accordance with the provisions hereof (other than during a ComEd Event of Default under Section 14(b)(i)) and Seller fails to provide all of the Electric Energy so dispatched by ComEd, or (ii) if Seller fails to declare a Reserved Unit Available at its Net Dependable Capacity, and, during such failure, Seller sells or provides electric energy from the Reserved Unit to any Person other than ComEd (including Seller but excluding provision or use of electric energy by Seller solely for use at the Station), ComEd shall, in addition to any rights it has to an adjustment of payments otherwise due hereunder or to terminate this Agreement, be entitled to reimbursement by Seller for all of ComEd's out-of-pocket costs related to or resulting from such failure by Seller, including: (w) the costs to purchase and transmit electric energy in substitution for the subject Electric Energy to the extent such costs exceed the costs that would have been due hereunder had, in the case of a failure under clause (i) above, Seller provided the Electric Energy dispatched by ComEd, or the costs to purchase and transmit electric energy in substitution for the Net Dependable Capacity (as set forth in Appendix B) from the subject Reserved Unit to the extent such costs exceed the costs that would have been due hereunder had, in the case of a failure under clause (ii) above, Seller declared such Reserved Unit Available and ComEd had dispatched Electric Energy from such Reserved Unit in each case in an amount inclusive of the electric energy sold to such Person; (x) any and all amounts paid (whether in the form of cash payments, bill credits, tariff adjustments or otherwise) by ComEd to its customers pursuant to statute, tariff, order of a tribunal of competent jurisdiction or other Requirement of Law because ComEd was unable to provide electric energy to any of its customers to the extent that all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller; (y) attorneys', consultants' and witnesses' fees incurred by ComEd in connection with a regulatory or judicial investigation or proceeding of any kind related to or resulting from an inability of ComEd to provide electric energy to any of its customers to the extent that all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller; and (z) any other amounts owed to third parties because of ComEd's inability to deliver electric energy if all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller. 19 In addition, if ComEd is unable to provide electric energy to any customer or third party and all or part of such inability could reasonably have been expected to have been avoided absent such failure by Seller, ComEd will suffer significant damages in addition to its out-of-pocket costs, the quantification of which is difficult to ascertain. Accordingly, if ComEd is unable to provide electric energy to any customer or third party and all or any part such inability could reasonably have been expected to have been avoided absent such failure by Seller, and, during such failure by Seller, Seller sells or provides electric energy from the subject Reserved Unit to any Person other than ComEd (including Seller but excluding provision or use of electric energy by Seller solely for use at the Station), Seller shall pay for each occurrence, in addition to the out-of-pocket costs described above, liquidated damages to ComEd in the amount of $25,000 for each megawatt of Net Dependable Capacity (as set forth in Appendix B) for the relevant Reserved Unit. 11. DISAGREEMENTS (a) ADMINISTRATIVE COMMITTEE PROCEDURE. Except to the extent otherwise provided in Section 5(d), if any disagreement arises on matters concerning this Agreement, the disagreement shall be referred to one representative of each Party, who shall attempt to timely resolve the disagreement. If such representatives can resolve the disagreement, such resolution shall be reported in writing to and shall be binding upon the Parties. If such representatives cannot resolve the disagreement within a reasonable time, or a Party fails to appoint a representative within 10 days of written notice of the existence of a disagreement, then the matter shall proceed to arbitration as provided in Section 11(b). (b) ARBITRATION. If pursuant to Section 11(a), the Parties are unable to resolve a disagreement arising on a matter pertaining to this Agreement, such disagreement shall be settled by arbitration in Chicago, Illinois. The arbitration shall be governed by the United States Arbitration Act (9 U.S.C. Section 1 ET SEQ.), and any award issued pursuant to such arbitration may be enforced in any court of competent jurisdiction. 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. Arbitration shall be conducted as follows: (i) Either Party may give the other Party written notice in sufficient detail of the disagreement and the specific provision of this Agreement under which the disagreement arose. The demand for arbitration must be made within a reasonable time after the disagreement has arisen. In no event may the demand for arbitration be made if the institution of legal or equitable proceedings based on such disagreement is barred by the applicable statute of limitations. Any arbitration related to this Agreement may be consolidated with any other arbitration proceedings related to this Agreement. (ii) 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 days, each shall then appoint one person to serve as an arbitrator and the two 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 20 arbitrators shall determine all matters by majority vote; PROVIDED HOWEVER, if the two arbitrators appointed by the Parties are unable to agree upon the appointment of the third arbitrator within five 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 days thereafter, then either of the Parties upon written notice to the other may require 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. (iii) The Parties shall have sixty days from the appointment of the arbitrator(s) to perform discovery and present evidence and argument to the arbitrator(s). During that period, the arbitrator(s) 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 arbitrator(s) shall use all reasonable means to expedite discovery and to sanction noncompliance with reasonable discovery requests or any discovery order. The arbitrator(s) 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 arbitrator(s) shall have forty-five 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 arbitrator(s) 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 or any right or remedy expressly provided hereunder, or provide any right or remedy that has been expressly excluded hereunder. (v) The arbitrator(s) shall give a written decision to the Parties stating their findings of fact and conclusions of law, and shall furnish to each Party a copy thereof signed by him (them) within five calendar days from the date of their determination. The arbitrator's(s') decision shall be final and binding upon the Parties. (vi) Each Party shall pay the cost of the arbitrator(s) with respect to those issues as to which they do not prevail, as determined by the arbitrator(s). (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 by arbitration as provided in Section 11(b), Seller shall continue to operate the Reserved Units in a manner consistent with the applicable provisions of this Agreement and ComEd shall continue to pay all charges and perform all other obligations required in accordance with the applicable provisions of this Agreement. (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 21 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) 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. 12. ASSIGNMENT; TRANSFER OF STATION (a) ASSIGNMENT. 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 or delayed. Notwithstanding the foregoing, ComEd shall have the right to assign its rights and obligations hereunder without the consent of Seller to (i) any entity that has a net worth of at least $500 million and credit ratings for long-term secured debt from Standard & Poor's Ratings Group of BBB- or higher and from Moody's Investors Service, Inc. of Baa3 or higher or (ii) any affiliate of ComEd. 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 Seller (or any entity or entities directly or indirectly holding a majority of the outstanding voting equity interests of Seller) to any party other than an affiliate controlled by, or under common control with, Seller shall be deemed an assignment of this Agreement. (b) COLLATERAL ASSIGNMENT. Notwithstanding the above, ComEd hereby consents to the assignment by Seller of a security interest in this Agreement to any Lenders; PROVIDED THAT Owner shall have provided notice of any such assignment to ComEd. ComEd further agrees to execute documentation to evidence such consent, PROVIDED it shall have no obligation to waive any of its rights under this Agreement. ComEd 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 in any material respect or terminated (except for termination pursuant to the terms of this Agreement) without the consent of Lenders, which consent as to amendments shall not be unreasonably withheld or delayed, (ii) Lenders shall be given notice of, and a reasonable time period (but in no event more than the time period provided 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 ComEd shall, at Lender's request, 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 (PROVIDED either (i) such proposed assignee is creditworthy and possesses experience and skill in the operation of electric generation plants or (ii) ComEd consents to the assignment to such proposed assignee, which consent shall not be unreasonably withheld (it being understood that ComEd 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 22 Lender(s) shall have no liability under this Agreement except during the period of such Lender(s)' ownership and/or operation of a Station(s), (v) that ComEd shall accept performance in accordance with this Agreement by Lender(s) or its (their) nominee, (vi) that ComEd shall make all payments to an account designated by Lender(s), and (vii) that ComEd shall make representations and warranties to Lender(s) as Lender(s) may reasonably request with regard to (A) ComEd's corporate existence, (B) ComEd's corporate authority to execute, deliver, and perform this Agreement, (C) the binding nature of this Agreement on ComEd, (D) receipt of regulatory approvals by ComEd with respect to its performance under this Agreement, and (E) whether any defaults by Owner are known by ComEd then to exist under this Agreement. (c) TRANSFER OF STATION DURING THE TERM. Prior to the Termination Date, Seller shall not sell or otherwise transfer any interest in the Station to any Person without first obtaining ComEd's written consent, which consent shall not be unreasonably withheld or delayed and may be conditioned upon the transferee's assumption of the obligations of Seller under this Agreement in respect of the Reserved Units. No such assignment shall relieve Seller from its obligations hereunder, unless otherwise agreed to by ComEd in writing. Any such sale or transfer without consent under this Section 12 shall be null and void. 13. TERMINATION BY COMED WITH RESPECT TO CERTAIN UNITS Subject to the notice and other requirements contained in this Section 13, ComEd shall have the right, in its sole discretion, with respect to each of the Third Contract Year, the Fourth Contract Year and the Fifth Contract Year, to terminate this Agreement with respect to any generating unit or units located at the Station (such rights to terminate being referred to herein collectively as "TERMINATION OPTIONS" and individually as a "TERMINATION OPTION"). ComEd may exercise a Termination Option with respect to the Third, Fourth and/or Fifth Contract Years by providing written notice of such exercise to Seller by no later than 90 days before the first day of the applicable Contract Year. Such notice shall contain (i) a statement that ComEd is exercising a Termination Option or Termination Options and (ii) the Contract Year or Contract Years with respect to which the Termination Option or Termination Options being exercised relate. Such termination(s) shall become effective as of the first day of the earliest Contract Year with respect to which such termination(s) relate, and at such time this Agreement shall terminate and be of no further force or effect with respect to the generating unit or units so terminated, PROVIDED THAT, the provisions of Sections 6(e) (Fuel Source and Emissions), 6(f) (Records), 10 (Limitation of Liability), 11 (Disagreements), 14 (Default, Termination and Remedies), and 16 (Indemnification) shall survive such termination(s), and PROVIDED FURTHER, that any such termination(s) shall have no effect on this Agreement as it relates to the generating unit or units that are not terminated in accordance with this Section 13. 14. DEFAULT; TERMINATION AND REMEDIES (a) SELLER'S 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 ComEd in breach of this Agreement, shall constitute an event of default by Seller ("SELLER'S EVENT OF DEFAULT"): 23 (i) Seller fails to pay any sum due from it hereunder on the due date thereof and such failure is not remedied within ten Business Days after receipt of written notice thereof; (ii) Seller shall without reasonable cause abandon or willfully desert the Station for a period in excess of 24 hours; (iii) Seller's Bankruptcy; 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 which failure materially and adversely affects ComEd, and if reasonably capable of remedy, is not remedied within 60 days after ComEd has given written notice to Seller of such failure and requiring its remedy; PROVIDED, HOWEVER, that if such remedy cannot reasonably be cured within such period of 60 days, such failure shall not constitute a Seller's Event of Default if Seller has promptly commenced and is diligently proceeding to cure such default. (b) COMED 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 ComEd ("COMED EVENT OF DEFAULT"): (i) ComEd fails to pay any amount due from it pursuant to Section 7 hereof on the due date thereof and such failure is not remedied within ten Business Days after receipt of written notice thereof; (ii) ComEd fails to pay any sum (other than one set forth in subsection (i) above) due from it hereunder on the due date thereof and such failure is not remedied within fifteen days after Seller has given written notice to ComEd of such failure and requiring its remedy; (iii) ComEd's Bankruptcy; or (iv) ComEd 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 60 days after Seller has given written notice to ComEd of such failure and requiring its remedy; PROVIDED, HOWEVER, that if such remedy cannot reasonably be cured within such period of 60 days, such failure shall not constitute a ComEd Event of Default if ComEd has promptly commenced and is diligently proceeding to cure such default. (c) REMEDIES AND REMEDIES CUMULATIVE. (i) Upon the occurrence and during the continuance of a ComEd Event of Default or a Seller's Event of Default, the non-defaulting party may at its discretion (A) 24 terminate this Agreement upon 30 days prior written notice to the Party in default and (B) exercise any other rights and remedies available at law or in equity. (ii) If a ComEd Event of Default under Section 14(b)(i) has occurred and is continuing, Seller shall have the right to sell the electric energy represented by the Reserved Capacity on a daily basis during the continuance of such ComEd Event of Default to third parties. (d) EXTENDED OUTAGE. ComEd may terminate this Agreement upon thirty days prior written notice to Seller if an outage (including an outage caused by, or resulting from, a Force Majeure Event) at the Station prevents Seller from substantially 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 outage and certifies in writing to ComEd that such outage will end within 300 days of its commencement (and such outage in fact ends within such 300 days), then ComEd may not so terminate this Agreement. (e) TERMINATIONS UNDER SECTION 13. This Agreement shall terminate at such time as all of the generating units located at the Station are terminated by ComEd in accordance with Section 13, PROVIDED THAT, the provisions of Sections 6(e) (Fuel Source and Emissions), 6(f) (Records), 10 (Limitation of Liability), 11 (Disagreements), 14 (Default, Termination and Remedies), and 16 (Indemnification) shall survive such termination. 15. FORCE MAJEURE (a) FORCE MAJEURE EVENT. For the purposes of this Agreement, "FORCE MAJEURE EVENT" means any unforeseeable 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; (iii) strike or other labor dispute; (iv) war, insurrection or riot; (v) acts of, or failure to act by, legislative, judicial or regulatory agencies or officials (collectively, "GOVERNMENTAL ACTION"); and (vi) Change of Law. (b) OBLIGATIONS UNDER FORCE MAJEURE. 25 (i) If the Affected 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, then, during the continuance of such inability, the obligation of such Party to perform the obligations so affected shall be suspended. (ii) The Affected Party 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 shall, with all reasonable dispatch, take all steps reasonably necessary to resume the obligation(s) previously suspended. (iii) Notwithstanding the foregoing, an Affected Party shall not be excused under this Section 15(b) for (x) 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) the performance of obligations that arose prior to the Force Majeure Event. Nothing contained herein shall be construed as requiring an Affected Party to settle any strike, lockout or other labor dispute in which it may be involved. (c) CONTINUED PAYMENT OBLIGATION. A Party's obligation to make payments already owing pursuant to this Agreement shall not be suspended by a Force Majeure Event. (d) AVAILABILITY. Notwithstanding this Section 15, outages or deratings of Reserved Units caused by, or attributable to, Force Majeure Events shall be considered periods that the affected capacity is Unavailable unless such Force Majeure Event is an event described in clause (ii) or (iv) of Section 15(a) (in which case, such affected capacity shall be considered Available at 90% of the Net Dependable Capacity (as set forth in Appendix B) of the affected Reserved Unit(s) for the duration of such Force Majeure Event during a Summer Month and at 75% of such Net Dependable Capacity for the duration of such Force Majeure Event during a Non-Summer Month). 16. REPRESENTATIONS AND WARRANTIES (a) REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby makes the following representations and warranties to ComEd: (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 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 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 Board of Directors or 26 equity holders other than that which has been obtained (evidence of which shall be, if it has not heretofore been, delivered to ComEd). (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. (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. (vi) Seller has all governmental approvals necessary for it to perform its obligations under this Agreement. (b) REPRESENTATIONS AND WARRANTIES OF COMED. ComEd hereby makes the following representations and warranties to Seller: (i) ComEd is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois, 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 ComEd of this Agreement have been duly authorized by all necessary corporate action, and do not and will not require any consent or approval of ComEd's Board of Directors or shareholders other than that which has been obtained (evidence of which shall be, if it has not heretofore been, delivered to Seller). (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 27 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 ComEd 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 ComEd 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 ComEd, threatened action or proceeding affecting ComEd before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. (vi) ComEd has all governmental approvals necessary for it to perform its obligations under this Agreement. 17. 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 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 ComEd under this Agreement shall pass to ComEd at the Point of Delivery. ComEd shall indemnify Seller for liability from Electric Energy once sold and delivered at the Point of Delivery. ComEd shall indemnify Seller for liability from Electric Energy once sold and delivered at such Point of Delivery; and Seller shall indemnify ComEd for liability from Electric Energy prior to its delivery at such Point of Delivery. 18. 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 sent by facsimile, delivered or sent to the address set forth below or such other address as the receiving Party may from time to time designate by written notice: If to ComEd, to: 28 Commonwealth Edison Company Bank One Plaza, 37th Floor 10 South Dearborn Street Chicago, Illinois 60603 Attention: Executive Vice President-Enterprises Facsimile No.: (312) 394-3110 Confirmation No.: (312) 394-3172 with a copy to: Commonwealth Edison Company Law Department Room 1535 125 South Clark Street Chicago, Illinois 60603 Attention: Associate General Counsel- Corporate and Commercial Facsimile No.: (312) 394-3950 Confirmation No.: (312) 394-5400 If to Seller, to: Midwest Generation, LLC One Financial Place -- Suite 3500 440 South LaSalle Street Chicago, Illinois 60605 Attention: President Facsimile No.: (312) 583-6000 Confirmation No.: (312) 583-6111 with a copy to: Edison Mission Marketing & Trading Inc. 160 Federal Street Boston, Massachusetts 02110-1776 Attention: Bulk Power Operations Fax No.: (617) 912-6001 Confirmation No.: (617) 912-6000 and 29 Midwest Generation, LLC One Financial Place -- Suite 3500 440 South LaSalle Street Chicago, Illinois 60605 Attention: General Counsel Fax No.: (312) 583-4917 Confirmation No.: (312) 583-6082 All notices shall be effective when received. 19. CONFIDENTIALITY Each Party agrees that it will treat in confidence all documents, materials and other information marked "Confidential," "Proprietary" or with similar designation 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 any financing or refinancing, or its permitted assignees or transferees; and in the case of ComEd, to its affiliates, or to its counsel, accountants, financial advisors, tax advisors or insurance consultants, or its permitted assignees or transferees). 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. 20. GOVERNING LAW Except as provided in Section 11, this Agreement shall be deemed to be an Illinois contract and shall be construed in accordance with and governed by the laws of Illinois without regard to its conflicts of laws provisions. 21. PARTIAL INVALIDITY Wherever possible, each provision hereof shall be interpreted in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such invalid, illegal or unenforceable provision or provisions or any other provisions hereof, unless such a construction would be unreasonable. In the event that such a construction would be unreasonable or would deprive a Party of a material benefit under this Agreement, the Parties shall seek to amend this Agreement to remove the invalid provision and otherwise provide the benefit unless prohibited by any Requirements of Law. 30 22. WAIVERS The failure of either Party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of a Party thereafter to enforce each and every such provision. A waiver under this Agreement must be in writing and state that it is a waiver. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. 23. COMPETITIVE TRANSITION CHARGE The Parties acknowledge that Seller has satisfied its Competitive Transition Charge (as defined in the Illinois Public Utilities Act) obligations with respect to the Stations by prepayment, which was included in the Purchase Price paid under the Asset Sale Agreement. 24. ENTIRE AGREEMENT AND AMENDMENTS Except as provided in the Asset Sale Agreement and the Interconnection Agreement, 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. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date set forth at the beginning of this Agreement. COMMONWEALTH EDISON COMPANY By: /s/ Paul A. Elbert -------------------------------- Name: Paul A. Elbert Title: Executive Vice President MIDWEST GENERATION, LLC By: /s/ Georgia R. Nelson -------------------------------- Name: Georgia R. Nelson Title: President 31 EX-10.88 21 a2042986zex-10_88.txt EXHIBIT 10.88 Exhibit 10.88 [PEAKING UNITS] POWER PURCHASE AGREEMENT Dated as of December 15, 1999 Between Commonwealth Edison Company and Midwest Generation, LLC Crawford, Fisk, Waukegan, Calumet, Joliet, Bloom, Electric Junction, Sabrooke and Lombard Peaking Units
TABLE OF CONTENTS PAGE ---- 1. Definitions and Interpretation.............................................................1 (a) Definitions.......................................................................1 (b) Interpretation....................................................................9 (c) Legal Representation of Parties..................................................10 (d) Titles and Headings..............................................................10 2. Term......................................................................................10 3. Generating Capacity.......................................................................11 4. Electric Energy Supply....................................................................11 (a) Character........................................................................11 (b) Supply...........................................................................11 (c) Dispatch.........................................................................11 (d) Energy Imbalance.................................................................11 5. Metering; Billing; Payment................................................................12 (a) Metering.........................................................................12 (b) Meter Inaccuracies...............................................................12 (c) Billing..........................................................................12 (d) Billing Disputes.................................................................13 6. Operation of Reserved Units...............................................................13 (a) Standard of Operation............................................................13 (b) Electric Energy Generation.......................................................14 (c) Outages..........................................................................15 (d) Operating Characteristics........................................................17 (e) Fuel Source and Emissions Reports................................................17 (f) Records..........................................................................17 7. Compensation..............................................................................17 (a) Monthly Charges..................................................................17 (b) Minimum Take True-Up.............................................................19 8. Testing...................................................................................19 i PAGE ---- 9. Ancillary Services........................................................................20 10. Limitation of Liability...................................................................20 11. Disagreements.............................................................................22 (a) Administrative Committee Procedure...............................................22 (b) Arbitration......................................................................22 (c) Obligations to Pay Charges and Perform...........................................24 (d) Preliminary Injunctive Relief....................................................24 (e) Settlement Discussions...........................................................24 12. Assignment; Transfer of Reserved Units....................................................25 (a) Assignment.......................................................................25 (b) Collateral Assignment............................................................25 (c) Transfer of Reserved Units during the Term.......................................26 13. Termination by ComEd with respect to Certain Generating Units.............................26 14. Default; Termination and Remedies.........................................................27 (a) Seller's Default.................................................................27 (b) ComEd Default....................................................................27 (c) Remedies and Remedies Cumulative.................................................28 (d) Extended Outage..................................................................28 (e) Terminations Under Section 13....................................................29 15. Force Majeure.............................................................................29 (a) Force Majeure Event..............................................................29 (b) Obligations Under Force Majeure..................................................29 (c) Continued Payment Obligation.....................................................30 (d) Availability.....................................................................30 16. Representations and Warranties............................................................30 (a) Representations and Warranties of Seller.........................................30 (b) Representations and Warranties of ComEd..........................................31 17. Indemnification...........................................................................32 ii PAGE ---- 18. Notices...................................................................................33 19. Confidentiality...........................................................................35 20. Governing Law.............................................................................35 21. Partial Invalidity........................................................................35 22. Waivers...................................................................................36 23. Competitive Transition Charge.............................................................36 24. Entire Agreement and Amendments...........................................................36
APPENDICES Appendix A........Design Limits Appendix B........MAIN Guide Number 3A Appendix C........EO Communications and Guidelines Appendix D........Reporting Forms iii POWER PURCHASE AGREEMENT THIS POWER PURCHASE AGREEMENT (including Appendices, this "AGREEMENT") dated as of December 15, 1999, between COMMONWEALTH EDISON COMPANY, an Illinois corporation ("COMED"), and MIDWEST GENERATION, LLC, a Delaware limited liability company ("SELLER"; ComEd 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, ComEd owns electric facilities and is engaged in the generation, purchase, transmission, distribution and sale of electric energy; and WHEREAS, Seller intends to purchase and thereafter operate ComEd's combustion turbine generation units located at the Crawford, Fisk, Waukegan, Calumet, Joliet, Bloom, Electric Junction, Sabrooke and Lombard sites; and WHEREAS, ComEd desires to receive and purchase, and Seller desires to deliver and sell, electric capacity, energy and other generation-related services; and WHEREAS, ComEd desires to determine the dispatching of such combustion turbine units as provided in this Agreement; 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. "AFFECTED PARTY" has the meaning specified in Section 15(a). "ANCILLARY SERVICES" has the meaning set forth in Section 9. "ASSET SALE AGREEMENT" means the Asset Sale Agreement dated as of March 22, 1999, between ComEd and Seller, governing, among other things, the transfer of the Units from ComEd to Seller. "AVAILABLE" means a state in which a Unit is capable of providing service, whether or not it is actually in service, regardless of the capacity level that can be provided. "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. "BUSINESS DAY" means each weekday (Monday through Friday) except the days on which the following holidays are observed: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. "CAPACITY ADJUSTMENT FACTOR" means, with respect to a month, the factor (rounded to four decimal places) obtained from the following calculation: (1-[Average Unavailable Capacity/Reserved Capacity]) x 100% For purposes of the foregoing, "AVERAGE UNAVAILABLE CAPACITY" means, with respect to such month, the average of the Unavailable Capacity following each dispatch request from the EO Generation Dispatcher to deliver Electric Energy from the Reserved Units; and "UNAVAILABLE CAPACITY" means the capacity (measured in megawatts) which Seller is unable to deliver within the time frames (as measured from the point when the dispatch request is sent to Seller until the time that the Reserved Units are synchronized and achieve the load that the EO Generation Dispatcher requested in the dispatch order for delivery to the ComEd System) specified in the dispatch request for the Reserved Units; PROVIDED that such time frames are not less than the Start Times specified in Appendix A for the aggregate capacity so requested; PROVIDED FURTHER, that Seller may use a Substitute Unit to replace any unavailable Reserved Unit, in which case the capacity provided by such Substitute Unit may be used to offset the unavailable capacity of the Reserved Unit; and PROVIDED FURTHER a Reserved Unit 2 with a ten minute start time may not be used to respond to twenty minute start request. As an example, if Seller is able to deliver only 40 megawatts from a 50 megawatt unit within the specified time frame, 10 megawatts shall be considered Unavailable Capacity. "CHANGE OF LAW" means the adoption, promulgation, modification or reinterpretation of any law, rule, regulation, ordinance, order or other Requirement of Law of any federal, state, county or local government, governmental agency, court, commission, department or other such entity which occurs subsequent to the date of execution of this Agreement but excluding any change in law relating to (i) taxation of net income or (ii) any requirement regarding reduction or control of nitrogen oxide (NOx), carbon dioxide or volatile organic materials under any Requirement of Law. "COMED EVENT OF DEFAULT" has the meaning specified in Section 14(b). "COMED SYSTEM" means the electric transmission and distribution system owned by ComEd and its affiliates. "CONFIDENTIAL INFORMATION" has the meaning specified in Section 19. "CONTRACT YEAR" means, in the case of the First Contract Year, the period beginning on the Effective Date and ending on the day prior to the first anniversary of such beginning date, if the Effective Date is the first day of a calendar month, or ending on the day prior to the first anniversary of the beginning of the month immediately following the Effective Date, if the Effective Date is not the first day of a month; and, in the case of subsequent Contract Years, means the period beginning on the day immediately following the end of the preceding Contract Year and ending on the day prior to the first anniversary of such beginning day. First Contract Year refers to the first such period commencing on the Effective Date; Second Contract Year refers to the second such period; and so on. "DEFAULT RATE" means (i) the "Prime Rate" as published from time to time in the "Money Rates" section of THE WALL STREET JOURNAL, plus (ii) 2.5% (250 basis points) per annum. "DESIGN LIMITS" means, with respect to a Reserved Unit, the items listed in Appendix A with respect to such Reserved Unit. 3 "EFFECTIVE DATE" means the date of this Agreement. "ELECTRIC ENERGY" has the meaning specified in Section 4(a). "EMERGENCY CONDITION" means a condition or situation which (i) in the sole judgment of ComEd (or any ISO) presents an imminent physical threat of danger to life, or significant threat to health or property, (ii) in the sole judgment of ComEd (or any ISO) could cause a significant disruption on or significant damage to the ComEd 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 could cause significant damage to a Reserved Unit (or any material portion thereof) or (iv) in the sole judgment of ComEd could cause significant damage to the equipment located in the switchyard associated with a Reserved Unit (or any material portion of such switchyard). "ENERGY AVAILABILITY ADJUSTMENT FACTOR" means, for a Contract Year, one minus the sum of (i) the number of Summer Months in such Contract Year that the Capacity Adjustment Factor was less than 90%, multiplied by 0.15, plus (ii) the number of Winter Months in such Contract Year that the Capacity Adjustment Factor was less than 85%, multiplied by 0.08, plus (iii) the number of Off-Season Months in such Contract Year that the Capacity Adjustment Factor was less than 80%, multiplied by 0.04. All outage hours and derating attributable to ComEd transmission system problems, outages or stability load restrictions shall be deemed Available Hours. "ENERGY CHARGE" means an amount determined under Section 7(a)(ii) in respect of a month. "EO" means ComEd's Electric Operations Department. "EO GENERATION DISPATCHER" means the Person so designated from time to time by ComEd as contemplated in Appendix C. Notice provisions for the EO Generation Dispatcher are contained in Appendix C. "FERC" means the Federal Energy Regulatory Commission. "FORCE MAJEURE EVENT" has the meaning specified in Section 15(a). 4 "FORCED OUTAGE" means an unplanned component failure (immediate, delayed, postponed, startup failure) or other condition that requires the Unit be removed from service immediately or before the end of the next weekend. "GAS-FIRED RESERVED CAPACITY" means, with respect to a Contract Year, an amount (in megawatts) equal to (i) 643.9 minus (ii) the aggregate peak capacity (as set forth in Appendix A) of all Units identified as gas-fired in Appendix A with respect to which this Agreement has been terminated in accordance with Section 13. "GOVERNMENTAL ACTION" has the meaning specified in Section 15(a). "INTERCONNECTION AGREEMENT" means the Facilities, Interconnection and Easement Agreement dated as of the Effective Date between ComEd and Seller with respect to the Site at which a Reserved Unit is located. "ISO" means any Person that becomes responsible under applicable FERC guidelines for the transmission system to which the Units are connected. "LENDERS" means (i) any person or entity that, from time to time, has made loans to Seller, its permitted successors or permitted assigns for the financing or refinancing of the Reserved Units or which are secured by the Reserved Units, (ii) any holder of such indebtedness, (iii) any trustee on behalf of any such holders or (iv) any Person who purchases a Reserved Unit in connection with a sale-leaseback or other lease arrangement in which the Seller is the lessee of such Reserved Unit pursuant to a net lease. "MAIN" means the Mid-America Interconnected Network. "MAINTENANCE OUTAGE" means the removal of a Unit from service to perform work on specific components that can be deferred beyond the end of the next weekend, but requires the 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. "MINIMUM ENERGY AMOUNT" means, with respect to a Contract Year, the product of (i) 82,607 megawatt hours, multiplied by (ii) a fraction, the numerator 5 of which is the Gas-Fired Reserved Capacity for such Contract Year and the denominator of which is the Peak Capacity. "MINIMUM LOAD" means the "Minimum Operating Level" for a Reserved Unit (below which it cannot operate in a stable manner) as set forth in Appendix A. Minimum Load for a Reserved Unit shall be measured in net megawatts. "MINIMUM TAKE TRUE-UP" means (i) the product of the Minimum Energy Amount for a Contract Year, multiplied by the Energy Availability Adjustment Factor for such Contract Year, multiplied by the megawatt hour charge for gas-fired energy for such Contract Year, as determined from the table in Section 7(a)(ii), less (ii) the aggregate amounts paid or payable by ComEd to Seller under Section 7(a)(ii) in respect of the months (including, in the case of the First Contract Year, any partial month) constituting such Contract Year. "MONTHLY CAPACITY CHARGE" means an amount determined under Section 7(a)(i) in respect of a month. "NERC" means the North American Electric Reliability Council. "NON-SUMMER CAPACITY CHARGE" means (i) $1,200 per megawatt-month during the First through Third Contract Years and (ii) $1,500 per megawatt-month during the Fourth and Fifth Contract Years. "NON-SUMMER CAPACITY PAYMENT" means, for a Non-Summer Month, the sum of the following calculations for each Reserved Unit during such month: the product of (i) the Net Dependable Capacity of such Reserved Unit as set forth in Appendix B, multiplied by (ii) the quotient of (a) the Capacity Adjustment Factor for such month, divided by (b) 100, multiplied by (iii) the Non-Summer Capacity Charge for such month. "NON-SUMMER MONTH" means any month other than a Summer Month. "PEAK CAPACITY" means 1,117.3 megawatts. "OFF-SEASON MONTH" means each month which is neither a Summer Month nor a Winter Month. 6 "PEAK CAPACITY CHARGE" means (i) $16,500 per megawatt-month during the First through Third Contract Years and (ii) $28,500 per megawatt-month during the Fourth and Fifth Contract Years. "PEAK OPERATION BONUS" means, with respect to a Reserved Unit during a month, the value obtained from the following:
PEAKER OPERATION BONUS ---------------------- If such Reserved Unit operated at peak following a dispatch to peak by ComEd (RUPR-RUBC) x Peak Capacity Charge If such Reserved Unit is not dispatched to peak Zero
For purposes of the foregoing, "RUPR" means such Reserved Unit's peak rating during such month; and "RUBC" means such Reserved Unit's Net Dependable Capacity as set forth in Appendix A. "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 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). "POINT OF DELIVERY" means the point of Electric Energy delivery from the Site on which the Reserved Unit is located to the ComEd System specified in the Interconnection Agreement. "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 United States of America during the relevant time period, or any of the practices, methods and acts which, in the 7 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 United States of America. "REQUIREMENT OF LAW" means any foreign, 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. "RESERVED CAPACITY" means, with respect to a Contract Year, an amount (in megawatts) equal to (i) 943.6 megawatts minus (ii) the aggregate Net Dependable Capacity (as set forth in Appendix A) of all Units with respect to which this Agreement has been terminated in accordance with Section 13. "RESERVED UNIT" means each, and "RESERVED UNITS" means all, Units except those Units with respect to which this Agreement has been terminated in accordance with Section 13. "SELLER'S EVENT OF DEFAULT" has the meaning specified in Section 14(a). "SITE" means, with respect to a Reserved Unit, the real property on which such Reserved Unit is located. "SUBSTITUTE UNIT" means a combustion turbine generating unit which is located at the same Site as the Reserved Unit which such unit is proposed to replace and is not a Reserved Unit under this Agreement at the time in question. "SUMMER CAPACITY CHARGE" means (i) $7,600 per megawatt-month during the First through Third Contract Years and (ii) $9,500 per megawatt-month during the Fourth and Fifth Contract Years. "SUMMER CAPACITY PAYMENT" means, for a Summer Month, the sum of the following calculations for each Reserved Unit during such month: the 8 product of (i) the Net Dependable Capacity of such Reserved Unit as set forth in Appendix A, multiplied by (ii) the quotient of (a) the Capacity Adjustment Factor for such month plus ten, divided by (b) 100, multiplied by (iii) the Summer Capacity Charge for such month. "SUMMER MONTH" means each of June, July, August and September. "SUMMER PERIOD" means the period from May 15 through September 15. "TERM" has the meaning specified in Section 2. "TERMINATION DATE" means the earlier of (i) the day immediately preceding the fifth anniversary of the Effective Date if the Effective Date is the first day of a month and otherwise the day immediately preceding the fifth anniversary of the first day of the month immediately following the Effective Date and (ii) the date on which this Agreement is terminated by a Party pursuant to its terms. "UNIT" means a combustion turbine generating unit listed on Appendix A. "WINTER MONTH" means each of January and February. (b) INTERPRETATION. In this Agreement, unless a clear contrary intention appears: (i) the singular includes the plural 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; (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; 9 (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. 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), 6(f) (Records), 10 (Limitation of Liability), 11 (Disagreements), 14 (Default, Termination and Remedies), and 16 (Indemnification) shall survive the termination of this Agreement. 10 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 the Reserved Units during a Contract Year to be not less than the Reserved Capacity for such Contract Year. 4. ELECTRIC ENERGY SUPPLY (a) CHARACTER. All electric energy which Seller shall sell and deliver to ComEd from a Reserved Unit (or a Substitute Unit) hereunder (such electric energy being referred to herein as the "ELECTRIC ENERGY") shall be consistent with the requirements of Section 5.7 of the Interconnection Agreement. (b) SUPPLY. Subject to the terms and conditions of this Agreement, Seller shall make available at the Point of Delivery to ComEd for delivery and sale, and ComEd may receive and purchase from Seller, Electric Energy. If a Reserved Unit is not Available, Seller may use a Substitute Unit to fulfil such obligation. ComEd shall not be obligated to receive or purchase any Electric Energy from Seller except such Electric Energy as is dispatched by ComEd pursuant to Section 4(c). (c) DISPATCH. ComEd may dispatch the delivery of Electric Energy from each Reserved Unit (or Substitute Unit) in accordance with the provisions set forth in Appendix C at a rate up to the Net Dependable Capacity indicated in Appendix A for such Reserved Unit or the Net Dependable Capacity of such Substitute Unit, as the case may be (or such greater or lesser rate as Seller may from time to time declare to be Available in accordance with Section 3 of Appendix C), at any time when such Net Dependable Capacity is so declared by Seller to be Available; although ComEd reserves the right to dispatch such Reserved Unit at a rate up to its peak capacity as set forth in Appendix A. (d) ENERGY IMBALANCE. ComEd shall hold Seller harmless from any energy imbalance charges that result from ComEd's dispatch orders under this Agreement. 11 5. METERING; BILLING; PAYMENT (a) METERING. All Electric Energy delivered by Seller to ComEd from the Reserved Units under this Agreement shall be metered at billing meter installations provided, installed, owned, maintained and tested as provided in Section 5.18 of the Interconnection Agreement. At Sellers option and expense, back-up meters and associated metering equipment independent of the Metering Equipment may be installed at the Sites; and such back-up meters and metering equipment shall be used in accordance with the practices and procedures established by the Parties for billing adjustments of discovered billing meter inaccuracies. Any such back-up meters may be tested by ComEd at Seller's expense, and any inaccuracies shall be handled as provided in Section 5.18 of the Interconnection Agreement. In the event that ComEd's billing meters are not in service, ComEd will use meter information from the meters it uses for dispatch for the period that the billing meters are unavailable and provide the information to Seller. As soon as practicable but in any event no later than five Business Days after the end of each calendar month, ComEd shall provide Seller with information from the billing meter installations for Seller's use in preparing billing statements and Seller shall have the right to witness such meter readings and testing. (b) METER INACCURACIES. ComEd shall provide to Seller copies of all routine meter calibration test results. If any test of the billing meters by ComEd or Seller discloses an inaccuracy of more than 0.5% fast or 0.5% slow, then a billing adjustment shall be made to correct for the inaccuracy. For purpose of the billing adjustment, if the inaccuracy is traceable to a specific event or occurrence at a reasonably ascertainable time, then the adjustment shall extend back to that time; otherwise, it shall be assumed that the error has existed for a period equal to one-half of the time elapsed since the meter was installed or one-half of the time since the last meter test, whichever is later. At any metering location, should the billing meter at any time fail to register, the delivered Electric Energy shall be determined by ComEd from the best available data, unless Seller objects within 30 days. Such disagreements shall be resolved pursuant to Section 11. (c) 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 ComEd for the amounts due in respect of such month under Section 7, which statement shall contain reasonable detail showing the manner in which the Monthly Capacity Charge, Energy Charge, Peak Operation Bonus and any Minimum Take True-Up were determined. 12 Billings for Electric Energy shall be based on ComEd revenue quality meter information or, if such meters are not yet in service, on information from the meters that ComEd uses for dispatch. The amount due to Seller as shown on any such monthly statement rendered by Seller shall be paid by ComEd within fifteen Business Days after the date such statement is rendered to ComEd by electronic means to an account specified by Seller. Any amount not paid when due shall bear interest from the due date until paid at the Default Rate. (d) BILLING DISPUTES. (i) If ComEd questions or contests the amount of any amount claimed by Seller to be due under Section 7 of this Agreement, ComEd 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(d)(ii). (ii) In the event that ComEd, 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 ComEd, within fifteen Business Days following receipt by Seller of such notice from ComEd, of the amount of any error and the amount of any reimbursement that ComEd is entitled to receive in respect of such alleged error. Any disputes not resolved within fifteen Business Days after Seller's receipt of notice from ComEd shall be resolved in accordance with Section 11. Upon determination of the correct amount of any reimbursement, such amount shall be promptly paid by Seller. (iii) Reimbursements made by Seller to ComEd under this Section 5(d) 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 RESERVED UNITS (a) STANDARD OF OPERATION. Consistent with Prudent Utility Practice, Seller shall operate each Reserved Unit in accordance with (i) the applicable 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 maintain all 13 certifications, permits, licenses and approvals necessary to operate and maintain each Reserved Unit and to perform its obligations under this Agreement during the Term. (b) ELECTRIC ENERGY GENERATION. (i) During a Contract Year, ComEd shall have the right to receive and purchase Electric Energy represented by the Reserved Capacity of each Reserved Unit for such Contract Year. To the extent that ComEd has not dispatched the full Reserved Capacity of the Reserved Units and the EO Generation Dispatcher has released such capacity, Seller may sell the electric energy represented by such undispatched Reserved Capacity to third parties; PROVIDED, HOWEVER, that any such sales to third parties shall be cancelable by Seller upon not more than ten minutes notice; PROVIDED FURTHER that Seller shall be responsible for arranging transmission service for any deliveries of electric energy contemplated by any such sales to third parties (it being understood that this Agreement does not grant any rights of access to, or use of, any transmission service); and PROVIDED FURTHER that the delivery of electric energy contemplated by any such sales to third parties shall be in accordance with the provisions of the Interconnection Agreement. Seller shall schedule the sale of any energy so released through EO and shall respond to any recall of such energy by EO within the applicable time period specified in this Section 6(b)(i). No sales of electric energy shall be made to any Person from a Reserved Unit (or any portion thereof) declared by Seller to be not Available. (ii) In the event that a Reserved Unit shall have electric generation capacity in excess of its Net Dependable Capacity set forth in Appendix A, Seller may offer and sell such capacity and associated electric energy to third parties on such terms as Seller shall determine in its sole discretion. Seller shall be responsible for arranging transmission service for any deliveries of electric energy contemplated by any such sales to third parties (it being understood that this Agreement does not grant any rights of access to, or use of, any transmission service); and the delivery of electric energy contemplated by any such sales to third parties shall be in accordance with the provisions of the Interconnection Agreement; and Seller shall schedule the sale of any energy so released through EO and shall respond to any recall of such energy by EO within the applicable time period specified in Section 6(b)(i). It is further understood that, in the event that any such sales to third parties shall be made and there shall be a derating in the associated Reserved Unit, such sales shall be curtailed in full before any 14 curtailment of Electric Energy dispatched by ComEd from such Reserved Unit as a result of such derating. (iii) Seller may not sell Ancillary Services with respect to any undispatched Reserved Capacity referred to in Section 6(b)(i) or with respect to any excess capacity referred to in Section 6(b)(ii). (c) OUTAGES (i) PLANNED OUTAGES. On or prior to the Effective Date, Seller shall submit to ComEd a proposed schedule of Planned Outages (including Planned Deratings) scheduled by Seller for the following three Contract Years for the Reserved Units, which schedule shall be supplemented by Seller every six months following the Effective Date by notice to the EO Generation Dispatcher 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 a Summer Period. Such schedule, and each supplement thereto, shall indicate the planned start and completion dates for each Planned Outage shown during the period covered thereby and the amount of generating capacity that will be affected. Within sixty days of receipt of such schedule or any supplement thereto, ComEd may request reasonable modifications therein. Seller and ComEd shall work together to schedule Planned Outages to meet their mutual requirements; however, it is understood that in the event of a disagreement on such scheduling, ComEd will have the right to resolve such disagreements as it reasonably determines to be appropriate in accordance with Prudent Utility Practice. In addition, ComEd may at any time request, and Seller shall make, changes to such schedule or any such supplement if ComEd deems such changes to be necessary, PROVIDED THAT, Seller shall not be required in connection with any such changes to split a single Planned Outage into more than one outage or to reduce the duration of a Planned Outage; PROVIDED FURTHER that, except for changes requested during the first six months of the Term, such changes do not affect any Planned Outages during the six months immediately following Seller's receipt of such request; and PROVIDED FURTHER, that if Seller reasonably incurs increased costs as a result of ComEd's request to reschedule a Planned Outage, ComEd shall reimburse Seller for the actual, documented increased out-of-pocket costs. At least one week prior to any Planned Outage, Seller shall orally notify the EO Generation Dispatcher of the expected start date of such Planned Outage, the amount of generating capacity at the Reserved Units which will not be available to ComEd during such Planned Outage, and the expected 15 completion date of such Planned Outage. Seller shall orally notify the EO Generation Dispatcher promptly 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, Seller shall notify the EO Generation Dispatcher of such outage and shall plan such outage of generating capacity and use reasonable efforts to accommodate the requirements and service obligations of ComEd. Notice of a proposed Maintenance Outage shall include the expected start date of the outage, the amount of unavailable generating capacity of the Reserved Units and the expected completion date of the outage, and shall be given to ComEd at the time the need for the outage is determined by Seller. ComEd shall promptly respond to such notice and may request reasonable modifications in the schedule for the outage to accommodate the requirements and service obligations of ComEd. Seller shall use reasonable efforts to comply with such requested modifications; and shall, if requested by ComEd, reschedule its Maintenance Outages, PROVIDED THAT it may do so in accordance with Prudent Utility Practice. Seller shall notify the EO Generation Dispatcher promptly of any subsequent changes in such generating capacity not available to ComEd or any subsequent changes in such outage completion date. As soon as practicable, any such notifications given orally shall be confirmed in writing. (iii) FORCED OUTAGES. Seller shall provide to the EO Generation Dispatcher immediately an oral report of any Forced Outage (including Forced Deratings) of the Reserved Units, which report shall include the amount of generating capacity at the Reserved Units unavailable because of such Forced Outage and the expected return date of such generating capacity, and shall update such report by notice to the EO Generation Dispatcher promptly as necessary to advise ComEd of changed circumstances. As soon as practicable, all such oral reports shall be confirmed in writing. (iv) INFORMATION RELATED TO OUTAGES. In addition to the foregoing, Seller shall provide to ComEd information relating to outages of generating capacity at the Reserved Units which would affect Seller's ability to deliver Electric Energy from such Units. 16 (d) OPERATING CHARACTERISTICS. The operating characteristics of each Reserved Unit shall be consistent with the Design Limits for such Reserved Unit set forth in Appendix A 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 by the Parties. Seller shall reduce, curtail or interrupt electrical generation at the Reserved 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 ComEd may be necessary to operate, maintain and protect the ComEd 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 Reserved Units during an Emergency Condition. (e) FUEL SOURCE AND EMISSIONS REPORTS. Seller shall provide ComEd with information concerning Seller's fuel sources and emissions (including carbon dioxide, nitrous oxides and sulfur dioxide emissions) as reasonably requested by ComEd in order to allow ComEd 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. (f) RECORDS. Each Party shall keep and maintain all records as may be necessary or useful in performing or verifying any calculations or charges 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 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 and its agents, including auditors, shall have the right, upon thirty days written notice prior to the end of an applicable three calendar year period to request copies of such records. Each Party shall provide such copies, at the other Party's expense, within thirty days of receipt of such notice or shall make such records available to the other Party and its agents, including auditors, in accordance with the foregoing provisions of this Section. 7. COMPENSATION (a) MONTHLY CHARGES. ComEd shall pay to Seller, in respect of each calendar month during the Term, the following amounts: 17 (i) MONTHLY CAPACITY CHARGE. A Monthly Capacity Charge equal to the Summer Capacity Payment, if such month is a Summer Month, or the Non-Summer Capacity Payment, if such month is a Non-Summer Month; PROVIDED, HOWEVER, if the first month of the First Contract Year is a partial month (as a result of the Effective Date occurring during a month), the amount payable under this Section 7(a)(i) in respect of such partial month shall be prorated by multiplying it by a fraction, the numerator of which is the number of days from the Effective Date through the last day of such month and the denominator of which is the total number of days in such month. (ii) ENERGY CHARGE. An amount equal to the product of (x) the Electric Energy (expressed in megawatt hours) sold to ComEd under this Agreement during such month multiplied by (y) the megawatt hour charge applicable to such Electric Energy as determined from the following table:
OIL-FIRED ENERGY GAS-FIRED ENERGY CONTRACT MEGAWATT HOUR MEGAWATT HOUR YEAR CHARGE ($/MEGAWATT CHARGE ($/MEGAWATT HOUR)(1) HOUR)(2) ============================================================================ 1 $75 $40 2 80 45 3 85 50 4 90 55 5 95 60
---------- (1) Applicable to Fisk, Waukegan and Bloom. (2) Applicable to Crawford, Calumet, Joliet, Electric Junction, Lombard and Sabrooke. (iii) An amount equal to the sum of the following calculations for each Reserved Unit during a given month: the product of (1) the number of megawatt hours during such month that such Reserved Unit is operated at the request of ComEd within the range set forth opposite generating units of the same type as such Reserved Unit (I.E., gas-fired or oil-fired) in the following 18 table, multiplied by (2) the Low Load Charge set forth opposite such unit in the following table; PROVIDED, HOWEVER, that no Low Load Charge shall be due if, due to derating (not directed by ComEd), the Reserved Unit is unable to operate above the Low Load Range specified in the table below.
