EX-10 5 ex10b.txt EX10B Exhibit 10(b) FULL REQUIREMENTS SERVICE AGREEMENT BETWEEN BALTIMORE GAS AND ELECTRIC COMPANY AND ALLEGHENY ENERGY SUPPLY COMPANY, L.L.C. DATED AUGUST 15, 2001 The asterisks on pages 12, 22, 23 and A1 denote that confidential portions of this exhibit have been omitted in reliance on Rule 25(b)-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission. TABLE OF CONTENTS -----------------
Page ---- ARTICLE 1. Definitions 1 ARTICLE 2. Term 7 ARTICLE 3. Supplier Responsibilities 7 ARTICLE 4. BGE Responsibilities 9 ARTICLE 5. Billing and Payment 10 ARTICLE 6. Price 12 ARTICLE 7. Events of Default; Remedies 12 ARTICLE 8. Credit Support 16 ARTICLE 9. Indemnification 17 ARTICLE 10. Limitation of Liability 18 ARTICLE 11. Force Majeure 19 ARTICLE 12. Representations and Warranties 20 ARTICLE 13. Miscellaneous 21 APPENDIX A SAMPLE PJM BILL APPENDIX B GENERATION SHOPPING CREDITS APPENDIX C LITIGATION DISCLOSURE
i FULL REQUIREMENTS SERVICE AGREEMENT THIS FULL REQUIREMENTS SERVICE AGREEMENT ("Agreement"), made and entered into as of this 15th day of August, 2001 by and between Baltimore Gas and Electric Company, a Maryland Corporation ("BGE") and Allegheny Energy Supply Company, L.L.C., a Delaware corporation ("Supplier") (each individually a "Party", or collectively, the "Parties"). W I T N E S S E T H WHEREAS, on April 8, 1999, Maryland enacted the Electric Choice and Competition Act authorizing customer choice and competition among electric suppliers; WHEREAS, on November 10, 1999 the Maryland Public Service Commission issued an order approving the terms of a settlement providing for retail choice within BGE's service territory; WHEREAS, the Maryland PSC Order directs BGE to supply electric service for a period of up to six years to those retail customers within BGE's retail service territory that choose not to purchase their