================================================================================= Peaking Unit Load Range Low Load Charge (Net MWs) ($ per Megawatt-hour) ================================================================================= Gas-Fired(1) 0 - (2 x Minimum Load) $26 Gas-Fired(1) (2 x Minimum Load) - 12 (3.5 x Minimum Load) Oil-Fired(2) 0 - Minimum Load 48 Oil-Fired(2) Minimum Load - 22 (2 x Minimum Load) ---------------------------------------------------------------------------------
(1) Applicable to Crawford, Calumet, Joliet, Electric Junction, Lombard and Sabrooke. (2) Applicable to Fisk, Waukegan and Bloom. (iv) PEAK OPERATION BONUS. An amount equal to the Peak Operation Bonus, if any, in respect of the Reserved Units. (v) ANCILLARY SERVICES. There shall not be any additional charges payable by ComEd or otherwise in respect of the Ancillary Services described in Section 9. (b) MINIMUM TAKE TRUE-UP. The amount otherwise payable under Section 7(a)(ii) in respect of the last month of a Contract Year shall be subject to upward adjustment to reflect the Minimum Take True-Up, if any. 8. TESTING Capability evaluations of the Reserved Units may be conducted by ComEd at reasonable intervals. Such evaluations shall consist of a period of one hour during which ComEd may request the Net Dependable Capacity of a Reserved Unit (as set forth in Appendix A) to generate Electric Energy for delivery to the ComEd System. Once a test period has been initiated, it must last one hour unless ComEd and the 19 general manager for the Reserved Units mutually agree to a shorter duration. In addition, ComEd may request not more than once per Contract Year that a Reserved Unit undergo a generating test as specified in Guide No. 3A 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, ComEd shall have the right to retest the affected Reserved Unit upon prior notice to Seller. Seller shall have the right to retest any Reserved Unit after the failure of any test performed at the request of ComEd pursuant to this Section 8. 9. ANCILLARY SERVICES As directed by ComEd, Seller shall provide the following additional services (the "ANCILLARY SERVICES") with respect to the Reserved Capacity: (a) Reactive supply and voltage control from generation sources (b) Regulation and frequency response (c) Operating reserve - spinning (d) Operating reserve - supplemental The requirements of these services shall be as stated in ComEd's Open Access Transmission Tariff as filed with FERC, and any requirements of MAIN, NERC, any ISO and any successors to the functions thereof. 10. LIMITATION OF LIABILITY 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 (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. Notwithstanding the foregoing provisions of this Section or any other Section hereof, if 20 (i) ComEd dispatches the delivery of Electric Energy from a Reserved Unit in accordance with the provisions hereof (other than during a ComEd Event of Default under Section 14(b)(i)) and Seller fails to provide the Electric Energy so dispatched by ComEd, or (ii) if Seller falls to declare a Reserved Unit Available at its Net Dependable Capacity (as set forth in Appendix A), and, during such failure, Seller sells or provides electric energy from the Reserved Unit to any Person other than ComEd (including Seller but excluding provision or use of electric energy by Seller solely for use at the Site), ComEd shall, in addition to any rights it has to an adjustment of payments otherwise due hereunder or to terminate this Agreement, be entitled to reimbursement by Seller for all of ComEd's out-of-pocket costs related to or resulting from such failure by Seller, including: (w) the costs to purchase and transmit electric energy in substitution for the subject Electric Energy to the extent such costs exceed the costs that would have been due hereunder had, in the case of a failure under clause (i) above, Seller provided the Electric Energy dispatched by ComEd, or the costs to purchase and transmit electric energy in substitution for the Net Dependable Capacity (as set forth in Appendix A) from the subject Reserved Unit to the extent such costs exceed the costs that would have been due hereunder had, in the case of a failure under clause (ii) above, Seller declared such Reserved Unit Available and ComEd had dispatched Electric Energy from such Reserved Unit in each case in an amount inclusive of the electric energy sold to such Person; (x) any and all amounts paid (whether in the form of cash payments, bill credits, tariff adjustments or otherwise) by ComEd to its customers pursuant to statute, tariff or order of a tribunal of competent jurisdiction or other Requirement of Law because ComEd was unable to provide electric energy to any of its customers to the extent that all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller; (y) attorneys', consultants' and witnesses' fees incurred by ComEd in connection with a regulatory or judicial investigation or proceeding of any kind related to or resulting from an inability of ComEd to provide electric energy to any of its customers to the extent that all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller; and 21 (z) any other amounts owed to third parties because of ComEd's inability to deliver electric energy if all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller. In addition, if ComEd is unable to provide electric energy to any customer or third party and all or part of such inability could reasonably have been expected to have been avoided absent such failure by Seller, ComEd will suffer significant damages in addition to its out-of-pocket costs, the quantification of which is difficult to ascertain. Accordingly, if ComEd is unable to provide electric energy to any customer or third party and all or any part of such inability could reasonably have been expected to have been avoided absent such failure by Seller, and, during such failure by Seller, Seller sells or provides electric energy from the subject Reserved Unit to any person other than ComEd (including Seller but excluding provision or use of electric energy by Seller solely for use at the Site), Seller shall pay for each occurrence, in addition to the out-of-pocket costs described above, liquidated damages to ComEd in the amount of $25,000 for each megawatt of Net Dependable Capacity (as set forth in Appendix A) for the relevant Reserved Unit. 11. DISAGREEMENTS. (a) ADMINISTRATIVE COMMITTEE PROCEDURE. Except to the extent otherwise provided in Section 5(d), if any disagreement arises on matters concerning this Agreement, the disagreement shall be referred to one representative of each Party, who shall attempt to timely resolve the disagreement. If such representatives can resolve the disagreement, such resolution shall be reported in writing to and shall be binding upon the Parties. If such representatives cannot resolve the disagreement within a reasonable time, or a Party fails to appoint a representative within 10 days of written notice of the existence of a disagreement, then the matter shall proceed to arbitration as provided in Section 11(b). (b) ARBITRATION. If pursuant to Section 11(a), the Parties are unable to resolve a disagreement arising on a matter pertaining to this Agreement, such disagreement shall be settled by arbitration in Chicago, Illinois. The arbitration shall be governed by the United States Arbitration Act (9 U.S.C. Section 1 ET SEQ.), and any award issued pursuant to such arbitration may be enforced in any court of competent jurisdiction. 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 22 be filed in writing with the other Party to this Agreement. Arbitration shall be conducted as follows: (i) Either Party may give the other Party written notice in sufficient detail of the disagreement and the specific provision of this Agreement under which the disagreement arose. The demand for arbitration must be made within a reasonable time after the disagreement has arisen. In no event may the demand for arbitration be made if the institution of legal or equitable proceedings based on such disagreement is barred by the applicable statute of limitations. Any arbitration related to this Agreement may be consolidated with any other arbitration proceedings related to this Agreement. (ii) 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 days, each shall then appoint one person to serve as an arbitrator and the two 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 arbitrators shall determine all matters by majority vote; PROVIDED HOWEVER, if the two arbitrators appointed by the Parties are unable to agree upon the appointment of the third arbitrator within five 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 days thereafter, then either of the Parties upon written notice to the other may require 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. (iii) The Parties shall have sixty days from the appointment of the arbitrator(s) to perform discovery and present evidence and argument to the arbitrator(s). During that period, the arbitrator(s) 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 arbitrator(s) shall use all reasonable means to expedite discovery and to sanction noncompliance with reasonable discovery requests or any discovery order. The arbitrator(s) 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 arbitrator(s) shall have forty-five calendar days 23 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 arbitrator(s) 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 or any right or remedy expressly PROVIDED HEREUNDER, or provide any right or remedy that has been expressly excluded hereunder. (v) The arbitrator(s) shall give a written decision to the Parties stating their findings of fact and conclusions of law, and shall furnish to each Party a copy thereof signed by him (them) within five calendar days from the date of their determination. The arbitrator's(s') decision shall be final and binding upon the Parties. (vi) Each Party shall pay the cost of the arbitrator(s) with respect to those issues as to which they do not prevail, as determined by the arbitrator(s). (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 by arbitration as provided in Section 11(b), Seller shall continue to operate the Reserved Units in a manner consistent with the applicable provisions of this Agreement and ComEd shall continue to pay all charges and perform all other obligations required in accordance with the applicable provisions of this Agreement. (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) 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 24 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 written statements and offers of settlement, and all copies thereof, shall be promptly returned to the Party providing the same. 12. ASSIGNMENT; TRANSFER OF RESERVED UNITS (a) ASSIGNMENT. 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 or delayed. Notwithstanding the foregoing, ComEd shall have the right to assign its rights and obligations hereunder without the consent of Seller to (i) any entity that has a net worth of at least $500 million and credit ratings for long-term secured debt from Standard & Poor's Ratings Group of BBB- or higher and from Moody's Investors Service, Inc. of Baa3 or higher or (ii) any affiliate of ComEd. 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 Seller (or any entity or entities directly or indirectly holding a majority of the outstanding voting equity interests of Seller) to any party other than an affiliate controlled by, or under common control with, Seller shall be deemed an assignment of this Agreement. (b) COLLATERAL ASSIGNMENT. Notwithstanding the above, ComEd hereby consents to the assignment by Seller of a security interest in this Agreement to any Lenders; PROVIDED that Owner shall have provided notice of any such assignment to ComEd. ComEd further agrees to execute documentation to evidence such consent, PROVIDED it shall have no obligation to waive any of its rights under this Agreement. ComEd 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 in any material respect or terminated (except for termination pursuant to the terms of this Agreement) without the consent of Lenders, which consent as to amendments shall not be unreasonably withheld or delayed, (ii) Lenders shall be given notice of, and a reasonable time period (but in no event more than the time period provided 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 ComEd shall, at Lender's request, 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 (PROVIDED either (i) such proposed assignee is creditworthy and possesses experience and skill in the operation of electric generation plants or (ii) ComEd consents 25 to the assignment to such proposed assignee, which consent shall not be unreasonably withheld (it being understood that ComEd 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 a Reserved Unit(s), (v) that ComEd shall accept performance in accordance with this Agreement by Lender(s) or its (their) nominee, (vi) that ComEd shall make all payments to an account designated by Lender(s), and (vii) that ComEd shall make representations and warranties to Lender(s) as Lender(s) may reasonably request with regard to (A) ComEd's corporate existence, (B) ComEd's corporate authority to execute, deliver, and perform this Agreement, (C) the binding nature of this Agreement on ComEd, (D) receipt of regulatory approvals by ComEd with respect to its performance under this Agreement, and (E) whether any defaults by Owner are known by ComEd then to exist under this Agreement. (c) TRANSFER OF RESERVED UNITS DURING THE TERM. Prior to the Termination Date, Seller shall not sell or otherwise transfer any interest in the Reserved Units to any Person without first obtaining ComEd's written consent, which consent shall not be unreasonably withheld or delayed and may be conditioned upon the transferee's assumption of the obligations of Seller under this Agreement in respect of the Reserved Units. No such assignment shall relieve Seller from its obligations hereunder, unless otherwise agreed to by ComEd in writing. Any such sale or transfer without consent under this Section 12 shall be null and void. 13. TERMINATION BY COMED WITH RESPECT TO CERTAIN GENERATING UNITS Subject to the notice and other requirements contained in this Section 13, ComEd shall have the right, in its sole discretion, with respect to each of the Third Contract Year, the Fourth Contract Year and the Fifth Contract Year to terminate this Agreement with respect to any of the Units (such rights to terminate being referred to herein collectively as "TERMINATION OPTIONS" and individually as a "TERMINATION OPTION"). ComEd may exercise a Termination Option with respect to the Third, Fourth and/or Fifth Contract Years by providing written notice of such exercise to Seller by no later than 90 days before the first day of the applicable Contract Year. Such notice shall contain (i) a statement that ComEd is exercising a Termination Option or Termination Options and (ii) the Contract Year or Contract Years with respect to which the Termination Option or Termination Options being exercised relate. Such termination(s) shall become effective as of the first day of the earliest Contract Year with respect to which such termination(s) relate, and at such time this Agreement shall terminate and 26 be of no further force or effect with respect to the Units so terminated, PROVIDED THAT, the provisions of Sections 6(e) (Fuel Source and Emissions), 6(f) (Records), 10 (Limitation of Liability), 11 (Disagreements), 14 (Default, Termination and Remedies), and 16 (Indemnification) shall survive such termination(s), and PROVIDED FURTHER, that any such termination(s) shall have no effect on this Agreement as it relates to the Units that are not terminated in accordance with this Section 13. 14. DEFAULT; TERMINATION AND REMEDIES. (a) SELLER'S 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 ComEd in breach of this Agreement, shall constitute an event of default by Seller ("SELLER'S 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 ten Business Days after receipt of written notice thereof; (ii) Seller shall without reasonable cause abandon or wilfully desert for a period in excess of 24 hours whatever control center is responsible for receiving dispatch orders from ComEd with respect to the Reserved Units; (iii) Seller's Bankruptcy; 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 which failure materially and adversely affects ComEd, and if reasonably capable of remedy, is not remedied within 60 days after ComEd has given written notice to Seller of such failure and requiring its remedy; PROVIDED, HOWEVER, that if such remedy cannot reasonably be cured within such period of 60 days, such failure shall not constitute a Seller's Event of Default if Seller has promptly commenced and is diligently proceeding to cure such default. (b) COMED 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 ComEd ("COMED EVENT OF DEFAULT"): 27 (i) ComEd fails to pay any amount due from it pursuant to Section 7 hereof on the due date thereof and such failure is not remedied within ten Business Days after receipt of written notice thereof; (ii) ComEd fails to pay any sum (other than one set forth in subsection (i) above) due from it hereunder on the due date thereof and such failure is not remedied within fifteen days after Seller has given written notice to ComEd of such failure and requiring its remedy; (iii) ComEd's Bankruptcy; or (iv) ComEd 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 60 days after Seller has given written notice to ComEd of such failure and requiring its remedy; PROVIDED, HOWEVER, that if such remedy cannot reasonably be cured within such period of 60 days, such failure shall not constitute a ComEd Event of Default if ComEd has promptly commenced and is diligently proceeding to cure such default. (c) REMEDIES AND REMEDIES CUMULATIVE. (i) Upon the occurrence and during the continuance of a ComEd Event of Default or a Seller's Event of Default, the non- defaulting party may at its discretion (A) terminate this Agreement upon 30 days prior written notice to the Party in default and (B) exercise any other rights and remedies available at law or in equity. (ii) If a ComEd Event of Default under Section 14(b)(i) has occurred and is continuing, Seller shall have the right to sell the electric energy represented by the Reserved Capacity on a daily basis during the continuance of such ComEd Event of Default to third parties. (d) EXTENDED OUTAGE. ComEd may terminate this Agreement upon thirty days prior written notice to Seller if an outage (including an outage caused by, or resulting from, a Force Majeure Event) at the Reserved Units prevents Seller from substantially 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 outage and certifies in writing to 28 ComEd that such outage will end within 300 days of its commencement (and such outage in fact ends within such 300 days), then ComEd may not so terminate this Agreement. (e) TERMINATIONS UNDER SECTION 13. This Agreement shall terminate at such time as all of the Units are terminated by ComEd in accordance with Section 13. 5. FORCE MAJEURE (a) FORCE MAJEURE EVENT. For the purposes of this Agreement, "FORCE MAJEURE EVENT" means any unforeseeable 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; (iii) strike or other labor dispute; (iv) war, insurrection or riot; (v) acts of, or failure to act by, legislative, judicial or regulatory agencies or officials (collectively, "GOVERNMENTAL ACTION"); and (vi) Change of Law. (b) OBLIGATIONS UNDER FORCE MAJEURE. (i) If the Affected 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, then, during the continuance of such inability, the obligation of such Party to perform the obligations so affected shall be suspended. (ii) The Affected Party shall give written notice of such Force Majeure Event to the other Party as soon as practicable after such event occurs, 29 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 shall, with all reasonable dispatch, take all steps reasonably necessary to resume the obligation(s) previously suspended. (iii) Notwithstanding the foregoing, an Affected Party shall not be excused under this Section 15(b) for (x) 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) the performance of obligations that arose prior to the Force Majeure Event. Nothing contained herein shall be construed as requiring an Affected Party to settle any strike, lockout or other labor dispute in which it may be involved. (c) CONTINUED PAYMENT OBLIGATION. A Party's obligation to make payments already owing pursuant to this Agreement shall not be suspended by a Force Majeure Event. (d) AVAILABILITY. Notwithstanding this Section 15, outages or deratings of Reserved Units caused by, or attributable to, Force Majeure Events shall be considered periods that the affected capacity is Unavailable unless such Force Majeure Event is an event described in clause (ii) or (iv) of Section 15(a) (in which case, such affected capacity shall be considered Available at a Capacity Adjustment Factor of 90 for the Summer Months and 100 for the Non-Summer Months). 6. REPRESENTATIONS AND WARRANTIES (a) REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby makes the following representations and warranties to ComEd: (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 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. 30 (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 Board of Directors or equity holders other than that which has been obtained (evidence of which shall be, if it has not heretofore been, delivered to ComEd). (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. (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. (vi) Seller has all governmental approvals necessary for it to perform its obligations under this Agreement. (b) REPRESENTATIONS AND WARRANTIES OF COMED. ComEd hereby makes the following representations and warranties to Seller: (i) ComEd is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois, 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. 31 (ii) The execution, delivery and performance by ComEd of this Agreement have been duly authorized by all necessary corporate action, and do not and will not require any consent or approval of ComEd's Board of Directors or shareholders other than that which has been obtained (evidence of which shall be, if it has not heretofore been, delivered to Seller). (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 ComEd 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 ComEd 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 ComEd, threatened action or proceeding affecting ComEd before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. (vi) ComEd has all governmental approvals necessary for it to perform its obligations under this Agreement. 7. 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 caused by the gross negligence or wilful misconduct of the indemnifying Party that arise out of or are in any manner connected with the performance of this Agreement, 32 except to the extent such injury or damage is attributable to the gross negligence or wilful misconduct of, or breach of this Agreement by, the Party seeking indemnification hereunder. Title, and all risk relating to, all Electric Energy purchased by ComEd under this Agreement from a Reserved Unit shall pass to ComEd at the Point of Delivery for such Reserved Unit. ComEd shall indemnify Seller for liability from Electric Energy once sold and delivered at such Point of Delivery; and Seller shall indemnify ComEd for liability from Electric Energy prior to its delivery at such Point of Delivery. 8. 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 as the receiving Party may from time to time designate by written notice: If to ComEd, to: Commonwealth Edison Company One First National Plaza, 37th Floor 10 South Dearborn Street Chicago, Illinois 60603 Attention: Senior Vice President-Transmission Facsimile No.: (312) 394-3110 Confirmation No.: (312) 394-3172 with a copy to: Commonwealth Edison Company Law Department Room 1535 125 South Clark Street Chicago, Illinois 60603 Attention: Associate General Counsel- Corporate and Commercial Facsimile No.: (312) 394-3950 Confirmation No.: (312) 394-5400 33 If to Seller, to: Midwest Generation, LLC One Financial Place - Suite 3500 440 South LaSalle Street Chicago, Illinois 60605 Attention: President Facsimile No.: (312) 583-6000 Confirmation No.: (312) 583-6111 with copies to: Edison Mission Marketing & Trading Inc. 18101 Von Karman Avenue - Suite 1700 Irvine, California 92612 Attention: Bulk Power Operations Fax No.: (949) 798-7425 Confirmation No.: (949) 798-7421 and Edison Mission Energy 18101 Von Karman Avenue - Suite 1700 Irvine, California 92612 Attention: General Counsel Fax No.: (949) 757-0807 Confirmation No.: (949) 798-7902 and Edison Mission Energy 18101 Von Karman Avenue - Suite 1700 Irvine, California 92612 Attention: Assistant General Counsel Fax No.: (949) 757-0807 Confirmation No.: (949) 798-7937 All notices shall be effective when received. 34 9. CONFIDENTIALITY Each Party agrees that it will treat in confidence all documents, materials and other information marked "Confidential," "Proprietary" or with a similar designation 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 any financing or refinancing, or its permitted assignees or transferees; and in the case of ComEd, to its affiliates, or to its counsel, accountants, financial advisors, tax advisors or insurance consultants, or its permitted assignees or transferees). 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. 10. GOVERNING LAW Except as provided in Section 11, this Agreement shall be deemed to be an Illinois contract and shall be construed in accordance with and governed by the laws of Illinois without regard to its conflicts of laws provisions. 11. PARTIAL INVALIDITY Wherever possible, each provision hereof shall be interpreted in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such invalid, illegal or unenforceable provision or provisions or any other provisions hereof, unless such a construction would be unreasonable. In the event that such a construction would be unreasonable or would deprive a Party of a material benefit under this Agreement, the Parties shall seek to amend this Agreement to remove the invalid provision and otherwise provide the benefit unless prohibited by any Requirements of Law. 35 12. WAIVERS The failure of either Party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of a Party thereafter to enforce each and every such provision. A waiver under this Agreement must be in writing and state that it is a waiver. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. 13. COMPETITIVE TRANSITION CHARGE. The Parties acknowledge that Seller has satisfied its Competitive Transition Charge (as defined in the Illinois Public Utilities Act) obligations with respect to the Sites by prepayment, which was included in the Purchase Price paid under the Asset Sale Agreement. 14. ENTIRE AGREEMENT AND AMENDMENTS Except as provided in the Asset Sale Agreement and the Interconnection Agreement, 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. 36 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date set forth at the beginning of this Agreement. COMMONWEALTH EDISON COMPANY By: /s/ Robert J. Manning --------------------------------- Name: Robert J. Manning Title: Executive Vice President MIDWEST GENERATION, LLC By: /s/ Georgia R. Nelson --------------------------------- Name: Georgia R. Nelson Title: President 37 Peaking Units Power Purchase Agreement Appendices ----------------------------------------------------------------------- APPENDIX A DESIGN LIMITS The Design Limits listed below shall be applicable to any dispatch of the combustion turbine units by ComEd:
================================================================================================================== Minimum Fuel Peak Net Minimum Time Ramp Peaker Type Capacity Dependable Operating Start Time Between Rate (MW) Capacity Level (minutes) Dispatched (MW/ (MW)(1) (NetMW) Starts (Hours)(2) minute) ================================================================================================================== ASSET GROUP A: - ------------------------------------------------------------------------------------------------------------------ Crawford 31 Gas/Oil 55.9 42 8 20 2 12.8 - ------------------------------------------------------------------------------------------------------------------ Crawford 32 Gas/Oil 57.5 39.8 8 20 2 12.8 - ------------------------------------------------------------------------------------------------------------------ Crawford 33 Gas/Oil 56 39.1 8 20 2 12.8 - ------------------------------------------------------------------------------------------------------------------ Fisk 31 Oil 49.1 41.8 15 10 1 26 - ------------------------------------------------------------------------------------------------------------------ Fisk 32 Oil 50.8 43.2 15 10 1 26 - ------------------------------------------------------------------------------------------------------------------ Fisk 33 Oil 49.1 39.4 15 10 1 26 - ------------------------------------------------------------------------------------------------------------------ Fisk 34 Oil 48.2 38.6 15 10 1 26 - ------------------------------------------------------------------------------------------------------------------ Waukegan 3l Oil 53.1 45.1 15 10 1 26 - ------------------------------------------------------------------------------------------------------------------ Waukegan 32 Oil 55.2 46.9 15 10 1 26 - ------------------------------------------------------------------------------------------------------------------ Calumet 3l Gas/Oil 55.9 48.5 8 20 2 12.8 - ------------------------------------------------------------------------------------------------------------------ Calumet 33 Gas/Oil 41.7 37.7 8 20 2 9.6 - ------------------------------------------------------------------------------------------------------------------ Calumet 34 Gas/Oil 50.9 42.9 8 20 2 12.8 - ------------------------------------------------------------------------------------------------------------------ ASSET GROUP B: - ------------------------------------------------------------------------------------------------------------------ Joliet 31 Gas/Oil 58.9 51.2 8 20 2 12.8 - ------------------------------------------------------------------------------------------------------------------ Joliet 32 Gas/Oil 56.8 49.9 8 20 2 12.8 - ------------------------------------------------------------------------------------------------------------------ A-1 Peaking Units Power Purchase Agreement Appendices ----------------------------------------------------------------------- ================================================================================================================== Minimum Fuel Peak Net Minimum Time Ramp Peaker Type Capacity Dependable Operating Start Time Between Rate (MW) Capacity Level (minutes) Dispatched (MW/ (MW)(1) (NetMW) Starts (Hours)(2) minute) ================================================================================================================== OFF-SITE: - ------------------------------------------------------------------------------------------------------------------ Bloom 33 Oil 24.1 21.9 Base 20 2 N/A - ------------------------------------------------------------------------------------------------------------------ Bloom 34 Oil 26 22.8 Base 20 2 N/A - ------------------------------------------------------------------------------------------------------------------ Electric Junction 31 Gas/Oil 59.4 53 8 20 2 12.8 - ------------------------------------------------------------------------------------------------------------------ E1ectric Junction 32 Gas/Oil 59.2 52.8 8 20 2 12.8 - ------------------------------------------------------------------------------------------------------------------ Electric Junction 33 Gas/Oil 59.2 52.8 8 20 2 12.8 - ------------------------------------------------------------------------------------------------------------------ Sabrooke 31 Gas/Oil 25.2 22.2 Base 20 2 N/A - ------------------------------------------------------------------------------------------------------------------ Sabrooke 32 Gas/Oil 24.9 17.7 Base 20 2 N/A - ------------------------------------------------------------------------------------------------------------------ Sabrooke 33 Gas/Oil 23.8 19.9 Base 20 2 N/A - ------------------------------------------------------------------------------------------------------------------ Sabrooke 34 Gas/Oil 12.5 10.5 Base 20 2 N/A - ------------------------------------------------------------------------------------------------------------------ Lombard 32 Gas/Oil 31.5 31.5 4 10 1 13 - ------------------------------------------------------------------------------------------------------------------ Lombard 33 Gas/Oil 32.4 32.4 4 10 1 13 ==================================================================================================================
(1) Summer net megawatts. (2) Except during an Emergency Condition affecting the ComEd System and for instances where ComEd and Seller agree on a price to induce Seller to cycle a unit under the indicated time. A-2 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- APPENDIX B MAIN GUIDE NUMBER 3A 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. 1. 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 B-1 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- of reports or other information for industry organizations, news media, and governmental agencies. 2. 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 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. 3. 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-2 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- (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: (i) 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. (ii) 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. B-3 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- 4. Testing Procedures to Demonstrate Capability (a) General Procedure for Testing (i) 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. (ii) 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. (iii) 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. (iv) 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 (i) 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. (ii) 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 B-4 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- 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 (i) 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. (ii) 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. (iii) 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 (i) The test period for hydro-electric units, including pumped-hydro units, will be not less than one hour. (ii) 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. B-5 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- 5. 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: (i) A letter identifying those units whose rating has not changed, showing the dates of latest tests confirming capabilities. (ii) Completely revised forms (Form A and B-1, B-2, or B-3) for units on which a change has occurred. (iii) 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 B-6 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- 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-7 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- APPENDIX C EO 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 ComEd, (ii) to establish the nature and content of communications relating to availability of the Reserved 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 as well as transmission system security and stability. 2. COMMUNICATIONS LINK. The Parties shall establish and maintain dedicated telephone lines for the dispatch of the Reserved Units. Seller will notify EO as soon as possible of any disruption or unavailability of the dedicated telephone lines or standard telephone lines. ComEd shall also establish and maintain a radio system for communications, which radio system shall be used in the event that the aforementioned communications methods are unavailable. Seller shall cooperate in performing periodic tests of the radio system as from time to time directed by the EO Dispatcher. Seller shall notify EO promptly of any problems with said radio system. (a) Telephone numbers are set forth below for the indicated persons: EO Generation Dispatcher (630) 691-4744 EO Transmission Dispatcher (630) 691-4772 EO Operation Supervisor (630) 691-4730 EO Generation Dispatch Supervisor (630) 691-4693 EO facsimile transmission number (630) 691-4899 The alternate office for EO will be used as a backup in the event that the normal office of EO is not operational. The telephone numbers of the alternate office are (815) 727-5902, 5903, and the facsimile transmission number is (815) 727-5745. 3. CONTENT OF COMMUNICATIONS. To the extent that events are known or anticipated, Seller shall provide to the EO Generation Dispatcher information regarding the availability of the Reserved Units, including information regarding the following matters: C-1 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- (i) conditions, issues or events which may affect the output or reliability of the Reserved Units; (ii) time of day (based on a twenty-four hour clock) when a Reserved Unit is placed on the line and taken off the line; (iii) changes of rated capacity of a Reserved Unit, when it is known that such changes have taken place or will take place; (iv) Reserved 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) the availability, or lack of availability, of remote controls on a Reserved Unit and the times in which such controls will, or will not, be available and the reason for such limitations; (vi) conditions at the Site or of a Reserved Unit that could affect the present or anticipated capability of a Reserved Unit, including problems related to fuel, fires, loss of essential equipment and opacity excedences; (vii) when required testing or other operational work could limit the availability or maneuverability of a Reserved Unit; (viii) Seller's desire to declare a Substitute Unit to replace Unavailable Capacity, including the capacity and schedule of energy and ramping ability; and (ix) Seller's desire to request the release of energy from undispatched on-line capacity of a Reserved Unit or an off-line Reserved Unit under the circumstances provided in Section 6(b)(i) of this Agreement. As it becomes available or anticipated, such information shall be made available to the EO Generation Dispatcher. 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 the EO Generation Dispatch Supervisor. C-2 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- (a) Seller shall use the forms attached as Appendix D for the purpose of reporting Reserved Unit capability, ramp rates, oil storage inventory, outages and deratings. Such forms consist of the following elements and shall be completed and transmitted by facsimile transmission to the EO Generation Dispatcher: (i) Form "Page 1," "[Location] Generation Offer Sheet," is the cover sheet to be used for all facsimile transmissions; and (ii) Form "Page 2," "Generation Capability," is the sheet to be used to report with respect to each Reserved Unit (1) its net generating capability for the twenty-four period beginning 12:00 a.m., Midnight (0000 hours) (Chicago time) the following day and (2) derating and outage information, which sheet shall be completed and transmitted daily by 11:00 p.m. (2300 hours) (Chicago time). ComEd shall acknowledge receipt of any such facsimile transmissions by signing the "Page 1" cover sheet 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 ComEd for at least 36 months, after which they may be destroyed. (b) Seller shall provide information regarding Reserved Unit availability by telephone on a daily basis to ComEd's Wholesale Energy Trading Organization. 4. DISPATCH: OPERATIONS. The EO Generation Dispatcher shall issue dispatch orders on behalf of ComEd, which orders shall be given by the EO Generation Dispatcher to Seller. Following receipt by Seller of any such order, Seller shall repeat back the content of such order to the EO Generation Dispatcher to confirm receipt and understanding of such order. (a) Seller shall perform the following tasks in order to assist in meeting the dispatch needs of the ComEd System: (i) maintain generating control systems and subsystems enabling the Reserved Units to synchronize and ramp to the generation levels as ordered by the EO Generation Dispatcher in the time durations and at the rates as set forth in Appendix A; C-3 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- (ii) to the extent that the remote control capability identified in Section 3(a)(v) is unavailable, Seller shall arrange to man each such affected site, as requested by the EO Generation Dispatcher, with operating personnel to operate the site; (iii) operate the Reserved Units at generation levels as requested by the EO Generation Dispatcher, and Seller shall promptly notify the EO Generation Dispatcher if the Reserved Units are unable for any reason to achieve such generation levels; and (iv) bring the Reserved Units to their peak capacity levels as set forth in Appendix A as requested by the EO Generation Dispatcher, and Seller shall promptly notify the EO Generation Dispatcher if the Reserved Units are unable for any reason to achieve such levels. C-4 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- APPENDIX D Page 1: REPORTING FORMS _______________ GENERATION OFFER SHEET DATA APPLICABLE FOR AVAILABILITY DECLARATION FOR THE PERIOD OF: 00:00____________ to 23:59_____________ TO: COMED EO FAX NO: (630) 691-4899 TELEPHONE NO: (630) 691-4744 GENERATION DISP. SUPERVISOR (630) 691-4730 OPERATIONS SUPERVISOR - -------------------------------------------------------------------------------- THIS FAX IS A SUBMISSION OF - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GENERATION OFFER DATA - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A REVISION TO THE PREVIOUSLY SUBMITTED OFFER OF: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIS DOCUMENT IS A HARDCOPY BACK-UP TO THE OFFER OF: - -------------------------------------------------------------------------------- FULL SUBMISSION: _______ NUMBER OF PAGES INCLUDING COVER PAGE: _____ PARTIAL SUBMISSION: _______ SUBMITTED BY: ------------------------------------------------------- DATE: ---------------------------------------------------------------- IF YOU DO NOT RECEIVE ALL THE PAGES OR IF CLARIFICATION OR RETRANSMISSION IS REQUIRED CALL: (___) ___-____ EXT. ____ RETURN ACKNOWLEDGMENT FAX TO THE ATTENTION OF:_______________________ FAX NUMBER (___) ___-____ ACKNOWLEDGMENT BY COMED: (SIGNATURE) ------------------------------------------- (TITLE) ------------------------------------------- ACKNOWLEDGMENT DATE AND TIME: ----------------------------------------- D-1 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- D-2 Peaking Units Power Purchase Agreement Appendices - -------------------------------------------------------------------------------- Page 2: ______________ GENERATION OFFER DATA AVAILABILITY DECLARATION PERIOD COMMENCING 00:00 __________ TO: 23:59 __________ Capabilities based on the forecasted peak hour temperature of __________. GENERATION CAPABILITY RESERVED UNIT #__________ PEAK LOAD CAPABILITY: _________ MW BASE LOAD CAPABILITY: _________ MW MINIMUM LOAD CAPABILITY: _________ MW MAXIMUM MVARS: _________ MINIMUM MVARS: _________ HOURS OF OIL AVAILABLE AT BASE LOAD: _________ DERATINGS: CAUSE CODE:______MW______START TIME______DATE______STOP TIME______DATE_____ CAUSE CODE:______MW______START TIME______DATE______STOP TIME______DATE_____ CAUSE CODE:______MW______START TIME______DATE______STOP TIME______DATE_____ CAUSE CODE:______MW______START TIME______DATE______STOP TIME______DATE_____ CAUSE CODE:______MW______START TIME______DATE______STOP TIME______DATE_____ CAUSE CODE:______MW______START TIME______DATE______STOP TIME______DATE_____ D-3 EX-10.89 22 a2042986zex-10_89.txt EXHIBIT 10.89 Exhibit 10.89 EXECUTION COPY PARTICIPATION AGREEMENT dated as of June 23, 2000 among MIDWEST GENERATION, LLC as Lessee, EDISON MISSION ENERGY as Guarantor, EME/CDL TRUST as Lessor, THE INVESTORS PARTY TO THE TRUST AGREEMENT, as Investors, WILMINGTON TRUST COMPANY, not in its individual capacity, except as provided herein, but solely as Trustee, THE PERSONS LISTED AS NOTEHOLDERS ON SCHEDULE I HERETO as Noteholders, CITICORP NORTH AMERICA, INC. as Administrative Agent, and CITICORP NORTH AMERICA, INC. as Collateral Agent. Synthetic Lease Financing of Combustion Turbines at the Crawford, Fisk, Waukegan, Calumet, Joliet, Bloom, Electric Junction, Sabrooke and Lombard Peaking Units, Illinois TABLE OF CONTENTS
PAGE SECTION 1. DEFINITIONS.......................................................................2 SECTION 2. SUMMARY OF THE TRANSACTIONS............................................. .........2 2.1 Basic Documents...................................................................2 2.2 Leased Equipment Purchase and Lease...............................................2 2.3 Nature of Transaction.............................................................2 2.4 Legal and Tax Representation......................................................3 SECTION 3. THE LOANS AND INVESTOR CONTRIBUTIONS..............................................3 3.1 Loans.............................................................................3 3.2 Security; Consent to Assignment...................................................3 3.3 The Investor Contributions........................................................4 3.4 Obligations Several...............................................................4 3.5 Procedure for Advances............................................................5 3.6 Continuation and Conversion Elections.............................................6 3.7 Funding...........................................................................6 3.8 Funding; Application of Proceeds..................................................7 3.9 Time and Place of Closing.........................................................7 3.10 The Lessor Account; Priority of Payments..........................................7 3.11 Payments to Investors and Noteholders............................................10 3.12 Use of Proceeds..................................................................11 3.13 Interest and Yield...............................................................11 3.14 Interest Rate and Yield Rate Determination.......................................12 3.15 Fees.............................................................................12 3.16 Prepayments......................................................................12 SECTION 4. CERTAIN LIBO RATE AND OTHER PROVISIONS...........................................13 4.1 LIBO Rate Lending Unlawful.......................................................13 4.2 Inability to Determine Rates.....................................................14 4.3 Increased LIBO Rate Advance Costs................................................14 4.4 Obligation to Mitigate...........................................................14 4.5 Funding Losses...................................................................16 i 4.6 Increased Capital Costs..........................................................16 4.7 Taxes............................................................................17 4.8 Computations.....................................................................19 4.9 Sharing of Payments..............................................................19 4.10 Setoff...........................................................................20 4.11 Replacement of Noteholder or Investor............................................21 SECTION 5. CONDITIONS TO CLOSING............................................................21 5.1 Conditions to Closing............................................................21 SECTION 6. INDEMNITIES......................................................................26 6.1 Guarantor General Indemnity......................................................26 6.2 Lessee General Indemnity.........................................................33 6.3 General Tax Indemnity............................................................39 6.4 Gross Up.........................................................................51 6.5 Tax Returns......................................................................51 6.6 Withholding Tax Exemption........................................................52 6.7 Environmental Indemnity..........................................................53 6.8 Limitation on Environmental Indemnity............................................54 SECTION 7. CERTAIN LEASE RELATED PROVISIONS.................................................54 7.1 Renewal Lease Terms..............................................................54 7.2 Limitation on Lessee's Liability.................................................55 SECTION 8. LESSEE REPRESENTATIONS AND WARRANTIES............................................56 8.1 Organization; Power; Compliance with Law and Contractual Obligations.............56 8.2 Non-Contravention................................................................56 8.3 Governmental Approval; Regulation................................................56 8.4 Validity.........................................................................57 8.5 Litigation.......................................................................57 8.6 Ownership of Properties; Liens...................................................57 8.7 Taxes............................................................................57 8.8 Pension and Welfare Plans........................................................58 ii 8.9 Environmental Warranties.........................................................58 8.10 Regulations T, U and X...........................................................60 8.11 Accuracy of Information..........................................................60 8.12 Perfection of Security Interest..................................................60 8.13 Chief Executive Office of Lessee.................................................61 8.14 No Material Adverse Change.......................................................61 8.15 No Default.......................................................................61 SECTION 9. GUARANTOR REPRESENTATIONS AND WARRANTIES.........................................61 9.1 Organization; Power; Compliance with Law and Contractual Obligations.............61 9.2 Non-Contravention................................................................61 9.3 Governmental Approval; Regulation................................................62 9.4 Validity.........................................................................62 9.5 Litigation.......................................................................62 9.6 Taxes............................................................................62 9.7 Pension and Welfare Plans........................................................63 9.8 Accuracy of Information..........................................................63 9.9 Financial Information............................................................63 9.10 Chief Executive Office...........................................................64 9.11 No Material Adverse Change.......................................................64 9.12 No Default.......................................................................64 SECTION 10. NOTEHOLDERS' AND INVESTORS' REPRESENTATIONS AND WARRANTIES.......................64 10.1 Organization; Power; Compliance with Law and Contractual Obligations.............64 10.2 Non-Contravention................................................................64 10.3 Governmental Approval; Regulation................................................65 10.4 Validity.........................................................................65 10.5 Litigation.......................................................................65 10.6 ERISA............................................................................65 10.7 Investment in Certificates or Notes..............................................66 iii SECTION 11. LESSOR REPRESENTATIONS AND WARRANTIES............................................66 11.1 Due Organization, etc............................................................66 11.2 Authorization; No Conflict.......................................................67 11.3 Enforceability, etc..............................................................67 11.4 Litigation.......................................................................67 11.5 Assignment.......................................................................67 11.6 No Default.......................................................................67 11.7 Chief Place of Business..........................................................68 11.8 Securities Act...................................................................68 11.9 Lessor Liens.....................................................................68 11.10 Investment Company Act; Public Utility Holding Company Act.......................68 11.11 Governmental Actions.............................................................68 SECTION 12. REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE AND THE TRUST COMPANY..............69 12.1 Due Incorporation; etc...........................................................69 12.2 Due Authorization, Enforceability; etc...........................................69 12.3 Non-Contravention................................................................70 12.4 Governmental Actions.............................................................70 12.5 Litigation.......................................................................71 12.6 Liens............................................................................71 SECTION 13. GUARANTOR AFFIRMATIVE COVENANTS..................................................71 13.1 Financial Information, Reports, Notices..........................................71 13.2 Conduct of Business and Maintenance of Existence.................................73 13.3 Compliance with Laws.............................................................73 13.4 Books and Records; Right of Inspection...........................................73 SECTION 14. GUARANTOR NEGATIVE COVENANTS.....................................................74 14.1 Restrictions on Secured Indebtedness.............................................74 14.2 Restrictions on Liens............................................................74 14.3 Investments......................................................................76 14.4 Consolidation, Merger............................................................76 iv 14.5 Asset Dispositions...............................................................77 14.6 Transactions with Affiliates.....................................................78 14.7 Restrictive Agreements...........................................................78 14.8 ERISA............................................................................78 14.9 Financial Condition..............................................................78 SECTION 15. LESSEE AFFIRMATIVE COVENANTS.....................................................79 15.1 Financial Information, Reports, Notices..........................................79 15.2 Conduct of Business and Maintenance of Existence.................................80 15.3 Compliance with Laws.............................................................80 15.4 Insurance........................................................................80 15.5 Books and Records; Right of Inspection...........................................80 15.6 Maintenance of Properties........................................................81 15.7 Maintenance of Leased Equipment..................................................81 15.8 Environmental Covenant...........................................................81 SECTION 16. LESSEE NEGATIVE COVENANT.........................................................82 16.1 Restrictions on Liens............................................................82 16.2 Restriction on Extension of ComEd Agreements.....................................82 SECTION 17. LESSOR, TRUSTEE, TRUST COMPANY, INVESTOR AND NOTEHOLDER COVENANTS................82 17.1 Compliance with Trust Agreement..................................................82 17.2 Discharge of Liens...............................................................82 17.3 Trust Agreement..................................................................83 17.4 Successor Trustee................................................................83 17.5 Indebtedness; Other Business.....................................................83 17.6 Depreciation.....................................................................83 17.7 Quiet Enjoyment..................................................................84 17.8 No Liens.........................................................................84 17.9 Credit Agreement.................................................................84 SECTION 18. AGENT COVENANT...................................................................84 v SECTION 19. AGENT............................................................................85 19.1 Actions..........................................................................85 19.2 Funding Reliance.................................................................86 19.3 Exculpation......................................................................86 19.4 Successor........................................................................87 19.5 Reliance by Agent................................................................87 19.6 Notice of Default................................................................88 19.7 Credit Decisions.................................................................88 19.8 Copies...........................................................................89 SECTION 20. TRANSACTION COSTS AND OTHER COSTS................................................89 SECTION 21. MISCELLANEOUS....................................................................90 21.1 Effect of Waiver.................................................................90 21.2 Survival of Agreements...........................................................90 21.3 Applicable Law...................................................................90 21.4 Effect and Modification of Agreement.............................................91 21.5 Notices..........................................................................92 21.6 Severability.....................................................................92 21.7 Successors and Assigns; Transfers................................................93 21.8 Participations...................................................................95 21.9 Parties in Interest..............................................................96 21.10 Agent............................................................................96 21.11 Brokers..........................................................................96 21.12 Limitation of Liability..........................................................96 21.13 Reproduction of Documents........................................................97 21.14 Consideration for Consents to Waivers and Amendments.............................97 21.15 Submission to Jurisdiction; Venue................................................98 21.16 Agent for Service of Process.....................................................98 21.17 Jury Trial.......................................................................99 21.18 Captions; Table of Contents......................................................99 21.19 Schedules; Exhibits; Appendix....................................................99 21.20 References to Sections, Exhibits and Schedules...................................99 vi SCHEDULE I...................................................................................Sch. I-1 SCHEDULE II...............................................................................Sch. II - 1 EXHIBIT A-1....................................................................................A1 - 1 EXHIBIT A-2....................................................................................A2 - 1 EXHIBIT B-1....................................................................................B1 - 1 EXHIBIT B-2....................................................................................B2 - 1 EXHIBIT C-1....................................................................................C1 - 1 EXHIBIT C-2....................................................................................C2 - 1 EXHIBIT C-3....................................................................................C2 - 2 EXHIBIT C-4....................................................................................C2 - 3 EXHIBIT C-5....................................................................................C2 - 4 EXHIBIT D.......................................................................................D - 1 EXHIBIT E.......................................................................................E - 1 EXHIBIT F.......................................................................................F - 1
vii PARTICIPATION AGREEMENT (this "AGREEMENT") dated as of June 23, 2000 among MIDWEST GENERATION, LLC, a Delaware limited liability company, as lessee ("LESSEE"), EDISON MISSION ENERGY, a California corporation, as guarantor ("GUARANTOR"), EME/CDL TRUST, a trust created under the laws of the State of Delaware, as lessor ("LESSOR"), THE INVESTOR PARTY TO THE TRUST AGREEMENT, as Initial Investor, WILMINGTON TRUST COMPANY, as Trustee under the Trust Agreement, THE PERSONS LISTED AS NOTEHOLDERS ON SCHEDULE I HERETO, as Noteholders, CITICORP NORTH AMERICA, INC. as Administrative Agent for the Noteholders and Investors (the "AGENT") and CITICORP NORTH AMERICA, INC. as Collateral Agent (the "COLLATERAL AGENT"). RECITALS WHEREAS, Lessee wishes to sell to Lessor, and Lessor wishes to acquire, the Leased Equipment pursuant to the Bill of Sale; and WHEREAS, Lessor will lease the Leased Equipment to Lessee on the terms and conditions set forth in the Lease; and WHEREAS, the Investors and Noteholders are willing to provide financing to Lessor to fund payment of the Purchase Price; and WHEREAS, concurrently with the execution and delivery of this Agreement, CDL has entered into the Trust Agreement, pursuant to which CDL has authorized Lessor to, among other things and subject to the terms and conditions thereof and hereof, (i) issue the Tranche A Notes and sell such Tranche A Notes to Tranche A Noteholders, (ii) issue the Tranche B Notes and sell such Tranche B Notes to Tranche B Noteholders, (iii) issue the Certificates and sell such Certificates to the Investors, (iv) purchase the Leased Equipment from Midwest, (v) lease the Leased Equipment to Lessee and (vi) enter into security arrangements as described herein; and WHEREAS, to induce the Investor and the Noteholders to provide funding for the Leased Equipment, Guarantor has agreed to guaranty the obligations of Lessee under the Lease (other than Supplemental Rent payable by Lessee pursuant to SECTION 6.7). 1 NOW, THEREFORE, in consideration of the mutual agreements contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS. Capitalized terms used but not defined herein shall have the meanings set forth in Appendix 1 hereto; the rules of interpretation set forth in Appendix 1 hereto shall apply to this Agreement. SECTION 2. SUMMARY OF THE TRANSACTIONS. 2.1 BASIC DOCUMENTS. On the Closing Date, each of the respective parties hereto shall execute and deliver this Agreement, the Lease, the Memorandum of Lease, the Guaranty, the Credit Agreement, the Notes, the Certificates, the Bill of Sale, the Deeds, the ComEd Consent, the Intercompany Note, the Assignment Agreement and the Trust Agreement and such other documents, instruments, certificates and opinions of counsel as agreed to by the parties hereto. 2.2 LEASED EQUIPMENT PURCHASE AND LEASE. On the Closing Date, (i) the Initial Investor will make the Investor Contribution in accordance with SECTION 3.3 hereof, (ii) the Noteholders will make the Loans in accordance with SECTION 3.1 hereof, (iii) Lessor will purchase all right, title and interest in and to the Leased Equipment from Lessee and (iv) Lessor will simultaneously lease all of its right, title and interest in the Leased Equip ment to Lessee. 2.3 NATURE OF TRANSACTION. It is the intent of the parties hereto that: (a) the transaction contemplated hereby constitutes an operating lease pursuant to GAAP from Lessor to Lessee for purposes of Lessee's financial reporting only, (b) the transaction contemplated hereby preserves ownership of the Leased Equipment by Lessee for Federal and state income tax, bankruptcy and UCC purposes and (c) other than for Lessee's financial reporting, the obligations of Lessee to pay Basic Rent shall be treated as pay ments of principal and interest, respectively. Except as specifically provided for herein, Lessor shall retain title to the Leased Equipment, free and clear of all Liens other than Permitted Liens, as security for the obligations of Lessee under the Basic Documents. Except as otherwise required by any taxing Authority (in which case the last sentence of SECTION 17.6 shall apply), each of the 2 parties to this Agreement agrees that it will not, nor will any of its Affiliates, at any time take any action or fail to take any action with respect to the filing of any income tax return, including an amended income tax return, inconsistent with the intention of the parties expressed in this SECTION 2.3. 2.4 LEGAL AND TAX REPRESENTATION. Lessee acknowledges and agrees that none of Lessor, any Investor, any Noteholder, Trustee, Collateral Agent or Agent has made any representation or warranty concerning the tax, accounting or legal characteristics of the Lease or any of the other Basic Documents, and that Lessee has obtained and relied on such tax, accounting and legal advice regarding the Lease, the Guaranty and the other Basic Documents as it deems appropriate. Each of Lessor, each Investor, each Noteholder, Collateral Agent and Agent acknowledges and agrees that it has obtained and relied on the Basic Documents and the various items delivered in connection therewith, and on such tax, accounting and legal advice regarding the Lease, the Guaranty and the other Basic Documents as it deems appropriate. SECTION 3. THE LOANS AND INVESTOR CONTRIBUTIONS. 3.1 LOANS. Subject to the terms and conditions of this Agreement and the Credit Agreement, and in reliance on the representations and warranties of each of the parties hereto contained herein or made pursuant hereto, on the Closing Date, each Noteholder shall make a loan to Lessor (each, a "LOAN") in an amount as set forth in the Credit Agreement, in order for Lessor (i) to acquire the Leased Equipment and (ii) to pay Transaction Costs. Loans shall be made pursuant to the Credit Agreement and shall accrue interest as set forth in SECTION 3.13 hereof. 3.2 SECURITY; CONSENT TO ASSIGNMENT. (a) As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Lessor's Obligations to the Noteholders under the Basic Documents, now existing or hereafter arising, the Lessor has, pursuant to the terms of the Assignment Agreement, pledged, assigned, hypothecated and transferred to the Collateral Agent for the benefit of the Noteholders, and has granted to the Collateral Agent for the benefit of the Noteholders, a Lien on all of the Lessor's right, title and interest in, to and under the Lessor Collateral. 3 (b) The Guarantor (i) acknowledges that the Noteholders and Investors are making the Advances in reliance upon the execution and delivery by the Guarantor of the Guaranty and this Agreement, (ii) consents in all respects to the pledge and assignment to the Collateral Agent pursuant to the Assignment Agreement of all of the Lessor's right, title and interest in, to and under the Guaranty including, without limitation, all of the Lessor's rights to receive payment under or with respect to the Guaranty and all payments due and to become due to the Lessor under or with respect to the Guaranty, whether as contractual obligations, damages, indemnity payments or otherwise and (iii) 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 Assignment Agreement, to make all demands, give all notices, take all actions and exercise all rights of the Lessor under the Guaranty. (c) The Lessee (i) acknowledges that the Noteholders and Investors are making the Advances in reliance upon the execution and delivery by the Lessee of the Lease and this Agreement, (ii) consents in all respects to the pledge and assignment to the Collateral Agent pursuant to the Assignment Agreement of all of the Lessor's right, title and interest in, to and under the Lease including, without limitation, all of the Lessor's rights to receive payment under or with respect to the Lease and all payments due and to become due to the Lessor under or with respect to the Lease, whether as contractual obligations, damages, indemnity payments or otherwise and (iii) 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 Assignment Agreement, to make all demands, give all notices, take all actions and exercise all rights of the Lessor under the Lease. 3.3 THE INVESTOR CONTRIBUTIONS. Subject to the terms and conditions of this Agreement and the Trust Agreement, and in reliance on the representations and warranties contained herein or made pursuant hereto, the Initial Investor shall make an investment in Lessor (the "INVESTOR CONTRIBUTION") in an amount set forth in the Trust Agreement. Lessor will use the Investor Contribution (i) to acquire the Leased Equipment and (ii) pay Transaction Costs. Investor Contributions shall accrue yield ("YIELD") as set forth in SECTION 3.13 hereof. 3.4 OBLIGATIONS SEVERAL. The obligations of each Investor and Noteholder under any Basic Document shall be several and not joint. No Investor or Noteholder 4 shall have any obligation to any other Investor or Noteholder or to Lessee or Lessor with respect to the transactions contemplated by the Basic Documents, except those obligations of such Investor or Noteholder expressly set forth in the Basic Documents or except as set forth in the instruments delivered in connection therewith, and no Investor or Noteholder shall be liable for performance by any other Person of such other Person's obligations under the Basic Documents except as otherwise so set forth. 3.5 PROCEDURE FOR ADVANCES. By delivering an irrevocable Advance Request in the form of EXHIBIT D hereto (the "ADVANCE REQUEST") to the Agent on or before 12:00 Noon, New York City time, not less than three Business Days' prior to the Scheduled Closing Date, the Lessor, at the direction of the Lessee, may irrevocably request the Noteholders to make the Loans and the Initial Investor to make the Investor Contribution. Upon receipt of the Advance Request, the Agent shall promptly notify each Noteholder and Investor thereof. On the terms and subject to the conditions of this Agreement, the Credit Agreement and the Trust Agreement (as appropriate), each of the Advances shall be of the same type, and shall be made on the Closing Date. On or before 2:00 p.m., New York City time, on the Closing Date, (i) the Tranche B Noteholder shall deposit with the Agent immediately available funds in an amount equal to such Noteholder's Loan, (ii) the Tranche A Noteholder shall deliver to the Agent a check (the "TRANCHE A CHECK") payable to the order of the Lessor in an amount equal to such Noteholder's Loan and (iii) the Initial Investor shall deposit with the Agent immediately available funds in an amount equal to its Investor Contribution. Any such deposit of funds will be made to an account which the Agent shall specify by notice to the Tranche B Noteholder and the Initial Investor. To the extent funds and the Tranche A Check are received from the Noteholders and Investors, the Agent shall make such funds available to the Lessor by wire transfer to the accounts the Lessor shall have specified in the Advance Request and such Tranche A Check available to the Lessor by delivery to the Lessor. No Noteholder's or Investor's obligation to make its Advance shall be affected by any other Noteholder's or Investor's failure to make any Advance. 5 3.6 CONTINUATION AND CONVERSION ELECTIONS. By delivering a Continuation/Conversion Notice in the form of EXHIBIT F hereto (the "CONTINUATION/CONVERSION NOTICE") to the Agent on or before 12:00 Noon, New York City time on a Business Day, the Lessor, at the direction of the Lessee, may from time to time irrevocably elect that all, or any portion in an aggregate minimum amount of $10,000,000 and an integral multiple of $1,000,000 in excess thereof, of any Advance be (i) on not less than three Business Days' notice, converted into, or continued as, a LIBO Rate Advance, or (ii) on the same Business Day, be converted into, or continued as a Base Rate Advance. In the absence of delivery of such Continuation/Conversion Notice with respect to any LIBO Rate Advance, such LIBO Rate Advance shall automatically be continued as a LIBO Rate Advance with an Interest Period of the same duration as the then expiring Interest Period; PROVIDED, HOWEVER, that (x) with respect to any Loan, each such conversion or continuation shall be pro rated among the applicable outstanding Loans of all Noteholders holding Loans of the same tranche, (y) a LIBO Rate Advance may not be converted at any time other than the last day of the Interest Period applicable thereto and (z) no portion of the outstanding principal amount of any Advance may be continued as, or be converted into, a LIBO Rate Advance when any Credit Agreement Event of Default or Credit Agreement Default under SECTION 5.1.1 of the Credit Agreement has occurred and is continuing. Each delivery of such Continuation/Conversion Notice shall constitute a certification and warranty by the Lessor that on the date of delivery of such notice no Credit Agreement Default has occurred and is continuing. If prior to the time of such continuation or conversion any matter certified to by the Lessor by reason of the immediately preceding sentence will not be true and correct at such time if then made, the Lessor will immediately so notify the Agent. Except to the extent, if any, that prior to the time of such continuation or conversion the Agent shall have received written notice to the contrary from the Lessor, such certification and warranty shall be deemed to be made at the date of such continuation or conversion as if then made. Upon the occurrence and during the continuance of any Credit Agreement Event of Default under SECTION 5.1.1 of the Credit Agreement, each LIBO Rate Advance shall convert automatically to a Base Rate Advance at the end of the Interest Period then in effect for such LIBO Rate Advance. 3.7 FUNDING. Each Noteholder and each Investor may, if it so elects, fulfill its obligation to make, continue or convert LIBO Rate Advances hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Noteholder or Investor) to make or maintain such LIBO Rate 6 Advance; PROVIDED, HOWEVER, that such LIBO Rate Advance shall nonetheless be deemed to have been made and to be held by such Noteholder or Investor, as the case may be, and the obligation of the Lessor to repay such LIBO Rate Advance shall nevertheless be to such Noteholder or Investor, as the case may be, for the account of such foreign branch, Affiliate or international banking facility. In addition, the Lessor hereby consents and agrees that, for purposes of any determination to be made for purposes of SECTIONS 4.1, 4.2, 4.3, 4.4, 4.5, 4.6 or 4.7, it shall be conclusively assumed that each Noteholder and Investor elected to fund all LIBO Rate Advances by purchasing deposits in its LIBOR Office's interbank eurodollar markets. 3.8 FUNDING; APPLICATION OF PROCEEDS. (a) FUNDING. Following (i) receipt by Lessor of (A) the Investor Contribution by the Investor pursuant to SECTION 3.3 and (B) all Loans by the Noteholders pursuant to SECTION 3.1 and (ii) satisfaction or waiver of each of the applicable conditions set forth in, and in accordance with, SECTION 5.1, Lessor shall transfer to the Lessee Account, as payment for the Leased Equipment, by 4:00 p.m. New York City time on the Closing Date, the aggregate amount of such Advances. (b) APPLICATION OF PROCEEDS. All Advances shall be used solely for payment of the Purchase Price for the Leased Equipment and payment of Transaction Costs. 3.9 TIME AND PLACE OF CLOSING. The closing of the transactions contemplated hereby (the "CLOSING") shall take place after 12:00 Noon, New York City time on the Scheduled Closing Date or such other date as the parties hereto shall mutually agree (the "CLOSING DATE") at the New York offices of Skadden, Arps, Slate, Meagher & Flom, LLP. 3.10 THE LESSOR ACCOUNT; PRIORITY OF PAYMENTS. (a) In accordance with SECTION 10 of the Assignment Agreement, the Lessor shall establish and maintain, or shall cause to be established and maintained, the Lessor Account into which the Collateral Agent shall deposit all payments, receipts and other consideration of any kind whatsoever paid to the Lessor under any Basic Document or otherwise and received by the Collateral Agent pursuant to the Lease, the Assignment Agreement or the Trust Agreement. The Agent shall report the amounts of any distributions from the Lessor Account pursuant to this SECTION 3.10 to the Trustee. 7 (b) Payments deposited from time to time in the Lessor Account shall be paid out by the Collateral Agent as follows: (i) Any payment identified by Lessee as either (i) Basic Rent, (ii) payment in respect of Termination Value pursuant to SECTION 11.1, SECTION 12.1 or SECTION 15.1 of the Lease, (iii) proceeds of an Auction pursuant to SECTION 12.4 of the Lease (but in any event excluding costs and expenses described in SECTION 12.5(b) of the Lease) ("NET SALE PROCEEDS") or (iv) payment in respect of the Lessee Purchase Fixed Price pursuant to SECTION 12.3 of the Lease or the Investor Purchase Price pursuant to SECTION 12.5(d) of the Lease shall be paid out of the Lessor Account by the Collateral Agent, at the direction of the Agent, promptly after receipt, and shall be applied, FIRST, ratably to the payment of the principal of the Tranche B Loan then outstanding and all interest then due and payable on such amount, SECOND, ratably to the payment of the principal of the Tranche A Loan then outstanding and all interest due and payable on such amount (after application of any Residual Deficiency Payment made by the Lessee) and THIRD, the remainder of such amount shall be paid out of the Lessor Account, at the direction of the Agent, by the Collateral Agent, ratably, to the Investors. (ii) Any payment identified by Lessee as the Residual Deficiency Payment shall be paid out of the Lessor Account by the Collateral Agent, at the direction of the Agent, promptly after receipt and shall be applied, ratably, to the payment of the principal of the Tranche A Loan then outstanding and all interest then due and payable on such amount. (iii) Any payment identified by Lessee as Supplemental Rent (other than any such amounts payable pursuant to the preceding provisions of this SECTION 3.10(b)) shall be paid out of the Lessor Account by the Collateral Agent, at the direction of the Agent, promptly after receipt, and shall be applied to the payment of any amounts then owing to the Collateral Agent, the Agent, the Investors, the Trustee, the Noteholders and the other parties to the Basic Documents (or any of them) as shall be designated by Lessee (or, in the absence of such designation, ratably according to the respective amounts so owing of which Agent has received written notice). 8 In the event that Lessee shall fail to identify the nature of any payment deposited by it in the Lessor Account, or the Collateral Agent or the Agent in its reasonable judgment shall determine that the identification made by Lessee is incorrect or inappropriate, the nature of such payment shall instead be identified by the Agent in its reasonable judgment and applied in the manner specified above. (c) Any amounts payable to the the Collateral Agent as a result of an Event of Loss pursuant to SECTION 11.1(c) of the Lease and the Assignment Agreement shall be distributed as follows: (i) in the event that the Lessor (at the direction of the Required Participants) and the Agent elect to pay all or a portion of such amounts to the Lessee for the repair of damage caused by such Event of Loss, then such amounts shall be distributed to the Lessee, and (ii) in the event that the Lessor (at the direction of the Required Participants) and the Agent elect to apply all or a portion of such amounts to the purchase price of the Leased Equipment in accordance with SECTION 12.3 of the Lease, then such amounts shall be distributed in accordance with clause (b) above. (d) All payments received and amounts realized by the Lessor or the Collateral Agent after the occurrence of a Lease Event of Default shall be promptly remitted by the Lessor (if received by the Lessor) to the Collateral Agent and shall be paid out of the Lessor Account by the Collateral Agent, at the direction of the Agent, promptly after receipt, and shall be applied, FIRST, ratably to the payment of the principal of the Tranche B Loans then outstanding and all interest then due and payable on such amount; SECOND, ratably to the payment of the principal of all Tranche A Loans then outstanding and all interest then due and payable on such amount; THIRD, ratably to the payment of the principal of the Certificates then outstanding and all Yield then due and payable on such amount; and 9 FOURTH, the remainder of such amount after making the payments in FIRST through THIRD above shall be paid to, or at the direction of, the Lessee. (e) Upon the payment in full of the Loans and all other amounts owing by Lessor (including amounts owing to the Investors, Noteholders, Agent, the Collateral Agent and Trustee) under the Credit Agreement, Trust Agreement or under any other Basic Document, any moneys remaining in the Lessor Account shall be paid to Lessee or such other Person or Persons as Lessee may designate. 3.11 PAYMENTS TO INVESTORS AND NOTEHOLDERS. (a) Any payments received by Trustee or the Collateral Agent from or on behalf of Lessee not later than 1:00 p.m., New York City time, shall be paid by Trustee or the Collateral Agent, as the case may be, at the direction of the Agent, to the Investors or Noteholders, as the case may be, in immediately available funds no later than 3:00 p.m., New York City time, on the same day, and any payments received by Trustee or the Collateral Agent from or on behalf of Lessee after 1:00 p.m., New York City time, shall be paid by Trustee or the Collateral Agent, as the case may be, at the direction of the Agent, to the Investors or Noteholders as the case may be, as soon after receipt as practicable, but not later than 11:00 a.m., New York City time, on the next succeeding Business Day. Properly initiating wire transfers prior to the times set forth above shall constitute compliance by the Trustee or the Collateral Agent with this SECTION 3.11. (b) Rent and all other sums due from Lessee to Lessor or any Noteholder or Investor under the Basic Documents shall be paid by Lessee in immediately available funds to Lessor by deposit to the Lessor Account, or if instructed in writing by the Lessor, at its office specified in SCHEDULE I to this Agreement or at such other office as it may from time to time specify to Lessee in a notice pursuant to SECTION 21.5. All such payments must be received by Lessor or such Investor or Noteholder, as applicable, not later than 3:00 p.m. New York City time on the date due. Funds received after such time shall for all purposes of the Basic Documents be deemed to have been received on the next succeeding Business Day. (c) Unless otherwise expressly provided in SECTION 3.10 or otherwise herein or in the Credit Agreement or the Trust Agreement, all payments by 10 Lessor pursuant to any Basic Document shall be made by Lessor to the Collateral Agent for the PRO RATA account of the Noteholders and Investors entitled to receive such payment. The Collateral Agent shall promptly remit in immediately available funds to each Noteholder or Investor, as the case may be, its share, if any, of such payments received by the Collateral Agent for the account of such Noteholder or Investor pursuant to SECTION 3.10 or otherwise. 3.12 USE OF PROCEEDS. Lessor covenants that it shall apply the proceeds of the Advances solely in accordance with the provisions of the Basic Documents. 3.13 INTEREST AND YIELD. (a) Each Tranche A Loan shall accrue interest at a rate per annum equal to the then applicable Interest Rate for Tranche A Loans, and each Tranche B Loan shall accrue interest at a rate per annum equal to the then applicable Interest Rate for Tranche B Loans. (b) The Investor Amounts outstanding from time to time shall accrue Yield at a rate per annum equal to the Yield Rate. (c) Notwithstanding any other provision hereof, at such time as there shall exist for any Noteholder or Investor a LIBOR Reserve Percentage which is greater than zero, the LIBO Rate used in the determination of LIBO Rate Advances made by such Noteholder or Investor shall be the LIBO Rate (Reserve Adjusted). (d) After the date any principal amount of any Advance is due and payable (whether on the Final Maturity Date, upon acceleration or otherwise), or after any monetary Obligation of the Lessor under the Basic Documents shall become due and payable, the Lessor shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on such overdue amount at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin plus 2% until such amount is paid in full. (e) All interest or Yield on the Advances and all other amounts due with respect to the Advances shall be distributed by the Collateral Agent, at the 11 direction of the Agent, to the Noteholders or Investors, as the case may be, in accordance with SECTION 3.10. (f) Interest and Yield accrued on each Advance shall be payable, without duplication (each such date, an "INTEREST PAYMENT DATE"): (i) on the Final Maturity Date; (ii) on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Advance; (iii) on each Scheduled Interest Payment Date; and (iv) on that portion of any Advance which is accelerated pursuant to SECTION 6.2 or SECTION 6.3 of the Credit Agreement or otherwise, immediately upon such acceleration. Interest and Yield accrued on Advances or other monetary Obligations arising under any Basic Document after the date such amount is due and payable (whether on the Final Maturity Date, upon acceleration or otherwise) shall be payable upon demand (or if no demand is made, on the last Business Day of each Month). 3.14 INTEREST RATE AND YIELD RATE DETERMINATION. The Agent shall determine the Interest Rate applicable to the Loans and the Yield Rate applicable to the Investor Amounts, and shall give prompt notice to the Lessor and the Noteholders or the Investors, as appropriate, of such determination. Such determinations by the Agent shall be conclusive in the absence of manifest error. 3.15 FEES. The Guarantor agrees to pay to the Agent for (a) its own account in its capacity as Agent and Collateral Agent and (b) the account of CDL as the Tranche B Noteholder and the Initial Investor the respective fees agreed to in the letter dated July 10, 2000 (the "FEE LETTER") between the Agent, CDL, the Guarantor and the Lessee. 3.16 PREPAYMENTS. 12 (a) The Lessee shall have the right to pay to the Lessor such amounts to allow for the Lessor to prepay, without premium or penalty (except as may be required by SECTION 4.5), an amount equal to the Loans and the Investor Amounts in whole or in part from time to time pursuant to the exercise of any purchase or early termination option permitted under the Lease. Any such prepayment of LIBO Rate Advances shall require at least ten (10) days prior written notice to the Agent, and any such prepayment of Base Rate Loans may be made on same day's written notice to the Agent. (b) All amounts payable by the Lessee to the Lessor pursuant to SECTIONS 11, 12, or 15 of the Lease shall be used to prepay the Advances and shall be applied by the Lessor to the Loans and the Investor Amounts in the manner set forth in SECTION 3.10. (c) Each prepayment of Advances made pursuant to this SECTION 3.16 shall be accompanied by accrued interest or Yield, as the case may be, to the date of such prepayment on the amount prepaid, but shall be without premium or penalty, except as may be required by SECTION 4.5. SECTION 4. CERTAIN LIBO RATE AND OTHER PROVISIONS 4.1 LIBO RATE LENDING UNLAWFUL. If any Noteholder or Investor shall reasonably determine (which determination shall, upon notice thereof to Lessor and Agent, be conclusive and binding on Lessor absent manifest error) that the introduction of or any change in or in the interpretation of any law, rule or regulation makes it unlawful, or any central bank or other governmental authority or comparable agency asserts that it is unlawful, for such Noteholder or Investor, as the case may be, to make, continue or maintain any Advance as, or to convert any Advance into, a LIBO Rate Advance, the obligations of such Noteholder or Investor to make, continue, maintain or convert any such Advance shall, upon such determination, forthwith be suspended until such Noteholder or Investor, as the case may be, shall notify Agent that the circumstances causing such suspension no longer exist, and all LIBO Rate Advances of such Noteholder or Investor shall automatically convert into Base Rate Advances at the end of the then-current Interest Periods with respect thereto or sooner, if required by such law or assertion. 13 4.2 INABILITY TO DETERMINE RATES. If Agent shall have determined that, by reason of circumstances affecting Agent's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Advances, then, upon notice from Agent to Lessor, the Investors and the Noteholders, the obligations of all Noteholders and Investors under SECTION 3.5 hereof, to make or continue any Advances as, or to convert any Advances into, LIBO Rate Advances shall forth with be suspended until Agent shall notify Lessor, the Investors and the Noteholders that the circumstances causing such suspension no longer exist. 4.3 INCREASED LIBO RATE ADVANCE COSTS. If after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Noteholder or Investor (or its LIBOR Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall increase the cost to such Noteholder or Investor of, or result in any reduction in the amount of any sum receivable by such Noteholder or Investor in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Advances as, or of converting (or of its obligation to convert) any Advances into, LIBO Rate Advances, then Lessor agrees to pay to each such Noteholder or Investor, as the case may be, the amount of any such increase or reduction. Such Noteholder or Investor shall promptly notify Agent and Lessor in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Noteholder or Investor for such increased cost or reduced amount. Such additional amounts shall be payable by Lessor directly to such Noteholder or Investor, as the case may be, within ten (10) Business Days of its receipt of such notice, and such notice shall be binding on Lessor absent clear and convincing evidence to the contrary. 4.4 OBLIGATION TO MITIGATE. Each Noteholder and Investor agrees that as promptly as practicable after it becomes aware of the occurrence of an event that would entitle it to give notice pursuant to SECTION 4.1, 4.3, or 4.6, and in any event if so requested by Lessor, each such Noteholder and Investor shall use reasonable efforts to make, fund or maintain its affected Advances through another lending office or one of its foreign branches or Affiliates (or an international banking facility created by such Noteholder or Investor) if as a result thereof the increased costs 14 would be avoided or materially reduced or the illegality would thereby cease to exist and if, in the reasonable opinion of such Noteholder or Investor, as the case may be, the making, funding or maintaining of such Advances through such other lending office, foreign branch or Affiliate (or international banking facility created by such Noteholder or Investor) would not in any material respect be disadvantageous to such Noteholder or Investor, contrary to such Noteholder's or Investor's normal banking practices or violate any applicable law or regulation. No change by a Noteholder or Investor in its Domestic Office or LIBOR Office made for such Noteholder's or Investor's convenience shall result in any increased cost to Lessor. Lessor shall not be obligated to compensate any Noteholder or Investor for the amount of any additional amount pursuant to SECTIONS 4.1, 4.3, or 4.6 accruing prior to the date which is 90 days before the date on which such Noteholder or Investor first notifies Lessor that it intends to claim such compensation; it being understood that the calculation of the actual amounts may not be possible within such period and that such Noteholder or Investor may provide such calculation as soon as reasonably practicable thereafter without affecting or limiting Lessor's payment obligation thereunder. If any Noteholder or Investor demands compensation pursuant to SECTIONS 4.1, 4.3, or 4.6 with respect to any LIBO Rate Advance, Lessor may, at any time upon at least one (1) Business Days' prior notice to such Noteholder or Investor through Agent, elect to convert such Advance into a Base Rate Advance. Thereafter, unless and until such Noteholder or Investor, as the case may be, notifies Lessor that the circumstances giving rise to such notice no longer apply, all such LIBO Rate Advances by such Noteholder or Investor shall bear interest as Base Rate Advances, notwithstanding any prior election by Lessor to the contrary. If such Noteholder or Investor notifies Lessor that the circumstances giving rise to such notice no longer apply, Lessor may elect that the principal amount of each such Advance again bear interest as LIBO Rate Advances in accordance with this Agreement, on the first day of the next succeeding Interest Period applicable to the related LIBO Rate Advances of other Noteholders or Investors, as the case may be. Additionally, Lessor may, at its option, upon at least five (5) Business Days' prior notice to such Noteholder or Investor, elect to prepay in full, without premium or penalty, such Noteholder's or Investor's affected LIBO Rate Advances. If Lessor elects to prepay any Advances pursuant to this SECTION 4.4, Lessor shall pay within ten (10) Business Days after written demand any additional increased costs of such Noteholder or Investor accruing for the period prior to such date of prepayment. If such conversion or prepayment is made on a day other than the last day of the current Interest Period for 15 such affected LIBO Rate Advances, such Noteholder or Investor shall be entitled to make a request for, and Lessor shall pay, compensation under SECTION 4.5. 4.5 FUNDING LOSSES. In the event any Noteholder or Investor shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Noteholder or Investor to make, continue or maintain any portion of the principal amount of any Advance as, or to convert any portion of the principal amount of any Advance into, a LIBO Rate Advance) as a result of: (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Advances on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to SECTION 3.16 hereof, or otherwise; (b) Lessor's failure to borrow or prepay any LIBO Rate Advances in accordance with the Advance Request or the notice of prepayment therefor delivered under SECTION 3.16 hereof; or (c) any Advances not being continued as, or converted into, LIBO Rate Advances in accordance with the Continuation/Conversion Notice therefor; then, upon the written notice of such Noteholder or Investor to Lessor (with a copy to Agent), Lessor shall, within ten (10) Business Days of its receipt thereof, pay directly to such Noteholder or Investor such amount as will (in the reasonable determination of such Noteholder or Investor) reimburse such Noteholder or Investor for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall be binding on Lessor absent manifest error. 4.6 INCREASED CAPITAL COSTS. If after the date hereof any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any applicable law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority affects the amount of capital required to be maintained by any Noteholder or Investor, as the case may be, and such Noteholder or Investor reasonably determines that the rate of return on its capital as a consequence of the Advances made by such Noteholder or Investor is reduced in a material amount to a 16 level below that which such Noteholder or Investor could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Noteholder or Investor to Lessor, Lessor shall pay within ten (10) Business Days after such demand directly to such Noteholder or Investor additional amounts sufficient to compensate such Noteholder or Investor for such reduction in rate of return. A state ment of such Noteholder or Investor as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall be binding on Lessor absent manifest error. 4.7 TAXES. (a) All payments by Lessor of principal of, and interest on, the Advances and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any governmental or taxing authority, but excluding franchise taxes or taxes imposed on or measured by any Noteholder's or Investor's net income, as the case may be, in each case, imposed as a result of a connection between such Noteholder or Investor and the jurisdiction imposing the tax (other than a connection arising solely from such Noteholder or Investor having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement), and such Noteholders or Investors will use reasonable efforts to minimize, to the extent possible, any such applicable taxes (such non-excluded items being called "TAXES PAYABLE"). In the event that any withholding or deduction from any payment to be made by Lessor hereunder is required in respect of any Taxes Payable pursuant to any applicable law, rule or regulation, then Lessor will: (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; (ii) within 30 days after such payment forward to Agent an official receipt or other documentation satisfactory to Agent evidencing such payment to such authority; and (iii) pay to Agent for the account of the Noteholders or Investors, as the case may be, such additional amount or amounts as is necessary to ensure that the net amount actually received by each Noteholder or Investor, as the case may be, will equal the full amount such Noteholder or Investor would have received had no such withholding or deduction been required. Moreover, if any Taxes Payable are directly asserted against Agent, any Noteholder or any Investor with respect to any payment received by Agent or such Noteholder or Investor hereunder, Agent or such Noteholder or Investor may pay such Taxes Payable and, upon receipt of notice from Agent or such Noteholder or Investor within 30 days after such payment, Lessor will promptly pay such additional amounts (including any penalties, interest or expenses) 17 as are necessary so that the net amount received by such person after the payment of such Taxes Payable (including any Taxes Payable on such additional amount) shall equal the amount such person would have received had no such Taxes Payable been asserted. (b) If Lessor fails to pay any Taxes Payable when due to the appropriate taxing authority or fails to remit to Agent, for the account of the respective Noteholders or Investors, as the case may be, the required receipts or other required documentary evidence, Lessor shall indemnify the Noteholders or Investors, as the case may be, for any incremental Taxes Payable, interest or penalties that may become payable by any Noteholder or Investor as a result of any such failure. For purposes of this SECTION 4.7, a distribution hereunder by Agent, any Investor or any Noteholder to, or for the account of, any Noteholder or Investor shall be deemed a payment for the account of Lessor. (c) Each Noteholder and Investor that is not a United States person as defined in Section 7701(a)(30) of the Code (a "NON-U.S. PARTICIPANT") shall deliver to Lessor and Agent on or before such Non-U.S. Participant becomes a party to this Agreement two accurate and complete copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or any subsequent versions thereof or successors thereto properly completed and duly executed by such Non-U.S. Participant claiming complete exemption from U.S. federal withholding tax on all payments by Lessor under the Basic Documents. In addition, each Non- U.S. Participant shall deliver two new accurate and complete copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI promptly upon the obsolescence or invalidity (either from a lapse in time or a change in circumstance, other than as a result of a change in law, in which case such forms shall only be required upon the request of the Lessor) of any form previously delivered by such Non-U.S. Participant. Each Non-U.S. Participant shall promptly notify Lessor at any time it determines that it is no longer in a position to provide any previously delivered certificate to Lessor (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding anything to the contrary contained in this SECTION 4.7, Lessor shall not be required to increase any such amounts payable to any Non-U.S. Participant with respect to any Taxes Payable (i) that are attributable to such Non-U.S. Participant's failure to comply with the requirements of this SECTION 4.7(c) or (ii) that are United States withholding taxes imposed on amounts payable to such Noteholder or Investor at the time such Noteholder or Investor becomes a party 18 to this Agreement, except to the extent that such Noteholder's or Investor's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from Lessor with respect to such Taxes Payable pursuant to SECTION 4.7(a). Notwithstanding any other provision of this SECTION 4.7(c), a Non-U.S. Participant shall not be required to deliver any form pursuant to this SECTION 4.7(c) that such Non-U.S. Participant is not legally able to deliver. 4.8 COMPUTATIONS. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Advance, 365 days or, if appropriate, 366 days). Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by CLAUSE (c) of the definition of the term "INTEREST PERIOD" with respect to LIBO Rate Advances) be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. Any change in the Interest Rate or the Yield Rate resulting from a change in the Alternate Base Rate or the LIBO Rate shall become effective as of the opening of business on the day on which such change becomes effective. 4.9 SHARING OF PAYMENTS. If any Noteholder or Investor shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Advance (other than pursuant to the terms of SECTIONS 4.3, 4.4, 4.5, 4.6 OR 4.7) in excess of its PRO RATA share of payments then or therewith obtained by all Noteholders or Investors, as the case may be, holding Advances of the same tranche and the same type, such Noteholder or Investor shall purchase from the other Noteholders or Investors, as the case may be, such participations in Advances made by them as shall be necessary to cause such purchasing Noteholder or Investor to share the excess payment or other recovery ratably with each of them; PROVIDED, HOWEVER, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Noteholder or Investor, the purchase shall be rescinded and each Noteholder or Investor, as the case may be, which has sold a participation to such purchasing Noteholder or Investor shall repay to such purchasing Noteholder or Investor the purchase price to the ratable extent of such recovery together with an amount equal to such selling Noteholder's or Investor's ratable share (according to the proportion of (a) the amount of such selling Noteholder's or Investor's required repayment to such 19 purchasing Noteholder or Investor to (b) the total amount so recovered from such purchasing Noteholder or Investor) of any interest or other amount paid or payable by such purchasing Noteholder or Investor in respect of the total amount so recovered. Lessor agrees that any Noteholder or Investor, as the case may be, so purchasing a participation from another Noteholder or Investor pursuant to this SECTION 4.9 may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to SECTION 4.10) with respect to such participation as fully as if such Noteholder or Investor were the direct creditor of Lessor in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Noteholder or Investor receives a secured claim in lieu of a setoff to which this SECTION 4.9 applies, such Noteholder or Investor shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Noteholders or Investors, as the case may be, entitled under this SECTION 4.9 to share in the benefits of any recovery on such secured claim. 4.10 SETOFF. Each Noteholder and Investor shall, upon the occurrence of any Credit Agreement Event of Default described in CLAUSES (a) or (b) of SECTION 5.1.5 of the Credit Agreement and, upon the occurrence of any Credit Agreement Default described in CLAUSES (c) through (d) of SECTION 5.1.5 of the Credit Agreement with respect to Lessor or, with the consent of the Required Noteholders or Required Investors, as the case may be, upon the occurrence and continuance beyond the expiration of the applicable grace period, if any, of any other Credit Agreement Event of Default, have the right to appropriate and apply to the payment of the monetary Obligations owing to it (whether or not then due), and (as security for such Obligations) Lessor hereby grants to each Noteh older and Investor a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of Lessor then or thereafter maintained with such Noteholder or Investor or any bank controlling such Noteholder or Investor; PROVIDED, HOWEVER, that any such appropriation and application shall be subject to the provisions of SECTION 4.9. Each Noteholder and Investor agrees promptly to notify Lessor and Agent after any such setoff and application made by such Noteholder or Investor; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Noteholder and Investor under this SECTION 4.10 20 are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Noteholder or Investor may have. 4.11 REPLACEMENT OF NOTEHOLDER OR INVESTOR. Lessor shall be permitted to replace (with one or more replacement Noteholders or Investors, as the case may be) any Noteholder or Investor which requests reimbursement for amounts owing pursuant to SECTION 4.3, 4.6 or 4.7 or becomes subject to the provisions of SECTION 4.1; PROVIDED that (i) such replacement does not conflict with any law, treaty, rule or regulation or determination of an arbitrator or a court or other governmental authority, in each case applicable to Lessor, such Investor or such Noteholder or to which Lessor, such Investor or such Noteholder or any of their respective property is subject, (ii) no Credit Agreement Default or Credit Agreement Event of Default shall have occurred and be continuing at the time of such replacement, (iii) Lessor shall repay (or the replacement bank or institution shall purchase, at par) all Advances and other amounts owing to such replaced Noteholder or Investor prior to the date of replacement, (iv) Lessor shall be liable to such replaced Noteholder or Investor under SECTION 4.5 if any LIBO Rate Advance owing to such replaced Noteholder or Investor shall be prepaid (or purchased) other than on the last day of the Interest Period relating thereto, (v) the replacement bank or institution, if not already a Noteholder or Investor, as the case may be, shall be reasonably satisfactory to Agent, (vi) the replaced Noteholder or Investor shall be obligated to make such replacement in accordance with the provisions of SECTION 6.8.1 of the Credit Agreement (provided that Lessor or replacement Noteholder shall be obligated to pay the registration and processing fee) or the provisions of SECTION 4.07 of the Trust Agreement and SECTION 21.7 of this Agreement, as the case may be, (vii) until such time as such replacement shall be consummated, Lessor shall pay all additional amounts (if any) required pursuant to SECTION 4.1, 4.3, 4.6 or 4.7, as the case may be, and (viii) any such replacement shall not be deemed to be a waiver of any rights which Lessor, Agent, any other Investor or any other Noteholder shall have against the replaced Noteholder or Investor. SECTION 5. CONDITIONS TO CLOSING. 5.1 CONDITIONS TO CLOSING. The obligations of each Noteholder and each Investor to perform its respective obligations hereunder shall be subject to the fulfillment to the satisfaction of, or the waiver in writing by, each Noteholder and Investor of the conditions precedent set forth in this SECTION 5.1 on or before the 21 Closing Date (except that the obligation of any party hereto shall not be subject to the performance or compliance of such party or of any of such party's Affiliates). (a) BASIC DOCUMENTS. The Noteholders and the Investors shall have received fully executed counterparts of each Basic Document; PROVIDED, HOWEVER, that originals of Notes shall be provided only if requested by any Noteholder. (b) DESCRIPTION OF LEASED EQUIPMENT. Lessee shall have provided to Lessor a detailed description of all Leased Equipment. (c) APPRAISAL. Lessor, the Investors and the Noteholders shall have received an Appraisal of the Leased Equipment in form and substance acceptable to the Noteholders and the Investors, which Appraisal shall contain the following conclusions as of the date of the Appraisal: (i) the remaining economic useful life of the Leased Equipment measured from the date of the Appraisal is greater than 133 1/3% of the Lease Term, (ii) the Fair Market Value of the Leased Equipment on the date of the Appraisal is estimated to be its Purchase Price, (iii) the Fair Market Value of the Leased Equipment at the end of the Lease Term is estimated to be the Lessee Purchase Fixed Price for such Leased Equipment and (iv) at the end of the Lease Term, the use of the Leased Equipment by a Person other than Lessee or an Affiliate, is expected to be feasible. (d) OPINIONS OF COUNSEL. Lessor, the Investors and the Noteholders and their respective counsel shall have received (i) the opinion of Skadden, Arps, Slate, Meagher & Flom, LLP, counsel to Lessee and Guarantor, substantially in the form of EXHIBIT C-1 hereto, (ii) the opinion of Milbank, Tweed, Hadley & McCloy, counsel to the Noteholders, substantially in the form of EXHIBIT C-2 hereto, (iii) the opinion of Richards, Layton & Finger, special counsel to the Trustee, substantially in the form of EXHIBIT C-3 hereto, (iv) the opinion of Sonnenschein, Nath and Rosenthal, special Illinois counsel to the Lessee and Guarantor, substantially in the form of EXHIBIT C-4 hereto, (v) the opinion of Van Ness Feldman, Federal Energy Regulatory Commission counsel to the Lessee and Guarantor, substantially in the form of EXHIBIT C-5 hereto and (vi) the opinion of Mary Ellen Olson, general counsel to Lessee, Midwest Peaker and Guarantor, substantially in the form of EXHIBIT C-6 hereto. 22 (e) CORPORATE STATUS AND PROCEEDINGS; ACCEPTANCE LETTER. On or before the Closing Date, Lessor shall have received: (i) certificates of existence and good standing with respect to Lessee from the Secretary of State of the State of Delaware and the Guarantor from the Secretary of State of the State of California, each dated no earlier than the 15th day before the Closing Date; (ii) Officer's Certificates of Lessee and Guarantor, substantially in the form of EXHIBIT B-1 hereto, dated the Closing Date; (iii) Secretary's Certificates of Lessee and Guarantor, substantially in the form of EXHIBIT B-2, hereto, dated the Closing Date; (iv) a letter from CT Corporation System, accepting its appointment as agent for service of process on the terms and conditions set forth in SECTION 21.16. (f) LESSOR'S AND NOTEHOLDERS' CERTIFICATES. On the Closing Date, each Noteholder and each Investor shall have received: (i) an Officer's Certificate of Lessor, dated the Closing Date, with respect to representations and warranties made by Lessor, and the effectiveness of, and the compliance by Lessor with, the Basic Documents to which Lessor is a party; (ii) an Officer's Certificate of each Noteholder and Investor, dated the Closing Date, with respect to representations and warranties made by such Noteholder or Investor, as the case may be, and the effectiveness of, and the compliance by such Noteholder or Investor, as the case may be, with the Basic Documents to which such Noteholder or Investor is a party; 23 (iii) a certificate of the Secretary or Assistant Secretary of each Noteholder and Investor, dated the Closing Date, with respect to such Noteholder's or Investor's, as the case may be, governing documents, resolutions and incumbent officers; and (iv) a good standing certificate from the appropriate Authority as to Lessor's, each Investor's and each Noteholder's good standing. (g) CONSENTS AND APPROVALS. All necessary consents, approvals and authorizations of, and declarations, registrations and filings with, Authorities and nongovernment Persons required to consummate the transactions contemplated by the Basic Documents (including any consent required from ComEd or any lenders to EME, the Lessee or their Affiliates) shall have been obtained or made by Lessee and Guarantor, in form and substance satisfactory to the Noteholders and Investors and shall be in full force and effect. (h) PAYMENT OF TAXES. All material Taxes payable on or before the Closing Date in connection with the execution, delivery, recording or filing of any of the Basic Documents or with the consummation of any other transactions contemplated hereby or by any of the other Basic Documents shall have been paid in full by Lessee and Guarantor, or arrangement for such payment shall have been made, or appropriate reserves shall have been established in accordance with GAAP. (i) TRANSACTION COSTS. The following legal and other fees, costs and expenses incurred by Lessor, the Investors, the Noteholders, the Agent, the Collateral Agent and the Trustee in connection with the consummation of the transactions contemplated by the Basic Documents, and the preparation, negotiation, execution and delivery of the Basic Documents (collectively, the "TRANSACTION COSTS") shall have been paid in full to the extent then due: (i) reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy LLP, special counsel to the Noteholders; (ii) reasonable fees and expenses of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Guarantor, Lessee and Midwest Peaker; (iii) Appraisal fees and reasonable expenses; (iv) all search fees, recording fees, filing fees and search costs incurred in connection with lien searches and the filing of UCC financing statements; (v) the Closing Fee and the Agency Fee; (vi) any up-front fees and expenses of the Agent, Collateral Agent and Trustee; and (vii) all reasonable fees, costs and expenses of Lessor. Such payments shall be made by wire transfer of 24 immediately available funds to the accounts specified by the parties receiving such payments. (j) PROCEEDINGS SATISFACTORY, ETC. All proceedings taken in connection with the Advances and all documents relating thereto shall be reasonably satisfactory to each Noteholder and Investor, and each such Person shall have received copies of such documents as such Person may reasonably request in connection therewith, all in form and substance reasonably satisfactory to such Noteholder or Investor. (k) CORPORATE PROCEEDINGS OF THE TRUST COMPANY. On the Closing Date, the Investors, the Noteholders and Lessee shall have received a copy of the resolutions, in form and substance satisfactory to such parties in the form of a secretary's certificate of the Trust Company authorizing the execution, delivery and performance of the Basic Documents to which it is a party (l) TRUST COMPANY INCUMBENCY CERTIFICATES. On the Closing Date, each Investor, each Noteholder and Lessee shall have received a certificate of the Trust Company, dated the Closing Date, as to the incumbency and signature of the officers of the Trust Company executing any Basic Document, satisfactory in form and substance to each Investor, each Noteholder and Lessee, executed by any Authorized Representative of the Trust Company. (m) ADVANCE REQUEST. Lessee shall have delivered to Lessor, not later than three (3) Business Days prior to the Closing Date and not earlier than five (5) Business Days prior to the Closing Date, the Advance Request. (n) ACCEPTANCE CERTIFICATE. Lessee shall have inspected to its satisfaction and accepted the Leased Equipment by delivering to Lessor the Acceptance Certificate. (o) INSURANCE. Lessor, each Noteholder and each Investor shall have received evidence confirming that insurance complying with SECTION 11.2 of the Lease is in full force and effect, and there shall be no past due premiums in respect of such insurance. 25 (p) FINANCING STATEMENTS. Such UCC financing statements shall have been prepared for filing as, in the reasonable opinion of counsel for the Lessor, each Noteholder and each Investor, are necessary or desirable to perfect the security interests created by, or pursuant to, the Basic Documents. (q) FINANCIAL STATEMENTS. The Agent shall have received the audited consolidated financial statements of the Guarantor for the 1999 Fiscal Year and the unaudited consolidated financial statements of the Guarantor for the Fiscal Quarter ended March 31, 2000. (r) GUARANTOR'S RATING. Each Noteholder and each Investor shall have received evidence that the Guarantor's Debt Rating is BBB+ or Baa2 or better from S&P and Moody's, respectively. (s) LITIGATION. There shall not be any actions, suits or proceedings pending, or to the knowledge of the Lessee or the Guarantor, threatened, with respect to the Lessee, the Guarantor, the Leased Equipment, the Basic Documents or the transactions contemplated by the Basic Documents (i) to set aside, restrain, enjoin or prevent the full performance of this Agreement, the other Basic Documents or the transactions contemplated hereby or thereby or (ii) that question or challenge the validity of the Basic Documents or the rights or remedies of the Lessor, any Noteholder, any Investor, the Trustee, the Collateral Agent or the Agent with respect to the obligations of the Lessee, the Guarantor or the Lessor under any Basic Document, the Leased Equipment or the Lessee Collateral under the Basic Documents. (t) LESSOR ACCOUNT. The Lessor shall have established the Lessor Account. SECTION 6. INDEMNITIES. 6.1 GUARANTOR GENERAL INDEMNITY. (a) CLAIMS INDEMNIFIED. Subject to the exclusions stated in paragraph (b) below, Guarantor agrees to indemnify, protect, defend and hold harmless on an After-Tax Basis, and does hereby indemnify each Indemnitee against any and all Claims imposed on, incurred or suffered by or asserted against such 26 Indemnitee in any way relating to or resulting from or arising out of or attributable to: (i) the purchase, acceptance, rejection, maintenance, possession, use, operation, return, disposition, delivery or condition of, or improvement to, the Leased Equipment or any part thereof or any interest therein; (ii) the Lease, the Guaranty or any other Basic Document, the execution or delivery thereof or the performance, enforcement, attempted enforcement or amendment, supplement or modification of any terms thereof, or the transactions contemplated thereby or resulting therefrom; (iii) the reasonable costs and expenses of any Indemnitee in connection with amendments or supplements to the Basic Documents requested or consented to by Lessee or required or necessary as a result of a Lease Event of Default; (iv) the non-performance or breach by Lessee or Guarantor of any obligation contained in this Agreement or any other Basic Document or the falsity or inaccuracy of any representation, warranty or obligation of Lessee or Guarantor contained in this Agreement or any other Basic Document; (v) the imposition of any Lien other than, with respect to a particular Indemnitee (or a Related Party), a Lien arising by or through such Indemnitee that is prohibited by the terms of this Agreement or any other Basic Document; (vi) any violation by, or liability relating to, the Lessee of, or under, any Applicable Law, whether now or hereafter in effect (other than any Environmental Law), or any action of any Governmental Authority or other Person taken with respect to the Leased Equipment, the Basic Documents or the interest of any Indemnitee under the Basic Documents; (vii) the continuing fees (if any) and expenses of the Lessor and the Trustee (including the reasonable compensation and expenses of their 27 counsel, accountants and other professional persons) arising out of the Lessor's or Trustee's discharge of their respective duties under or in connection with the Basic Documents; (viii) the continuing fees (if any) and expenses of the Agent, the Collateral Agent, the Depositary Bank, the Noteholders and the Investors (including the reasonable compensation and expenses of their counsel, accountants and other professional persons) arising out of the discharge of their respective duties under or in connection with the Basic Documents; (ix) the payment of any amount, the incurrence of any liability or the performance of any obligation by, or the setoff against any accounts or moneys of, the Lessor pursuant to SECTION 4.3, Section 4.5, SECTION 4.6 and SECTION 4.10; and (x) in any other way relating to the transactions contemplated by the Basic Documents. (b) CLAIMS EXCLUDED. Any Claim, to the extent relating to or resulting from or arising out of or attributable to any of the following, is excluded from Guarantor's agreement to indemnify any Indemnitee under this SECTION 6.1: (i) acts, omissions or events occurring after expiration or other termination of the Lease and, where required by the Lease, return of the Leased Equipment to Lessor or its designee in compliance with the provisions of the Lease (other than Claims arising under SECTION 6.1(a)(ii) relating directly or indirectly to the ComEd Consent); (ii) with respect to a particular Indemnitee and Related Parties, any offer, sale, assignment, transfer or other disposition (voluntary or involuntary) by or on behalf of (a) in the case of any Investor, of any of its interest in Lessor, or (b) in the case of Lessor, and if such action is taken at the written direction of any Investor, the Investor and Related Parties, of all or any of Lessor's interest in the Leased Equipment, or (c) in the case of the Noteholders, all or any of the Noteholders' interest in the Notes, unless such transfer is required by the terms of the Basic Documents or occurs in connection with the exercise of remedies during a Lease Event of Default; 28 (iii) with respect to any Indemnitee and Related Parties, any Claim attributable to the gross negligence or willful misconduct of the Indemnitee seeking indemnification or a Related Party of such Indemnitee; (iv) as to any Indemnitee, any Claim to the extent attributable to the noncompliance of such Indemnitee or a Related Party, with any of the terms of, or any misrepresentation or breach of warranty by such Indemnitee contained in any Basic Document or any breach by such Indemnitee or a Related Party of any covenant contained in any Basic Document attributable to such Indemnitee or Related Party, unless attributable to the Lessee or the breach by another Person of its obligations under the Basic Documents or imputed to the Indemnitee; (v) with respect to Agent, any Claim arising from a Lessor Lien attributable to it; (vi) any Claim relating to the payment of any amount to the extent such Indemnitee or a Related Party has expressly agreed in any Basic Document to pay such amount without a right of reimbursement; (vii) any Claim that is a Tax, or is a cost of contesting a Tax, whether or not Guarantor is required to indemnify therefor pursuant to SECTION 6.3; (viii) any failure on the part of the Trustee to distribute in accordance with the Trust Agreement any amounts received by it under the Basic Documents and distributable by it thereunder; (ix) any Claim relating to the costs and expenses of any Indemnitee in connection with any amendments or supplements to the Basic Documents requested by such Indemnitee or a Related Party if such amendment or supplement is not required by the Basic Documents; (x) any Claim, under any theory of law, with respect to any actual or potential environmental liability, including but not limited to, any actual or potential liability arising under or related to Environmental 29 Laws or Hazardous Materials, whether past, present or future, from the ownership, operation or use of the Leased Equipment; (xi) any Claim that constitutes principal and/or interest on the Notes or Yield on the Investor Contributions; and (xii) any Claim arising out of obligations expressly assumed by the Indemnitee seeking indemnification or a Related Party thereof; PROVIDED that the terms "omission," "gross negligence" and "willful misconduct," when applied with respect to any Indemnitee or any Affiliate of any thereof, shall not include any liability imputed as a matter of law to such Indemnitee solely by reason of such entity's interest in the Leased Equipment or such Indemnitee's failure to act in respect of matters which are or were the obligation of Lessee or Guarantor under this Agreement or any other Basic Document. (c) INSURED CLAIMS. Subject to the provisions of paragraph (e) of this SECTION 6.1, in the case of any Claim indemnified by Guarantor hereunder which is covered by a policy of insurance maintained by Guarantor, each Indemnitee agrees, unless it and each other Indemnitee shall waive its rights to indemnification (for itself and each Related Party thereto) in a manner reasonably acceptable to Guarantor, to cooperate, at the sole cost and expense of Guarantor, with insurers in exercise of their rights to investigate, defend or compromise such Claim. (d) CLAIMS PROCEDURE. Each Indemnitee shall promptly after such Indemnitee shall have actual knowledge thereof notify Guarantor in writing of any Claim as to which indemnification is sought; PROVIDED, that the failure so to notify Guarantor shall not reduce or affect Guarantor's liability which it may have to such Indemnitee under this SECTION 6.1. Any amount payable to any Indemnitee pursuant to this SECTION 6.1 shall be paid within fifteen (15) days after receipt of such written demand therefor from such Indemnitee, accompanied by a certificate of such Indemnitee stating in reasonable detail the basis for the indemnification thereby sought and (if such Indemnitee is not a party hereto) an agreement to be bound by the terms hereof as if such Indemnitee were such a party. The foregoing shall not, however, constitute an obligation to disclose confidential information of any kind without the execution of an appropri ate confidentiality agreement. Promptly after Guarantor receives notification of such Claim accompanied by a written statement 30 describing in reasonable detail the Claims which are the subject of and basis for such indemnity and the computation of the amount so payable, Guarantor shall notify such Indemnitee in writing whether it intends to pay, object to, compromise or defend any matter involving the asserted liability of such Indemnitee. Guarantor shall have the right to investigate and so long as no Lease Event of Default shall have occurred and be continuing, Guarantor shall have the right in its sole discretion, to defend or compromise any Claim for which indemnification is sought under this SECTION 6.1 which Guarantor acknowledges in writing to the applicable Indemnitee is subject to indemnification hereunder; PROVIDED that no such defense or compromise shall involve any danger of (i) foreclosure, sale, forfeiture or loss of, or imposition of a Lien on any part of the Leased Equipment or the impairment of the Leased Equipment in any material respect or (ii) any criminal liability being incurred or any material adverse effect on such Indemnitee; PROVIDED, FURTHER, that no Claim shall be compromised by Guarantor on a basis that admits any criminal violation or gross negligence or willful misconduct on the part of such Indemnitee without the express written consent of such Indemnitee; and PROVIDED, FURTHER, that to the extent that other Claims unrelated to the transactions contemplated by the Basic Documents are part of the same proceeding involving such Claim, Guarantor may assume responsibility for the contest or compromise of such Claim only if the same may be and is severed from such other Claims (and each Indemnitee agrees to use reasonable efforts to obtain such a severance). If Guarantor elects, subject to the foregoing, to compromise or defend any such asserted liability, it may do so at its own expense and by counsel selected by it and reasonably satisfactory to such Indemnitee. Upon Guarantor's election to compromise or defend such asserted liability and prompt notification to such Indemnitee of its intent to do so, such Indemnitee shall cooperate at Guarantor's expense with all reasonable requests of Guarantor in connection therewith and will provide Guarantor with all information not within the control of Guarantor as is reasonably available to such Indemnitee which Guarantor may reasonably request; PROVIDED, HOWEVER, that such Indemnitee shall not, unless otherwise required by Applicable Law, be obligated to disclose to Guarantor or any other Person, or permit Guarantor or any other Person to examine (i) any income tax returns of the Investors or (ii) any confidential information or pricing information not generally accessible by the public possessed by the Investors (and, in the event that any such information is made available, Guarantor shall treat such information as confidential and shall take all actions reasonably requested by such Indemnitee for purposes of obtaining a stipulation from all parties to the related proceeding providing for the confidential treatment of such information from all such parties). Where 31 Guarantor, or the insurers under a policy of insurance maintained by Guarantor, undertake the defense of such Indemnitee with respect to a Claim (with counsel reasonably satisfactory to each such Person such Indemnitee and without reservation of rights against such Indemnitee), no additional legal fees or expenses of such Indemnitee in connection with the defense of such Claim shall be indemnified hereunder unless such fees or expenses were incurred at the request of Guarantor or such insurers. Notwithstanding the foregoing, an Indemnitee may participate at its own expense in any judicial proceeding controlled by Guarantor pursuant to the preceding provisions, but only to the extent that such party's participation does not in the reasonable opinion of counsel to Guarantor interfere with such control; PROVIDED, HOWEVER, that such party's participation does not constitute a waiver of the indemnification provided in this SECTION 6.1; PROVIDED, FURTHER, that if and to the extent that (i) such Indemnitee is advised by counsel that an actual or potential conflict of interest exists where it is advisable for such Indemnitee to be represented by separate counsel or (ii) there is a risk that such Indemnitee may be indicted or otherwise charged in a criminal complaint and such Indemnitee informs Guarantor that such Indemnitee desires to be represented by separate counsel, such Indemnitee shall have the right to control its own defense of such Claim and the reasonable fees and expenses of such defense (including, without limitation, the reasonable fees and expenses of such separate counsel) shall be borne by Guarantor. So long as no Lease Event of Default shall have occurred and be continuing, no Indemnitee shall enter into any settlement or other compromise with respect to any Claim without the prior written consent of Guarantor unless (i) the Indemnitee waives its rights to indemnification hereunder or (ii) Guarantor has not acknowledged its indemnity obligation with respect thereto and there is a significant risk that a default judgment will be entered against such Indemnitee. Nothing contained in this SECTION 6.1(d) shall be deemed to require an Indemnitee to contest any Claim or to assume responsibility for or control of any judicial proceeding with respect thereto. (e) SUBROGATION. To the extent that a Claim indemnified by Guarantor under this SECTION 6.1 is in fact paid in full by Guarantor or an insurer under an insurance policy maintained by Guarantor, Guarantor (so long as no Lease Event of Default shall have occurred and be continuing) or such insurer shall be subrogated to the rights and remedies of the Indemnitee on whose behalf such Claim was paid to the extent of such payment (other than rights of such Indemnitee under insurance policies maintained at its own expense) with respect to the transaction or event giving rise to such Claim. Should an Indemnitee receive any refund, in whole 32 or in part, with respect to any Claim paid by Guarantor hereunder, it shall promptly pay over to Guarantor the lesser of (i) the amount refunded reduced by the amount of any Tax incurred by reason of the receipt or accrual of such refund and increased by the amount of any Tax (but not in excess of the amount of such reduction) saved as a result of such payment or (ii) the amount Guarantor or any of its insurers has paid in respect of such Claim; PROVIDED that, so long as a Lease Event of Default shall have occurred and is continuing such amount may be held by Lessor as security for Lessee's or Guarantor's obligations under the Lease and the other Basic Documents. Any Person seeking indemnity under this SECTION 6.1 who is not a party to this Agreement shall agree to the terms and conditions set forth in this SECTION 6.1 as a condition to making any such claim for indemnity under this SECTION 6.1. 6.2 LESSEE GENERAL INDEMNITY. (a) CLAIMS INDEMNIFIED. Subject to the exclusions stated in paragraph (b) below, Lessee agrees to indemnify, protect, defend and hold harmless on an After-Tax Basis, and does hereby indemnify each Lessee Indemnitee against any and all Claims imposed on, incurred or suffered by or asserted against such Indemnitee in any way relating to or resulting from or arising out of or attributable to: (i) the purchase, acceptance, rejection, maintenance, possession, use, operation, return, disposition, delivery or condition of, or improvement to, the Leased Equipment or any part thereof or any interest therein; (ii) the Lease, the Guaranty or any other Basic Document, the execution or delivery thereof or the performance, enforcement, attempted enforcement or amendment, supplement or modification of any terms thereof, or the transactions contemplated thereby or resulting therefrom; (iii) the reasonable costs and expenses of any Lessee Indemnitee in connection with amendments or supplements to the Basic Documents requested or consented to by Lessee or required or necessary as a result of an Event of Default; 33 (iv) the non-performance or breach by Lessee or Guarantor of any obligation contained in this Agreement or any other Basic Document or the falsity or inaccuracy of any representation, warranty or obligation of Lessee or Guarantor contained in this Agreement or any other Basic Document; (v) the imposition of any Lien other than, with respect to a particular Indemnitee (or a Related Party), a Lien arising by or through such Indemnitee that is prohibited by the terms of this Agreement or any other Basic Document; (vi) any violation by, or liability relating to, the Lessee of, or under, any Applicable Law, whether now or hereafter in effect (other than any Environmental Law), or any action of any Governmental Authority or other Person taken with respect to the Leased Equipment, the Basic Documents or the interest of any Indemnitee under the Basic Documents; (vii) the continuing fees (if any) and expenses of the Lessor and the Trustee (including the reasonable compensation and expenses of their counsel, accountants and other professional persons) arising out of the Lessor's or Trustee's discharge of their respective duties under or in connection with the Basic Documents; (viii) the continuing fees (if any) and expenses of the Agent, the Collateral Agent, the Depositary Bank, the Noteholders and the Investors (including the reasonable compensation and expenses of their counsel, accountants and other professional persons) arising out of the discharge of their respective duties under or in connection with the Basic Documents; (ix) the payment of any amount, the incurrence of any liability or the performance of any obligation by, or the setoff against any accounts or moneys of, the Lessor pursuant to SECTION 4.3, Section 4.5, SECTION 4.6 and SECTION 4.10; and (x) in any other way relating to the transactions contemplated by the Basic Documents. 34 (b) CLAIMS EXCLUDED. Any Claim, to the extent relating to or resulting from or arising out of or attributable to any of the following, is excluded from Lessee's agreement to indemnify any Lessee Indemnitee under this SECTION 6.2: (i) acts, omissions or events occurring after expiration or other termination of the Lease and, where required by the Lease, return of the Leased Equipment to Lessor or its designee in compliance with the provisions of the Lease (other than Claims arising under SECTION 6.2(a)(ii) relating directly or indirectly to the ComEd Consent); (ii) with respect to a particular Lessee Indemnitee and Related Parties, any offer, sale, assignment, transfer or other disposition (voluntary or involuntary) by or on behalf of (a) in the case of any Investor, of any of its interest in Lessor, or (b) in the case of Lessor, and if such action is taken at the written direction of any Investor, the Investor and Related Parties, of all or any of Lessor's interest in the Leased Equipment, or (c) in the case of the Noteholders, all or any of the Noteholders' interest in the Notes, unless such transfer is required by the terms of the Basic Documents or occurs in connection with the exercise of remedies during an Event of Default; (iii) with respect to any Lessee Indemnitee and Related Parties, any Claim attributable to the gross negligence or willful misconduct of the Lessee Indemnitee seeking indemnification or a Related Party of such Lessee Indemnitee; (iv) as to any Lessee Indemnitee, any Claim attributable to the noncompliance of such Lessee Indemnitee or a Related Party, with any of the terms of, or any misrepresentation or breach of warranty by such Lessee Indemnitee contained in any Basic Document or any breach by such Lessee Indemnitee or a Related Party of any covenant contained in any Basic Document attributable to such Lessee Indemnitee or Related Party, unless attributable to the Lessee or the breach by another Person of its obligations under the Basic Documents or imputed to the Lessee Indemnitee; (v) with respect to Agent, any Claim arising from a Lessor Lien attributable to it; 35 (vi) any Claim relating to the payment of any amount to the extent such Lessee Indemnitee or a Related Party has expressly agreed in any Basic Document to pay such amount without a right of reimbursement; (vii) any Claim that is a Tax, or is a cost of contesting a Tax, whether or not Guarantor is required to indemnify therefor pursuant to SECTION 6.3; (viii) any failure on the part of the Trustee to distribute in accordance with the Trust Agreement any amounts received by it under the Basic Documents and distributable by it thereunder; (ix) any Claim relating to the costs and expenses of any Lessee Indemnitee in connection with any amendments or supplements to the Basic Documents requested by such Lessee Indemnitee or a Related Party if such amendment or supplement is not required by the Basic Documents; (x) any Claim that constitutes principal and/or interest on the Notes or Yield on the Investor Contributions; and (xi) any Claim arising out of obligations expressly assumed by the Lessee Indemnitee seeking indemnification or a Related Party thereof; PROVIDED that the terms "omission," "gross negligence" and "willful misconduct," when applied with respect to any Lessee Indemnitee or any Affiliate of any thereof, shall not include any liability imputed as a matter of law to such Lessee Indemnitee solely by reason of such entity's interest in the Leased Equipment or such Lessee Indemnitee's failure to act in respect of matters which are or were the obligation of Lessee or Guarantor under this Agreement or any other Basic Document. (c) INSURED CLAIMS. Subject to the provisions of paragraph (e) of this SECTION 6.2, in the case of any Claim indemnified by Lessee hereunder which is covered by a policy of insurance maintained by Lessee, each Lessee Indemnitee agrees, unless it and each other Lessee Indemnitee shall waive its rights to indemnification (for itself and each Related Party thereto) in a manner reasonably acceptable 36 to Lessee, to cooperate, at the sole cost and expense of Lessee, with insurers in exercise of their rights to investigate, defend or compromise such Claim. (d) CLAIMS PROCEDURE. Each Lessee Indemnitee shall promptly after such Lessee Indemnitee shall have actual knowledge thereof notify Lessee in writing of any Claim as to which indemnification is sought; PROVIDED, that the failure so to notify Lessee shall not reduce or affect Lessee's liability which it may have to such Lessee Indemnitee under this SECTION 6.2. Any amount payable to any Lessee Indemnitee pursuant to this SECTION 6.2 shall be paid within fifteen (15) days after receipt of such written demand therefor from such Lessee Indemnitee, accompanied by a certificate of such Lessee Indemnitee stating in reasonable detail the basis for the indemnification thereby sought and (if such Lessee Indemnitee is not a party hereto) an agreement to be bound by the terms hereof as if such Lessee Indemnitee were such a party. The foregoing shall not, however, constitute an obligation to disclose confidential information of any kind without the execution of an appropriate confidentiality agreement. Promptly after Lessee receives notification of such Claim accompanied by a written statement describing in reasonable detail the Claims which are the subject of and basis for such indemnity and the computation of the amount so payable, Lessee shall notify such Lessee Indemnitee in writing whether it intends to pay, object to, compromise or defend any matter involving the asserted liability of such Lessee Indemnitee. Lessee shall have the right to investigate and so long as no Event of Default shall have occurred and be continuing, Lessee shall have the right in its sole discretion, to defend or compromise any Claim for which indemnification is sought under this SECTION 6.2 which Lessee acknowledges in writing to the applicable Lessee Indemnitee is subject to indemnification hereunder; PROVIDED that no such defense or compromise shall involve any danger of (i) foreclosure, sale, forfeiture or loss of, or imposition of a Lien on any part of the Leased Equipment or the impairment of the Leased Equipment in any material respect or (ii) any criminal liability being incurred or any material adverse effect on such Lessee Indemnitee; PROVIDED, FURTHER, that no Claim shall be compromised by Lessee on a basis that admits any criminal violation or gross negligence or willful misconduct on the part of such Lessee Indemnitee without the express written consent of such Lessee Indemnitee; and PROVIDED, FURTHER, that to the extent that other Claims unrelated to the transactions contemplated by the Basic Documents are part of the same proceeding involving such Claim, Lessee may assume responsibility for the contest or compromise of such Claim only if the same may be and is severed from such other Claims (and each Lessee Indemnitee agrees to use reasonable efforts to obtain such a severance). If 37 Lessee elects, subject to the foregoing, to compromise or defend any such asserted liability, it may do so at its own expense and by counsel selected by it and reasonably satisfactory to such Lessee Indemnitee. Upon Lessee's election to compromise or defend such asserted liability and prompt notification to such Lessee Indemnitee of its intent to do so, such Lessee Indemnitee shall cooperate at Lessee's expense with all reasonable requests of Lessee in connection therewith and will provide Lessee with all information not within the control of Lessee as is reasonably available to such Lessee Indemnitee which Lessee may reasonably request; PROVIDED, HOWEVER, that such Lessee Indemnitee shall not, unless otherwise required by Applicable Law, be obligated to disclose to Lessee or any other Person, or permit Lessee or any other Person to examine (i) any income tax returns of the Investors or (ii) any confidential information or pricing information not generally accessible by the public possessed by the Investors (and, in the event that any such information is made available, Lessee shall treat such information as confidential and shall take all actions reasonably requested by such Lessee Indemnitee for purposes of obtaining a stipulation from all parties to the related proceeding providing for the confidential treat ment of such information from all such parties). Where Lessee, or the insurers under a policy of insurance maintained by Lessee, undertake the defense of such Lessee Indemnitee with respect to a Claim (with counsel reasonably satisfactory to each such Person such Lessee Indemnitee and without reservation of rights against such Lessee Indemnitee), no additional legal fees or expenses of such Lessee Indemnitee in connection with the defense of such Claim shall be indemnified hereunder unless such fees or expenses were incurred at the request of Lessee or such insurers. Notwithstanding the foregoing, an Lessee Indemnitee may participate at its own expense in any judicial proceeding controlled by Lessee pursuant to the preceding provisions, but only to the extent that such party's participation does not in the reasonable opinion of counsel to Lessee interfere with such control; PROVIDED, HOWEVER, that such party's participation does not constitute a waiver of the indemnification provided in this SECTION 6.2; PROVIDED, FURTHER, that if and to the extent that (i) such Lessee Indemnitee is advised by counsel that an actual or potential conflict of interest exists where it is advisable for such Lessee Indemnitee to be represented by separate counsel or (ii) there is a risk that such Lessee Indemnitee may be indicted or otherwise charged in a criminal complaint and such Lessee Indemnitee informs Lessee that such Lessee Indemnitee desires to be represented by separate counsel, such Lessee Indemnitee shall have the right to control its own defense of such Claim and the reasonable fees and expenses of such defense (including, without limitation, the reasonable fees and expenses of such separate counsel) shall be borne by Lessee. 38 So long as no Lease Event of Default shall have occurred and be continuing, no Lessee Indemnitee shall enter into any settlement or other compromise with respect to any Claim without the prior written consent of Lessee unless (i) the Lessee Indemnitee waives its rights to indemnification hereunder or (ii) Lessee has not acknowledged its indemnity obligation with respect thereto and there is a significant risk that a default judgment will be entered against such Lessee Indemnitee. Nothing contained in this SECTION 6.2(e) shall be deemed to require an Lessee Indemnitee to contest any Claim or to assume responsibility for or control of any judicial proceeding with respect thereto. (e) SUBROGATION. To the extent that a Claim indemnified by Lessee under this SECTION 6.2 is in fact paid in full by Lessee or an insurer under an insurance policy maintained by Lessee, Lessee (so long as no Event of Default shall have occurred and be continuing) or such insurer shall be subrogated to the rights and remedies of the Lessee Indemnitee on whose behalf such Claim was paid to the extent of such payment (other than rights of such Lessee Indemnitee under insurance policies maintained at its own expense) with respect to the transaction or event giving rise to such Claim. Should an Lessee Indemnitee receive any refund, in whole or in part, with respect to any Claim paid by Lessee hereunder, it shall promptly pay over to Lessee the lesser of (i) the amount refunded reduced by the amount of any Tax incurred by reason of the receipt or accrual of such refund and increased by the amount of any Tax (but not in excess of the amount of such reduction) saved as a result of such payment or (ii) the amount Lessee or any of its insurers has paid in respect of such Claim; PROVIDED that, so long as a Lease Event of Default shall have occurred and is continuing such amount may be held by Lessor as security for Lessee's obligations under the Lease and the other Basic Documents. Any Person seeking indemnity under this SECTION 6.2 who is not a party to this Agreement shall agree to the terms and conditions set forth in this SECTION 6.2 as a condition to making any such claim for indemnity under this SECTION 6.2. 6.3 GENERAL TAX INDEMNITY. (a) INDEMNITY. Except as provided in paragraph (b), Guarantor agrees to indemnify on an After-Tax Basis each Indemnitee and to hold each Indemnitee harmless from and to defend each Indemnitee against all Taxes that are imposed upon any Indemnitee or the Leased Equipment or upon any Basic Document 39 or interest therein, arising out of, in connection with or relating to, any of the following: (i) the construction, financing, refinancing, acquisition, operation, warranty, ownership, use, possession, maintenance, repair, lease, condition, alteration, modification, restoration, refurbishing, return, purchase, sale or other disposition, insuring, sublease, or other use or non-use of the Leased Equipment or any part thereof; (ii) the manufacture, design, purchase, acceptance, rejection, delivery or condition of, or improvement to, the Leased Equipment or any part or any component thereof, or any interest therein; (iii) the Lease, the execution or delivery thereof, or the performance, enforcement or amendment of any terms thereof; or (iv) the payment or receipt of Rent; (v) the structuring of this transaction in the manner contemplated herein and in the other Basic Documents rather than as a direct loan between the Noteholders and Lessee; or (vi) otherwise in connection with the transactions contemplated by the Basic Documents. (b) EXCLUDED TAXES. The indemnity provided for in paragraph (a) above shall not extend to any of the following Taxes (the "EXCLUDED TAXES"): (i) Taxes imposed on, based on or measured by gross or net income or receipts or capital or net worth of the Indemnitee (other than sales, use, property, ad valorem, rental, stamp, transfer, excise, license and value added taxes, and other than income or franchise tax imposed by the State in which the Leased Equipment or any part or component thereof is located upon an Indemnitee or its Affiliates under the law of the State in which the Leased Equipment is located; 40 (ii) Taxes attributable to any period after expiration or other termination of the Lease; PROVIDED that this clause (ii) shall not apply with respect to any payments arising prior to the expiration or other termination of the Lease but which are paid after such period; (iii) Taxes imposed on an Indemnitee attributable to the gross negligence or willful misconduct of such Indemnitee or any Related Party of such Indemnitee; (iv) Taxes in the nature of capital gain, accumulated earnings, personal holding company, excess profits, succession or estate, minimum, alternative minimum, preference, franchise, conduct of business and other similar taxes (other than franchise tax imposed by the State in which the Leased Equipment or any part or component thereof is located upon an Indemnitee or its Affiliates under the law of the State in which the Leased Equipment is located; (v) Taxes imposed on an Indemnitee that arise out of, or are caused by, any act or omission of such Indemnitee (or any Related Party thereof) that is expressly prohibited by any Basic Document or by a breach by such Indemnitee (or any Related Party thereof) of any of its representations, warranties or covenants under any Basic Document; (vi) Taxes arising out of, or caused by, any voluntary assignment, sale, transfer or other voluntary disposition, or any involuntary transfer or disposition resulting from a bankruptcy or similar proceeding for relief of debtors in which such Indemnitee is a debtor, by (or a foreclosure by a creditor of) Lessor, unless such transfer or disposition occurs during the continuance of a Lease Event of Default; (vii) Taxes imposed on any assignee or successor-in-interest to an Indemnitee to the extent any such Taxes exceed the Taxes that would have been imposed had no assignment or transfer taken place determined under the law as in effect on the date of transfer; PROVIDED that this exclusion shall not apply to the computation of the gross-up amounts necessary to make a payment on an After-Tax Basis, nor to a transferee, assignee or successor in 41 interest that acquires the interest of an Indemnitee pursuant to a transfer or disposition during the continuance of a Lease Event of Default; (viii) Taxes that are included as a part of Transaction Costs; (ix) Taxes imposed on, based on, or measured by any compensation that any Trustee receives for its services; (x) Taxes imposed on the Lessor or Owner Participant resulting from Lessor not being treated as a grantor trust or a nonentity for federal, state or local income tax purposes; (xi) Taxes attributable to the failure of the Indemnitee to comply with certification, information, documentation, reporting or other similar requirements concerning the nationality, residence, identity, connection with the jurisdiction imposing such Taxes or other similar matters; PROVIDED that the foregoing exclusion shall only apply if such Indemnitee is eligible and obligated to comply with such requirement and shall have been given timely written notice of such requirement by Guarantor, however, such written notice shall not be required with respect to the certification, information, documentation and reporting requirements of SECTION 4.7(c) and SECTION 6.6; (xii) Taxes imposed on an Indemnitee to the extent that the Indemnitee's breach of its contest obligations under SECTION 6.4 effectively precludes Lessee's ability to contest the Taxes; (xiii) Taxes imposed on any Indemnitee resulting from an amendment, modification, supplement or waiver to any Basic Document which was not requested by Lessee or Guarantor or to which Lessee or Guarantor is not a party and the Indemnitee (or, in the case of the Contributor, Lessor, if acting at the express direction of the Contributor) is a party; (xiv) Taxes imposed under Section 4975 of the Code, Section 406 of ERISA or any comparable laws of any governmental authority to the extent resulting from action by such Indemnitee; 42 (xv) Taxes imposed to the extent such Taxes result from the Indemnitee (and in the case of Lessor, only if acting at the written direction of the Contributor) being organized under the laws of a jurisdiction other than the United States or any State thereof; (xvi) Any Taxes imposed on an Indemnitee to the extent that such taxes would not have been imposed but for the activities of such Indemnitee unrelated to the transactions contemplated hereby; (xvii) Taxes imposed on an Indemnitee in the nature of interest, penalties, fines and additions to tax (i) payable as a result of such Indemnitee's failure to file, in a procedurally proper manner and on a timely basis, any tax reports, returns or statements as to which Lessee has timely notified such Indemnitee in writing of the requirement to file, unless such failure is otherwise caused by the failure of Lessee to fulfill its obligations, if any, with respect to such return (including provision of information sufficient to enable such Indemnitee to file such report, return or statement), or (ii) to the extent not attributable to or resulting from Taxes for which an indem nity is provided hereunder; and (xviii) Taxes for as long as such Taxes are being contested pursuant to the contest provisions contained in SECTION 6.3(g). (c) PAYMENT. Each payment required to be made by Guarantor to an Indemnitee pursuant to this SECTION 6.3 shall be paid either (i) when due directly to the applicable taxing authority by Guarantor if it is permitted to do so, or (ii) where direct payment is not permitted and with respect to gross up amounts in immediately available funds to such Indemnitee by the latest of (A) fifteen (15) days following Guarantor's receipt of the Indemnitee's written demand for the payment (which demand shall be accompanied by a statement of the Indemnitee describing in reasonable detail the Taxes for which the Indemnitee is demanding indemnity and the computation of such Taxes), (B) in the case of amounts which are being contested pursuant to such paragraph (g), fifteen (15) days following the time and in accordance with a final determination of such contest or (C) in the case of any indemnity demand for which Guarantor has requested review and determination pursuant to paragraph below, the completion of such review and determination, but in no event later than the date which is three (3) Business Days prior to the date 43 payment of such Taxes is due. Any amount payable to Guarantor pursuant to paragraph (e) or (f) below shall be paid within fifteen (15) days after the Indemnitee realizes a Tax Benefit (as defined below) giving rise to a payment under paragraph (e) or receives a refund or credit giving rise to a payment under paragraph (f), as the case may be, and shall be accompanied by a statement of the Indemnitee computing in reasonable detail the amount of such payment. Upon the final determination of any contest pursuant to paragraph (g) below in respect of any Taxes for which Guarantor has made a Tax Advance (as defined below), the amount of Guarantor's obligation under paragraph (a) above shall be determined as if such Tax Advance had not been made. Any obligation of Guarantor under this SECTION 6.3 and the Indemnitee's obligation to repay the Tax Advance will be satisfied first by set off against each other, and any difference owing by either party will be paid within ten (10) days of such final determination. (d) INDEPENDENT EXAMINATION. Within fifteen (15) days after Guarantor receives any computation from the Indemnitee, Guarantor may request in writing that an independent public accounting firm selected by the Indemnitee and reasonably acceptable to Guarantor review and determine on a confidential basis the amount of any indemnity payment by Guarantor to the Indemnitee pursuant to this SECTION 6.3 or any payment by an Indemnitee to Guarantor pursuant to paragraph (e) or (f) below. The Indemnitee and Guarantor shall cooperate with such accounting firm and supply it with all information reasonably necessary for the accounting firm to conduct such review and determination, PROVIDED that such accounting firm shall agree in writing in a manner satisfactory to the Indemnitee, or Guarantor, as the case may be, to maintain the confidentiality of such information, and PROVIDED FURTHER that neither any Indemnitee nor Guarantor shall be required to disclose any of its tax returns or books that such Indemnitee or Guarantor, as the case may be, reasonably deems to be confidential in connection with such verification, and the parties hereto agree that such Indemnitee, or Guarantor, as the case may be, shall have sole control over the positions taken with respect to such party's tax returns and filings. The fees and disbursements of such accounting firm will be paid by Guarantor; PROVIDED that such fees and disbursements will be paid by the Indemnitee if the accountants determine that the present value of the total payments as calculated by the Indemnitee is more than 105 percent of the present value of the correct payments (such present values in each case to be determined by the Discount Rate). In the event such accounting firm determines that such computations are incorrect, then such firm shall determine what it believes to be the correct computations. The PARTICIPATION AGREEMENT 44 computations of the accounting firm shall be final, binding and conclusive upon Guarantor and the Indemnitee. The parties hereto agree that the independent public accounting firm's sole responsibility shall be to verify the computation of any payment pursuant to this SECTION 6.3 and that matters of interpretation of this Agreement are not within the scope of the independent accountant's responsibility. Such accounting firm shall be requested to make its determination within thirty (30) days. (e) TAX BENEFIT. If, as the result of any Taxes paid or indemnified against by Guarantor under this SECTION 6.3, the aggregate Taxes actually paid by the Indemnitee in connection with such payment for any tax able year and not subject to indemnification pursuant to this SECTION 6.3 are less (whether by reason of a deduc tion, credit, allocation or apportionment of income or otherwise) than the amount of such Taxes that otherwise would have been payable by such Indemnitee (a "TAX BENEFIT"); then to the extent such Tax Benefit was not taken into account in determining the amount of indemnification payable by Guarantor under paragraph (a) above and provided no Lease Event of Default shall have occurred and be continuing (in which event the payment provided under this SECTION 6.3(e) shall be deferred until the Lease Event of Default has been cured), such Indemnitee shall pay to Guarantor the lesser of (A) (y) the amount of such Tax Benefit, plus (z) an amount equal to any United States federal, state or local income tax benefit resulting to the Indemnitee from the payment under clause (y) above and this clause (z) (determined using the same assumptions as set forth in the second sentence under the definition of After-Tax Basis) and (B) the amount of the indemnity paid pursuant to this SECTION 6.3 giving rise to such Tax Benefit, provided that any excess of the amount described in clause (A) over the amount described in clause (B) shall be carried forward and applied to reduce pro tanto any subsequent obligations of Guarantor to make payment to such Indemnitee pursuant to this SECTION 6.3. If it is subsequently determined that the Indemnitee was not entitled to such Tax Benefit, the portion of such Tax Benefit that is required to be repaid or recaptured will be treated as Taxes for which Guarantor must indemnify the Indemnitee pursuant to this SECTION 6.3 without regard to paragraph (b) hereof. (f) REFUND. If an Indemnitee obtains a refund or credit or would have received such refund or credit but for a counterclaim or other claim not indemnified by Guarantor hereunder against which such refund or credit has not been applied (an "offset refund or credit") of all or part of any Taxes paid, reimbursed or 45 advanced by Guarantor pursuant to this SECTION 6.3, the Indemnitee shall pay to Guarantor within fifteen (15) days of such receipt, or in the case of an offset refund or credit, within fifteen (15) days of the resolution of such contest (x) the amount of such refund or credit (net of any Tax payable by the Indemnitee as a result of the receipt or accrual of such refund or credit) plus (y) an amount equal to any Tax Benefit realized by such Indemnitee by reason of such payment to Guarantor (determined using the same assumptions as set forth in the second sentence under the definition of After-Tax Basis), PROVIDED that (A) if at the time such payment is due to Guarantor a Lease Event of Default shall have occurred and be continuing, such amount shall not be payable until such Lease Event of Default has been cured, and (B) the amount payable to Guarantor pursuant to this sentence shall not exceed the amount of the indemnity payment in respect of such refunded or credited Taxes that was made by Guarantor (and such excess shall be carried forward and applied to reduce pro tanto any subsequent obligations of Guarantor to make payments to such Indemnitee pursuant to this SECTION 6.3). If it is subsequently determined that the Indemnitee was not entitled to such refund or credit, the portion of such refund or credit that is required to be repaid or recaptured will be treated as Taxes for which Guarantor must indemnify the Indemnitee pursuant to this SECTION 6.3 without regard to paragraph (b) hereof. If, in connection with a refund or credit of all or part of any Taxes paid, reimbursed or advanced by Guarantor pursuant to this SECTION 6.3, an Indemnitee receives an amount representing interest on such refund or credit, the Indemnitee shall pay to Guarantor within fifteen (15) days (1) the amount of such interest that shall be fairly attributable to such Taxes paid, reimbursed or advanced by Guarantor prior to the receipt of such refund or credit (net of Taxes payable in respect of the receipt or accrual of such interest) and (2) any Tax savings resulting from payments made by the Indemnitee under this SECTION 6.3. (g) CONTEST. (i) NOTICE OF CONTEST. If a written claim is made by any taxing authority against an Indemnitee for any Taxes with respect to which Guarantor may be required to indemnify against hereunder (a "TAX CLAIM"), such Indemnitee shall give Guarantor written notice of such Tax Claim promptly after its receipt, and shall furnish Guarantor with copies of such Tax Claim and all other writings received from the taxing authority to the extent relating to such claim, provided that failure so to notify Guarantor shall not relieve Guarantor of any obligation to indemnify the Indemnitee hereunder 46 except to the extent such failure effectively precludes Guarantor from contesting such Tax. The Indemnitee shall not pay such Tax Claim until at least thirty (30) days after providing Guarantor with such written notice, unless (a) the Indemnitee is required to do so by law or regulation and (b) in the written notice described above, the Indemnitee has notified Guarantor of such requirement. (ii) CONTROL OF CONTEST. Subject to subsection (g)(iii) below, Guarantor will be entitled to contest (acting through counsel selected by Guarantor and reasonably satisfactory to the Indemnitee), and control the contest of, any Tax Claim if (i) such Tax Claim may be segregated procedurally and contested independently from tax claims for which Guarantor is not obligated to indemnify the Indemnitee, PROVIDED that if the Indemnitee reasonably determines at any time that permitting Guarantor to conduct or continue to conduct such contest could have material adverse business or other consequences to such Indemnitee, such Indemnitee shall have the right to control or reassert control over such contest, or (ii) the Indemnitee requests that Guarantor control such contest; PROVIDED that in the case of any such contest pursuant to (i) or (ii) Guarantor shall use all reasonable efforts to con test such Tax Claim in its own name, and PROVIDED FURTHER that such contest shall be at Guarantor's sole cost and expense. In connection with any Lessee controlled contest, Guarantor shall consult in good faith with the Indemnitee and its counsel and shall provide the Indemnitee with copies of any reports or claims issued by the relevant auditing agent or taxing authority, but the decisions regarding what actions to be taken shall be made by Guarantor in its sole judgment. In the case of all other Tax Claims, the Indemnitee will contest the Tax Claim at Guarantor's expense if Guarantor shall request that the Tax be contested if such Tax Claim is for an amount of at least $25,000 (in accordance with subsection (g)(iii) below), and the following rules shall apply with respect to such contest: (1) the Indemnitee will control the contest of such Tax Claim in good faith (acting through counsel selected by the Indemnitee and reasonably satisfactory to Guarantor), 47 (2) at Guarantor's written request, if payment is made to the applicable taxing authority, the Indemnitee shall use all reasonable efforts to obtain a refund thereof in appropriate administrative or judicial proceedings, and (3) the Indemnitee conducting such contest shall consult with and keep reasonably informed Guarantor and its designated counsel with respect to such Tax Claim and shall consider and consult in good faith with Guarantor regarding any request (a) to resist payment of Taxes if practical and (b) not to pay such Taxes except under protest if protest is necessary and proper, but the decision regarding what actions to be taken shall be made by the Indemnitee in its sole judgment. (4) Notwithstanding paragraph (3), above, the Indemnitee shall not otherwise settle, compromise or abandon such contest without Guarantor's prior written consent except as provided in paragraph (g)(iv) below. (iii) CONDITIONS OF CONTEST. Notwithstanding the foregoing, no contest with respect to a Tax Claim will be required or permitted pursuant to this SECTION 6.3, and Guarantor shall be required to pay the applicable Taxes without contest, unless: (1) within thirty (30) days after notice by the Indemnitee to Guarantor of such Tax Claim, Guarantor shall request in writing to the Indemnitee that such Tax Claim be contested, provided that if a shorter period is required for taking action with respect to such Tax Claim and the Indemnitee notifies Guarantor of such requirement, Guarantor shall be required to request such contest within such shorter period, and such Indemnitee shall take no action for as long as it is legally able to do so, (2) no Lease Event of Default has occurred and is continuing, (3) there is no risk of sale, forfeiture or loss of, or the creation of a Lien (other than a Permitted Lien) on the Leased Equipment 48 or any interest therein as a result of such Tax Claim; PROVIDED that this clause (3) shall not apply if Guarantor shall have posted and maintained a bond or otherwise provided security for Guarantor's obligations under SECTION 6.3 satisfactory to the Indemnitee in its reasonable discretion, or the Tax is fully paid in either manner specified in clause (5) below, (4) there is no risk of imposition of any criminal penalties, (5) if such contest involves payment of such Tax, Guarantor will either advance to the Indemnitee on an interest-free basis and with no after-tax cost to such Indemnitee (a "TAX ADVANCE") or pay such Indemnitee the amount payable by Guarantor pursuant to SECTION 6.3(a) above with respect to such Tax, and such Indemnitee shall promptly pay to Guarantor any net Tax Benefit recognized which results from any imputed interest deduction arising from such interest free Tax Advance plus any net Tax Benefit recognized which result from making any such payment, and (6) Guarantor agrees to pay (and pays on demand) and with no after-tax cost to such Indemnitee all reasonable costs, losses and expenses incurred by the Indemnitee in connection with the contest of such claim (including, without limitation, all reasonable legal, accounting and investigatory fees and disbursements). (iv) WAIVER OF INDEMNIFICATION. Notwithstanding anything to the contrary contained in this SECTION 6.3, the Indemnitee at any time may elect to decline to take any action or any further action with respect to a Tax Claim and may in its sole discretion settle or compromise any contest with respect to such Tax Claim without Guarantor's consent if the Indemnitee: (1) waives its right to any indemnity payment by Lessee pursuant to this SECTION 6.3 in respect of such Tax Claim (and any other claim for Taxes with respect to any other taxable year the contest of which is effectively precluded by the Indemnitee's declining to take action with respect to the Tax Claim), and 49 (2) promptly repays to Guarantor any Tax Advance and any amount paid to such Indemnitee under SECTION 6.3(a) above in respect of such Taxes. Except as provided in the preceding sentence, any such waiver shall be without prejudice to the rights of the Indemnitee with respect to any other Tax Claim. (h) REPORTS. (i) If any report, statement or return is required to be filed by an Indemnitee with respect to any Tax that is subject to indemnification under this SECTION 6.3, Guarantor will (1) notify the Indemnitee in writing of such requirement not later than thirty (30) days prior to the date such report, statement or return is required to be filed (determined without regard to extensions) and (2) either (y) if permitted by applicable law, prepare such report, statement or return for filing by Guarantor in such manner as will show the ownership of the Leased Equipment by Guarantor for United States federal, state and local income tax purposes (if applicable), send a copy of such report, statement or return to the Indemnitee and timely file such report, statement or return with the appropriate taxing authority, or (z) if so directed by the Indemnitee or in any event if practicable and if the return to be filed reflects only information in respect of the transactions contemplated by the Basic Documents, prepare and furnish to such Indemnitee not later than 30 days prior to the date such report, statement or return is required to be filed (determined without regard to extensions) a proposed form of such report, statement or return for filing by the Indemnitee. (ii) Each of the Indemnitee or Guarantor, as the case may be, will timely provide the other, at Guarantor's expense, with all information in its possession that the other party may reasonably require and request to satisfy its obligations under this paragraph (h), but only if and to the extent that such Indemnitee is legally entitled to furnish such information. (i) NON-PARTIES. If an Indemnitee is not a party to this Agreement, Guarantor may require such Indemnitee to agree in writing, in a form reasonably acceptable to Guarantor, to the terms of this SECTION 6 (to the extent applicable 50 to such Indemnitee) prior to making any payment to such Indemnitee under this SECTION 6. 6.4 GROSS UP. If an Indemnitee shall not be entitled to a corresponding and equal deduction with respect to any payment or Tax which Guarantor is required to pay or reimburse under SECTION 6 (each such payment or reimbursement, an "original payment") and which original payment constitutes income to such Indemnitee, then Guarantor shall pay to such Indemnitee on demand the amount of such original payment on a gross-up basis such that, after subtracting all Taxes imposed on such Indemnitee with respect to such original payment by Guarantor (including any Taxes otherwise excluded by SECTION 6.3 and assuming for this purpose that such Indemnitee was subject to taxation at the applicable Federal, state or local marginal rates in effect for the year in which such income is taxable), such payments shall be equal to the original payment to be received. 6.5 TAX RETURNS. Guarantor will provide such information reasonably requested by an Indemnitee, or required to enable an Indemnitee to fulfill its tax filing requirements with respect to the transactions contemplated by the Basic Documents. In the event that any return, statement or report is required to be made or filed with respect to any Tax imposed on Guarantor, or indemnified against by Guarantor pursuant to SECTION 6.3, Guarantor shall notify such Indemnitee of such requirement and (i) to the extent permitted by law (unless otherwise required by law or requested by the Indemnitee) prepare and file in its own name such return, statement or report and furnish the Indemnitee with a copy of such return, statement or report; (ii) where such return, statement or report is required to be in the name of, or filed by, such Indemnitee, or the Indemnitee otherwise requests that such return, statement or report be filed in its name, prepare and furnish such return, statement or report for filing by such Indemnitee in such manner as shall be satisfactory to the Noteholders, and provide the same to the Indemnitee for filing no later than fifteen (15) days prior to the due date of such return, statement or report; or (iii) where such return, statement or report is required to reflect items in addition to Taxes indemnified against by Guarantor under SECTION 6.3 as determined by such Indemnitee, provide such Indemnitee with information in a form and manner reasonably acceptable to such Indemnitee within a reasonable time sufficient to permit such return, statement or report to be properly and timely filed. Lessor shall forward to Guarantor at its address listed in SECTION 21.5 copies of all assessment and valuation notices it receives within five (5) days of receipt; PROVIDED that Lessor's failure to deliver 51 such notices on a timely basis shall not relieve Guarantor of any obligations hereunder. 6.6 WITHHOLDING TAX EXEMPTION. At least five (5) Business Days prior to the first date on which any Rent is payable hereunder or under any other Basic Document for the account of any Noteholder or Investor not incorporated under the laws of the United States or a state thereof, such Noteholder or Investor agrees that it will have delivered to Guarantor and Lessor two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI, certifying in either case that such Noteholder or Investor is entitled to receive payments under this Agreement and the other Basic Documents with out deduction or withholding of any United States Federal income taxes unless such Noteholder or Investor advises Guarantor and Lessor that, as a result of a change in an applicable treaty, law, or regulation, or in the judicial or administrative interpretations thereof, occurring after the Closing Date, that it may no longer lawfully deliver such Forms. Each Noteholder and Investor which so delivers a Form W-8BEN or W-8ECI further undertakes to deliver to Guarantor and Lessor two additional copies of such form (or a successor form) on or before the date that such form expires W-8ECI W-8BEN or becomes obsolete or inaccurate (either from a lapse in time or a change in circumstance) or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by Guarantor or Lessor, in each case certifying that such Noteholder or Investor, as the case may be, is entitled to receive payments under this Agreement and the other Basic Documents without deduction or withholding of any United States Federal income taxes, unless prior to the date on which any such delivery would otherwise be required any change in treaty, law or regulation or in the interpretation thereof by the applicable taxing Authority occurring after such Noteholder or Investor became a Noteholder or Investor hereunder has rendered all such forms inapplicable or has prevented such Noteholder or Investor from duly completing and delivering any such form with respect to it and such Noteholder or Investor advises Guarantor and Lessor that, as a result of such change in treaty, law, regulation or interpretation, it is not capable of receiving payments without any withholding of United States Federal income tax. 52 6.7 ENVIRONMENTAL INDEMNITY. Lessee hereby agrees to indemnify, hold harmless and defend each Indemnitee from and against any and all Environmental Claims. "ENVIRONMENTAL CLAIMS" shall mean all Claims (including, without limitation, third party Claims for personal injury or real or personal property damage), administrative and judicial proceedings (including informal proceedings) and orders, judgments, remedial action requirements, enforcement actions of any kind, and all reasonable and documented costs and expenses incurred in connection therewith (including but not limited to, reasonable and documented attorneys' fees and expenses), including but not limited to, all costs incurred in connection with any investigation or monitoring of site conditions or any clean-up, remedial, removal or restoration work by any federal, state or local government agency, arising in whole or in part, out of: (i) the presence on or under the Leased Equipment of any Hazardous Material, or any releases or discharges of any Hazardous Material on, under, from or onto the Leased Equipment, (ii) any activity, including construction, carried on or undertaken on or off the Leased Equipment, whether by Lessee or any predecessor in title or any employees, agents, contractors or subcontractors of Lessee or any predecessor in title, or any other Persons (other than such Indemnitee), in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport or disposal of any Hazardous Materials that are located or present on or under or that migrate, flow, percolate, diffuse or in any way move onto or under the Leased Equipment, (iii) loss of or damage to any property or the environment (including clean-up costs, response costs, remediation and removal costs, costs of corrective action, costs of financial assurance, fines and penalties and natural resource damages), or death or injury to any Person, and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required by or under Environmental Laws, in connection with the Leased Equipment or any activities undertaken thereon, or (iv) in connection with the Leased Equipment, any activities undertaken thereon or the actions of Lessee or Guarantor, any claim 53 concerning lack of compliance with Environmental Laws, or any act or omission causing an environmental condition that requires remediation or would allow any Authority to record a Lien on the land records; but Lessee shall not be required to indemnify any Indem nitee under this SECTION 6.7 for (1) any Claim to the extent such Claim results from the willful misconduct or gross negligence of such Indemnitee, or any Affiliate of such Indemnitee (it being understood that, unless the applicable Indemnitee was in possession of the Leased Equipment and caused the Claim, Lessee shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee, or any Affiliate of such Indemnitee, caused or contributed to such Claim) or (2) any Claim to the extent attributable to acts or events occurring after the Lease Expiration Date or the return or remarketing of the Leased Equipment. The indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under the Lease or any other Basic Document. 6.8 LIMITATION ON ENVIRONMENTAL INDEMNITY. Not withstanding any other provision of this Agreement, each Indemnitee hereby waives any right and agrees not to take any action against the Guarantor, under any theory of law, with respect to any actual or potential environmental liability, including but not limited to, any actual or potential liability arising under or related to Environmental Laws or Hazardous Materials, whether past, present or future from the ownership, operation or use of the Leased Equipment. SECTION 7. CERTAIN LEASE RELATED PROVISIONS. 7.1 RENEWAL LEASE TERMS. (a) So long as the Lease has not been terminated under SECTION 12.1 thereof, Lessee may, not less than 360 days prior to the Lease Expiration Date, provide written notice (the "RENEWAL NOTICE") to Lessor, the Agent and Guarantor of its election to renew the Lease (the "RENEWAL LEASE") with respect to all of the Leased Equipment for an additional term of five (5) years commencing on the last day of the Lease Term (the "RENEWAL TERM"). In the event Lessee elects such Renewal Term, Lessee shall have a ninety (90) day period after such election to agree with the Financing Parties upon the terms of the Renewal Lease (including, but not limited to, (i) the interest rates on the Notes and the Yield Rate for the Certifi- 54 cates, which interest rates and Yield Rate shall be determined in the individual sole discretion of the Financing Parties and shall be based upon the then-current market conditions and the then-current credit ratings of Lessee and Guarantor, (ii) the Renewal Rent, which shall be sufficient to enable Lessor to pay interest and principal and Yield due and owing on the Notes and the Certificates, as applicable, and (iii) the adjusted amount of the Residual Deficiency Payment, which shall be determined by the Financing Parties in their individual sole discretion) and to satisfy the following conditions: (x) each Financing Party shall have received the End of Term Appraisal satisfactory in form and substance to each Financing Party in its individual sole discretion, (y) the Guaranty shall be acceptable to the Financing Parties in their individual sole discretion and (z) the Renewal Lease shall qualify as an "operating lease" for Lessee in accordance with GAAP. The parties hereto agree to cooperate in good faith to amend the Basic Documents, as may be necessary, to reflect the agreed terms relating to the Renewal Lease and other amendments as are necessary as a result of a Lease renewal pursuant to this SECTION 7.1(a). (b) In the event that, within 90 days of Lessee's delivery of a Renewal Notice, Lessee shall have been unable to negotiate terms of the Renewal Lease as described in clause (a) above, or the conditions set forth in clause (a) shall not have been satisfied, Lessee shall not be entitled to enter into a Renewal Lease and shall notify Lessor, on or prior to the Purchase Decision Date, of Lessee's intention (i) to exercise the Lessee Purchase Option (as defined in the Lease) and/or (ii) to exercise the Sale Option (as defined in the Lease). In the event the Lessee does not elect the Lessee Purchase Option and/or the Sale Option on or prior to the Purchase Decision Date, the Lessee shall be deemed to have elected to exercise the Lessee Purchase Option with respect to all of the Leased Equipment. 7.2 LIMITATION ON LESSEE'S LIABILITY. Notwithstanding any provision to the contrary contained in the Lease or other Basic Documents, the Lessee's liability for Rent (other than Supplemental Rent payable by Lessee pursuant to SECTION 6.7) due on any Rent Payment Date or other date (a "DUE DATE") shall be limited to an amount equal to Free Cashflow attributable to the period commencing on the immediately preceding Due Date and ending on such Due Date. Nothing contained in the Lease or other Basic Documents shall create any liability of the Lessee for any Rent (other than Supplemental Rent payable by Lessee pursuant to SECTION 6.7) in excess of such amounts; PROVIDED, that the Guarantor shall be liable under the 55 Guaranty for any Rent (other than Supplemental Rent payable by Lessee pursuant to SECTION 6.7) payable on any Rent Payment Date. SECTION 8. LESSEE REPRESENTATIONS AND WARRANTIES. Lessee hereby represents and warrants to each of the other parties hereto, as of the Closing Date as follows: 8.1 ORGANIZATION; POWER; COMPLIANCE WITH LAW AND CONTRACTUAL OBLIGATIONS. It (a) is validly organized and existing and in good standing under the laws of the State of Delaware, (b) is duly qualified to do business and is in good standing under the laws of each jurisdiction where the nature of its business requires such qualification, (c) has all requisite power and authority and holds all material requisite governmental licenses, permits and other approvals to enter into and perform its obligations under each Basic Document to which it is a party and to conduct its business substantially as currently conducted by it and (d) is in compliance with all laws, governmental regulations, court decrees, orders and Contractual Obligations applicable to it, except, with respect to CLAUSES (b), (c) and (d) to the extent that the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect with respect to the Lessee. 8.2 NON-CONTRAVENTION. The execution, delivery and performance by it of each Basic Document to which it is a party do not: (a) contravene its Organic Documents; (b) contravene any law, governmental regulation, court decree or order or material Contractual Obligation binding on or affecting it; or (c) result in, or require the creation or imposition of, any Lien (except as expressly provided for in the Basic Documents) on any of its properties. 8.3 GOVERNMENTAL APPROVAL; REGULATION. (a) No authorization, consent, approval, license, exemption of or filing or registration with any court or governmental authority or regulatory body ("GOVERNMENTAL APPROVAL") is required for it to execute and perform its obligations 56 under any Basic Document to which it is a party, except for those which have been duly obtained or effected. No material Governmental Approval is required for it to carry on its business, except for those which have been duly obtained or effected. (b) It is not subject to any regulation as an "investment company" subject to the Investment Company Act of 1940, as amended, or as a "holding company" or a "subsidiary company" or an "affiliate" of a "holding company" subject to the Public Utility Holding Company Act of 1935, as amended ("PUHCA"), except that Guarantor is a "subsidiary company" of Edison International which is a "holding company" that is exempt from all regulation under PUHCA (except SECTION 9(a)(2) thereof) pursuant to SECTION 3(a) thereof. 8.4 VALIDITY. Each Basic Document executed by it on or prior to the date hereof constitutes, and each Basic Document executed by it after the date hereof will constitute, its legal, valid and binding obligation enforceable in accordance with its terms (except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity). 8.5 LITIGATION. There is no pending or, to its knowledge, threatened litigation, action, proceeding, or labor controversy affecting Lessee or any of its properties, businesses, assets or revenues, which, if adversely determined (taking into account any insurance proceeds payable under a policy where the insurer has accepted coverage without any reservations), would have a Material Adverse Effect with respect to Lessee or which purports to adversely affect the legality, validity or enforce ability of this or any Basic Document. 8.6 OWNERSHIP OF PROPERTIES; LIENS. It owns good and marketable title to, or a valid leasehold interest in, or an other enforceable interest in all properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights) purported to be owned, leased or held by it, free and clear of all Liens, charges or claims (including infringement claims with respect to patents, trademarks, copyrights and the like) except as permitted pursuant to the Basic Documents. 8.7 TAXES. It has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be 57 owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. 8.8 PENSION AND WELFARE PLANS. During the consecutive twelve- month period prior to the date of the execution and delivery of this Agreement, no steps have been taken by it to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under SECTION 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could reasonably be expected to result in the incurrence by it or any member of the Controlled Group of any liability (other than liabilities incurred in the ordinary course of maintaining the Pension Plan), fine or penalty other than any liability, fine or penalty which could reasonably be expected to have a Material Adverse Effect with respect to Lessee. Neither it nor any member of the Controlled Group has any contingent liability with respect to any post-retirement benefit under a Welfare Plan which could reasonably be expected to have a Material Adverse Effect with respect to Lessee other than liability for continuation coverage described in Part 6 of Title I of ERISA. 8.9 ENVIRONMENTAL WARRANTIES. (a) All facilities and property owned or leased by it or any of its Subsidiaries or Partnerships in connection with the Leased Equipment have been, and continue to be, owned or leased by it and its Subsidiaries in compliance with all applicable Environmental Laws, except where the failure so to comply would not have, or be reasonably expected to have, a Material Adverse Effect with respect to Lessee or any of its Subsidiaries or Partnerships. (b) There are no pending or, to its knowledge, threatened: (i) material claims, complaints, notices or requests for information received by it from governmental authorities with respect to any alleged violation by it of any applicable Environmental Law in connection with the ownership or operation of the Leased Equipment that, singly, or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect on Lessee or any of its Subsidiaries or Partnerships; or (ii) material complaints, notices or inquiries to it from governmental authorities regarding potential liability under any applicable 58 Environmental Law in connection with the ownership or operation of the Leased Equipment that, singly, or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect on Lessee or any of its Subsidiaries or Partnerships. (c) There have been no Releases of Hazardous Materials at, on or under any property owned or leased by it in connection with the ownership or operation of the Leased Equipment that, singly, or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect with respect to Lessee or any of its Subsidiaries or Partnerships. (d) It has obtained and is in compliance with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary for its business in connection with the ownership or operation of the Leased Equipment, except where the failure to obtain, maintain or comply with such permits, certificates, approvals, licenses or other authorizations would not have, or be reasonably expected to have, a Material Adverse Effect with respect to Lessee or any of its Subsidiaries or Partnerships. (e) To its knowledge, the property owned or leased by it in connection with the ownership or operation of the Leased Equipment is not listed or proposed for listing (with respect to owned property only) on the National Priorities List, on the CERCLIS or on any similar state list of sites requiring investigation or clean-up, except where such listing would not reasonably be expected to have a Material Adverse Effect with respect to Lessee or any of its Subsidiaries or Partnerships. (f) No conditions exist at, on or under any property owned or leased by it in connection with the ownership or operation of the Leased Equipment which, with the passage of time, or the giving of notice or both, would give rise to liability under any applicable Environmental Law, which liability would have, or may reasonably be expected to have, a Material Adverse Effect with respect to Lessee or any of its Subsidiaries or Partnerships. 59 8.10 REGULATIONS T, U AND X. Neither it nor any of its Affiliates will, directly or indirectly, use any of the proceeds of the Advances or the purchase by Lessor of the Leased Equipment for the purpose of purchasing or carrying any "margin security" or "margin stock" within the meaning of Regulation T, U or X of the Board of Governors of the Federal Reserve System, respectively, or for the purpose of reducing or retiring any indebtedness originally incurred to purchase or carry a margin security or margin stock or for any other purpose which might cause any of the transactions contemplated by this Agreement or any other Basic Document to constitute a "purpose credit" within the meaning of Regulation T, U or X of the Board of Governors of the Federal Reserve System, or for the purpose of purchasing or carrying any security, and neither it nor any of its Affiliates has taken or will otherwise take or permit any action by it or any of its Affiliates in connection with any of the transactions contemplated by any of the Basic Documents that would involve a violation of Regulation T, U or X, or any other regulation of the Board of Governors of the Federal Reserve System. 8.11 ACCURACY OF INFORMATION. All material factual information heretofore or contemporaneously furnished by it in writing to Lessor, any Investor or any Noteholder for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such material written factual information hereafter furnished by it in writing to Lessor, any Investor, any Noteholder, the Agent, the Collateral Agent, the Depositary Bank or the Trustee will be, true and materially accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Agreement by the parties hereto, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary in order to make such information not materially misleading. 8.12 PERFECTION OF SECURITY INTEREST. Upon the filing of appropriate UCC financing statements with the Secretary of State of the State of Illinois and fixture financing statements in the real estate records in the offices of Cook County, Illinois, Du Page County, Illinois, Kane County, Illinois, Lake County, Illinois, Will County, Illinois and Winnebago County, Illinois, Lessor will have an enforceable, perfected security interest of record in the Lessee Collateral granted pursuant to the Lease. 60 8.13 CHIEF EXECUTIVE OFFICE OF LESSEE. The principal place of business and chief executive office, as such terms are used in Section 9-103(3) of the UCC, of Lessee is located at One Financial Place, 440 South LaSalle Street, Suite 3500, Chicago, Illinois 60605. 8.14 NO MATERIAL ADVERSE CHANGE. There has not occurred any event or condition having a Material Adverse Effect with respect to the Lessee since March 31, 2000. 8.15 NO DEFAULT. No Lease Default or Lease Event of Default attributable to it has occurred and is continuing. SECTION 9. GUARANTOR REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents and warrants to each of the other parties hereto, as of the Closing Date as follows: 9.1 ORGANIZATION; POWER; COMPLIANCE WITH LAW AND CONTRACTUAL OBLIGATIONS. It (a) is validly organized and existing and in good standing under the laws of the State of California, (b) is duly qualified to do business and is in good standing under the laws of each jurisdiction where the nature of its business requires such qualification, (c) has all requisite power and authority and holds all material requisite governmental licenses, permits and other approvals to enter into and perform its obligations under each Basic Document to which it is a party and to conduct its business substantially as currently conducted by it and (d) is in compliance with all laws, governmental regulations, court decrees, orders and Contractual Obligations applicable to it, except, with respect to clauses (b), (c) and (d) to the extent that the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect with respect to the Guarantor. 9.2 NON-CONTRAVENTION. The execution, delivery and performance by it of each Basic Document to which it is a party do not: (a) contravene its Organic Documents; (b) contravene any law, governmental regulation, court decree or order or material Contractual Obligation binding on or affecting it; or 61 (c) result in, or require the creation or imposition of, any Lien (except as expressly provided for in the Basic Documents) on any of its properties. 9.3 GOVERNMENTAL APPROVAL; REGULATION. (a) No Governmental Approval is required for it to execute and perform its obligations under any Basic Document to which it is a party, except for those which have been duly obtained or effected. No material Governmental Approval is required for it to carry on its business, except for those which have been duly obtained or effected. (b) It is not subject to any regulation as an "investment company" subject to the Investment Company Act of 1940, as amended, or as a "holding company" or a "subsidiary company" or an "affiliate" of a "holding company" subject to the Public Utility Holding Company Act of 1935, as amended ("PUHCA"), except that it is a "subsidiary company" of Edison International which is a "holding company" that is exempt from all regulation under PUHCA (except Section 9(a)(2) thereof) pursuant to Section 3(a) thereof. 9.4 VALIDITY. Each Basic Document executed by it on or prior to the date hereof constitutes, and each Basic Document executed by it after the date hereof will constitute, its legal, valid and binding obligation enforceable in accordance with its terms (except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity). 9.5 LITIGATION. There is no pending or, to its knowledge, threatened litigation, action, proceeding, or labor controversy affecting it, or any of its properties, businesses, assets or revenues, which, if adversely determined (taking into account any insurance proceeds payable under a policy where the insurer has accepted coverage without any reservations), would have a Material Adverse Effect with respect to Guarantor or which purports to adversely affect the legality, validity or enforceability of this or any Basic Document. 9.6 TAXES. It has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be 62 owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. 9.7 PENSION AND WELFARE PLANS. During the consecutive twelve- month period prior to the date of the execution and delivery of this Agreement, no steps have been taken by it to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could reasonably be expected to result in the incurrence by it or any member of the Controlled Group of any liability (other than liabilities incurred in the ordinary course of maintaining the Pension Plan), fine or penalty other than any liability, fine or penalty which could reasonably be expected to have a Material Adverse Effect with respect to it. Neither it nor any member of the Controlled Group has any contingent liability with respect to any post-retirement benefit under a Welfare Plan which could reasonably be expected to have a Material Adverse Effect with respect to it, other than liability for continuation coverage described in Part 6 of Title I of ERISA. 9.8 ACCURACY OF INFORMATION. All material factual information heretofore or contemporaneously furnished by it in writing to Lessor, any Investor or any Noteholder for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such material written factual information hereafter furnished by it in writing to Lessor, any Investor, any Noteholder, the Agent, the Collateral Agent, the Depositary Bank or the Trustee will be, true and materially accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Agreement by the parties hereto, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary in order to make such information not materially misleading. 9.9 FINANCIAL INFORMATION. The consolidated balance sheet of Guarantor as at December 31, 1999, and the related consolidated statement of income and cash flows of Guarantor, copies of which have been furnished to the Agent pursuant to SECTION 5.1(q) have been prepared in accordance with GAAP consistently applied, and present fairly the consolidated financial condition of Guarantor and its Subsidiar- 63 ies as at the dates thereof and the results of their operations for the periods then ended. 9.10 CHIEF EXECUTIVE OFFICE. The principal place of business and chief executive office of the Guarantor, and the place where the documents, accounts and records relating to the transactions contemplated by this Agreement and each other Basic Document are kept by the Guarantor, is located at 18101 Von Karman Ave., Suite 1700, Irvine, CA 92612. 9.11 NO MATERIAL ADVERSE CHANGE. There has not occurred any event or condition having a Material Adverse Effect with respect to the Guarantor and its Subsidiaries and Affiliates, taken as a whole, since March 31, 2000. 9.12 NO DEFAULT. No Lease Default or Lease Event of Default attributable to Guarantor, and no default under the Guaranty, has occurred and is continuing. SECTION 10. NOTEHOLDERS' AND INVESTORS' REPRESENTATIONS AND WARRANTIES. Each Investor and Noteholder represents and warrants, severally and only as to itself, to each of the other parties hereto, as of the Closing Date as follows: 10.1 ORGANIZATION; POWER; COMPLIANCE WITH LAW AND CONTRACTUAL OBLIGATIONS. It (a) is validly organized and existing and in good standing under the laws of the jurisdiction of its organization, (b) is duly qualified to do business and is in good standing under the laws of each jurisdiction where the nature of its business requires such qualification, (c) has all requisite power and authority and holds all material requisite governmental licenses, permits and other approvals to enter into and perform its obligations under each Basic Document to which it is a party and to conduct its business substantially as currently conducted by it and (d) is in compliance with all laws, governmental regulations, court decrees, orders and Contractual Obligations applicable to it, except, with respect to CLAUSES (b), (c) and (d), to the extent that the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect with respect to such Noteholder or Investor, as applicable. 10.2 NON-CONTRAVENTION. The execution, delivery and performance by it of each Basic Document to which it is a party do not: 64 (a) contravene its Organic Documents; (b) contravene any law, governmental regulation, court decree or order or material Contractual Obligation binding on or affecting it; or (c) result in, or require the creation or imposition of, any Lien (except as expressly provided for in the Basic Documents) on any of its properties. 10.3 GOVERNMENTAL APPROVAL; REGULATION. No Governmental Approval is required for it to execute and perform its obligations under any Basic Document to which it is a party, except for those which have been duly obtained or effected. No Governmental Approval is required for it to carry on its business, except for those which have been duly obtained or effected. 10.4 VALIDITY. Each Basic Document executed by it on or prior to the date hereof constitutes, and each Basic Document executed by it after the date hereof will constitute, its legal, valid and binding obligation enforceable in accordance with its terms (except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity). 10.5 LITIGATION. No litigation, investigation or proceeding of or before any arbitrator or Authority is pending or threatened by or, to its knowledge, against it with respect to any of the Basic Documents or any of the transactions contemplated hereby or thereby. 10.6 ERISA. (a) It is not and will not be purchasing any Certificates or Notes, as the case may be, with the assets of an "employee benefit plan" (as defined in SECTION 3(3) of ERISA) which is subject to Title I of ERISA, or a "plan" (as defined in SECTION 4975(e)(1) of the Code). (b) Each Investor and Noteholder, and each subsequent holder of any Certificate or Note, as the case may be, covenants that it will not, so long as no Lease Event of Default exists, dispose of the Certificate or Note to be purchased by it 65 or any interest therein (including, without limitation, any transfer by a change in the capacity in which such Investor or Noteholder holds its investment in such Certificates or Notes) to any Person unless (i) such Person shall (A) make the representation and warranty contained in SECTION 10.6(a) and (B) agree to be bound by this SECTION 10.6(b). 10.7 INVESTMENT IN CERTIFICATES OR NOTES. It is an "accredited investor" as defined in Rule 501(a)(1) promulgated under the Securities Act. It is acquiring its Certificate or Note, as the case may be, for its own account for investment and not with a view to any distribution (as such term is used in SECTION 2(11) of the Securities Act) thereof except as may be permitted by the Securities Act without registration, and if in the future it should decide to dispose of its Certificate or Note, it understands that it may do so only in compliance with the Securities Act and the rules and regulations of the SEC thereunder and any applicable state securities laws. Neither it nor anyone authorized to act on its behalf has taken or will take any action which would subject the issuance of any Certificate or Note or any interest in the Leased Equipment, the Trust Estate or the Lease to the registration requirements of SECTION 5 of the Securities Act and no representation or warranty contained in this SECTION 10.7 shall include or cover any action or inaction of Lessee or any Affiliate thereof whether or not purportedly on behalf of any Investor, Noteholder or Lessor or any of their respective Affiliates, but subject to the foregoing and SECTION 10.6(b), and subject to SECTION 5 of the Trust Agreement and SECTION 16 of the Lease, it is understood among the parties that the disposition of such Investor's or Noteholder's property, as the case may be, shall be at all times within its control. SECTION 11. LESSOR REPRESENTATIONS AND WARRANTIES. Lessor represents and warrants to each of the other parties hereto as of the Closing Date as follows: 11.1 DUE ORGANIZATION, ETC. Lessor is a duly organized and validly existing "business trust" as such term is defined in 12 Del.C. Section 3801(a) under the laws of the State of Delaware, is in good standing under the laws of the State of Delaware and has the power and authority to carry on its business as now conducted and to enter into and perform its obligations under this Agreement, each Basic Document to which it is a party and each other agreement, instrument and document executed and 66 delivered prior to the Closing Date in connection with, or as contemplated by, each such Basic Document. 11.2 AUTHORIZATION; NO CONFLICT. The execution, delivery and performance of each Basic Document to which it is a party has been duly authorized by all necessary action on its part and neither the execution and delivery thereof by Lessor, nor the consummation of the transactions contemplated thereby by Lessor, nor compliance by it with any of the terms and provisions thereof (i) requires or will require any approval (which approval has not been obtained) of any party or approval or consent of any trustee or holders of any indebtedness or obligations of Lessor, (ii) contravenes or will contravene any Applicable Law applicable to or binding on it as of the date hereof, (iii) does or will contravene or result in any breach of or constitute any default under, or result in the creation of any Lessor Lien upon any of the Leased Equipment, the Trust Agreement, any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which it or its properties may be bound or (iv) does or will require any action by any Authority. 11.3 ENFORCEABILITY, ETC. Each Basic Document to which it is a party has been duly executed and delivered by it and constitutes, or upon execution and delivery will constitute, a legal, valid and binding obligation enforceable against it in accordance with the terms thereof (except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity). 11.4 LITIGATION. No litigation, investigation or proceeding of or before any arbitrator or Authority is pending or, to its knowledge, threatened by or against Lessor (a) with respect to any of the Basic Documents or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a Material Adverse Effect with respect to Lessor. 11.5 ASSIGNMENT. Lessor has not assigned or transferred any of its right, title or interest in or under the Lease, any Basic Document or any of the Leased Equipment, except in accordance with the Basic Documents. 11.6 NO DEFAULT. Lessor is not in default under or with respect to any of its Contractual Obligations in any respect which could have a Material Adverse Effect 67 with respect to Lessor. No Credit Agreement Default or Credit Agreement Event of Default attributable to it has occurred and is continuing. 11.7 CHIEF PLACE OF BUSINESS. Lessor's chief place of business, chief executive office and office where the documents, accounts and records relating to the transactions contemplated by this Agreement and each other Basic Document are kept are located at c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration. 11.8 SECURITIES ACT. Neither Lessor nor any Person authorized by Lessor to act on its behalf has offered or sold any interest in the Leased Equipment, the Certificates or the Notes, or in any similar security or interest relating to the Leased Equipment, or in any security the offering of which for the purposes of the Securities Act would be deemed to be part of the same offering as the offering of the aforementioned securities to, or solicited any offer to acquire any of the same from, any Person, other than, in the case of the Notes, Agent, and neither Lessor nor any Person authorized by Lessor to act on its behalf will take any action which would subject the issuance or sale of any interest in any of the Leased Equipment, the Certificates or the Notes to the provisions of SECTION 5 of the Securities Act or require the qualification of any Basic Document under the Trust Indenture Act of 1939, as amended. 11.9 LESSOR LIENS. The Leased Equipment is free and clear of all Lessor Liens attributable to Lessor. 11.10 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT. Lessor is not (i) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, (ii) a "holding company," a "public utility company" or a "subsidiary company" of a "holding company" within the meaning of PUHCA, or (iii) subject to any other Applicable Law which purports to restrict or regulate its ability to borrow money. 11.11 GOVERNMENTAL ACTIONS. Assuming the representation and warranties of Lessee contained in SECTIONS 8.2, 8.3 and 8.9 are true, no authorization or approval or other action by, and no notice to or filing or registration with, any Authority is required for the due execution, delivery or performance by Lessor, as the case may 68 be, of the Trust Agreement, the Credit Agreement, the Notes, the Certificates, this Agreement, the Assignment Agreement or the other Basic Documents to which Lessor is or will be a party, other than any such authorization or approval or other action or notice or filing as has been duly obtained, taken or given. SECTION 12. REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE AND THE TRUST COMPANY. The Trust Company (only with respect to representations and warranties relating to the Trust Company) and the Trustee hereby severally represent and warrant that, as of the Closing Date: 12.1 DUE INCORPORATION; ETC. The Trust Company is a banking corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has the corporate power and authority, as the Trustee and/or in its individual capacity to the extent expressly provided herein or in the Trust Agreement, to enter into and perform its obligations under the Trust Agreement, this Agreement and each of the other Basic Documents to which it is or will be a party. 12.2 DUE AUTHORIZATION, ENFORCEABILITY; ETC. (a) (i) The Trust Agreement has been duly authorized, executed and delivered by the Trust Company, and (ii) assuming the due authorization, execution and delivery of the Trust Agreement by the Investors thereto, the Trust Agreement constitutes the legal, valid and binding obligation of the Trust Company, enforceable against it in its individual capacity or as Trustee, as the case may be, in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, arrangement, moratorium or other laws relating to or affecting the rights of creditors generally and by general principles of equity. (b) (i) This Agreement has been duly authorized, executed and delivered by the Trustee and the Trust Company, and (ii) assuming the due authorization, execution and delivery of this Agreement by each party hereto other than the Trustee and the Trust Company, this Agreement constitutes a legal, valid and binding obligation of the Trustee and the Trust Company, enforceable against the Trust Company or the Trustee, as the case may be, in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent conveyance, reorga- 69 nization, arrangement, moratorium or other laws relating to or affecting the rights of creditors generally and by general principles of equity. (c) (i) Each of the other Basic Documents to which the Trust Company or the Trustee is or will be a party has been or when executed and delivered will be duly authorized, executed and delivered by the Trust Company or the Trustee and (ii) assuming the due authorization, execution and delivery of each of the other Basic Documents by each party thereto other than the Trust Company or the Trustee, each of the other Basic Documents to which the Trust Company or the Trustee is or will be a party constitutes or when executed and delivered will constitute a legal, valid and binding obligation of the Trust Company or the Trustee, as the case may be, enforceable against the Trust Company or the Trustee in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, arrangement, moratorium or other laws relating to or affecting the rights of creditors generally and by general principles of equity. 12.3 NON-CONTRAVENTION. The execution and delivery by the Trust Company, in its individual capacity or as Trustee, as the case may be, of the Trust Agreement, this Agreement and the other Basic Documents to which it is or will be a party, the consummation by the Trust Company, in its individual capacity or as Trustee, as the case may be, of the transactions contemplated hereby and thereby, and the compliance by the Trust Company, in its individual capacity or as Trustee, as the case may be, with the terms and provisions hereof and thereof, do not and will not (i) contravene any Applicable Law of the State of Delaware or the United States governing the banking or trust powers of the Trust Company, the Trust Agreement or the Organic Documents of the Trust Company, or (ii) contravene the provisions of, or constitute a default by the Trust Company under, or result in the creation of any Lessor's Lien attributable to it in its individual capacity and unrelated to the transactions contemplated by the Basic Documents upon the Trust Estate under any indenture, mortgage or other material contract, agreement or instrument to which the Trust Company is a party or by which the Trust Company or its property is bound. 12.4 GOVERNMENTAL ACTIONS. Assuming the representations and warranties of Lessee contained in SECTIONS 8.2, 8.3 and 8.9 are true, no authorization or approval or other action by, and no notice to or filing or registration with, any Authority of the State of Delaware or the United States governing the banking or trust powers of the 70 Trust Company is required for the due execution, delivery or performance by the Trust Company or the Trustee, as the case may be, of the Trust Agreement, this Agreement or the other Basic Documents to which the Trust Company or the Trustee is or will be a party, other than any such authorization or approval or other action or notice or filing as has been duly obtained, taken or given. 12.5 LITIGATION. There is no pending or, to the actual knowledge of the Trust Company, threatened, action, suit, investigation or proceeding against the Trust Company either in its individual capacity or as the Trustee, as the case may be, before any Authority of the State of Delaware or the United States governing its banking and trust powers which, if determined adversely to it, would materially adversely affect the ability of the Trust Company, in its individual capacity or as Trustee, as the case may be, to perform its obligations under the Trust Agreement, this Agreement or the other Basic Documents to which it is or will be a party or would materially adversely affect the Leased Equipment or any interest therein or which would question the validity or enforceability of any Basic Document to which the Trust Company, in its individual capacity or as the Trustee, is or will be a party. 12.6 LIENS. The Trust Estate is free of any Lessor 's Liens attributable to the Trust Company or the Trustee. SECTION 13. GUARANTOR AFFIRMATIVE COVENANTS. Guarantor covenants with Lessor, each Investor and each Noteholder as follows: 13.1 FINANCIAL INFORMATION, REPORTS, NOTICES. Guarantor will furnish, or will cause to be furnished, to Lessor, copies of the following financial statements, reports, notices and information: (a) as soon as available and in any event within sixty (60) days after the end of each of the first three Fiscal Quarters of each Fiscal Year of Guarantor, unaudited consolidated balance sheets of Guarantor and its Subsidiaries as of the end of such Fiscal Quarter and unaudited consolidated statement of income and cash flows of Guarantor and its Subsidiaries for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such 71 Fiscal Quarter, certified by an Authorized Representative with responsibility for financial matters; (b) as soon as available and in any event within one hundred and twenty (120) days after the end of each Fiscal Year of Guarantor, a copy of the annual audited report for such Fiscal Year for Guarantor and its Subsidiaries, including therein consolidated balance sheets of Guarantor and its Subsidiaries as of the end of such Fiscal Year and consolidated statements of income and cash flows of Guarantor and its Subsidiaries for such Fiscal Year, and accompanied by the unqualified opinion of Arthur Andersen & Co. or other internationally recognized independent auditors selected by Guarantor which report shall state that such consolidated financial statements present fairly in all material respects the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior periods; (c) concurrently with the delivery of the financial statements referred to in SECTION 13.1(a), a certificate, executed by the controller, treasurer or chief financial officer of Guarantor, showing (in reasonable detail and with appropriate calculations and computations in all respects satisfactory to the Investors and Noteholders) compliance with the financial covenant set forth in SECTION 14.9; (d) as soon as possible and in any event within five (5) Business Days after any Authorized Representative obtains knowledge of the occurrence of each Lease Default or default under material agreements of Guarantor, a statement of such Authorized Representative setting forth details of such Lease Default or default and the action which Guarantor has taken and proposes to take with respect thereto; (e) as soon as possible and in any event within five (5) Business Days after (x) the occurrence of any material adverse development with respect to any litigation, action, proceeding, or labor controversy of the type described in SECTION 9.5 or (y) the commencement of any labor controversy, litigation, action, proceeding of the type described in SECTION 9.5, notice thereof and, upon request of the Investors and Noteholders copies of all non-privileged documentation relating thereto; (f) as soon as known, the occurrence of any Rating Event; and 72 (g) immediately upon becoming aware of the institution of any steps by the Guarantor or any other Person to terminate any Pension Plan (other than a standard termination under ERISA Section 4041(b)), or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Guarantor furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Guarantor or any member of the Controlled Group of any liability (other than liabilities incurred in the ordinary course of maintaining the Pension Plan), fine or penalty which liability could reasonably be expected to have a Material Adverse Effect on Guarantor, or any increase in the contingent liability of the Guarantor with respect to any post-retirement Welfare Plan benefit which has a Material Adverse Effect on Guarantor, notice thereof and copies of all documentation relating thereto. 13.2 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Guarantor will continue to engage in business of the same type as now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all material rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by SECTION 14.4. 13.3 COMPLIANCE WITH LAWS. Guarantor will comply in all material respects with all Applicable Law, such compliance to include the payment, before the same shall become delinquent, of all taxes, assessments and governmental charges imposed upon it or upon its property, except to the extent non-compliance would not have a Material Adverse Effect with respect to Guarantor. 13.4 BOOKS AND RECORDS; RIGHT OF INSPECTION. Guarantor will, and will cause each of its active Subsidiaries to, keep books and records which accurately reflect all of its business affairs and transactions. Guarantor will at any reasonable time and from time to time upon reasonable prior notice, permit Noteholders and Investors to examine and make copies of and abstracts from the records and books of account of Guarantor which books and records shall relate to the transactions contemplated by the Basic Documents; PROVIDED THAT by virtue of this SECTION 13.4 Guarantor shall not be deemed to have waived any right to confidential treatment of the information obtained, subject to the provisions of Applicable Law or court order. 73 13.5 OTHER INFORMATION. Guarantor will prepare, or cause to be prepared, and will furnish, or will cause to be furnished, to each of the Lessor and the Trustee such tax returns and Periodic Filings (as defined in the Trust Agreement) relating to the Lessor, and will advise the Lessor and the Trustee to make such elections as may from time to time be required or appropriate under any applicable Federal, state or local statute or rule of regulation thereunder, so as to maintain to the extent possible the Lessor's characterization set forth in SECTION 6.04 of the Trust Agreement. SECTION 14. GUARANTOR NEGATIVE COVENANTS. Guarantor covenants with Lessor, each Investor and each Noteholder as follows: 14.1 RESTRICTIONS ON SECURED INDEBTEDNESS. Guarantor will not create, incur, assume or suffer to exist any secured Indebtedness, except the Indebtedness incurred pursuant to this Agreement and the other Basic Documents, other than: (a) Capitalized Lease Liabilities and other secured Indebtedness of any kind whatsoever (including, without limitation, Indebtedness secured by a pledge of the stock of a Subsidiary not otherwise permitted under CLAUSE (b) of this SECTION 14.1) at any time outstanding not exceeding an aggregate principal amount equal to 10% of Net Tangible Assets; PROVIDED THAT any Indebtedness exceeding such amount may be secured pursuant to SECTION 14.2; and (b) Non-Recourse Debt with respect to which Guarantor has pledged the stock of a Subsidiary in order to secure a project financing obtained or being obtained after the Closing Date by such Subsidiary (or the Partnership in which such Subsidiary is a partner). 14.2 RESTRICTIONS ON LIENS. Guarantor will not create, incur, assume or suffer to exist any Lien upon any of its property, revenues or assets, whether now owned or hereafter acquired, except: (a) Liens granted to secure payment of Indebtedness of the type permitted and described in CLAUSE (b) of SECTION 14.1; 74 (b) Liens for taxes, assessments or other governmental charges or levies incurred in the ordinary course of business and not at the time delinquent or thereafter payable without penalty or which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (c) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (d) Liens incurred in the ordinary course of business in connection with workmen's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds; (e) judgment Liens in existence less than thirty (30) days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance maintained with responsible insurance companies; (f) Liens upon any property at any time directly owned by Guarantor to secure any Indebtedness of the nature described in CLAUSE (a) of SECTION 14.1 in excess of the amount otherwise permitted thereby; PROVIDED, that the obligations of the Basic Documents are equally and ratably secured with any and all such Indebtedness and with any other Indebtedness similarly entitled to be equally and ratably secured; (g) Liens imposed as a result of costs incurred by any federal, state or local governmental agency or any other Authority pursuant to any applicable Environmental Law; PROVIDED, that such Liens or costs are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on its books; and (h) any Lien existing on the property of Guarantor on the Closing Date. 75 In the event that Guarantor shall propose to create, incur, assume or suffer to exist any Lien upon any property at any time directly owned by it to secure any Indebtedness as contemplated by CLAUSE (f) above, Guarantor will give prior written notice thereof to Agent, who shall give notice to the Noteholders and the Investors. 14.3 INVESTMENTS. Guarantor will not, and will not permit any of its Subsidiaries to, make, incur, assume or suffer to exist any Investment in any other Person, except: (a) Investments existing on the Closing Date; (b) Cash Equivalent Investments, PROVIDED, HOWEVER, that any Investment which when made complies with the requirements of the definition of the term "CASH EQUIVALENT INVESTMENT" may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; (c) without duplication, Investments permitted as Indebtedness pursuant to SECTION 14.1; (d) Investments otherwise in the ordinary course of business; (e) Investments permitted pursuant to SECTION 14.4(b); and (f) Investments in Persons primarily engaged in the power generation, power sales or power transmissions business. 14.4 CONSOLIDATION, MERGER. Guarantor will not, and will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other Person, or purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof) in one or any series of transactions except: (a) any such Subsidiary may liquidate or dissolve voluntarily into, or may merge with and into, Guarantor or any other Subsidiary, and the assets or stock of any Subsidiary may be purchased or otherwise acquired by Guarantor or any other Subsidiary; 76 (b) so long as no Lease Default (by reason of the violation of SECTION 14.9) has occurred and is continuing or would occur after giving effect thereto, Guarantor or any of its Subsidiaries may purchase all or substantially all of the assets of any Person, or (in the case of any such Subsidiary) acquire such Person by merger; and (c) so long as no Lease Default or Lease Event of Default has occurred and is continuing or would occur after giving effect thereto, Guarantor may consolidate with or merge into any other Person, or convey, transfer or lease its properties and assets substantially as an entirety to any Person, or permit any Person to merge into or consolidate with Guarantor if Guarantor is the surviving entity or the surviving entity (i) unconditionally guarantees all obligations of the Lessee under the Lease pursuant to a guarantee agreement containing substantially the same provisions as the Guaranty and (ii) is an entity formed and existing under the laws of the United States of America and assumes the Obligations of Guarantor. 14.5 ASSET DISPOSITIONS. Guarantor will not, and will not permit any of its Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or grant options, warrants or other rights with respect to, all or any substantial part of its assets (including accounts receivable and capital stock of Subsidiaries) to any Person, unless: (a) such sale, transfer, lease, contribution or conveyance is in the ordinary course of its business; or (b) the aggregate net book value of such assets, together with the aggregate net book value of all other assets sold, transferred, leased, contributed or conveyed otherwise than in the ordinary course of business by Guarantor or any of its Subsidiaries pursuant to this SECTION 14.5(b) during the most recent 12-month period since the Closing Date, does not exceed 10% of Net Tangible Assets computed as of the end of the most recent quarter preceding such sale; PROVIDED, HOWEVER, that any such sales shall be disregarded for purposes of the limitation of this SECTION 14.5(b) if the proceeds of such sale are invested in assets in similar or related lines of business of Guarantor; and PROVIDED FURTHER, that Guarantor may sell or otherwise dispose of assets in excess of such 10% if the proceeds from such sales or dispositions, which are not so reinvested, are retained by Guarantor as cash or Cash Equivalent Investments. 77 14.6 TRANSACTIONS WITH AFFILIATES. Guarantor will not enter into, or cause, suffer or permit to exist any arrangement or contract with any of its Affiliates unless such arrangement or contract is fair and equitable to Guarantor and is an arrangement or contract of the kind which would be entered into by a prudent Person in the position of Guarantor with a Person which is not one of its Affiliates. 14.7 RESTRICTIVE AGREEMENTS. Guarantor will not, and will not permit any of its Subsidiaries to, enter into any agreement (excluding any Basic Document and any agreement governing any Indebtedness permitted by CLAUSE (b) of SECTION 14.1 as to the assets financed with the proceeds of such Indebtedness): (a) prohibiting the ability of Guarantor from amending or otherwise modifying any Basic Document; or (b) restricting the ability of any Subsidiary to make any payments, directly or indirectly, to Guarantor by way of dividend, advances, repayments of loans or advances, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments, or any other agreement or arrangement which restricts the ability of any such Subsidiary to make any payment, directly or indirectly, to Guarantor, in each case, where such prohibition or restriction has a Material Adverse Effect with respect to the Guarantor. 14.8 ERISA. Guarantor will not engage in any prohibited transactions under SECTION 406 of ERISA or under SECTION 4975 of the Code, which would subject Guarantor to any tax, penalty or other liabilities having a Material Adverse Effect with respect to the Guarantor. 14.9 FINANCIAL CONDITION. Guarantor will not permit its Tangible Net Worth to be less than $400,000,000 PLUS 25% of Guarantor's and its Subsidiaries' consolidated net income earned (without subtracting net losses) in each Fiscal Quarter commencing with the quarter ended December 31, 1999. 78 SECTION 15. LESSEE AFFIRMATIVE COVENANTS. Lessee covenants with Lessor, each Investor and each Noteholder as follows: 15.1 FINANCIAL INFORMATION, REPORTS, NOTICES. Lessee will furnish, or will cause to be furnished, to Lessor, copies of the following financial statements, reports, notices and information: (a) as soon as possible and in any event within five (5) Business Days after any Authorized Representative obtains knowledge of the occurrence of each Lease Default or default under material agreements of Lessee, a statement of such Authorized Representative setting forth details of such Lease Default or default and the action which Lessee has taken and proposes to take with respect thereto; and (b) as soon as possible and in any event within five (5) Business Days after (x) the occurrence of any material adverse development with respect to any litigation, action, proceeding, or labor controversy of the type described in SECTION 8.5 or (y) the commencement of any labor controversy, litigation, action, proceeding of the type described in SECTION 8.5, notice thereof and, upon request of the Investor and Noteholders, copies of all non-privileged documentation relating thereto. 15.2 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Lessee will continue to engage in business of the same type as now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all material rights, privileges and franchises necessary or desirable in the normal conduct of its business. 15.3 COMPLIANCE WITH LAWS. Lessee will comply in all material respects with all applicable law, rules, regulations and orders, such compliance to include the payment, before the same become delinquent, of all taxes, assessments and governmental charges imposed upon it or upon its property, except to the extent non-compliance would not have a Material Adverse Effect with respect to Lessee. 15.4 INSURANCE. Lessee shall maintain insurance as set forth in SECTION 11.2 of the Lease. 79 15.5 BOOKS AND RECORDS; RIGHT OF INSPECTION. (a) Lessee will keep books and records which accurately reflect all of its business affairs and transactions. Lessee will at any reasonable time and from time to time upon reasonable prior notice, permit Noteholders and Investors to examine and make copies of and abstracts from the records and books of account of Lessee, which books and records shall relate to the transactions contemplated by the Basic Documents; PROVIDED, THAT by virtue of this SECTION 15.5 Lessee shall not be deemed to have waived any right to confidential treatment of the information obtained, subject to the provisions of Applicable Law or court order. (b) During the Lease Term, Lessee shall permit the Noteholders and the Investors (and their agents) (at each such party's sole expense), during normal business hours and under conditions reasonably acceptable to Lessee (including the execution and delivery of appropriate confidentiality agreements and adherence to Lessee's safety and insurance procedures) upon reasonable and adequate prior notice, to visit and inspect the Leased Equipment and related records. 15.6 MAINTENANCE OF PROPERTIES. Lessee will maintain, preserve, protect and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted), and make necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times, unless Lessee determines in good faith that the continued maintenance of any of its properties or equipment is no longer economically desirable and except where the failure to do so would not have a Material Adverse Effect with respect to Lessee. 15.7 MAINTENANCE OF LEASED EQUIPMENT. Lessee shall maintain the Leased Equipment pursuant to the provisions of the Lease. 15.8 ENVIRONMENTAL COVENANT. Lessee will, in connection with its ownership and operation of the Leased Equipment: (a) use and operate the Leased Equipment in compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Materials in material 80 compliance with all applicable Environmental Laws, in each case where the failure to do so may reasonably be expected to have a Material Adverse Effect with respect to the Lessee; (b) promptly cure and have dismissed with prejudice to the reasonable satisfaction of the Noteholders and Investors any actions and proceedings relating to compliance with Environmental Laws where such action or proceeding may reasonably be expected to have a Material Adverse Effect with respect to the Lessee; PROVIDED that the Lessee may postpone such cure and dismissal during any period in which it is diligently pursuing any available appeals in such action or proceeding so long as such postponement would not be reasonably likely to have a Material Adverse Effect with respect to the Lessee; and (c) provide such non-privileged information as the Noteholders or Investors may reasonably request from time to time to evidence compliance with this SECTION 15.8. SECTION 16. LESSEE NEGATIVE COVENANT. Lessee covenants with Lessor, each Investor and each Noteholder as follows: 16.1 RESTRICTIONS ON LIENS. Lessee will not create, incur, assume or suffer to exist any Lien upon the Leased Equipment, except Liens created pursuant to the Basic Documents. 16.2 RESTRICTION ON EXTENSION OF COMED AGREEMENTS. Without the written consent of the Lessor, which shall not be unreasonably withheld, Lessee will not enter into any agreement the effect of which would be to renew or extend the ComEd Agreements or which would otherwise limit in any way the Lessor's rights in respect of the Leased Equipment. SECTION 17. LESSOR, TRUSTEE, TRUST COMPANY, INVESTOR AND NOTEHOLDER COVENANTS. Each of Lessor, Trust Company, Trustee, the Investor and each Noteholder covenants (as to itself and not jointly with any other Person) with each other party hereto, as follows: 81 17.1 COMPLIANCE WITH TRUST AGREEMENT. Each of Lessor, the Trust Company and the Trustee hereby covenants and agrees severally and as to itself only that it will: (a) comply with all the terms of the Trust Agreement applicable to it; and (b) not amend, supplement or otherwise modify SECTIONS 7.06 AND 10.06 of the Trust Agreement without the prior written consent of Lessee and Agent, so long as the Certificates and Notes are outstanding. 17.2 DISCHARGE OF LIENS. It will not create or permit to exist at any time, and will, at its own cost and expense, promptly take such action as may be necessary duly to discharge, or to cause to be discharged, all Lessor Liens attributable to it, and will cause restitution to be made to the Trust Estate in the amount of any diminution of the value thereof as a result of its failure to comply with its obligations under this SECTION 17.2. 17.3 TRUST AGREEMENT. Without prejudice to any right of Trustee under the Trust Agreement to resign as Trustee, or the right of the Investors under the Trust Agreement to remove the Trustee as Trustee, each of the Investors and Lessor hereby agrees with Lessee (a) not to terminate or revoke the trust created by the Trust Agreement except as permitted by SECTION 8.01 of the Trust Agreement before the later of the Lease Expiration Date or the payment in full of the obligations under the Certificates and (b) not to amend, supplement, terminate or revoke or otherwise modify any provision of the Trust Agreement before the Lease Expiration Date in such a manner as to materially and adversely affect the rights of Lessee under the Basic Documents. 17.4 SUCCESSOR TRUSTEE. Trustee, or any successor, may resign or be removed by the Investors as Trustee, a successor Trustee may be appointed, and a corporation may become Trustee under the Trust Agreement, only in accordance with the provisions of SECTION 7.06 of the Trust Agreement. Notwithstanding anything to the contrary contained in the Lease or the Trust Agreement, so long as no Lease Default or Lease Event of Default exists, the appointment of a successor Trustee shall be subject to the consent of Lessee (which consent shall not be unreasonably withheld or delayed). 82 17.5 INDEBTEDNESS; OTHER BUSINESS. Lessor shall not contract for, create, incur or assume any Indebtedness, or enter into any business or other activity, other than pursuant to and in accordance with the Basic Documents. 17.6 DEPRECIATION. Before the Lease Expiration Date, none of Lessor, any Noteholder or any Investor shall claim any federal or state tax attributes or benefits (including depreciation) relating to the Leased Equipment unless required to do so by an appropriate taxing authority or after a clearly applicable change in Applicable Law or as a protective response to a proposed adjustment by an Authority. If an appropriate taxing Authority requires Lessor, any Noteholder or any Investor to claim any such federal or state Tax attributes or benefits, such Person shall promptly notify Lessee and Guarantor thereof and shall permit Lessee and Guarantor to contest such requirement in a manner similar to the contest rights provided in, and subject to any applicable limitation to a contest contained in, SECTION 6.3. 17.7 QUIET ENJOYMENT. So long as the Lease remains in effect or so long as the obligations of Lessee arising hereunder have not been fully and finally discharged, Lessor, each Noteholder and each Investor covenants that it will not, through its own actions, interfere in Lessee's (or any sublessee's or assignee's) quiet enjoyment of the Leased Equipment during the term of the Lease, except during the occurrence and continuance of a Lease Event of Default. 17.8 NO LIENS. No Noteholder or Investor will create or permit to exist at any time, and each Noteholder and Investor will, at its own cost and expense, promptly take such action as may be necessary duly to discharge, or to cause to be discharged, all Lessor Liens attributable solely to such Noteholder's or Investor's, as the case may be, acts or failures to act. 17.9 CREDIT AGREEMENT. Provided that no Credit Agreement Event of Default is continuing, none of the Noteholders, Investors or Lessor shall consent to any amendment, supplement, waiver or other modification of the terms and provisions of the Credit Agreement, the Certificates, the Notes or the Trust Agreement, in each case without the prior written consent of Lessee, which consent shall not be unreasonably withheld or delayed; PROVIDED THAT no such amendment, supplement, waiver or other modification shall increase the obligations of Lessee or Guarantor under the Basic Documents without the prior written consent of Lessee or Guarantor. 83 SECTION 18. AGENT COVENANT. Agent will not directly or indirectly create, incur, assume or suffer to exist any Lessor Lien attributable to it and arising out of events or conditions not related to its rights in the Lease or the administration function under the Basic Documents, and will promptly notify the Investors, the Noteholders, the Trustee, Lessee and Lessor in writing of the imposition of any such Lien of which it has actual knowledge and shall promptly, at its own expense, take such action as may be necessary to duly discharge such Lessor Lien. SECTION 19. AGENT. 19.1 ACTIONS. (a) Each Noteholder and Investor hereby appoints Citicorp North America, Inc. as its Administrative Agent ("AGENT") under and for the purposes of each Basic Document. Each Noteholder and Investor authorizes Agent to act on behalf of such Noteholder or Investor, as the case may be, under each Basic Document and, in the absence of other written instructions from the Required Investors, Required Noteholders or Required Participants, as applicable, received from time to time by Agent (with respect to which Agent agrees that it will comply, except as otherwise provided in this SECTION 19.1 or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in any Basic Document, Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall Agent have or be deemed to have any fiduciary relationship with any Noteholder or Investor, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into any Basic Document or otherwise exist against Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. 84 (b) Each Noteholder and Investor hereby agrees to indemnify (which indemnity shall survive any termination of this Agreement) Agent-Related Persons PRO RATA according to such Noteholder's or Investor's Percentage Interest, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, Agent-Related Persons in any way relating to or arising out of any Basic Document, including reasonable attorneys' fees, and as to which Agent is not reimbursed by Lessor; PROVIDED, HOWEVER, that no Noteholder or Investor shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted from Agent-Related Person's gross negligence or willful misconduct. No Agent-Related Persons shall be required to take any action under any Basic Document, or to prosecute or defend any suit in respect of any Basic Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of Agent shall be or become, in its determination, inadequate, Agent-Related Person may call for additional indemnification from the Noteholders and Investors and cease to do the acts indemnified against hereunder until such additional indemnity is given. 19.2 FUNDING RELIANCE. Unless Agent shall have been notified by telephone, confirmed in writing, by any Noteholder or Investor, as the case may be, by 12:00 Noon, New York City time, on the Business Day prior to the Closing Date that such Noteholder or Investor will not make available the amount of its respective Advance on the Closing Date, Agent may assume that such Noteholder or Investor, as the case may be, has made such amount available to Agent and, in reliance upon such assumption, may, but shall not be required to, make available to Lessor a corresponding amount. If and to the extent that such Noteholder or Investor shall not have made such amount available to Agent, such Noteholder or Investor and Lessor severally agree to repay Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date Agent made such amount available to Lessor to the date such amount is repaid to Agent, at the interest rate applicable to such Advance on the Closing Date; PROVIDED, that if such Noteholder or Investor, as the case may be, makes available the amount of its respective Advance on or before the next Business Day following the Closing Date, the interest rate payable on such amount shall be the Federal Funds Rate. 85 19.3 EXCULPATION. No Agent-Related Person shall be (i) liable to any Noteholder or Investor for any action taken or omitted to be taken by it under any Basic Document, or in connection therewith, except for its own willful misconduct or gross negligence, nor (ii) responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of any Basic Document, nor to make any inquiry respecting the performance by any Noteholder or Investor of its obligations under any Basic Document. Any such inquiry which may be made by Agent shall not obligate it to make any further inquiry or to take any action. Each Agent-Related Person shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which Agent believes to be genuine and to have been presented by a proper Person. 19.4 SUCCESSOR. Agent may resign as such at any time upon at least 30 days' prior notice to Lessor and all Noteholders and Investors. If Agent at any time shall resign, the Required Participants may, within ten (10) days after such notice and with the consent of Lessor (not to be unreasonably withheld), appoint another Noteholder or Investor as a successor Agent which shall thereupon become Agent hereunder. If no successor Agent shall have been so appointed by the Required Participants, and shall have accepted such appointment, within 30 days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Noteholders and Investors, after notice to and consultation with Lessor, appoint a successor Agent, which shall be one of the Noteholders or Investors or an as signee thereof, and shall have a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall be entitled to receive from the retiring Agent such documents of transfer and assignment as such successor Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After the effective date of any retiring Agent's resignation hereunder as Agent, the provisions of this SECTION 19 and SECTIONS 6 and 20 hereof shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 19.5 RELIANCE BY AGENT. (a) Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other 86 document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Lessor), independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under any Basic Document unless it shall first receive such advice or concurrence of the Required Noteholders, Required Investors or Required Participants (as the case may be) as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Noteholders and Investors against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under any Basic Document in accordance with a request or consent of the Required Noteholders, Required Investors or Required Participants (as the case may be) and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Noteholders and Investors. (b) For purposes of determining compliance with the conditions referred to in SECTION 5, each Noteholder and Investor that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by Agent to such Noteholder or Investor, as the case may be, for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Noteholder or Investor. 19.6 NOTICE OF DEFAULT. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to Agent for the account of the Noteholders or Investors, unless Agent shall have received written notice from a Noteholder or Investor, as the case may be, or Lessor referring to this Agreement, describing such Lease Default or Lease Event of Default and stating that such notice is a "notice of default." Agent will notify the Noteholders and Investors of its receipt of any such notice. Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Noteholders in accordance with SECTION 5 of the Credit Agreement or as may be requested by the Required Noteholders in accordance with SECTION 8 of the Assignment Agreement; PROVIDED, HOWEVER, that unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such 87 action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Noteholders and Investors. 19.7 CREDIT DECISIONS. Each Noteholder or Investor acknowledges that it has, independently of each Agent-Related Person and each other Noteholder or Investor, and based on such Noteholder's and Investor's review of the financial information of Lessor, the Basic Documents (the terms and provisions of which being satisfactory to such Noteholder or Investor, as the case may be) and such other documents, information and investigations as such Noteholder or Investor, as the case may be, has deemed appropriate, made its own credit decision to make the Advance. Each Noteholder and Investor also acknowledges that it will, independently of Agent and each other Noteholder and Investor, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under any Basic Document. 19.8 COPIES. Agent shall give prompt notice to each Noteholder and Investor of each notice or request required or permitted to be given to Agent by Lessor pursuant to the terms of this Agreement (unless concurrently delivered to the Noteholders and Investors by Lessor). Agent will distribute to each Noteholder and Investor each document or instrument received for its account and copies of all other communications received by Agent from Lessor for distribution to the Noteholders and Investors by Agent in accordance with the terms of this Agreement. SECTION 20. TRANSACTION COSTS AND OTHER COSTS. Lessee shall pay all Transaction Costs pursuant to (i) SECTION 5.1(i) on or prior to the Closing Date, (ii) the Fee Letter on the dates set forth therein and (iii) in all other cases promptly upon demand. In addition, Lessee shall pay or reimburse Lessor, the Investors, the Noteholders, the Agent, the Collateral Agent, the Depositary Bank and the Trustee for all other out-of-pocket costs and expenses (including counsel fees and expenses) reasonably incurred in connection with: (a) the negotiation, preparation, execution and delivery of the Basic Documents; (b) the initial syndication of the Tranche B Loan; (c) entering into, or the giving or withholding of, any future amendments, supplements, waivers or consents with respect to the Basic Documents; (d) any Event of Loss or termination of the Lease or any other Basic Document; (e) the negotiation and documentation of any restructuring or "workout," 88 whether or not consummated, of any Basic Document; (f) the enforcement of the rights or remedies under the Basic Documents; (g) any transfer by Lessor, Investor or any Noteholder of any interest in the Basic Documents during the continuance of a Lease Event of Default; (h) the performance by the Agent, the Collateral Agent and the Depositary Bank of their respective obligations under the Basic Documents, including the opening and maintenance of the Lessor Account; (i) the performance by the Trustee of its obligations under the Basic Documents, whether payable pursuant to fee arrangements entered into by Lessee or any Participant or otherwise; and (j) the ongoing fees and expenses for which Lessee is obligated under the Basic Documents. SECTION 21. MISCELLANEOUS. 21.1 EFFECT OF WAIVER. No delay or omission to exercise any right, power or remedy accruing to any party hereto upon any breach or default hereunder or under any other Basic Document shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein or of or in any similar breach or default thereafter occurring, nor shall any single or partial exercise of any right, power or remedy preclude any other or further exercise thereof, or the exercise of any other right, power or remedy, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party hereto of any breach or default under this Agreement or any other Basic Document must be specifically set forth in writing. 21.2 SURVIVAL OF AGREEMENTS. All representations, warranties, covenants, indemnities and agreements of the parties provided for in the Basic Documents, and the obligations of the parties under any and all provisions thereof, shall survive the execution and delivery and the termination or expiration of this Agreement and any of the other Basic Documents, the transfer of the interest in the Leased Equipment to or by Lessor as provided herein or in any of the other Basic Documents (and shall not be merged into any conveyance or transfer document), any disposition of any interest of Lessor in the Leased Equipment, the purchase and sale of the Notes or Certificates, payment therefor and any disposition thereof, the payment of the Advances and any disposition thereof and shall be and continue in effect notwithstanding any investigation made by any party hereto or to any of the other Basic 89 Documents and the fact that any such party may waive compliance with any of the other terms, provisions or conditions of any of the Basic Documents. 21.3 APPLICABLE LAW. THIS AGREEMENT AND THE OTHER BASIC DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW BUT EXCLUDING ALL OTHER CHOICE OF LAWS AND CONFLICTS RULES OF SUCH STATE, EXCEPT AS TO MATTERS RELATING TO PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREUNDER, WHICH SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, SECTION 9-103(1)(b) OF THE UCC. 21.4 EFFECT AND MODIFICATION OF AGREEMENT. (a) This Agreement and the other Basic Documents exclusively and completely state the rights of all parties hereto and thereto with respect to the leasing of the Leased Equipment and the other transactions contemplated by the Basic Documents and supersedes all prior agreements, oral or written, with respect thereto. (b) Any amendment, modification, termination or waiver of, or supplement or consent to this Agreement, any other Basic Document or any of the terms hereof or thereof (collectively, "AMENDMENTS") shall require the prior written consent of all parties thereto or hereto, it being understood and agreed that the consent of the Required Noteholders, if such Noteholders are affected by such Amendment, shall be deemed to be the consent of the Noteholders and the consent of at least 50% of the Investors affected by such Amendment shall be deemed to be the consent of the Investors; PROVIDED, HOWEVER, that Amendments with respect to administrative matters, which Amendments have no adverse effect on a party hereto or thereto, shall not require the consent of such party; PROVIDED, FURTHER that Amendments with respect to the following matters shall require the prior written consent of 100% of the Noteholders affected by such Amendment and 100% of the Investors affected by such Amendment: 90 (i) modification of any of the provisions of this SECTION 21.4, change of the definition of "Required Investors," "Required Noteholders" or "Required Participants," or modification or waiver of any provision of any Lease Financing Document requiring action by all of the Required Investors, Required Noteholders or Required Participants; (ii) reduction in the amount or change in the time of payment of any Noteholder Amount, Investor Amount, Interest Amount or Yield Amount owing or payable on any Certificate or Note, as the case may be, or modification of any of the provisions of SECTION 3.10 hereof or SECTION 5 of the Trust Agreement; (iii) reduction, modification, amendment or waiver of any indemnities in favor of any Investor or Noteholder; (iv) reduction in the amount or change in the time of payment of Rent or the Termination Value; (v) consent to any assignment of the Lease releasing Lessee from its obligations to pay Rent or any other amounts due under any of the Lease Financing Documents or change in the absolute and unconditional character of such obligations; (vi) modification of any provision in any Basic Document regarding application of payments among Noteholders or Investors; (vii) permission to the creation of any interest in or lien on the Trust Estate or any part thereof except as contemplated by the Lease Financing Documents, or depriving any Investor or any Noteholder of the benefit of the security interest and lien secured by the Trust Estate. 21.5 NOTICES. Unless otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be by letter or facsimile (and in the case of a facsimile, confirmed, which confirmation may be mechanical) and shall be deemed to have been given (i) in the case of notice by letter, the earlier of when delivered to the addressee by hand or courier if delivered on a Business Day and, if not delivered on a Business Day, the first Business Day 91 thereafter or on the third Business Day after depositing the same in the mails, registered or certified mail, postage prepaid, return receipt requested, addressed as provided on SCHEDULE I, and (ii) in the case of notice by facsimile, when transmitted during business hours on a Business Day and, if not transmitted during business hours on a Business Day, the first Business Day thereafter, addressed as provided on SCHEDULE I, or to such other address as any of the parties hereto may designate by written notice. Copies of all notices given by facsimile shall be contemporaneously sent by overnight courier. 21.6 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under Applicable Law; but if any provision of this Agreement is prohibited by or invalid under Applicable Law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 21.7 SUCCESSORS AND ASSIGNS; TRANSFERS. (a) This Agreement shall be binding upon the parties hereto and their respective successors and assigns, and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns as permitted by and in accordance with the terms of the Basic Documents. Except as expressly provided herein or in the other Basic Documents, no party hereto may assign its interest herein without the prior written consent of the other parties hereto. (b) Lessee may not assign any of its respective rights and obligations under any Basic Document except as expressly provided in the Basic Documents. (c) Any Investor which is a bank or other financial or commercial lending institution may pledge its interest in the ordinary course of its business (including, without limitation, to the Federal Reserve); PROVIDED, that no transfer upon a foreclosure pursuant to such a pledge may occur unless the other provisions of this SECTION 21.7 are complied with. (d) Each Investor may assign, convey or otherwise transfer all or any portion of its right, title or interest in, to or under any of the Basic Documents or any Certificate upon compliance with subsections (a) through (f) below PROVIDED, 92 HOWEVER, that the restrictions set forth in this SECTION 21.7 shall not apply to a participation, with respect to which SECTION 21.8 shall apply. (e) REQUIRED NOTICE AND EFFECTIVE DATE. Any Investor desiring to effect a transfer of its interest shall give written notice of each such proposed transfer to Agent at least five (5) days prior to such proposed transfer, setting forth the name of such proposed transferee, the percentage or interest to be retained by such Investor, if any, and the date on which such transfer is proposed to become effective. In the case of a transfer by an Investor of its interest in the Trust, such Investor shall notify the Transfer Agent and Certificate Registrar of such transfer and surrender its Trust Certificate(s) for transfer pursuant to SECTION 4.07 of the Trust Agreement. In the event of a transfer under this SECTION 21.7, any expenses incurred by the transferee in connection with its review of the Basic Documents and its investigation of the transactions contemplated thereby shall be borne by such transferee or the relevant Investor, as they may determine, but shall not be considered costs and expenses which Lessee is obligated to pay or reimburse. (f) ASSUMPTION OF OBLIGATIONS. Any transferee pursuant to this SECTION 21.7 shall have executed and delivered to Lessor a letter in substantially the form of the Investor's Letter attached hereto as EXHIBIT E. Upon the assumption by the transferee of the obligations of the transferring Investor, as the case may be, under the Basic Documents, such obligations of the transferor shall be proportionately released and reduced to the extent of such transfer. Upon any such transfer as above provided, the transferee shall be deemed to be bound by all obligations (whether or not yet accrued) under, and to have become a party to, all Basic Documents to which its transferor was a party, shall be deemed the pertinent "INVESTOR" for all purposes of the Basic Documents and shall be deemed to have made that portion of the payments pursuant to the Basic Documents previously made or deemed to have been made by the transferor represented by the interest being conveyed; and each reference herein and in the other Basic Documents to the pertinent "INVESTOR" shall thereafter be deemed a reference to the transferee, to the extent of such transfer, for all purposes. Not withstanding any transfer as provided in this SECTION 21.7, the transferor shall be entitled to all benefits accrued and all rights vested prior to such transfer, including, without limitation, rights to indemnification under this Agreement or any other Basic Document. Upon any such transfer, Lessor shall deliver to each Investor and Lessee an amended Certificate Register, revised to reflect the relevant information for such new Investor and the Investor Amount of such new 93 Investor (and the revised Investor Amount of the transferor Investor if it shall not have transferred its entire interest). (g) EMPLOYEE BENEFIT PLANS. No Investor may make any such assignment, conveyance or transfer to or in connection with any arrangement or understanding in any way involving any employee benefit plan (or its related trust), as defined in SECTION 3(3) of ERISA, or with the assets of any such plan (or its related trust), as defined in SECTION 4975(e)(1) of the Code (other than a governmental plan, as defined in SECTION 3(32) of ERISA), with respect to which Lessee or such Investor, as the case may be, or any of their Affiliates is a party in interest within the meaning of ERISA or a "disqualified person" within the meaning of the Code. (h) REPRESENTATIONS AND WARRANTIES. Notwithstanding anything to the contrary set forth above, no Investor may assign, convey or transfer its interest to any Person, unless such Person shall have delivered to Lessor and Lessee a certificate confirming the accuracy of the representations and warranties set forth in SECTION 10 with respect to such Person (other than as such representation or warranty relates to the execution and delivery of Basic Documents). (i) FINANCIAL CONDITION OF TRANSFEREE. No transfer by an Investor shall be effective against the other parties to this Agreement unless the transferee is (A) a bank or other financial institution with a combined capital, surplus and undivided profits of at least $50,000,000, or (B) any subsidiary of such a bank, financial institution or corporation, provided that such bank, financial institution or corporation furnishes a guaranty with respect to the transferee's obligations as an Investor, or (C) an Affiliate of such Investor, or (D) any financial institution consented to by Lessee, or (E) any other entity, provided the transferee's obligations as an Investor, as the case may be, are guaranteed by the transferor Investor. (j) AMOUNTS. Any transfer of Certificates shall be in a principal amount of at least $3,000,000; PROVIDED that the foregoing limitation shall not apply to a Investor's transfer of the entire principal amount of such Investor's Certificates. 21.8 PARTICIPATIONS. Notwithstanding anything in SECTION 21.7 to the contrary, each Investor (in such case, the "ORIGINATOR") may at any time sell to one or more commercial banks or other financial institutions not Affiliates of Lessee (an "INVESTOR PARTICIPANT") participating interests in any Certificates hereunder and under 94 the other Basic Documents; PROVIDED that (i) the Originator's obligations under this Agreement and the other Basic Documents shall remain unchanged, (ii) the Investor Participant represents and warrants, in writing, to such Investor, for the benefit of Lessor, the other Investors and Lessee, that no part of the funds used by it to acquire an interest in the Certificates constitutes assets of any Plan or its related trust, (iii) Lessee shall continue to deal solely and directly with such Investor in connection with such Investor's rights and obligations under this Agreement and under the other Basic Documents, (iv) no Investor shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Basic Document, except to the extent such participation, consent or waiver would require unanimous consent of the Investors as described in SECTION 21.4. In the case of any such participation, the Investor Participant shall be entitled to the benefits of SECTION 20 as though it were also an Investor hereunder, and if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of a Lease Event of Default, each Investor Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement or the other Basic Documents to the same extent as if the amount of its participating interest were owing directly to it as an Investor under this Agreement and such Basic Documents. 21.9 PARTIES IN INTEREST. Except as expressly provided herein, none of the provisions of this Agreement is intended for the benefit of any Person except the parties hereto, their successors and permitted assigns. 21.10 AGENT. Agent shall have no right, power, obligation, liability, responsibility or duty under this Agreement or the other Basic Documents other than those applicable to all Investors and Noteholders as such. Without limiting the foregoing, Agent shall not have, and shall not be deemed to have, any fiduciary relationship with any Investor or Noteholder, nor shall Agent be deemed to be acting as a trustee or in any similar capacity. Each Investor and Noteholder acknowledges that it has not relied, and will not rely, on Agent in deciding to enter into this Agreement or the other Basic Documents or in taking or not taking any action hereunder or there under. 21.11 BROKERS. Each of Lessee, each Noteholder, each Investor and Lessor represents to the others that it has not retained or employed any broker, finder or 95 financial advisor to act on its behalf in connection with this Agreement or the other Basic Documents, nor has it authorized any broker, finder or financial adviser retained or employed by any other Person so to act, nor has it incurred any fees or commissions to which Lessor, any Investor or any Noteholder might be subjected by virtue of their entering into the transactions contemplated by the Basic Documents. Any Person who is in breach of this representation shall indemnify and hold the other Persons harmless from and against any liability arising out of such breach of this representation. 21.12 LIMITATION OF LIABILITY. It is expressly understood and agreed by the parties hereto that (a) except as otherwise expressly provided herein, this Agreement is executed and delivered by Wilmington Trust Company, not individually or personally but solely as Trustee of the Trust, in the exercise of the power and authority conferred and vested in it under the Trust Agreement; (b) except as otherwise expressly provided herein, each of the representations, undertakings and agreements herein made on the part of Lessor is made and intended not as personal representations, undertakings and agreements by Wilmington Trust Company but is made and intended for the purpose for binding only the Trust; (c) nothing herein contained shall be construed as creating any liability on Wilmington Trust Company, individually or personally (except to the extent specifically agreed in its individual capacity), to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties hereto and by any other Person claiming by, through or under this Agreement; and (d) under no circumstances shall Wilmington Trust Company be personally liable for the payment of any indebtedness or expenses of Lessor or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by Lessor under this Agreement or any of the other Basic Documents. 21.13 REPRODUCTION OF DOCUMENTS. This Agreement and all other Basic Documents, all documents constituting Schedules or Exhibits hereto or thereto, and all documents relating hereto or thereto received by Lessee, Guarantor, Lessor, any Investor or any Noteholder, including: (a) consents, waivers and modifications that may hereafter be executed; (b) documents received by the Investors, Noteholders or Lessor in connection with the receipt and/or acquisition of the Leased Equipment; and (c) financial statements, certificates, and other information previously or hereafter furnished to Lessor, any Investor or any Noteholder may be reproduced by the party receiving the same by any photographic, photostatic, microfilm, mi- 96 cro-card, miniature photographic or other similar process. Each of Lessee, Lessor, each Investor and each Noteholder agrees and stipulates that, to the extent permitted by law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such party in the regular course of business) and that, to the extent permitted by law, any enlargement, facsimile, or further reproduction of such reproduction shall likewise be admissible in evidence. 21.14 CONSIDERATION FOR CONSENTS TO WAIVERS AND AMENDMENTS. Lessee hereby agrees that it will not, and that it will not permit any of its Affiliates to, offer or give any consideration or benefit of any kind whatsoever to any Investor or Noteholder in connection with, in exchange for, or as an inducement to, such Investor's or Noteholder's consent to any waiver in respect of, any modification or amendment of, any supplement to, or any other consent or approval under, any Basic Document unless such consideration or benefit is offered ratably to all Investors and Noteholders, as the case may be. 21.15 SUBMISSION TO JURISDICTION; VENUE. Each of Lessee, Guarantor, Lessor, Trustee, Trust Company, each Noteholder, each Investor, the Collateral Agent and Agent irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement or any other Basic Document, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York sitting in the Borough of Manhattan, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceedings may be brought to such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Person at its address set 97 forth on SCHEDULE I or at such other address of which the other Persons have been notified pursuant to SECTION 21.5; and (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. 21.16 AGENT FOR SERVICE OF PROCESS. Each of Lessee, Guarantor and Midwest Peaker hereby irrevocably designates, appoints and empowers CT Corporation System with offices on the date hereof at 111 Eighth Ave., NY, NY 10011, as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any action or proceeding brought against it pursuant to any of the Basic Documents. If for any reason such designee, appointee and agent shall cease to be available to act as such, each of Lessee and Guarantor agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this SECTION 21.16 satisfactory to the Investors and Noteholders. 21.17 JURY TRIAL. EACH OF LESSEE, GUARANTOR, LESSOR, TRUSTEE, TRUST COMPANY, EACH NOTEHOLDER, EACH INVESTOR, THE COLLATERAL AGENT AND AGENT WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER BASIC DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER BASIC DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 21.18 CAPTIONS; TABLE OF CONTENTS. Section captions and the table of contents used in this Agreement (including the Schedules, Exhibits, Appendixes and Annexes hereto) are for convenience of reference only and shall not affect the construction of this Agreement. 98 21.19 SCHEDULES; EXHIBITS; APPENDIX. The Schedules, Exhibits and Appendix hereto, along with all attachments referenced in any of such items, are incorporated herein by reference and made a part hereof. 21.20 REFERENCES TO SECTIONS, EXHIBITS AND SCHEDULES. Any reference to a section, exhibit or schedule in any Basic Document shall be to a section, exhibit or schedule of such Basic Document unless otherwise specified. 99 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. EDISON MISSION ENERGY, as Guarantor By: /s/ John P. Finneran, Jr. ------------------------------------ Name: John P. Finneran, Jr. Title: Vice President MIDWEST GENERATION, LLC, as Lessee By: /s/ John P. Finneran, Jr. ------------------------------------ Name: John P. Finneran, Jr. Title: Vice President EME/CDL TRUST, as Lessor By: Wilmington Trust Company, not in its individual capacity, but solely as Trustee By: /s/ James P. Lawler ------------------------------------ Name: James P. Lawler Title: Vice President MIDWEST PEAKER HOLDINGS, INC., as Tranche A Noteholder By: /s/ John P. Finneran ------------------------------------ Name: John P. Finneran, Jr. Title: Vice President CITICORP DEL-LEASE, INC., as Tranche B Noteholder By: /s/ Julie M. Chin ------------------------------------ Name: Julie M. Chin Title: Vice President CITICORP DEL-LEASE, INC., as Investor By: /s/ Julie M. Chin ------------------------------------ Name: Julie M. Chin Title: Vice President WILMINGTON TRUST COMPANY, as Trust Company By: /s/ Kathleen A. Pedelini ------------------------------------ Name: Kathleen A. Pedelini Title: Administrative Account Manager WILMINGTON TRUST COMPANY, not in its individual capacity, except as expressly provided herein, but solely as Trustee By: /s/ KATHLEEN A. PEDELINI ------------------------------------ Name: Kathleen A. Pedelini Title: Administrative Account Manager CITICORP NORTH AMERICA, INC., as Agent By: /s/ Julie M. Chin ------------------------------------ Name: Julie M. Chin Title: Vice President CITICORP NORTH AMERICA, INC., as Collateral Agent By: /s/ Julie M. Chin ------------------------------------ Name: Julie M. Chin Title: Vice President SCHEDULE I TO PARTICIPATION AGREEMENT 1. LESSOR Address for all communications (except wire transfers): EME/CDL Trust c/o Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, DE 19890-0001 Address for wire transfers: Bank: Wilmington Trust Company Wilmington, Delaware ABA Routing #: 031100092 Account #: 52088-0 Attn: Mike Oller 2. LESSEE Address for all communications (except wire transfers): One Financial Place 440 South LaSalle Street, Suite 3500 Chicago, Illinois 60605 Attn: President WITH A COPY TO: Edison Mission Midwest Holdings Co. 18101 Von Karman Avenue, Suite 1700 Irvine, California 92612 Attn: General Counsel Sch. I-1 Address for wire transfers: Bank: Bank of America Concord, California ABA Routing #: 121000358 Account #: 12335-32776 Acct Party: Midwest Generation, LLC Attn: Debbie Waterdown 3. GUARANTOR Address for all communications (except wire transfers): 18101 Von Karman Avenue Suite 1700 Irvine, CA 92616 Attention: General Counsel Telephone No.: (949) 752-5588 Address for wire transfers: Bank: Bank of America Concord, California ABA Routing #: 121000358 Account #: 11013-01596 Acct Party: Edison Mission Energy Attn: Debbie Waterdown 4. NOTEHOLDERS A. MIDWEST PEAKER HOLDINGS, INC. Address for all communications (except wire transfers): 18101 Von Karman Ave. Sch. I-2 Suite 1700 Irvine, CA 92612 Attention: General Counsel Telecopier No.: (949) 752-5588 Address for wire transfers: Bank: Bank of America Concord, CA ABA Routing #: 121000358 Account #: 12338-33939 Attn: Debbie Waterdown B. CITICORP DEL-LEASE, INC. Address for all communications (except wire transfers): 989 E. Hillsdale Blvd. Suite 300 Foster City, CA 94404-2401 Attention: Contract Services Tel No. 650-573-1200 Fax. No. 650-573-5669 Address for wire transfers: Bank: Citibank, NA ABA Routing #: 021000089 Account #: 3846-9701 Notify: Colleen Pollard Reference: Midwest Generation/EME 5. INITIAL INVESTOR CITICORP DEL-LEASE, INC. Sch. I-3 Address for all communications (except wire transfers): 989 E. Hillsdale Blvd. Suite 300 Foster City, CA 94404-2401 Attention: Contract Services Tel No. 650-573-1200 Fax. No. 650-573-5669 Address for wire transfers: Bank: Citibank, NA ABA Routing #: 021000089 Account #: 3846-9701 Notify: Colleen Pollard Reference: Midwest Generation/EME 6. AGENT Address for all communications (except wire transfers): 989 E. Hillsdale Blvd. Suite 300 Foster City, CA 94404-2401 Attention: Contract Services Tel No. 650-573-1200 Fax. No. 650-573-5669 Address for wire transfers: Bank: Citibank, NA ABA Routing #: 021000089 Account #: 3846-9701 Notify: Colleen Pollard Reference: Midwest Generation/EME Sch. I-4 7. TRUSTEE Address for all communications (except wire transfers): c/o Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, DE 19890-0001 Address for wire transfers: Wilmington Trust Company Wilmington, Delaware ABA No. 031100092 For credit to the account of EME/CDL Trust Account No. 52088-0 (Principal) Attn: Mike Oller 8. TRUST COMPANY Address for all communications (except wire transfers): c/o Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, DE 19890-0001 For WTC individually (Fees&Expenses): Wilmington Trust Company Wilmington, Delaware ABA No. 031100092 For credit to the account of Corporate Trust Administration - Income Account Account No. 9974-0 (Income) Attn: Irene Lennon Reference: Trustee Fees and Expenses Sch. I-5 Transaction Name: EME/CDL Trust 9. COLLATERAL AGENT Address for all communications (except wire transfers): 989 E. Hillsdale Blvd. Suite 300 Foster City, CA 94404-2401 Attention: Contract Services Tel No. 650-573-1200 Fax. No. 650-573-5669 Address for wire transfers: Bank: Citibank, NA ABA Routing #: 021000089 Account #: 3846-9701 Notify: Colleen Pollard Reference: Midwest Generation/EME Sch. I-6 SCHEDULE II TO PARTICIPATION AGREEMENT APPLICABLE MARGIN [TO COME] Sch. II-1 EXHIBIT A-1 TO PARTICIPATION AGREEMENT [FORM OF] BILL OF SALE Midwest Generation, LLC, a Delaware limited liability company ("SELLER"), is the owner of certain items of Leased Equipment as defined in the Participation Agreement, dated as of June 23, 2000 among MIDWEST GENERATION, LLC, a Delaware limited liability company, as lessee ("LESSEE"), EDISON MISSION ENERGY, a California corporation, as guarantor ("GUARANTOR"), EME/CDL TRUST, a trust created under the laws of the State of Delaware, as lessor ("LESSOR"), THE INVESTORS PARTY TO THE TRUST AGREEMENT, as Investors, WILMINGTON TRUST COMPANY, as Trustee under the Trust Agreement, THE PERSONS LISTED AS NOTEHOLDERS ON SCHEDULE I THERETO, as Noteholders, CITICORP NORTH AMERICA, INC. as Administrative Agent for the Noteholders and Investors (the "AGENT") and CITICORP NORTH AMERICA, INC., as Collateral Agent for the Noteholders (the "COLLATERAL AGENT"). Capitalized terms used but not otherwise defined herein shall have the meaning set forth in Appendix 1 of the Participation Agreement. [For valuable consideration, the receipt and adequacy of which are hereby acknowledged, Seller hereby sells, grants, conveys, transfers and assigns all of its right, title and interest, whether now owned or hereafter acquired, to the Leased Equipment described on Attachment A hereto to Lessor.] Seller warrants to Lessor, its successors and assigns, that there is conveyed to Lessor good title to the Leased Equipment covered hereby, free and clear of all liens, claims, rights or encumbrances of others (except the rights of Seller pursuant to the Lease and Permitted Liens) and Seller will warrant and defend such title forever against all claims and demands whatsoever. The rights and obligations of the parties under this agreement and each other Basic Document shall be governed by, and construed and interpreted in accordance with, the laws of New York, including section 5-1401 of the New York general obligations law but excluding all other choice of laws and conflicts rules of such State, except as to A1-1 matters relating to perfection and the effect of perfection or non-perfection of the security interest created hereunder, which shall be governed by, and construed in accordance with, section 9-103(1)(b) of the UCC. A1-2 IN WITNESS WHEREOF, Seller has caused this BILL OF SALE to be executed and delivered by one of its duly authorized officers on _______ __, 20__. MIDWEST GENERATION, LLC By: Name: Title: A1-3 EXHIBIT A-2 TO PARTICIPATION AGREEMENT [FORM OF] ACCEPTANCE CERTIFICATE [Date] TO: Lessor, the Investors and the Noteholders, pursuant to the Participation Agreement (the "PARTICIPATION AGREEMENT") dated as of June 23, 2000 among MIDWEST GENERATION, LLC, a Delaware limited liability company, as lessee ("LESSEE"), EDISON MISSION ENERGY, a California corporation, as guarantor ("GUARANTOR"), EME/CDL TRUST, a trust created under the laws of the State of Delaware, as lessor ("LESSOR"), THE INVESTORS PARTY TO THE TRUST AGREEMENT, as Investors, WILMINGTON TRUST COMPANY, as Trustee under the Trust Agreement, THE PERSONS LISTED AS NOTEHOLDERS ON SCHEDULE I THERETO, as Noteholders, CITICORP NORTH AMERICA, INC. as Administrative Agent for the Noteholders and Investors (the "AGENT") and CITICORP NORTH AMERICA, INC., as Collateral Agent for the Noteholders (the "COLLATERAL AGENT") (capitalized terms used herein shall have the meanings ascribed thereto in Appendix 1 to the Participation Agreement). FROM: Lessee Please refer to the above-captioned Participation Agreement. Lessee certifies to you as follows: 1. That it has inspected, received, approved and accepted delivery of the Leased Equipment on Attachment A hereto as required under the Lease. A2-1 2. That such Leased Equipment is subject to and governed by all of the provisions of the Lease and the other Basic Documents. 3. That its representations and warranties set forth in SECTION 8 of the Participation Agreement are true and correct as of the date hereof as if such representations and warranties were set forth herein in full. IN WITNESS WHEREOF, Lessee has caused this ACCEPTANCE CERTIFICATE to be duly executed and delivered by one of its officers hereunto duly authorized this ______ ____ day of ________, 20__. MIDWEST GENERATION, LLC By: Name: Title: A2-2 EXHIBIT B-1 TO PARTICIPATION AGREEMENT [FORM OF] LESSEE/GUARANTOR OFFICER'S CERTIFICATE Pursuant to the Participation Agreement (the "PARTICIPATION AGREEMENT") dated as of June 23, 2000 among MIDWEST GENERATION, LLC, a Delaware limited liability company, as lessee ("LESSEE"), EDISON MISSION ENERGY, a California corporation, as guarantor ("GUARANTOR"), EME/CDL TRUST, a trust created under the laws of the State of Delaware, as lessor ("LESSOR"), THE INVESTORS PARTY TO THE TRUST AGREEMENT, as Investors, WILMINGTON TRUST COMPANY, as Trustee under the Trust Agreement, THE PERSONS LISTED AS NOTEHOLDERS ON SCHEDULE I THERETO, as Noteholders, CITICORP NORTH AMERICA, INC. as Administrative Agent for the Noteholders and Investors (the "AGENT") and CITICORP NORTH AMERICA, INC., as Collateral Agent for the Noteholders (the "COLLATERAL AGENT"). I, _______________, _______________ of [Lessee/Guarantor], do hereby certify as follows (capitalized terms used herein shall have the meanings ascribed thereto in Appendix 1 to the Participation Agreement): 1. The representations and warranties of [Lessee/Guarantor] contained in the Participation Agreement and other Basic Documents to which it is a party are true, correct and complete in all material respects on and as of the date hereof with the same effect as if such representations and warranties had been made on and as of the date hereof (unless stated to be given as of an earlier date, in which case such representation or warranty shall be true and correct only as of such earlier date). 2. [Lessee/Guarantor] has performed all material agreements on its part required to be performed under the Participation Agreement and the other Basic Documents to which it is a party on or prior to the date hereof. 3. There exists on the date hereof no Lease Default or Lease Event of Default under the Lease or default under the Guaranty, as the case may be, except for Lease Defaults or Lease Events of Default under the Lease or defaults under the Guaranty, as the case may be which would not reasonably be expected to result in a Material Adverse Effect with respect to [Lessee/Guarantor]. B1-1 IN WITNESS WHEREOF, I have signed my name this _____ day of _____________, 20__. [LESSEE/GUARANTOR] By: Name: Title: B1-2 EXHIBIT B-2 TO PARTICIPATION AGREEMENT [FORM OF] LESSEE/GUARANTOR SECRETARY'S CERTIFICATE The undersigned, _________________, [Assistant] Secretary of [Lessee/ Guarantor], a ______ [limited liability company/corporation] [("LESSEE"/"GUARANTOR")], pursuant to the Participation Agreement (the "PARTICIPATION AGREEMENT") dated as of June 23, 2000 among MIDWEST GENERATION, LLC, a Delaware limited liability company, as lessee ("LESSEE"), EDISON MISSION ENERGY, a California corporation, as guarantor ("GUARANTOR"), EME/CDL TRUST, a trust created under the laws of the State of Delaware, as lessor ("LESSOR"), THE INVESTORS PARTY TO THE TRUST AGREEMENT, as Investors, WILMINGTON TRUST COMPANY, as Trustee under the Trust Agreement, THE PERSONS LISTED AS NOTEHOLDERS ON SCHEDULE I THERETO, as Noteholders, CITICORP NORTH AMERICA, INC. as Administrative Agent for the Noteholders and Investors (the "AGENT") and CITICORP NORTH AMERICA, INC., as Collateral Agent for the Noteholders (the "COLLATERAL AGENT") does hereby certify as follows (capitalized terms used herein shall have the meanings ascribed thereto in Appendix 1 to the Participation Agreement): 1. Attached hereto as EXHIBIT A is a true, correct and complete copy of [Lessee's/Guarantor's] [Certificate of Formation/Certificate of Incorporation], as amended and in effect on the date hereof, certified by the Secretary of State of the State of [its formation/incorporation]. 2. Attached hereto as EXHIBIT B is a true, correct and complete copy of [Lessee's/Guarantor's] [Operating Agreement/Articles of Incorporation and By-Laws], as amended and in effect on the date hereof, and such [Operating Agreement/Articles of Incorporation and Bylaws] have been in full force and effect since [_________], [19/20__] without modification or amendment. B2-1 3. Attached hereto as EXHIBIT C are true, correct and complete copies of all resolutions adopted by the [Managers/Board of Directors] (and shareholders) of [Lessee/Guarantor] relating to the [Lease/Guaranty] and the other Basic Documents to which [Lessee/Guarantor] is a party, which resolutions have not been amended or rescinded and are in full force and effect on the date hereof. 4. No proceeding for merger, consolidation, liquidation, reorganization or dissolution of [Lessee/Guarantor] or the sale of all or substantially all of its assets is pending or contemplated. 5. The following persons are on the date hereof duly qualified and acting officers of [Lessee/Guarantor], duly elected or appointed to the offices set forth beside their respective names and signatures, and each such person who, as an officer of [Lessee/Guarantor], signed the [Lease/Guaranty], any of the other Basic Documents or any other document delivered before or on the date hereof in connection with such agreements and documents and the transactions contemplated therein was, at the respective times of such signing and delivery, and is now duly elected or appointed, qualified and acting as such officer, and the signatures of such persons appearing on such documents are their genuine signatures: NAME OFFICE SIGNATURE ---- ------ --------- _______ _________ _____________ _______ _________ _____________ _______ _________ _____________ B2-2 IN WITNESS WHEREOF, I have signed my name this _____ day of _____________, 20__. [LESSEE/GUARANTOR] By: Name: Title: [Assistant] Secretary I, ___________________, [Vice] President of [Lessee/Guarantor], hereby certify that ____________________ __ is on the date hereof the duly elected, qualified and acting [Assistant] Secretary of [Lessee/Guarantor], and that the signature set forth above is such person's true and correct signature. Dated: _________________, 20__ [LESSEE/GUARANTOR] By: Name: Title: [Vice] President B2-3 EXHIBIT C-1 TO PARTICIPATION AGREEMENT [FORM OF] OPINION OF COUNSEL TO LESSEE AND GUARANTOR [TO COME] C1-1 EXHIBIT C-2 TO PARTICIPATION AGREEMENT [FORM OF] OPINION OF COUNSEL TO NOTEHOLDERS [TO COME] C2-1 EXHIBIT C-3 TO PARTICIPATION AGREEMENT [FORM OF] OPINION OF SPECIAL COUNSEL TO TRUSTEE [TO COME] C2-2 EXHIBIT C-4 TO PARTICIPATION AGREEMENT [FORM OF] OPINION OF ILLINOIS COUNSEL TO LESSEE AND GUARANTOR [TO COME] C2-3 EXHIBIT C-5 TO PARTICIPATION AGREEMENT [FORM OF] OPINION OF FERC COUNSEL TO LESSEE AND GUARANTOR [TO COME] C2-4 EXHIBIT D TO PARTICIPATION AGREEMENT [FORM OF] ADVANCE REQUEST [Date] TO: Agent, Collateral Agent, the Investors and the Noteholders, pursuant to the Participation Agreement (the "PARTICIPATION AGREEMENT") dated as of June 23, 2000 among MIDWEST GENERATION, LLC, a Delaware limited liability company, as lessee ("LESSEE"), EDISON MISSION ENERGY, a California corporation, as guarantor ("GUARANTOR"), EME/CDL TRUST, a trust created under the laws of the State of Delaware, as lessor ("LESSOR"), THE INVESTORS PARTY TO THE TRUST AGREEMENT, as Investors, WILMINGTON TRUST COMPANY, as Trustee under the Trust Agreement, THE PERSONS LISTED AS NOTEHOLDERS ON SCHEDULE I THERETO, as Noteholders, CITICORP NORTH AMERICA, INC. as Administrative Agent for the Noteholders and Investors (the "AGENT") and CITICORP NORTH AMERICA, INC., as Collateral Agent for the Noteholders (the "COLLATERAL AGENT") capitalized terms used herein shall have the meanings ascribed thereto in Appendix 1 to the Participation Agreement). FROM: Lessor, at the direction of the Lessee RE: FINANCIAL CLOSING D - 1 22. This Advance Request is hereby delivered by Lessor (on the basis of information provided by Lessee) pursuant to SECTION 5.1(m) of the Participation Agreement. 23. The Closing Date is scheduled for ________________, 20__ . 24. The amounts of the Advances are as follows: Tranche A Loan: $____________________ Tranche B Loan: $____________________ Investor Contributions: $ ___________________ 4. The Advances are [LIBO Rate Advances/Alternate Base Rate Advances]. 5 Advances shall be sent by wire transfer as follows: a. Each Noteholder or Investor, as the case may be, shall transfer its respective Advance to the following account of Lessor: Bank: ABA Routing #: Account #: Reference: b. Lessee hereby instructs Lessor to distribute the funds as follows: [information to be provided by Lessee] 6. All of the costs being funded pursuant to this Advance Request relate to the acquisition of the Leased Equipment subject to the Lease and the payment of Transaction Costs and all moneys advanced to Lessee pursuant to this Advance Request will be applied by Lessee pursuant to the Participation Agreement and the other Basic Documents. 7. In connection with the requested Advances, the Lessee hereby represents and warrants to you as follows: D - 2 (a) The aggregate amount of the Advances will be applied as follows: $_______________ will be applied to the acquisition of the Leased Equipment; and $_______________ will be applied to the payment of Transaction Costs. (b) On the Closing Date, no Lease Default or Lease Event of Default has occurred and is continuing and no Lease Default or Lease Event of Default will occur as a result of, or after giving effect to, the Advances requested hereby. (c) All of the conditions precedent set forth in SECTION 5.1 of the Participation Agreement have been satisfied or waived. EME/CDL TRUST By: Wilmington Trust Company, not in its individual capacity by solely as trustee of EME/CDL Trust, a Delaware business trust By:_________________________ Name:_______________________ Title:________________________ MIDWEST GENERATION, LLC By:_________________________ Name:_______________________ Title:________________________ D - 3 EXHIBIT E TO PARTICIPATION AGREEMENT [FORM OF] INVESTORS LETTER [Name and Address of Investor] Re: EME/CDL TRUST Attn: Corporate Trust Department Ladies and Gentlemen: Capitalized terms used in this letter and not otherwise defined herein shall have the meanings assigned thereto in that certain Participation Agreement (the "PARTICIPATION AGREEMENT"), dated as of June 23, 2000 among MIDWEST GENERATION, LLC, a Delaware limited liability company, as lessee ("LESSEE"), EDISON MISSION ENERGY, a California corporation, as guarantor ("GUARANTOR"), EME/CDL TRUST, a trust created under the laws of the State of Delaware, as lessor ("LESSOR"), THE INVESTORS PARTY TO THE TRUST AGREEMENT, as Investors, WILMINGTON TRUST COMPANY, as Trustee under the Trust Agreement, THE PERSONS LISTED AS NOTEHOLDERS ON SCHEDULE I THERETO, as Noteholders, CITICORP NORTH AMERICA, INC. as Administrative Agent for the Noteholders and Investors (the "AGENT") and CITICORP NORTH AMERICA, INC., as Collateral Agent for the Noteholders (the "COLLATERAL AGENT")(capitalized terms used herein shall have the meanings ascribed thereto in Appendix 1 to the Participation Agreement). The undersigned has agreed to purchase the interest of ________________ as an Investor under the Participation Agreement and the other Basic Documents (as defined therein), representing an Investor's Amount of (amount) Dollars ($________) (the "INTEREST"), and desires that Lessor authenticate and deliver to the undersigned and to each Lessor an amended Certificate Register evidencing the Investor's Amount of the undersigned pursuant to SECTION 21.7(f) of the Participation Agreement. The undersigned hereby represents and warrants as of the date hereof to the addressees hereof as follows: E - 1 (a) The undersigned is not (i) an "employee benefit plan" (or related trust) as defined in SECTION 3(3) of ERISA, which is subject to Title I of ERISA, (ii) a "plan" (or related trust) as defined in SECTION 4975(e)(1) of the Code, or an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of any such employee benefit plan or plan, and the acquisition of the undersigned of the Interest will not give rise to a nonexempt prohibited transaction under SECTION 406(a) of ERISA or SECTION 4975(c)(1)(A)-(D) of the Code; (b) The Interest is being acquired by the undersigned for investment and not with a view to the resale or distribution of such Interest or any part thereof, but without prejudice, however, to the right of the undersigned at all times to sell or otherwise dispose of all or any part of such Interest under a registration available under the Securities Act or under an exemption from such registration available under such Act, it being understood that (subject to SECTION 21.7 of the Participation Agreement) the disposition by the undersigned of the Interest to be purchased by the undersigned shall, at all times, remain entirely within its control; and (c) The undersigned agrees to treat the Interest for federal, state and local income and franchise tax purposes as indebtedness of Lessee. The undersigned hereby advises you of the following administrative details with respect to the Interest: 1. Address for Notices: [ ]. 2. Payment Instructions: [ ]. Very truly yours, By: Name: Title: E - 2 EXHIBIT F TO PARTICIPATION AGREEMENT [FORM OF] CONTINUATION/CONVERSION NOTICE [_________________________], as Agent Attention: [_________] MIDWEST GENERATION SYNTHETIC LEASE Ladies and Gentlemen: This Continuation/Conversion Notice is delivered to you pursuant to SECTION 3.6 of the Participation Agreement, dated as of June 23, 2000 (together with all amendments, supplements and other modifications, if any, from time to time thereafter made thereto, the "PARTICIPATION AGREEMENT"), among MIDWEST GENERATION, LLC, as lessee (the "LESSEE"), EDISON MISSION ENERGY, as guarantor (the "GUARANTOR"), EME/CDL TRUST, a Delaware business trust (the "LESSOR"), THE INVESTORS PARTY TO THE TRUST AGREEMENT, as Investors, WILMINGTON TRUST COMPANY, as Trustee under the Trust Agreement, THE PERSONS LISTED AS NOTEHOLDERS ON SCHEDULE I THERETO, as Noteholders, CITICORP NORTH AMERICA, INC. as Administrative Agent for the Noteholders and Investors (the "AGENT") and CITICORP NORTH AMERICA, INC., as Collateral Agent for the Noteholders (the "COLLATERAL AGENT"). Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in Appendix I to the Participation Agreement. The Lessor, at the direction of the Lessee, hereby requests that on __________, ____, F - 1 (1) $_________ of the presently outstanding principal amount of the [Tranche [__] Loans]/[Investor Contributions] originally made on the Closing Date, (2) and all presently being maintained as [Alternative Base Rate Advances] [LIBO Rate Advances], (3) be [continued as] [converted into], (4) [LIBO Rate Advances having an Interest Period of _______ months] [Alternative Base Rate Advances]. The Lessor has caused this Continuation/Conversion Notice to be executed and delivered by its Authorized Representative this ___ day of ___, ____. EME/CDL TRUST By: Wilmington Trust Company, not in its individual capacity by solely as trustee of EME/CDL Trust, a Delaware business trust By: Name: Title: MIDWEST GENERATION, LLC By:_________________________ Name:_______________________ Title:________________________ F - 2 PAGE APPENDIX 1 TO PARTICIPATION AGREEMENT DEFINITIONS AND INTERPRETATION A. INTERPRETATION. In each Basic Document, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any Person include such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by the Basic Documents, 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; (iv) reference to any agreement (including any Basic Document), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of the other Basic Documents and 1 reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor; (v) reference to any Applicable Law means such Applicable Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder and reference to any section or other provision of any Applicable Law means that provision of such Applicable Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; (vi) reference in any Basic Document to any Article, Section, Appendix, Schedule or Exhibit means such Article or Section thereof or Appendix, Schedule or Exhibit thereto; (vii) "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to an Basic Document as a whole and not to any particular Article, Section or other provision thereof; (viii) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; and (ix) with respect to any rights and obligations of the parties under the Basic Documents, all such rights and obligations shall be construed to the extent permitted by Applicable Law. B. COMPUTATION OF TIME PERIODS. For purposes of computation of periods of time under the Basic Documents, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". C. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified in any Basic Document, all terms of an accounting character used therein shall be interpreted, all accounting determinations thereunder shall be made, and any financial 2 statements required to be delivered thereunder shall be prepared, in accordance with GAAP. D. CONFLICT IN BASIC DOCUMENTS. If there is any conflict between any Basic Documents, such Basic Document shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, the Participation Agreement shall prevail and control. E. LEGAL REPRESENTATION OF THE PARTIES. The Basic Documents were negotiated by the parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring the Basic Document to be construed or interpreted against any party shall not apply to any construction or interpretation hereof or thereof. F. DEFINITIONS: "ACCEPTANCE CERTIFICATE" shall mean the acceptance certificate from Lessee to Lessor with respect to the Leased Equipment to be leased by Lessor to Lessee under the Lease, substantially in the form of Exhibit A-2 to the Participation Agreement. "ADVANCE REQUEST" shall have the meaning given such term in Section 3.5 of the Participation Agreement. "ADVANCES" shall mean the Loans and Investor Contributions. "AFFILIATE" of any Person shall mean any other Person directly or indirectly controlling, controlled by or under common control with, such Person. For purposes of this definition, the term "control" (including the correlative meanings of the terms "controlling," "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 or by contract or otherwise, PROVIDED (but without limiting the foregoing) that no pledge of voting securities of any Person 3 without the current right to exercise voting rights with respect thereto shall by itself be deemed to constitute control over such Person. "AFTER-TAX BASIS" shall mean, in the context of determining the amount of a payment to be made on such basis, the payment of an amount which, after reduction by the net increase in Taxes of the recipient (actual or constructive) of such payment, which net increase shall be calculated by taking into account any reduction in such Taxes resulting from any tax benefits realized or to be realized by the recipient as a result of such payment, shall be equal to the amount required to be paid. In calculating the amount payable by reason of this provision in the case of any person that is a U.S. Person, all income taxes payable and tax benefits realized or to be realized shall be determined on the assumptions that (i) the recipient is subject to (a) U.S. Federal income taxes at the highest marginal rate then applicable to corporations for the relevant period or periods, and (b) state and local income taxes at the highest marginal rates then applicable to corporations for the relevant period or periods, and (ii) all related tax benefits are utilized (a) with regard to U.S. Federal income taxes, at the highest marginal rates then applicable to corporations for the relevant period or periods, and (b) with regard to state and local income taxes, at the highest marginal rate then applicable to corporations for the relevant period or periods. "AGENCY FEE" shall mean the Agency Fee payable by EME to CDL on the Closing Date in accordance with the Fee Letter. "AGENT" shall mean Citicorp North America, Inc., as Administrative Agent pursuant to Section 19.1 of the Participation Agreement. "AGENT-RELATED PERSONS" shall mean the Agent, together with its respective Affiliates, and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "ALTERNATE BASE RATE" shall mean a fluctuating interest rate per annum equal at all times to the highest of: 4 (a) the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s base rate; or (b) for any day, 1/2 of one percent per annum above the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Citibank, N.A. from three Federal funds brokers of recognized standing selected by it. "AMENDMENTS" shall have the meaning given such term in Section 21.4(b) of the Participation Agreement. "APPLICABLE LAW" shall mean all applicable laws, rules, regulations (including Environmental Laws), statutes, treaties, codes, ordinances, permits, certificates, orders and licenses of and interpretations by, any Authority, and applicable judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi-judicial tribunal or agency of competent jurisdiction (including those pertaining to health, safety or the environment) affecting Lessee, Guarantor or the Leased Equipment. "APPLICABLE MARGIN" shall mean, with respect to a Base Rate Advance or a LIBO Rate Advance, a percentage amount determined in accordance with Schedule II to the Participation Agreement. "APPRAISAL" shall mean an appraisal, prepared by Appraiser, of the Leased Equipment, pursuant to the Participation Agreement or the Lease. "APPRAISED VALUE" shall mean, with respect to the Leased Equipment or any part thereof, as of any date of determination, the Fair Market Value of such Leased Equipment or part as set forth in the Appraisal therefor. 5 "APPRAISER" shall mean Deloitte & Touche or such other independent appraisal company as may be selected by Lessor. "ASSIGNEE" shall have the meaning given such term in Section 6.8.1 of the Credit Agreement. "ASSIGNOR" shall have the meaning given such term in Section 6.8.1 of the Credit Agreement. "ASSIGNMENT AGREEMENT" shall mean the Assignment Agreement dated as of June 23, 2000 among the Lessor, the Collateral Agent for the benefit of the Noteholders, the Depositary Bank and the Noteholders. "AUCTION" shall have the meaning given such term in Section 12.4 of the Lease. "AUCTION PURCHASER" shall have the meaning given such term in Section 12.6(a) of the Lease. "AUCTION SALE PRICE" shall have the meaning given such term in Section 12.6(a) of the Lease. "AUTHORITY" shall mean any applicable foreign, federal, state, county, municipal or other government, quasi-government or regulatory authority, agency, board, body, commission, instrumentality, court or tribunal, or any political subdivision of any thereof, or any arbitrator or panel of arbitrators. "AUTHORIZED REPRESENTATIVE" shall mean, relative to a Person, those of its officers and employees whose signatures and incumbency shall have been certified to the other Parties to the Participation Agreement pursuant to Section 5.1 of the Participation Agreement. "BANKRUPTCY CODE" shall mean the United States Bankruptcy Code of 1978, as amended from time to time, 11 U.S.C. Section 101 ET SEQ. 6 "BASE RATE ADVANCE" shall mean an Advance bearing interest at a fluctuating rate determined by reference to the Alternate Base Rate plus Applicable Margin from time to time in effect. "BASIC DOCUMENTS" shall mean the Participation Agreement, the Lease, the Memorandum of Lease, the Deeds, the ComEd Consent, the Guaranty, the Credit Agreement, the Notes, the Certificates, the Bill of Sale, the Intercompany Note, the Assignment Agreement and the Trust Agreement and such other documents, instruments, certificates and opinions of counsel as agreed to by the Lease Financing Parties. "BASIC RENT" shall mean the sum of (i) Tranche A Basic Rent, (ii) Tranche B Basic Rent and (iii) Investor Basic Rent, calculated as of the applicable Payment Date. "BILL OF SALE" shall mean the bill of sale executed in favor of Lessor with respect to the Leased Equipment to be transferred by Lessee to Lessor, substantially in the form of Exhibit A-1 to the Participation Agreement. "BOARD OF DIRECTORS" shall mean, with respect to a corporation, either the board of directors or any duly authorized committee of that board of directors which, pursuant to the bylaws of such corporation, has the same authority as that board of directors as to the matter at issue. "BUSINESS DAY" shall mean any day on which Federal and state chartered banks in Wilmington, Delaware and New York are open for commercial banking business and, solely with respect to determinations of Interest Periods for LIBO Rate Advances, dealings in United States dollars are carried on in the London interbank market. "CAPEX CREDIT AGREEMENT" shall mean the Credit Agreement, dated as of May 9, 2000, by and among Holdings, Societe Generale and Bayerische Landesbank Girozentrale. 7 "CAPITALIZED LEASE LIABILITIES" of any Person shall mean all monetary obligations of such Person under any leasing or similar arrangement which, in accordance with GAAP, would be classified as capitalized leases, and, for purposes of each Basic Document, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "CASH EQUIVALENT INVESTMENT" shall mean, at any time: (a) any evidence of Indebtedness, maturing not more than one year after such time, issued or guaranteed by the United States Government or an agency thereof; or (b) other investments in securities or bank instruments rated at least "A" by S&P and "A2" by Moody's or "A-1" by S&P and "P-1" by Moody's and with maturities of less than 366 days; or (c) other securities as to which Lessee has demonstrated, to the satisfaction of the Agent, adequate liquidity through secondary markets or deposit agreements. "CASHFLOW AVAILABLE FOR FIXED CHARGES" shall mean, in respect of any period, the excess, if any, of Revenues (excluding (i) proceeds of any permitted asset sale, (ii) amounts available in the Cashflow Recapture Fund and (iii) payments made by Edison Mission Energy under or in respect of the Intercompany Note) during such period OVER Operating Expenses during such period. "CASHFLOW RECAPTURE FUND" shall have the meaning given such term in the Holdings Credit Agreement. "CATEGORY OF LEASED EQUIPMENT" shall mean any category of Leased Equipment as set forth on Schedule 4 to the Lease. "CDL" shall mean Citicorp Del-Lease, Inc., a Delaware corporation. 8 "CERCLIS" shall mean the Comprehensive Environmental Response Compensation Liability Information System List. "CERTIFICATES" shall mean the trust certificates issued to the Investors pursuant to Article IV of the Trust Agreement. "CLAIMS" shall mean liabilities, obligations, damages, losses, demands, penalties, interest, fines, claims, actions, suits, judgments, settlements, and reasonable costs, fees, expenses and disbursements (including legal fees, (including allocated time charges of internal counsel) and expenses and costs of investigation) whether any of the foregoing be founded or unfounded, of any kind and nature whatsoever. "CLOSING" shall have the meaning given such term in Section 3.9 of the Participation Agreement. "CLOSING DATE" shall have the meaning given such term in Section 3.9 of the Participation Agreement. "CLOSING FEE" shall mean the Closing Fee payable by EME to CDL on the Closing Date in accordance with the Fee Letter. "CODE" shall mean the Internal Revenue Code of 1986 and the regulations promulgated from time to time under and pursuant thereto, as amended. "COLLATERAL AGENT" shall mean Citicorp North America, Inc. as Collateral Agent pursuant to Section 12 of the Assignment Agreement. "COMED" shall mean Commonwealth Edison Company, an Illinois corporation. "COMED AGREEMENTS" shall mean the following agreements, collectively, each dated as of December 15, 1999, and each between ComEd and Midwest: Power Purchase Agreement; Peaker Control Agreement; Facilities, Interconnection and Easement Agreement (Crawford Station); Facilities, Interconnection and Easement 9 Agreement (Fisk Station); Facilities, Interconnection and Easement Agreement (Joliet 9 Station); Facilities, Interconnection and Easement Agreement (Waukegan Station); Facilities, Interconnection and Easement Agreement (Calumet Peaker Site); Facilities, Interconnection and Easement Agreement (Bloom Peaker Site); Facilities, Interconnection and Easement Agreement (Electric Junction Peaker Site); Facilities, Interconnection and Easement Agreement (Lombard Peaker Site); and Facilities, Interconnection and Easement Agreement (Sabrooke Peaker Site). "COMED CONSENT" shall mean the Consent to Sale of Assets, dated as of July 10, 2000, by and among ComEd, Midwest and the Lessor. "CONTINGENT LIABILITY" shall mean any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount of the debt, obligation or other liability guaranteed thereby; PROVIDED, HOWEVER, that if the maximum amount of the debt, obligation or other liability guaranteed thereby has not been established, the amount of such Contingent Liability shall be the maximum reasonably anticipated amount of the debt, obligation or other liability. "CONTINUATION/CONVERSION NOTICE" shall have the meaning given such term in Section 3.6 of the Participation Agreement. "CONTRACTUAL OBLIGATION" shall mean, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "CONTRIBUTOR" shall mean Citicorp Del-Lease, Inc. 10 "CONTROLLED GROUP" shall mean, with respect to any Person, all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with such Person are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "CREDIT AGREEMENT" shall mean the Credit Agreement, dated as of June 23, 2000 among EME/CDL Trust as Lessor, Midwest Peaker Holdings, Inc. as Tranche A Noteholder, Citicorp Del-Lease, Inc. as Tranche B Noteholder and Citicorp North America, Inc. as Administrative Agent for the Participants. "CREDIT AGREEMENT DEFAULT" shall mean any Credit Agreement Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute a Credit Agreement Event of Default. "CREDIT AGREEMENT EVENT OF DEFAULT" shall have the meaning given such term in Section 5.1 of the Credit Agreement. "DEBT RATING" shall mean, as to any Person, a rating by each of Moody's and S&P of such Person's long-term debt which is not secured or supported by a guarantee, letter of credit or other form of credit enhancement. If Moody's or S&P shall have changed its system of classification after the date of the Participation Agreement, a Person's Debt Rating shall be considered to be at or above a specified level if it is at or above the new rating which most closely corresponds to the specified level under the old rating system. "DEBT SERVICE COVERAGE RATIO" shall mean, for any period, the ratio of (a) Cashflow Available for Fixed Charges for such period to (b) Fixed Charges for such period. "DEEDS" shall mean the nine Special Warranty Deeds, each dated as of June 23, 2000, by Midwest Generation, LLC in favor of EME/CDL Trust. "DEFAULT" shall mean a Lease Default or a Credit Agreement Default. 11 "DEPOSITARY BANK" shall mean Citibank, N.A. as Depositary Bank pursuant to Section 12 of the Assignment Agreement. "DESIGNATED LEASE LIABILITIES" shall have the meaning ascribed thereto in the Holdings Credit Agreement. "DISCOUNT RATE" shall mean 7.25% per annum. "DOLLARS" and the sign "$" shall mean lawful money of the United States. "DOMESTIC OFFICE" shall mean, (a) relative to any Noteholder, the office of such Noteholder designated on Schedule I of the Participation Agreement, or designated in the Lender Assignment Agreement pursuant to which such Noteholder became a Noteholder under the Credit Agreement or such other office of a Noteholder (or any successor or assign of such Noteholder) within the United States as may be designated from time to time by notice from such Noteholder, as the case may be, to each other Person party to the Credit Agreement and (b) relative to any Investor, the office of such Investor designated on Schedule I of the Participation Agreement, or designated in the Trust Agreement pursuant to which such Investor became an Investor under the Trust Agreement or such other office of an Investor (or any successor or assign of such Investor) within the United States as may be designated from time to time by notice from such Investor, to each other Person party to the Trust Agreement. A Noteholder or Investor may have separate Domestic Offices for purposes of making, maintaining or continuing, as the case may be, Base Rate Advance. "EDISON INTERNATIONAL" shall mean Edison International, a California corporation. "EDISON MISSION ENERGY" shall mean Edison Mission Energy, a California corporation. "EME" shall mean Edison Mission Energy, a California corporation. 12 "EMOC" shall mean Edison Mission Overseas Co., a Subsidiary of Holdings and a limited liability company organized under the laws of Delaware. "EMPLOYEE BENEFIT PLAN" shall mean an employee benefit plan (within the meaning of Section 3(3) of ERISA, including any multiemployer plan (within the meaning of Section 3(37)(A) of ERISA)), or any "plan" as defined in Section 4975(e)(1) of the Code and as interpreted by the Internal Revenue Service and the Department of Labor in rules, regulations, releases or bulletins in effect on the Closing Date. "END OF TERM APPRAISAL" shall mean an appraisal, prepared by the Appraiser, of the Leased Equipment and delivered to the Financing Parties pursuant to Section 7.1 of the Participation Agreement. "ENVIRONMENTAL CLAIMS" shall have the meaning given such term in Section 6.7 of the Participation Agreement. "ENVIRONMENTAL LAWS" shall mean the Resource Conservation and Recovery Act of 1976, (RCRA) 42 U.S.C. Sections 6901-6992k, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601-9657 ET SEQ., (CERCLA), the Hazardous Materials Transportation Act of 1975, 49 U.S.C. Sections 1801-1812, the Toxic Substances Control Act, 15 U.S.C. Sections 2601-2671, the Clean Air Act, 42 U.S.C. Sections 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Sections 136 et seq., the Clean Water Act, 33 U.S.C. Sections 401 et seq., and all similar federal, state and local environmental laws, ordinances, rules, orders, statutes, binding consent decrees, judgments or injunctions, codes and regulations, and any other federal, state or local laws, ordinances, rules, codes and regulations relating to the environment, human health, natural resources or Hazardous Materials or their clean-up, remediation or response, to the extent any of the foregoing are applicable to the Leased Equipment. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 13 "ERISA AFFILIATE" shall mean, with respect to any Person, any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as such Person or is under common control (within the meaning of Section 414(c) of the Code) with such Person. "EVENT OF DEFAULT" shall mean a Lease Event of Default or a Credit Agreement Event of Default. "EVENT OF LOSS" shall mean each of (i) loss or damage to the Leased Equipment that (a) renders the Leased Equipment permanently unfit for normal use or (b) in the reasonable judgment of the Lessor, is likely to materially diminish the Fair Market Value, useful life or residual value of the Leased Equipment and (ii) seizure, condemnation, confiscation or taking of, or requisition of title to or use of (x) all of the Leased Equipment by any Authority or (y) less than all of the Leased Equipment by any Authority and, in the reasonable judgment of the Lessor, the Fair Market Value, useful life or residual value of the Leased Equipment is materially diminished. "EXCESS CASHFLOW" shall have the meaning ascribed thereto in the Holdings Credit Agreement. "EXCLUDED AMOUNTS" shall mean: (a) all indemnity payments and expenses to which Lessor, any Investor or any Noteholder (or the respective successors, assigns, agents, officers, directors or employees of any such Person) is entitled pursuant to the Basic Documents; (b) any amounts payable under any Basic Document to reimburse Lessor, any Investor, any Noteholder, the Agent, the Collateral Agent, the Depositary Bank or the Trustee (including the reasonable expenses of Lessor, any Investor, any Noteholder, the Agent, the Collateral Agent, the Depositary Bank or the Trustee incurred in connection with any such payment) for 14 performing any of the obligations of Lessee under and as permitted by any Basic Document; (c) any insurance proceeds under policies maintained by Lessor, any Investor or any Noteholder and not required to be maintained by Lessee under the Lease; (d) any insurance proceeds (or corresponding amounts with respect to risks that are self-insured by Lessee and the amounts of any policy deductibles) under liability policies payable to the Agent, the Collateral Agent, any Investor or any Noteholder (or the respective successors, assigns, agents, officers, directors or employees of any Investor or any Noteholder); (e) any amount payable in respect of Transaction Costs or any other costs payable pursuant to Section 20 of the Participation Agreement; and (f) any payments of interest on payments referred to in clauses (a) through (e) above. "EXCLUDED TAXES" shall have the meaning given such term in Section 6.3(b) of the Participation Agreement. "FAIR MARKET VALUE" shall mean, with respect to the Leased Equipment or any part thereof as of any date, the price a purchaser would pay to purchase such Leased Equipment or part in an arm's-length transaction between a willing buyer and a willing seller, neither of them being under any compulsion to buy or sell. "FEDERAL FUNDS RATE" shall mean for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. 15 "FEE LETTER" shall have the meaning given to such term in Section 3.15 of the Participation Agreement. "FINAL MATURITY DATE" shall mean the fifth anniversary of the Closing Date or such later date established pursuant to a Renewal Term, but in no event later than July 9, 2010; PROVIDED, that the Final Maturity Date shall be a Payment Date. "FINANCING PARTIES" shall mean the Noteholders, the Investors and the Lessor, collectively. "FISCAL QUARTER" shall mean any quarter of a Fiscal Year. "FISCAL YEAR" shall mean any period of twelve consecutive calendar months ending on December 31; references to a Fiscal Year with a number corresponding to any calendar year (E.G., the "1999 Fiscal Year") refers to the Fiscal Year ending on December 31 occurring during such calendar year. "FIXED CHARGES" shall mean, in respect of any period, an amount equal to the aggregate of, without duplication, (i) all interest due and payable on any Indebtedness of Holdings PLUS or MINUS any net amount due and payable in respect of Interest Rate Hedging Transactions during such period, including (A) all capitalized interest and (B) the interest portion of any deferred payment obligation, (ii) amounts due and payable in respect of fees on Indebtedness permitted to be incurred by Holdings during such period, (iii) amounts due and payable to any lenders of Holdings with respect to the deduction of withholding tax on such payments during such period, (iv) the interest portion of any deferred payment obligation due and payable during such period, (v) the aggregate amount of the Lease Obligations due and payable during such period, (vi) all other amounts due and payable by the Loan Parties with respect to Indebtedness permitted to be incurred by the Loan Parties under the Lessee Financing Documents during such period, (vii) all dividends accrued or paid during such period to any Person other than EME or an Affiliate of EME and (viii) all amounts due and payable during such period in respect of any obligation to repurchase or redeem warrants, preferred stock or other similar obligations. 16 "FREE CASHFLOW" shall mean, for any period, the excess if any, of (i) Cashflow Available for Fixed Charges for such period OVER (ii) the sum of (x) Fixed Charges for such period and (y) amounts required to be deposited into the Cashflow Recapture Fund; PROVIDED that Free Cashflow shall be zero in the event that any of the following conditions has not been satisfied: (i) Holdings has paid all amounts then due and payable in respect of (x) all monetary obligations of the Loan Parties arising under or in connection with the Holdings Credit Agreement and any agreements or instruments related thereto and (y) any Indebtedness of Holdings that is a Secured Obligation; (ii) no Default, Event of Default or Maturity Event (each as defined in the Holdings Credit Agreement) shall have occurred and be continuing or will occur after giving effect to the making of such payment; and (iii) (A) the Debt Service Coverage Ratio for the 12-month period ended on the last day of the immediately preceding Fiscal Quarter (or, in respect of any Quarterly Payment Date prior to January 1, 2001, the Debt Service Coverage Ratio for the period commencing on January 1, 2000 and ending on the last day of the immediately preceding Fiscal Quarter), (B) the projected Debt Service Coverage Ratio for the 12-month period commencing on the first day of the then current Fiscal Quarter and (C) the projected Debt Service Coverage Ratio for the 12-month period commencing on the first anniversary of the first day of the then current Fiscal Quarter, in each case shall be no less than 1.75 to 1.00. "F.R.S. BOARD" shall mean the Board of Governors of the Federal Reserve System or any successor. "GAAP" shall mean, with respect to any Person, generally accepted accounting principles in the United States as in effect from time to time applied on a basis consistent (except for changes concurred in by such Person's independent public accountants) with such Person's most recent audited consolidated financial statements. "GOVERNMENTAL APPROVAL" shall have the meaning given such term in Section 8.3 of the Participation Agreement. "GUARANTOR" shall mean Edison Mission Energy, a California corporation. 17 "GUARANTY" shall mean the Guaranty Agreement, dated as of June 23, 2000, made by EME in favor of the Lessor and Lessee. "HAZARDOUS MATERIAL" shall mean any substance, waste or material which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous by listing, characteristic or definition under any Environmental Law, including petroleum, crude oil or any fraction thereof, petroleum derivatives, by-products and other hydrocarbons and also including asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBS") and radon gas. "HOLDINGS" shall mean Edison Mission Midwest Holdings Co., a Delaware corporation. "HOLDINGS CREDIT AGREEMENT" shall mean the Credit Agreement, dated as of December 15, 1999, by and among Edison Mission Midwest Holdings Co., the Holdings Lenders (as defined therein) and The Chase Manhattan Bank, as the Administrative Agent (as defined therein). "IMPROVEMENTS" shall have the meaning given such term in Section 8 of the Lease. "INDEBTEDNESS" of any Person shall mean, without duplication: (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services which purchase price is due more than six months from the date of incurrence of the obligation in respect thereof or is evidenced by a note or other instrument, except trade accounts arising in the ordinary course of business; (c) all reimbursement obligations with respect to surety bonds, letters of credit (to the extent not collateralized with cash or Cash Equivalent 18 Investments), bankers' acceptances and similar instruments (in each case, whether or not matured); (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all Capitalized Lease Liabilities; (g) all net obligations with respect to sales of foreign exchange options; (h) all indebtedness referred to in CLAUSES (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and con tracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (i) all Contingent Liabilities. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partner ship or joint venture in which such Person is a general partner or a joint venturer. "INDEMNITEE" shall mean the Agent, the Collateral Agent, the Depositary Bank, each Noteholder, each Investor, the Trustee and the Lessor, and their respective 19 Affiliates and the successors, assigns, directors, officers, employees, members, partners and agents thereof. "INITIAL INVESTOR" shall mean Citicorp Del-Lease, Inc. "INSOLVENCY EVENT" shall mean, with respect to any Person, any event pursuant to which (i) such Person makes an assignment for the benefit of creditors, files a petition in bankruptcy, petitions or applies to any tribunal for the appointment of a custodian, receiver or any trustee for it or for a substantial part of its property, commences any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, consents or acquiesces in the filing of any such petition, application, proceeding or appointment of or taking possession by the custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of such Person or any substantial part of its property, or admits its inability to pay its debts generally as they become due, or authorizes any of the foregoing to be done or taken on behalf of such Person; or (ii) any involuntary case is commenced against any Person and the petition is not controverted within 10 days, or is not dismissed within 60 days, after commencement of the case. "INTERCOMPANY NOTE" shall mean the Promissory Note, dated as of June 23, 2000, by EME in favor of Midwest Generation, LLC. "INTERCREDITOR AGREEMENT" shall mean the Collateral Agency and Intercreditor Agreement, dated as of December 15, 1999, among The Chase Manhattan Bank, MGE, Holdings, EMOC, Midwest Generation LLC, Collins Holdings EME, LLC, Collins Trust I, Collins Trust II, Collins Trust III, Collins Trust IV, Midwest Funding LLC, each Holder Representative (as defined therein), Citibank N.A. as Depositary Agent (as defined therein), Bayerische Landesbank International S.A., Citibank, N.A. as Depositary Bank (as defined therein) and Citibank N.A. as Holdings Collateral Agent (as defined therein). 20 "INTEREST AMOUNT" shall mean for any Interest Period, an amount equal to the applicable Interest Rate on the aggregate Noteholder Amount PLUS the applicable Yield on the aggregate Investor Amount. "INTEREST PAYMENT DATE" shall have the meaning given such term in Section 3.13(f) of the Participation Agreement. "INTEREST PERIOD" shall mean, relative to any LIBO Rate Advance, the period beginning on (and including) the date on which such LIBO Rate Advance is made or continued as, or converted into, a LIBO Rate Advance pursuant to the Participation Agreement and shall end on (but exclude) the day which numerically corresponds to such date one, two, three or six months (or such longer or shorter period as the Noteholders or Investors, as the case may be, determine is available) thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), in either case as the Lessor may select in its relevant notice pursuant to Section 3.6 of the Participation Agreement; PROVIDED, HOWEVER, that: (a) all outstanding LIBO Rate Advances shall have the same Interest Period; (b) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (c) no Interest Period may end later than the Final Maturity Date. "INTEREST RATE" shall mean the applicable rate payable from time to time on the Notes during the Lease Term, which rate (i) relating to a LIBO Rate Advance for each Interest Period shall be equal to the LIBO Rate for such Interest Period plus the Applicable Margin (subject to Section 4.1 of the Participation Agreement), each such rate to be determined by the Agent and (ii) relating to a Base Rate Advance shall 21 equal the Alternative Base Rate in effect from time to time plus the Applicable Margin. "INTEREST RATE HEDGING TRANSACTIONS" shall mean, as to any Loan Party, all interest rate swaps, caps or collar agreements or similar arrangements entered into by such Person in order to protect against fluctuations in interest rates or the exchange of nominal interest obligations, either generally or under specific contingencies, and, in any event, not for speculative purposes. "INVESTMENT" shall mean, relative to any Person: (a) any loan or advance made by such Person to any other Person (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business); (b) any Contingent Liability of such Person; and (c) any ownership or similar interest held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property. "INVESTOR" shall have the meaning given such term in the Trust Agreement, and shall include, but is not limit ed to, the Initial Investor. "INVESTOR AMOUNT" shall mean, with respect to any Investor, as of the date of determination, the aggregate face amount of the Certificates held by such Investor pursuant to the Trust Agreement. 22 "INVESTOR BASIC RENT" shall mean the Yield due on the Investor Contributions on any Interest Payment Date pursuant to the Participation Agreement and the Trust Agreement. "INVESTOR CONTRIBUTION" shall have the meaning given such term in Section 3.3 of the Participation Agreement. "INVESTOR PARTICIPANT" shall have the meaning given such term in Section 21.8 of the Participation Agreement. "INVESTOR PURCHASE OPTION" shall have the meaning given such term in Section 12.5(d) of the Lease. "INVESTOR PURCHASE PRICE" shall have the meaning given such term in Section 12.5(d) of the Lease. "INVESTOR'S LETTER" shall mean the letter delivered to the Lessor in substantially the form of Exhibit E to the Participation Agreement. "LEASE" shall mean the Lease Agreement between Lessor and Lessee, dated June 23, 2000. "LEASE DEFAULT" shall mean any condition, event or act, which with notice or lapse of time or both would become a Lease Event of Default. "LEASE EVENT OF DEFAULT" shall have the meaning given such term in Section 14 of the Lease. "LEASE EXPIRATION DATE" shall mean the earlier of (a) the date the Lease is terminated pursuant to the Lease in connection with a Lease Event of Default or otherwise and (b) the Final Maturity Date. "LEASE FINANCING DOCUMENTS" shall mean the Participation Agreement, the Trust Agreement, the Certificates, the Credit Agreement, the Notes, the Assignment 23 Agreement, the Guaranty and each other agreement, document or instrument delivered in connection with any of the foregoing. "LEASE FINANCING PARTIES" shall mean, collectively, the Noteholders, the Investors and the Lessor. "LEASE OBLIGATIONS" shall mean the obligations of the Lessee and Collins Holdings EME, LLC to make basic lease rent, basic sublease rent, renewal lease rent, renewal sublease rent, supplemental lease rent, supplemental sublease rent and other payments under the Facility Subleases and the Facility Leases (as defined in the Holdings Credit Agreement) and under the Lease. "LEASE TERM" shall have the meaning given such term in Section 3 of the Lease. "LEASED EQUIPMENT" shall mean the combustion turbines as described on Schedule 1 to the Lease, purchased by Lessor and leased to Lessee pursuant to the Lease. "LESSEE" shall mean Midwest Generation, LLC, a Delaware limited liability company. "LESSEE ACCOUNT" shall mean the account established by the Lessee into which the proceeds of the Advances shall be deposited by Lessor as payment for the Leased Equipment. "LESSEE COLLATERAL" shall mean all assets of the Lessee, now owned or hereafter acquired, upon which a Lien is purported to be created by the Security Documents. "LESSEE FINANCING DOCUMENTS" shall mean the Holdings Credit Agreement, the CAPEX Credit Agreement and all other Indebtedness of Holdings and the Lessee. "LESSEE INDEMNITEE" shall mean (i) an Indemnitee and (ii) the Guarantor and the Affiliates and the directors, officer, employees and agents thereof. 24 PAGE "LESSEE PURCHASE FIXED PRICE" shall have the meaning given such term in Section 12.3 of the Lease. "LESSEE PURCHASE OPTION" shall have the meaning given such term in Section 12.3 of the Lease. "LESSEE SECURED OBLIGATIONS" shall have the meaning given such term in Section 17 of the Lease. "LESSOR" shall mean EME/CDL Trust, a statutory business trust created under the laws of the State of Delaware. "LESSOR ACCOUNT" shall have the meaning given such term in Section 10(a) of the Assignment Agreement. "LESSOR COLLATERAL" shall have the meaning given such term in Section 2 of the Assignment Agreement. "LESSOR LIENS" shall mean Liens on or against any or all of the Leased Equipment or any part thereof, the Lease, the Trust Estate or any payment of Rent which result from (a) any act of, or any Claim against, any Investor, any Noteholder, Trustee, Trust Company, Lessor, Collateral Agent or Agent in any case unrelated to the transactions contemplated by the Basic Documents, (b) any Tax owed by any such Person, except for any Tax required to be paid by Lessee under the Basic Documents, including any Tax for which Lessee is obligated to indemnify such Person, or (c) any act or omission of such Person which is prohibited by the Basic Documents. "LIBO RATE" shall mean, with respect to any Interest Period, the Telerate LIBOR Rate applicable to such Interest Period or, if the Telerate LIBOR Rate ceases to be reported, the London Interbank Offered Rate applicable to such Interest Period, where: "LONDON INTERBANK OFFERED RATE" shall mean, with respect to each Interest Period, the average rate per annum equal to the average rate of interest 25 PAGE at which deposits in Dollars (in the approximate amount equal to the aggregate outstanding principal balance of the Notes or Certificates, as the case may be, and for a period of time comparable to the applicable Interest Period) are offered to the Agent and two other major banks selected by the Agent in the London interbank market at approximately 11:00 a.m. (London time) two Business Days before the first day of such Interest Period for delivery on the first day of such Interest Period; and "TELERATE LIBOR RATE" shall mean, with respect to a Interest Period, the rate of interest per annum at which deposits in Dollars are offered to major banks in the London interbank market at approximately 11:00 a.m. (London time) for a period of time comparable to the applicable Interest Period, as reported by the Telerate System page 3750 (or such other page as may replace such page 3750 on such system for the purpose of reporting London Interbank Offered Rates of major banks) under the heading for British Bankers Association Interest Settlement Rates in the column designated "USD" (U.S. Dollar), two Business Days before the first day of such In terest Period for delivery on the first day of such Interest Period. "LIBO RATE (RESERVE ADJUSTED)" means, relative to any Advance to be made, continued or maintained as, or converted into, a LIBO Rate Advance for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest whole multiple of l/100 of 1%) determined pursuant to the following formula: LIBO Rate (Reserve Adjusted) = LIBO Rate ------------------------------- 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Advances will be determined by the Agent on the basis of the LIBOR Reserve Percentage in effect on, and the applicable rates furnished to and received by the Agent, two Business Days before the first day of such Interest Period. "LIBO RATE ADVANCE" shall mean any Advance under which interest accrues at the LIBO Rate plus the Applicable Margin. 26 PAGE "LIBOR OFFICE" shall mean initially, the funding office of each Noteholder or Investor, as the case may be, designated as such in Schedule I to the Participation Agreement or designated in any assignment agreement relating to the assignment of any Loan or Investor Amount pursuant to the Basic Documents; and thereafter, such other office of such Noteholder or Investor, if any, making or maintaining such Noteholder's or Investor's investment in Certificates or Notes. "LIBOR RESERVE PERCENTAGE" means, relative to any Interest Period for LIBO Rate Advances, the reserve percentage (expressed as a decimal) equal to the aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of and including "Eurocurrency Liabilities," as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. "LIEN" shall mean any lien (statutory or otherwise), mortgage, deed of trust, encumbrance, pledge, financing statement, charge, lease, easement, servitude or security interest of any kind, including any thereof arising under any conditional sale or other title retention agreement or any financing lease having substantially the same effect as the foregoing. "LOAN PARTICIPANT" shall have the meaning given such term in Section 6.8.2 of the Credit Agreement. "LOAN PARTIES" shall mean (i) Holdings, (ii) the Lessee and (iii) EMOC and their respective Subsidiaries. "LOANS" shall mean the loans made to the Lessor by the Noteholders on the Closing Date pursuant to Section 3.1 of the Participation Agreement. "MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, any event, development or circumstance that has had or could reasonably be expected to have a 27 PAGE material adverse effect on (i) the business, assets, property, condition (financial or otherwise) or operations of such Person and its Subsidiaries, taken as a whole, since the Closing Date or (ii) the ability of such Person to perform its obligations under any of the Basic Documents to which such Person is a party. "MAXIMUM DEFICIENCY AMOUNT" shall mean, with respect to any Category of Leased Equipment, the Maximum Deficiency Amount set forth on Schedule 4 to the Lease. "MEMORANDUM OF LEASE" shall mean the five Memorandum of Lease, each dated as of June 23, 2000, between the Lessor and the Lessee and filed with the Registries of Deeds, in Cook, Lake, Will, DuPage and Winnebago Counties, Illinois, respectively. "MGE" shall mean Midwest Generation EME, LLC, a Subsidiary of Edison Mission Energy and a limited liability company organized under the laws of the State of Delaware. "MOODY'S" shall mean Moody's Investors Service, a division of Dun & Bradstreet Corporation, and its successors and assigns. "MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" as such term is defined in Section 4001(a)(3) of ERISA. "NET SALE PROCEEDS" shall have the meaning given such term in Section 3.10(b) of the Participation Agreement. "NET TANGIBLE ASSETS" shall mean, as of the date of any determination thereof, the total amount of all assets of Guarantor and its Subsidiaries (determined on a consolidated basis in accordance with GAAP), LESS the sum of (i) the consolidated current liabilities of Guarantor and its Subsidiaries (determined on a consolidated basis in accordance with GAAP) and (ii) assets properly classified as "intangible assets" in accordance with GAAP. 28 PAGE "NON-RECOURSE DEBT" shall mean, with respect to any Person, Indebtedness which such Person is not directly or indirectly obligated to repay. "NON-US PARTICIPANT" shall have the meaning given such term in Section 4.7(c) of the Participation Agreement. "NOTE" shall mean, as the context may require, a Tranche A Note or a Tranche B Note. "NOTEHOLDER AMOUNT" shall mean, with respect to any Noteholder, as of any date of determination, the aggregate face amount of the Notes held by such Noteholder pursuant to the Credit Agreement. "NOTEHOLDER ASSIGNMENT AGREEMENT" shall mean a Noteholder Assignment Agreement, substantially in the form of Exhibit B to the Credit Agreement. "NOTEHOLDERS" shall mean the Tranche A Noteholders and Tranche B Noteholders. "OBLIGATIONS" shall mean, with respect to any Per son, all obligations (monetary or otherwise) of such Person, as the context may require, arising under or in connection with the Basic Documents. "OFFICER'S CERTIFICATE" of a Person shall mean a certificate signed by (i) the Chairman of the Board of Directors or the President or any Executive Vice President or any Senior Vice President or any other Vice President of such Person signing with the Treasurer or any Assistant Treasurer or the Controller or any Assistant Controller, Cashier, Assistant Cashier or the Secretary or any Assistant Secretary of such Person, or by any Vice President who is also Controller, Treasurer or Cashier signing alone or (ii) with respect to the Lessor and the Trustee, an authorized signatory of the Trustee. "OPERATING EXPENSES" shall mean, in respect of any period, all cash amounts paid by the Loan Parties in the conduct of their business during such period, including premiums for insurance policies, fuel supply and transportation costs, utilities, costs 29 PAGE of maintaining, renewing and amending Governmental Approvals, franchise, licensing, property, real estate and income taxes, sales and excise taxes, general and administrative expenses, employee salaries, wages and other employment-related costs, business management and administrative services fees, fees for letters of credit, surety bonds and performance bonds, necessary capital expenditures and all other fees and expenses necessary for the continued operation and maintenance of the Generating Assets (as defined in the Holdings Credit Agreement) and the conduct of the business of the Loan Parties. Operating Expenses shall exclude (to the extent included) Lease Obligations (except Supplemental Rent payable by Lessee pursuant to Section 6.7 of the Participation Agreement) and shall include (to the extent excluded) Designated Lease Liabilities (other than Lease Obligations). "ORGANIC DOCUMENTS" shall mean, (i) with respect to any Person that is a corporation, its certificate of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock, (ii) with respect to any Person that is a limited partnership, its certificate of limited partnership and partnership agreement, (iii) with respect to any Person that is a limited liability company, its certificate of formation and its limited liability company agreement and (iv) with respect to any Person that is a trust, its certificate of formation and trust agreement, in each case, as from time to time amended, supplemented, amended and restated, or otherwise modified and in effect from time to time. "ORIGINATOR" shall have the meaning given such term in Section 21.8 of the Participation Agreement. "OVERDUE RATE" shall mean the lesser of (a) the highest interest rate permitted by Applicable Law and (b) to the extent the relevant overdue amount (i) accrues interest or Yield, an interest rate per annum equal to the Interest Rate or the Yield Rate, as applicable, plus 2% per annum, or (ii) does not accrue interest or Yield, the Alternate Base Rate plus 2% per annum. "OWNER" shall have the meaning given such term in Section 12.6(a) of the Lease. 30 PAGE "PARTICIPANT" shall mean any Investor or Noteholder. "PARTICIPATION AGREEMENT" shall mean the Participation Agreement, dated as of June 23, 2000, among Lessee, Guarantor, Lessor, the Noteholders, the Initial Investor, Trustee, Collateral Agent and Agent. "PARTNERSHIP" shall mean a general partnership, limited partnership, joint venture or similar entity in which Lessee or Guarantor, as the case may be, or a Subsidiary is a partner, joint venturer or equity participant. "PAYMENT DATE" shall mean each Interest Payment Date and any other date on which a payment is otherwise due by the Lessor to the Noteholders or Investors under the Basic Documents. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PENSION PLAN" shall mean with respect to any Person a "pension plan," as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which such Person or any corporation, trade or business that is, along with such Person a member of a Controlled Group, has any liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. "PERCENTAGE INTEREST" shall mean, relative to any Investor or Noteholder, the ratio of the outstanding principal amount of all Advances or Investor Amounts held by such Noteholder or Investor, as the case may be, to the aggregate outstanding principal amount of all Advances. "PERMITS" shall mean those permits, licenses, registrations, certificates, approvals and consents required by Applicable Law or any Authority in connection with the ownership, delivery, installation, use and operation of the Leased Equipment. 31 PAGE "PERMITTED CONTEST" shall mean actions taken by a Person to contest in good faith, by appropriate proceedings initiated timely and diligently prosecuted, the legality, validity or applicability to the Leased Equipment or any part thereof or any interest therein of any Person of (a) any law, regulation, rule, judgment, order, or other legal provision or judicial or administrative requirements, (b) any term or condition of, or any revocation or amendment of, or other proceeding relating to, any authorization or other consent, approval or other action by any Authority or (c) any Lien or Tax, if the initiation and prosecution of such contest would not: (i) involve a risk of any criminal liability being incurred by or, other than with respect to contests relating to Taxes, a Material Adverse Effect on, such Indemnitee; (ii) materially and adversely affect the security interests created by the Basic Documents or the rights and interest of Lessor in or to any of the Leased Equipment or the right of Lessor, any Investor or any Noteholder to receive payment of all or any amount payable under the Basic Documents; (iii) permit, or pose a risk of, the sale or forfeiture of, or foreclosure or, other than with respect to contests relating to Taxes, the imposition of a Lien on, any of the Leased Equipment or any part there of or (iv) materially and adversely affect the Fair Market Value, utility or remaining useful life of the Leased Equipment or any part thereof or any interest therein or the continued use, economic operation or maintenance thereof; PROVIDED, further, that in any event adequate reserves in accordance with GAAP are maintained by such Person against any adverse determination of such contest. "PERMITTED INVESTMENTS" shall mean (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof and backed by the full faith and credit of the United States of America, maturing in not more than one year from the date such investment is made; (ii) certificates of deposit having a final maturity of not more than one year after the date of issuance thereof of a Noteholder or of any other commercial bank incorporated under the laws of the United States of America or any state thereof or the District of Columbia, which bank is a member of the Federal Reserve System and has a combined capital and surplus of not less than $500,000,000 and with a senior unsecured debt credit rating of at least "A" by Moody's and "A" by S&P; (iii) commercial paper of any Noteholder or any Affiliate thereof having a remaining term until maturity of not more than 180 days from the date such investment is made; (iv) commercial paper of companies, banks, trust 32 PAGE companies or national banking associations (in each case excluding the Lessee and its Affiliates) incorporated or doing business under the laws of the United States or one of the States thereof, in each case having a remaining term until maturity of not more than 180 days from the date such investment is made and rated at least P-1 by Moody's or at least A-1 by S&P; and (v) repurchase agreements maturing within one year with any financial institution having combined capital and surplus of not less than $500,000,000 with any of the obligations described in clauses (i) through (iv) as collateral so long as title to the underlying obligations pass to Lessor and such underlying securities shall be segregated in a custodial or trust account for the benefit of Lessor. "PERMITTED LIENS" shall mean (i) the respective rights and interests of Lessee, Guarantor, the Investors, the Noteholders and Lessor, as provided in any of the Basic Documents; (ii) materialmen's, mechanics', workers', artisan's, repairmen's, employees' or other like Liens securing payment of the price of goods or services rendered in the ordinary course of business for amounts the payment of which is not overdue or is being contested pursuant to a Permitted Contest; and (iii) the rights of any sublessee or assignee under a sublease or an assignment permitted by the terms of the Lease. "PERMITTED SECURED INDEBTEDNESS" shall mean Indebtedness permitted by each of Section 8.2.1(b),(f),(g) or (j) of the Holdings Credit Agreement, Section 8.1(c), (g), (h) or (k) of each Applicable Participation Agreement (as defined in the Intercreditor Agreement), and the correlative provisions of any other Financing Document (as defined in the Intercreditor Agreement). "PERSON" shall mean an individual, corporation, partnership, joint venture, limited liability company, limited liability partnership, association, joint-stock company, trust, limited liability company, unincorporated organization or Authority. "PLAN" shall mean any "employee benefit plan" (as defined in Section 3(3) of ERISA) that is subject to ERISA, any "plan" (as defined in Section 4975(e)(1) of the Code) that is subject to Section 4975 of the Code, any trust created under any such plan or any "governmental plan" (as defined in Section 3(32) of ERISA or Section 414(d) of the Code) that is organized in a jurisdiction having prohibitions on transac- 33 PAGE tions with government plans similar to those contained in Section 406 of ERISA or Section 4975 of the Code. "PROHIBITED TRANSACTION" shall mean a transaction that is prohibited under Code Section 4975 or ERISA Section 406 and not exempt under Code Section 4975 or ERISA Section 408 or otherwise. "PRUDENT INDUSTRY PRACTICE" shall mean, at any 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 reason ably 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 a spectrum of possible practices, methods or acts having due regard for, among other things, manufacturers' warranties and the requirements of any Authority of competent jurisdiction. "PUHCA" shall have the meaning given such term in Section 8.3 of the Participation Agreement. "PURCHASE DECISION DATE" shall have the meaning given such term in Section 12.2 of the Lease. "PURCHASE PRICE" shall mean $300 million. "QUARTERLY PAYMENT DATE" shall mean the first Business Day of each January, April, July and October. "RATING EVENT" shall mean (i) a downgrading of the Debt Rating of the Guarantor below BBB+ or Baa2 by S&P or Moody's, respectively or (ii) the Debt 34 PAGE Rating of the surviving entity, if not the Guarantor, following any merger of the Guarantor being below BBB+ or Baa2 by S&P or Moody's, respectively. "REGISTER" shall have the meaning given such term in Section 6.8.1 of the Credit Agreement. "RELATED PARTY" shall mean, with respect to any Person or its successors and assigns, an Affiliate of such Person or its successors and assigns and any director, officer, servant, employee or agent of that Person or any such Affiliate or their respective successors and assigns; PROVIDED, that the Trustee shall not be treated as a Related Party to any other party and neither Lessor nor Trustee shall be treated as a Related Party to the Contributor. "RELEASE" shall mean the release, deposit, disposal or leak of any Hazardous Material into or upon or under any land or water or air, or otherwise into the environment, including by shall mean of burial, disposal, discharge, emission, injection, spillage, leakage, seepage, leaching, dumping, pumping, pouring, escaping, emptying, placement and the like, except to the extent subject to and in accordance with a Permit or an express exclusion from the requirement to have a Permit. "RENEWAL LEASE" shall have the meaning given such term in Section 7.1(a) of the Participation Agreement. "RENEWAL NOTICE" shall have the meaning given such term in Section 7.1(a) of the Participation Agreement. "RENEWAL RENT" shall mean the sum of (i) the interest due on the Tranche A Loan on any Interest Payment Date during the Renewal Term, pursuant to the Credit Agreement and the Participation Agreement (but not including interest on overdue amounts under Section 3.13 of the Participation Agreement or otherwise), (ii) the interest due on the Tranche B Loan on any Interest Payment Date pursuant to the Credit Agreement and the Participation Agreement (but not including interest on overdue amounts under Section 3.13 of the Participation Agreement or otherwise) and 35 PAGE (iii) the Yield on the Investor Contributions on any Interest Payment Date pursuant to the Trust Agreement and the Participation Agreement. "RENEWAL TERM" shall have the meaning given such term in Section 7.1 of the Participation Agreement. "RENT" shall mean Basic Rent and Supplemental Rent, collectively. "RENT PAYMENT DATE" shall mean each Interest Payment Date. "REPORTABLE EVENT" shall mean any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than any such event for which the 30- day notice requirement under ERISA has been waived in regulations issued by the PBGC. "REQUIRED IMPROVEMENT" shall have the meaning given such term in Section 8 of the Lease. "REQUIRED INVESTORS" shall mean as of any date of determination, Investors whose Investor Amounts in the aggregate constitute more than 66.66% of the aggregate Investor Amounts. "REQUIRED NOTEHOLDERS" shall mean as of any date of determination, Noteholders (other than EME or any Affiliate of EME) whose Noteholder Amounts in the aggregate constitute more than 66.66% of the aggregate Noteholder Amounts held by Noteholders other than EME or any Affiliate of EME. "REQUIRED PARTICIPANTS" shall mean Participants whose Noteholder Amounts and Investor Amounts in the aggregate constitute more than 66.66% of the sum of (i) the aggregate Noteholder Amounts held by Noteholders other than EME or any Affiliate of EME and (ii) the aggregate Investor Amounts held by Investors other than EME or any Affiliate of EME. 36 PAGE "RESIDUAL DEFICIENCY PAYMENT" shall have the meaning given such term in Section 12.6(a) of the Lease. "RESPONSIBLE OFFICER" shall mean the Chairman or Vice Chairman of the Board of Directors, the Chairman or Vice Chairman of the Executive Committee of the Board of Directors, the President, any Senior Vice President or Executive Vice President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, or any Assistant Treasurer; PROVIDED that, with respect to an Investor or Noteholder, "Responsible Officer" shall include only those Persons described above who are responsible for corporate trust functions. "RETURN ACCEPTANCE CONDITIONS" shall mean a condition at least as good as the condition in which the Leased Equipment would have been if the Lessee has maintained the Leased Equipment in accordance with Section 7.2 of the Lease. "REVENUES" shall mean, in respect of any period, all cash amounts (other than any payment under any intercompany note) received by the Loan Parties during such period, including revenues from the sale of energy and capacity, proceeds of business interruption insurance and all interest and other income earned on amounts in the Cashflow Recapture Fund. "S&P" shall mean Standard & Poor's Ratings Services and its successors and assigns. "SALE OPTION" shall have the meaning given such term in Section 12.4 of the Lease. "SCHEDULED CLOSING DATE" shall mean July 10, 2000. "SCHEDULED INTEREST PAYMENT DATE" shall mean, as to any Advance, the last day of each applicable Interest Period (or for any Advance bearing interest or Yield, respectively, at the Alternate Base Rate, the first day of each calendar month) and the Final Maturity Date. 37 PAGE "SEC" shall mean the United States Securities and Exchange Commission. "SECURED OBLIGATIONS" shall mean all obligations of Holdings, the Lessee, MGE or EMOC, under, with respect to or arising out of, without duplication, (i) the principal of, premium (if any) and interest on, the Loans (as defined in the Holdings Credit Agreement), (ii) the obligations of Holdings under each Lease Obligations Guarantee (as defined in the Holdings Credit Agreement) with respect to the Lease Obligations, (iii) the obligations of Holdings under the Letter of Credit Guarantee (as defined in the Holdings Credit Agreement) and (iv) the principal of, premium (if any) and interest on, Permitted Secured Indebtedness subject of a Designation Letter (as defined in the Intercreditor Agreement). "SECURITIES ACT" shall mean the Securities Act of 1933. "SECURITY DOCUMENTS" shall mean the Lease and all other security documents hereafter delivered to the Agent, granting a Lien on the Leased Equipment to secure the obligations and liabilities of the Lessee under the Lease. "SEVERABLE IMPROVEMENT" shall have the meaning given such term in Section 8 of the Lease. "SUBSIDIARY" shall mean, with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "SUPPLEMENTAL RENT" shall mean any and all amounts, liabilities and obligations other than Basic Rent which Lessee assumes or agrees or is otherwise obligated to pay under the Lease or any other Basic Document (whether or not designated as Supplemental Rent) to Lessor, any Investor, any Noteholder or any other Person, including indemnities and damages for breach of any covenants, representations, warranties or agreements. 38 PAGE "TANGIBLE NET WORTH" shall mean the net worth of Guarantor and its Subsidiaries (determined on a consolidated basis in accordance with GAAP) after subtracting therefrom the aggregate amount of any intangible assets of Guarantor and its Subsidiaries (determined on a consolidated basis in accordance with GAAP), including goodwill, franchises, licenses, patents, trademarks, trade names, copyrights, service marks and brand names. "TAX ADVANCE" shall have the meaning given such term in Section 6.3(g) of the Participation Agreement. "TAX BENEFIT" shall have the meaning set forth in Section 6.3(e) of the Participation Agreement. "TAX CLAIM" shall have the meaning given such term in Section 6.3(g) of the Participation Agreement. "TAXES" and "TAX" shall mean any and all fees (including, but not limited to, documentation, recording, license and registration fees), taxes (including, but not limited to, income (whether net, gross or adjusted gross), gross receipts, lease, sublease, sales, rental, use, turnover, value-added, property, excise and stamp taxes), levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever, together with any penalties, fines or interest thereon or additions there to. "TAXES PAYABLE" shall have the meaning given such term in Section 4.7 of the Participation Agreement. "TERMINATION DATE" shall mean each of the Rent Payment Dates during the Lease Term identified as a Termination Date on Schedule 3 of the Lease, which dates shall be the same days on which Basic Rent and Renewal Rent, if any, are payable under the Lease. "TERMINATION EVENT" shall mean (i) a reportable event described in Section 4043(b) of ERISA and the regulations issued thereunder (other than a reportable event (a) not subject to the provision for a 30-day notice to the PBGC under such regula- 39 PAGE tions or (b) for which a waiver of such 30-day notice is provided in such regulations), or (ii) the withdrawal of Lessee or Guarantor, as the case may be, or any of their respective ERISA Affiliates from a Plan during a Plan Year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the distribution of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the PBGC under Section 4042 of ERISA, or (v) any other event or condition which to the knowledge of Lessee or Guarantor, as the case may be, would constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or (vi) the complete or partial withdrawal of Lessee or Guarantor, as the case may be, or any of their respective ERISA Affiliates from a Multiemployer Plan or the institution by a fiduciary of any Multiemployer Plan against Lessee or Guarantor, as the case may be, or any of their respective ERISA Affiliates of a proceeding to enforce Section 4219(c)(5) of ERISA, provided, that in all such cases, in aggregate at any one time that the sum of (A), (B) and (C) below exceeds 1.5% of the consolidated total assets of Lessee or Guarantor, as the case may be, where: (A) is, in the case of an event of the type referred to in the preceding clauses (i) through (v), the amount by which the then aggregate current value of all accrued benefits under all Plans exceeds the then aggregate current value of all assets of such Plans allocable to such accrued benefits (excluding, for these purposes, any Plan under which the current market value of Plan assets exceeds the current value of accrued benefits), (B) is, in the case of an event of the type referred to in the preceding clause (vi), the amount of the complete or partial withdrawal liability, and (C) is the outstanding amount of any prior complete or partial withdrawal liability form a Multiemployer Plan. "TERMINATION VALUE" shall mean for any Termination Date the Termination Values set forth on Schedule 3 of the Lease for such Termination Date. "TOTAL ADVANCES" shall mean the aggregate of the Advances of all of the Noteholders and Investors. "TRANCHE" refers in respect of any Note, to whether such Note is a Tranche A Note or a Tranche B Note. 40 PAGE "TRANCHE A BASIC RENT" shall mean the interest due on the Tranche A Loan on any Interest Payment Date pursuant to the Credit Agreement and the Participation Agreement (but not including interest on overdue amounts under Section 3.6 of the Participation Agreement or otherwise). "TRANCHE A CHECK" shall have the meaning given such term in Section 3.5 of the Participation Agreement. "TRANCHE A LOAN" shall mean the loan made by the Tranche A Noteholders under Section 2.1.1 of the Credit Agreement. "TRANCHE A MAXIMUM AMOUNT" shall mean $255,000,000. "TRANCHE A NOTE" shall mean a promissory note of the Lessor dated the Closing Date in the form of Exhibit A-I attached to the Credit Agreement and all other promissory notes accepted from time to time in substitution therefor or replacement thereof. "TRANCHE A NOTEHOLDERS" shall mean the holders, from time to time, of the Tranche A Notes as recorded in the Register pursuant to Section 6.8.1(b) of the Credit Agreement. "TRANCHE B BASIC RENT" shall mean the interest due on the Tranche B Loan on any Interest Payment Date pursuant to the Credit Agreement and the Participation Agreement (but not including interest on overdue amounts under Section 3.6 of the Participation Agreement or otherwise). "TRANCHE B LOAN" shall mean the loan made by the Tranche B Noteholders under Section 2.1.2 of the Credit Agreement. "TRANCHE B MAXIMUM AMOUNT" shall mean $36,000,000. "TRANCHE B NOTE" shall mean a promissory note of the Lessor dated the Closing Date in the form of Exhibit A-II attached to the Credit Agreement and all 41 PAGE other promissory notes accepted from time to time in substitution therefor or replacement thereof. "TRANCHE B NOTEHOLDERS" shall mean the holders, from time to time, of the Tranche B Notes as recorded in the Register pursuant to Section 6.8.1(b) of the Credit Agreement. "TRANSACTION COSTS" shall have the meaning given such term in Section 5.1(i) of the Participation Agreement. "TRUST" shall have the meaning given such term in Article II of the Trust Agreement. "TRUST AGREEMENT" shall mean the Amended and Restated Trust Agreement, dated as of June 23, 2000, between Citicorp Del-Lease, Inc. as Contributor and Investor and Wilmington Trust Company as Trustee. "TRUST COMPANY" shall mean Wilmington Trust Company, in its individual capacity, and any successor trustee under the Trust Agreement in its individual capacity. "TRUST ESTATE" shall mean all estate, right, title and interest of Lessor in, to and under the Leased Equipment and any part thereof, the Trust Agreement, the Lease and all of the other Basic Documents and any other property contributed to the Trust or otherwise acquired by the Trust, including (i) all amounts of Rent and other payments due or to become due of any kind for or with respect to the Leased Equipment and any part thereof or payable under any of the foregoing, (ii) any or all payments or proceeds received by Lessor after the termination of the Lease with respect to the Leased Equipment and any part thereof as the result of the sale, lease or other disposition thereof, and (iii) proceeds of the investments in the Notes and Certificates, together with any other moneys, proceeds or property at any time received by Lessor under or in connection with the Basic Documents but in any case specifically excluding Excluded Amounts. 42 PAGE "TRUSTEE" shall have the meaning given such term in Article II of the Trust Agreement. "TYPE" means, relative to any Advance, the portion thereof, if any, being maintained as a Base Rate Advance or a LIBO Rate Advance. "UCC" shall mean the Uniform Commercial Code of New York or any other applicable jurisdiction. "WELFARE PLAN" shall mean, with respect to any Person, a "welfare plan" as such term is defined in section 3(1) of ERISA to which such Person or any Affiliate of such Person may have any liability or contingent liability. "YIELD" shall have the meaning given such term in Section 3.3 of the Participation Agreement. "YIELD AMOUNT" shall mean for any Interest Period, an amount equal to the applicable Yield on the aggregate Investor Amount. "YIELD RATE" shall mean the applicable rate payable from time to time on the Certificates for each Interest Period during the Lease Term, which rate for each Interest Period then applicable (i) relating to a LIBO Rate Advance shall be equal to the LIBO Rate for such Interest Period plus the Applicable Margin (subject to Section 4.1 of the Participation Agreement), each such rate to be determined by the Agent and (ii) relating to an Alternative Base Rate Advance shall be equal to the Alternative Base Rate in effect during such Interest Period plus the Applicable Margin. 43 EX-10.89-1 23 a2042986zex-10_891.txt EXHIBIT 10.89.1 Exhibit 10.89.1 EXECUTION COPY AMENDMENT ONE AMENDMENT ONE (this "AMENDMENT") dated as of August 17, 2000 by and among (I) MIDWEST GENERATION, LLC, ("MIDWEST"), (II) EDISON MISSION ENERGY, ("EME"), (III) EME/CDL TRUST, (the "LESSOR"), (IV) CITICORP DEL-LEASE, INC., (the "INVESTOR"), (V) WILMINGTON TRUST COMPANY, (the "TRUSTEE"), (VI) CERTAIN NOTEHOLDERS PARTY HERETO, (the "NOTEHOLDERS"), (VII) CITICORP NORTH AMERICA, INC., (the "AGENT") and (VIII) CITICORP NORTH AMERICA, INC., (the "COLLATERAL AGENT"). WHEREAS, Midwest, EME, the Lessor, the Investor, the Trustee, the Noteholders, the Agent and the Collateral Agent have entered into that certain Participation Agreement, dated as of June 23, 2000 (as heretofore amended, modified and supplemented, the "PARTICIPATION AGREEMENT"), which sets forth, INTER ALIA, certain covenants of EME; WHEREAS, EME and Midwest desire to enter into the Leveraged Lease Transaction (as defined herein); and WHEREAS, EME and Midwest have requested, and the Lessor, the Investor, the Trustee, the Noteholders, the Agent and the Collateral Agent have agreed, to amend certain provisions of the Participation Agreement so as to permit the Leveraged Lease Transaction; NOW, THEREFORE, the parties hereto agree as follows: Section 1. DEFINITIONS. Except as otherwise defined in this Amendment, terms defined in the Participation Agreement are used herein (and in the introductions and recitals hereto) as defined therein. Section 2. AMENDMENT TO THE PARTICIPATION AGREEMENT. Subject to the satisfaction of the conditions precedent specified in Section 3 below, but effective as of the Amendment Effective Date, the Participation Agreement shall be amended as follows: (a) APPENDIX A to the Participation Agreement shall be amended by adding the following definitions: ""LEVERAGED LEASE OPERATIVE DOCUMENTS" shall mean the Operative Documents as defined in the Leveraged Lease Participation Agreement. "LEVERAGED LEASE PARTICIPATION AGREEMENT" shall mean, collectively, (i) the Participation Agreement dated as of August 17, 2000 by and among Midwest, Edison Mission Energy, Powerton Trust I, Powerton Generation I, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as PassThrough Trustees; (ii) the Participation Agreement dated as of August 17, 2000 by and among Midwest, Edison Mission Energy, Powerton Trust II, Powerton Generation II, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass-Through Trustees; (iii) the Participation Agreement dated as of August 17, 2000 by and among Midwest, Edison Mission Energy, Joliet Trust I, Joliet Generation I, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass-Through Trustees; (iv) the Participation Agreement dated as of August 17, 2000 by and among Midwest, Edison Mission Energy, Joliet Trust II, Joliet Generation II, LLC, Wilmington Trust Company, United States Trust Company of New York, as Lease Indenture Trustee and United States Trust Company of New York, as Pass-Through Trustees. "LEVERAGED LEASE TRANSACTION" shall mean the transaction pursuant to the Leveraged Lease Participation Agreement and the Leveraged Lease Operative Documents.". (b) SECTION 14.3 of the Participation Agreement shall be amended by deleting SUBSECTION 14.3(F) of the Participation Agreement in its entirety and replacing it with the following: "(f) Investments in or on behalf of Persons primarily engaged in the power generation, power sales or power transmissions business or in transactions related to such business.". (c) SECTION 14.5 of the Participation Agreement shall be amended by (i) deleting the period at the end of SUBSECTION 14.5(B) of the Participation Agreement and (ii) adding the following language at the end of SUBSECTION 14.5(B) of the Participation Agreement after the word "Investments": "or are used to purchase or repay Indebtedness ranking equal in right of payment to senior unsecured Indebtedness of EME.". (d) SECTION 14.6 of the Participation Agreement shall be amended by adding the following sentence at the end of the section: "Notwithstanding the foregoing, the Leveraged Lease Transaction and the transactions contemplated by the Leveraged Lease Operative Documents shall be -2- deemed not to be a contract or arrangement with an Affiliate for the purposes of this SECTION 14.6.". (e) SECTION 14.7 of the Participation Agreement shall be amended by (i) adding the following after the word "excluding" in the second line of SECTION 14.7 of the Participation Agreement: "(i)"; and (ii) adding the following after the word "Indebtedness" in line four of SECTION 14.7 of the Participation Agreement: ", and (ii) any Leveraged Lease Operative Document and any agreement with respect to any Indebtedness entered into by the Guarantor or any of its Subsidiaries in connection with the Leveraged Lease Transaction". Section 3. CONDITIONS PRECEDENT. This Amendment shall become effective and the Participation Agreement shall be amended on the date (the "AMENDMENT EFFECTIVE DATE") on which the Collateral Agent shall have received from each of the parties hereto a copy of this Amendment (whether the same or different copies) duly executed and delivered by each other party hereto. Notwithstanding the preceding sentence, this Amendment shall not become effective and the Participation Agreement shall not be amended on the Amendment Effective Date (a) if a Default or an Event of Default has occurred and is continuing on such date and (b) unless, except as disclosed in EME's filings with the Securities and Exchange Commission pursuant to the Exchange Act of 1934, the representations and warranties of EME and Midwest contained in the Operative Documents are true and correct in all material respects as of the Amendment Effective Date with the same effect as though such representations and warranties had been made on and as of the Amendment Effective Date (except for such representations and warranties made as of a specified date, which shall be true and correct in all material respects as of such specified date). The Collateral Agent shall notify the parties hereto of the Amendment Effective Date promptly following the effectiveness of this Amendment. Section 4. MISCELLANEOUS. Except as expressly amended hereby, all of the terms and provisions of the Participation Agreement are and shall remain in full force and effect. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be governed by, and construed in accordance with, the law of the State of New York. -3- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized. EDISON MISSION ENERGY, as Guarantor By: /s/ John P. Finneran, Jr. ------------------------------------ Name: John P. Finneran, Jr. Title: Vice President MIDWEST GENERATION, LLC, as Lessee By: /s/ John P. Finneran, Jr. ------------------------------------ Name: John P. Finneran, Jr. Title: Vice President EME/CDL TRUST, as Lessor By: Wilmington Trust Company, not in its individual capacity, but solely as Trustee By: /s/ Robert P. Hines ------------------------------------ Name: Robert P. Hines Title: Assistant Secretary and Financial Services Officer MIDWEST PEAKER HOLDINGS, INC., as Tranche A Noteholder By: /s/ Gary Garcia ------------------------------------ Name: Gary Garcia Title: Vice President BANK HAPOALIM, as Tranche B Noteholder By: /s/ Laura Anne Raffa ------------------------------------ Name: Laura Anne Raffa Title: First Vice President a and Corporate Manager By: /s/ Shaun Breidbart ------------------------------------ Name: Shaun Breidbart Title: Vice President CITICORP DEL-LEASE, INC., as Investor By: /s/ Julie M. Chin ------------------------------------ Name: Julie M. Chin Title: Vice President WILMINGTON TRUST COMPANY, as Trust Company By: /s/ Robert P. Hines ------------------------------------ Name: Robert P. Hines Title: Assistant Secretary and Financial Services Officer WILMINGTON TRUST COMPANY, not in its individual capacity, except as expressly provided herein, but solely as Trustee By: /s/ Robert P. Hines ------------------------------------ Name: Robert P. Hines Title: Assistant Secretary and Financial Services Officer CITICORP NORTH AMERICA, INC., as Agent By: /s/ Julie M. Chin ------------------------------------ Name: Julie M. Chin Title: Vice President CITICORP NORTH AMERICA, INC., as Collateral Agent By: /s/ JULIE M. CHIN ------------------------------------ Name: Julie M. Chin Title: Vice President EX-10.90 24 a2042986zex-10_90.txt EXHIBIT 10.90 Exhibit 10.90 REIMBURSEMENT AGREEMENT (this "AGREEMENT"), dated as of August 17, 2000, entered into between Edison Mission Energy, a California corporation ("EME") and Midwest Generation, LLC, a Delaware limited liability company ("MIDWEST"). WHEREAS, Midwest is a wholly owned subsidiary of Edison Mission Midwest Holdings Co. ("Holdings"), and is subject to the certain covenants set forth in (A) the Credit Agreement, dated as of December 15, 1999 (as amended, modified or supplemented and in effect from time to time and together with any refinancing or replacement thereof, the "HOLDINGS CREDIT AGREEMENT"), among Holdings and certain commercial lending institutions party thereto (the "LENDERS") and The Chase Manhattan Bank, as the Administrative Agent; (B) the Participation Agreement, dated as of December 15, 1999 (as heretofore amended, modified and supplemented, the "PARTICIPATION AGREEMENT (T1)") among Collins Holdings EME, LLC ("COLLINS HOLDINGS"), Wilmington Trust Company, as the Owner Trustee, Collins Trust I, as the Owner Lessor, Collins Generation I, LLC, as Owner Participant, Holdings, Midwest, Funding LLC, Bayerische Landesbank International S.A. (the "MIDWEST LC ISSUER"), Bayerische Landesbank Girozentrale ("RCE LC ISSUER") and the Holder Representative (as such term is defined therein); (C) the Participation Agreement, dated as of December 15, 1999 (as heretofore amended, modified and supplemented, the "PARTICIPATION AGREEMENT (T2)") among Collins Holdings, Wilmington Trust Company, as the Owner Trustee, Collins Trust II, as the Owner Lessor, Collins Generation II, LLC, as Owner Participant, Holdings, Midwest, Funding LLC, the Midwest LC Issuer, the RCE LC Issuer and the Holder Representative (as such term is defined therein); (D) the Participation Agreement, dated as of December 15, 1999 (as heretofore amended, modified and supplemented, the "PARTICIPATION AGREEMENT (T3)") among Collins Holdings, Wilmington Trust Company, as the Owner Trustee, Collins Trust III, as the Owner Lessor, Collins Generation III, LLC, as Owner Participant, Holdings, Midwest, Funding LLC, the Midwest LC Issuer, the RCE LC Issuer and the Holder Representative (as such term is defined therein); (E) the Participation Agreement, dated as of December 15, 1999 (as heretofore amended, modified and supplemented, the "PARTICIPATION AGREEMENT (T4)", together with Participation Agreement (T1), Participation Agreement (T2) and Participation Agreement (T3), "COLLINS PARTICIPATION AGREEMENTS") among Collins Holdings, Wilmington Trust Company, as the Owner Trustee, Collins Trust IV, as the Owner Lessor, Collins Generation IV, LLC, as Owner Participant, Holdings, REIMBURSEMENT AGREEMENT Midwest, Funding LLC, the Midwest LC Issuer, the RCE LC Issuer and the Holder Representative (as such term is defined therein); and (F) the Credit Agreement, dated as of May 9, 2000 (as amended, modified or supplemented and in effect from time to time, the "CAPEX CREDIT AGREEMENT", together with the Holdings Credit Agreement and Collins Participation Agreements (and related Operative Documents defined therein), the "HOLDINGS CREDIT FACILITIES") among Holdings, Societe Generale and Bayerische Landesbank Girozentrale ("CAPEX LENDERS", and together with the Lenders and Lease Financing Parties under the Collins Participation Agreements, the "CREDITOR PARTIES"); WHEREAS, contemporaneously herewith Midwest intends to enter into a transaction pursuant to the Powerton/Joliet Lease Participation Agreements (as defined below) whereby Midwest would sell certain of its generating assets to Powerton Trust I, Powerton Trust II, Joliet Trust I and Joliet Trust II (the "OWNER Lessors") and the Owner Lessors would lease such generating assets to Midwest; WHEREAS, Midwest will loan to EME of the proceeds of the sale of the generating assets to the Owner Lessor (the "INTERCOMPANY LOAN"); WHEREAS, in connection with the transactions contemplated by the Participation Agreements (as defined below), Holdings and Midwest requested the Creditor Parties to approve such sale and lease-back of generating assets; NOW, THEREFORE, for and in consideration for the Creditor Parties' approval of the transactions contemplated by the Participation Agreements (as defined below) and the Intercompany Loan, and mutual covenants herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby covenant and agree as follows: 1. DEFINITIONS. Unless otherwise expressly provided herein, capitalized terms used in this Agreement but not defined herein shall have meanings given to such terms in Appendix A to each of the Participation Agreements. The following terms, when used herein, shall have the following meanings: "COMBINED RENT" means, collectively, Powerton Rent (T1), Powerton Rent (T2), Joliet Rent (T1) and Joliet Rent (T2). REIMBURSEMENT AGREEMENT 2 "JOLIET LEASE INTERCOMPANY NOTE (T1)" means the EME Note (as defined in the Joliet Lease Participation Agreement (T1)) dated the Closing Date (as defined in the Joliet Lease Participation Agreement (T1)) evidencing the loan by Midwest to EME of the proceeds of the Joliet Lease Transaction (T1). "JOLIET LEASE INTERCOMPANY NOTE (T2)" means the EME Note (as defined in the Joliet Lease Participation Agreement (T2)) dated the Closing Date (as defined in the Joliet Lease Participation Agreement (T2)) evidencing the loan by Midwest to EME of the proceeds of the Joliet Lease Transaction (T2). "JOLIET LEASE INTERCOMPANY NOTES" means, collectively, the Joliet Lease Intercompany Note (T1) and the Joliet Intercompany Note (T2). "JOLIET LEASE OPERATIVE DOCUMENTS" means, collectively, the Joliet Lease Operative Documents (T1) and the Joliet Lease Operative Documents (T2). "JOLIET LEASE OPERATIVE DOCUMENTS (T1)" means, collectively, the Operative Documents as defined in the Joliet Lease Participation Agreement (T1). "JOLIET LEASE OPERATIVE DOCUMENTS (T2)" means, collectively, the Operative Documents as defined in the Joliet Lease Participation Agreement (T2). "JOLIET LEASE PARTICIPATION AGREEMENT (T1)" means the Participation Agreement (T1) dated as of August 17, 2000 by and among Midwest, EME, Joliet Trust I, Wilmington Trust Company, Joliet Generation I, the Lease Indenture Trustee named therein and the Pass Through Trustees named therein. "JOLIET LEASE PARTICIPATION AGREEMENT (T2)" means the Participation Agreement (T2) dated as of August 17, 2000 by and among Midwest, EME, Joliet Trust II, Wilmington Trust Company, Joliet Generation II, the Lease Indenture Trustee named therein and the Pass Through Trustees named therein. REIMBURSEMENT AGREEMENT 3 "JOLIET LEASE PARTICIPATION AGREEMENTS" means, collectively, the Joliet Lease Participation Agreement (T1) and the Joliet Lease Participation Agreement (T2). "JOLIET RENT (T1)" means Rent as defined in the Joliet Lease Participation Agreement (T1). "JOLIET RENT (T2)" means Rent as defined in the Joliet Lease Participation Agreement (T2). "JOLIET SUBORDINATION AGREEMENT (T1)" means the Subordination Agreement dated as of August 17, 2000 between Joliet Trust I, the Owner Participant (as defined in the Joliet Participation Agreement (T1)), the Lease Indenture Trustee (as defined in the Joliet Participation Agreement (T1)) and the Holdings Collateral Agent. "JOLIET SUBORDINATION AGREEMENT (T2)" means the Subordination Agreement dated as of August 17, 2000 between Joliet Trust II, the Owner Participant (as defined in the Joliet Participation Agreement (T2)), the Lease Indenture Trustee (as defined in the Joliet Participation Agreement (T2)) and the Holdings Collateral Agent. "JOLIET TRUST I" means Joliet Trust I, a Delaware business trust. "JOLIET TRUST II" means Joliet Trust II, a Delaware business trust. "LEASE FINANCING PARTIES" shall mean, as the context shall require, all or any of the parties to Powerton/Joliet Lease Operative Documents, including the Wilmington Trust Company and excluding ComEd and the Holdings Collateral Agent. "PARTICIPATION AGREEMENTS" means, collectively, the Powerton Lease Participation Agreements and the Joliet Lease Participation Agreements. "POWERTON LEASE INTERCOMPANY NOTE (T1)" means the EME Note (as defined in the Powerton Lease Participation Agreement (T1)) dated the Closing Date (as defined in the Powerton Lease Participation REIMBURSEMENT AGREEMENT 4 Agreement (T1)) evidencing the loan by Midwest to EME of the proceeds of the Powerton Lease Transaction (T1). "POWERTON LEASE INTERCOMPANY NOTE (T2)" means the EME Note (as defined in the Powerton Lease Participation Agreement (T2)) dated the Closing Date (as defined in the Powerton Lease Participation Agreement (T2)) evidencing the loan by Midwest to EME of the proceeds of the Powerton Lease Transaction (T2). "POWERTON LEASE INTERCOMPANY NOTES" means, collectively, the Powerton Lease Intercompany Note (T1) and the Powerton Lease Intercompany Note (T2). "POWERTON LEASE OPERATIVE DOCUMENTS" means, collectively, the Powerton Lease Operative Documents (T1) and the Powerton Lease Operative Documents (T2). "POWERTON LEASE OPERATIVE DOCUMENTS (T1)" means, collectively, the Operative Documents as defined in the Powerton Lease Participation Agreement (T1). "POWERTON LEASE OPERATIVE DOCUMENTS (T2)" means, collectively, the Operative Documents as defined in the Powerton Lease Participation Agreement (T2). "POWERTON LEASE PARTICIPATION AGREEMENT (T1)" means the Participation Agreement (T1) dated as of August 17, 2000 by and among Midwest, EME, Powerton Trust I, Wilmington Trust Company, Powerton Generation I, the Lease Indenture Trustee named therein and the Pass Through Trustees named therein. "POWERTON LEASE PARTICIPATION AGREEMENT (T2)" means the Participation Agreement (T2) dated as of August 17, 2000 by and among Midwest, EME, Powerton Trust II, Wilmington Trust Company, Powerton Generation II, the Lease Indenture Trustee named therein and the Pass Through Trustees named therein. REIMBURSEMENT AGREEMENT 5 "POWERTON LEASE PARTICIPATION AGREEMENTS" means, collectively, the Powerton Lease Participation Agreement (T1) and the Powerton Lease Participation Agreement (T2). "POWERTON RENT (T1)" means Rent as defined in the Powerton Lease Participation Agreement (T1). "POWERTON RENT (T2)" means Rent as defined in the Powerton Lease Participation Agreement (T2). "POWERTON SUBORDINATION AGREEMENT (T1)" means the Subordination Agreement dated as of August 17, 2000 between Powerton Trust I, the Owner Participant (as defined in the Powerton Participation Agreement (T1)), the Lease Indenture Trustee (as defined in the Powerton Participation Agreement (T1)) and the Holdings Collateral Agent. "POWERTON SUBORDINATION AGREEMENT (T2)" means the Subordination Agreement dated as of August 17, 2000 between Powerton Trust II, the Owner Participant (as defined in the Powerton Participation Agreement (T2)), the Lease Indenture Trustee (as defined in the Powerton Participation Agreement (T2)) and the Holdings Collateral Agent. "POWERTON TRUST I" means Powerton Trust I, a Delaware business trust. "POWERTON TRUST II" means Powerton Trust II, a Delaware business trust. "POWERTON/JOLIET LEASE INTERCOMPANY NOTES" means, collectively, the Powerton Lease Intercompany Notes and the Joliet Lease Intercompany Notes. "POWERTON/JOLIET LEASE OPERATIVE DOCUMENTS" means, collectively, the Powerton Lease Operative Documents and the Joliet Lease Operative Documents. REIMBURSEMENT AGREEMENT 6 "POWERTON/JOLIET LEASE PARTICIPATION AGREEMENTS" means, collectively, the Powerton Lease Participation Agreement (T1), Powerton Lease Participation Agreement (T2), Joliet Lease Participation Agreement (T1) and Joliet Lease Participation Agreement (T2). "POWERTON/JOLIET SUBORDINATION AGREEMENTS" means, collectively, the Powerton Subordination Agreement (T1), the Powerton Subordination Agreement (T2), the Joliet Subordination Agreement (T1) and the Joliet Subordination Agreement (T2). 2. OBLIGATION TO REIMBURSE MIDWEST. Within 5 Business Days after the last day of each Fiscal Quarter, EME shall pay to Midwest an amount equal to the excess of (i) Combined Rent and all amounts paid by Midwest under or in respect of the Powerton/Joliet Lease Operative Documents (including, without limitation, payments made by Midwest to the Lease Financing Parties in violation of the Powerton/Joliet Subordination Agreements or SECTION 18.19 of each of the Participation Agreements) during such Fiscal Quarter OVER (ii) Free Cashflow for such Fiscal Quarter calculated as of such date (without deduction for Combined Leveraged Lease Liabilities paid by Midwest during such period); PROVIDED, that Base Free Cashflow for such Fiscal Quarter shall be zero in the event that any of the conditions to Restricted Payments set forth in the Holdings Credit Facilities (or the correlative conditions set forth in any credit facility that refinances or replaces any Holdings Credit Facility) have not been satisfied as of such date. 3. OBLIGATION ABSOLUTE. EME's obligation under this Agreement shall be absolute and unconditional and shall not be subject to any defense or be affected by any right of setoff, counterclaim or recoupment which EME may now or hereafter have against Midwest or any other person for any reason whatsoever. 4. NOTICES. All notices, requests and other communications provided for herein (including, without limitation, any modifications of, or waivers 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 commu- REIMBURSEMENT AGREEMENT 7 nications shall be deemed to have been duly given (a) when received by certified mail or by an international courier, such as Federal Express, by such Person, at said address of such Person or (b) when transmitted by facsimile to the number specified below and the receipt confirmed telephonically by recipient, PROVIDED that such facsimile is promptly followed by a copy of such notice delivered to such Person by postage- prepaid certified mail, or by an international courier, such as Federal Express. 5. WAIVERS; ETC. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by EME and Midwest. Any such amendment or waiver shall be binding upon EME and Midwest. 6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of each of EME and Midwest. 7. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement may be executed in any number of counterparts, all of which when taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, written or oral, relating to the subject matter hereof. 8. SEVERABILITY. If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by applicable law, (a) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intentions of the parties hereto as nearly as may be possible and (b) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. 9. HEADINGS. Headings appearing herein are used solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. REIMBURSEMENT AGREEMENT 8 10. WAIVER OF JURY TRIAL. EACH OF EME AND MIDWEST HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11. NO THIRD PARTY BENEFICIARIES. THE AGREEMENTS OF THE PARTIES HERETO ARE SOLELY FOR THE BENEFIT OF MIDWEST (AND EACH PERSON WHO CLAIMS THROUGH MIDWEST), AND NO PERSON (OTHER THAN THE PARTIES HERETO AND THEIR SUCCESSORS AND ASSIGNS PERMITTED HEREUNDER) SHALL HAVE ANY RIGHTS HEREUNDER. 12. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. EME hereby submits to the non-exclusive jurisdiction of the United States District Court for the Southern District of New York and of the Supreme Court of the State of New York sitting in New York County (including its Appellate Division) and of any other appellate court in the State of New York for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. EME hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. REIMBURSEMENT AGREEMENT 9 IN WITNESS WHEREOF, the parties have cause this Agreement to be duly executed and delivered as of the day and year above written. EDISON MISSION ENERGY By: /s/ John P. Finneran, Jr. ------------------------------ Name: John P. Finneran, Jr. Title: Vice President Address for Notices: 18101 Von Karman Avenue Suite 1700 Irvine, CA 92616 Attention: General Counsel Telecopier No.: (949) 752-1420 REIMBURSEMENT AGREEMENT MIDWEST GENERATION, LLC By: /s/ Gary Garcia --------------------------- Name: Gary Garcia Title: Vice President Address for Notices: One Financial Place 440 South LaSalle Street, Suite 3500 Chicago, Illinois 60605 Attn: President Telecopier No.: (312) 583-6111 with a copy to: Edison Mission Midwest Holdings Co. 18101 Von Karman Avenue Suite 1700 Irvine, CA 92616 Attention: General Counsel Telecopier No.: (949) 752-1420 REIMBURSEMENT AGREEMENT EX-21 25 a2042986zex-21.txt EXHIBIT 21 EXHIBIT 21 EDISON MISSION ENERGY LIST OF SUBSIDIARIES -------------------- As of March 28, 2001
Entity Jurisdiction of Organization - ------ ---------------------------- Adelaide Ventures Limited Cayman Islands Aguila Energy Company California Anacapa Energy Company California Arrowhead Energy Company (Inactive) California Athens Funding, L.L.C. Delaware Balboa Energy Company California Beheer-en Beleggingsmaatschappij Botara B.V. The Netherlands Beheer-en Beleggingsmaatschappij Jydeno B.V. The Netherlands Blue Ridge Energy Company California Bretton Woods Energy Company California Camino Energy Company California Capistrano Cogeneration Company California Caresale Services Limited United Kingdom Centerport Energy Company California Chesapeake Bay Energy Company California Chester Energy Company California Chestnut Ridge Energy Co. California Chickahominy River Energy Corp. Virginia Citizens Power Holdings One, LLC Delaware Clayville Energy Company California Collins Holdings EME, LLC Delaware Colonial Energy Company (Inactive) California Coronado Energy Company California CP Power Sales Eighteen, L.L.C. Delaware CP Power Sales Fifteen, L.L.C. Delaware CP Power Sales Five, L.L.C. Delaware CP Power Sales Fourteen, L.L.C. Delaware CP Power Sales Nineteen, L.L.C. Delaware CP Power Sales Seventeen, L.L.C. Delaware CP Power Sales Thirteen, L.L.C. Delaware CP Power Sales Twelve, L.L.C. Delaware CP Power Sales Twenty, L.L.C. Delaware Crescent Valley Energy Company California Delaware Energy Conservers, Inc. (Inactive) Delaware Del Mar Energy Company California Desert Sunrise Energy Company (Inactive) Nevada Devereaux Energy Company California East Maine Energy Company (Inactive) California 1 Eastern Sierra Energy Company California EcoElectrica Holdings, Ltd. Cayman Islands EcoElectrica Ltd. Cayman Islands EcoElectrica s.a.r.l. Luxembourg Edison Alabama Generating Company California Edison First Power Holdings I United Kingdom Edison First Power Limited Guernsey Edison Mission Advantage B.V. The Netherlands Edison Mission Ausone Pty. Ltd. Australia Edison Mission De Laide Pty. Ltd. Australia Edison Mission Development, Inc. Delaware Edison Mission Energy Asia Pte Ltd. Singapore Edison Mission Energy Asia Pacific Pte. Ltd. Singapore Edison Mission Energy Australia Limited Australia Edison Mission Energy Australia Pilbara Power Pty Ltd. Australia Edison Mission Energy Fuel California Edison Mission Energy Fuel Company Pte Ltd. Singapore Edison Mission Energy Fuel Resources, Inc. California Edison Mission Energy Fuel Services, LLC Delaware Edison Mission Energy Fuel Transportation, Inc. Delaware Edison Mission Energy Funding Corp. Delaware Edison Mission Energy Holdings Pty. Ltd. Australia Edison Mission Energy Interface Ltd. British Columbia Edison Mission Energy International B.V. The Netherlands Edison Mission Energy Limited United Kingdom Edison Mission Energy Oil & Gas California Edison Mission Energy Petroleum California Edison Mission Energy Services B.V. The Netherlands Edison Mission Energy Services, Inc. California Edison Mission Energy Taupo Limited New Zealand Edison Mission Finance Co. California Edison Mission Holdings Co. California Edison Mission Marketing and Services Limited United Kingdom Edison Mission Marketing & Trading, Inc. California Edison Mission Fuel Resources, Inc. California Edison Mission Fuel Transportation, Inc. California Edison Mission Midwest Holdings Co. Delaware Edison Mission Millennium B.V. The Netherlands Edison Mission Operation & Maintenance, Inc. California Edison Mission Operation & Maintenance Limited United Kingdom Edison Mission Operation & Maintenance Loy Yang Pty Ltd. Australia Edison Mission Operation & Maintenance Kwinana Pty Ltd. Australia Edison Mission Operation & Maintenance Services B.V. The Netherlands 2 Edison Mission Operation & Maintenance Services Pte Ltd Singapore Edison Mission Operation & Maintenance (Thailand) Company Ltd. Thailand Edison Mission Overseas Co. Delaware Edison Mission Overseas Ltd. United Kingdom Edison Mission Project Co. Delaware Edison Mission Retail Pty Ltd. Australia Edison Mission Services Limited United Kingdom Edison Mission Utilities Pty Ltd. Australia Edison Mission Vendesi Pty Ltd. Australia Edison Mission Wind Power Italy B.V. The Netherlands El Dorado Energy Company California EME Adelaide Energy Ltd. United Kingdom EME Ascot Limited United Kingdom EME Atlantic Holdings Limited United Kingdom EME Buckingham Limited United Kingdom EME Caliraya B.V. The Netherlands EME CP Holdings Co. Delaware EME del Caribe Cayman Islands EME del Caribe Holdings GmbH Austria EME Desarrello Espana S.L. Spain EME Eastern Holdings Co. Delaware EME Finance UK Limited United Kingdom EME Generation Holdings Limited United Kingdom EME International Dragon Limited United Kingdom EME Investments, LLC Delaware EME Kalayaan B.V. The Netherlands EME Monet Limited United Kingdom EME Pacific Holdings New Zealand EME Philippines O&M Corporation The Philippines EME Precision B.V. The Netherlands EME Royale New Zealand EME Southwest Power Corporation Delaware EME Tri Gen B.V. The Netherlands EME UK International LLC Delaware EME Universal Holdings New Zealand EME Tri Gen B.V. The Netherlands EME Victoria B.V. The Netherlands EME Victoria Generation Ltd. United Kingdom EMP, Inc. (Inactive) Oregon Energy Generation Finance PLC United Kingdom Enerloy Pty Ltd Australia First Hydro Company United Kingdom 3 First Hydro Finance plc United Kingdom First Hydro Holdings Company United Kingdom Four Counties Gas Company (Inactive) California Gippsland Power Pty Ltd Australia Global Generation B.V. The Netherlands Global Power Investors, Inc. California Hanover Energy Company California Holtsville Energy Company California Homer City Property Holdings, Inc. California Hydro Energy B.V. The Netherlands Iberica de Energias, S.A. Spain Iberian Hy-Power Amsterdam B.V. The Netherlands Indian Bay Energy Company California Jefferson Energy Company (Inactive) California Kings Canyon Energy Company (Inactive) California Kingspark Energy Company California Laguna Energy Company (Inactive) California La Jolla Energy Company (Inactive) California Lakeland Power Ltd. United Kingdom Lakeland Power Development Company United Kingdom Lakeview Energy Company California Latrobe Power Pty. Ltd. Australia Lehigh River Energy Company (Inactive) California Longview Cogeneration Company California Loy Yang Holdings Pty Ltd Australia Loyvic Pty. Ltd. Australia Madera Energy Company California Madison Energy Company California Majestic Energy Limited United Kingdom Maplekey Holdings Ltd. United Kingdom Maplekey UK Finance Limited United Kingdom Maplekey UK Limited United Kingdom MEC Esenyurt B.V. The Netherlands MEC IES B.V. The Netherlands MEC India B.V. The Netherlands MEC Indo Coal B.V. The Netherlands MEC Indonesia B.V. The Netherlands MEC International B.V. The Netherlands MEC International Holdings B.V. The Netherlands MEC Laguna B.V. The Netherlands MEC Perth B.V. The Netherlands MEC Priolo B.V. The Netherlands MEC San Pascual B.V. The Netherlands 4 MEC Sidi Krir B.V. The Netherlands MEC Sumatra B.V. The Netherlands MEC Wales B.V. The Netherlands Midwest Generation, LLC Delaware Midwest Generation EME, LLC Delaware Midwest Peaker Holdings, Inc. Delaware Mission Del Cielo Inc. Delaware Mission Del Sol, LLC Delaware Mission/Eagle Energy Company (Inactive) California Mission Energy Company (UK) Limited United Kingdom Mission Energy Construction Services, Inc. California Mission Energy Development Australia Pty Ltd Australia Mission Energy Generation, Inc. (Inactive) California Mission Energy Holdings, Inc. California Mission Energy Holdings International, Inc. California Mission Energy Holdings Superannuation Fund Pty Ltd Australia Mission Energy Indonesia (Inactive) California Mission Energy Italia s.r.l. Italy Mission Energy (Kwinana) Pty. Ltd. Australia Mission Energy Mexico (Inactive) California Mission Energy New York, Inc. California Mission Energy Ventures Australia Pty Ltd Australia Mission Energy Wales Company California Mission Energy Westside, Inc. California Mission Hydro (UK) Limited United Kingdom Mission Operations de Mexico, S.A. de C.V. Mexico Mission NZ Operations B.V. The Netherlands Mission Triple Cycle Systems Company California North Jackson Energy Company (Inactive) California Northern Sierra Energy Company California Ortega Energy Company California Panther Timber Company California Paradise Energy Company (Inactive) California Pleasant Valley Energy Company California Pocono Fuels Company California Pride Hold Limited United Kingdom Prince George Energy Company California P.T. Edison Mission Operation & Maintenance Indonesia Quartz Peak Energy Company California Rapid Energy Limited United Kingdom Rapidan Energy Company California Redbill Contracts Limited United Kingdom Reeves Bay Energy Company California 5 Ridgecrest Energy Company California Rio Escondido Energy Company (Inactive) California Riverport Energy Company California Saltos del Porma S.A. Spain San Gabriel Energy Company (Inactive) California San Joaquin Energy Company California San Juan Energy Company California San Pedro Energy Company California Santa Ana Energy Company California Santa Clara Energy Company California Silver Springs Energy Company California Silverado Energy Company California Sonoma Geothermal Company California South Australian Holdings Limited United Kingdom South Coast Energy Company California Southern Sierra Energy Company California Southern Sierra Gas Company California Southwest Generation B.V. The Netherlands Thorofare Energy Company (Inactive) California Traralgon Power Pty. Ltd. Australia Valley Power Pty. Ltd. Australia Viejo Energy Company California Vista Energy Company Inactive New Jersey Western Sierra Energy Company California
6 -----END PRIVACY-ENHANCED MESSAGE-----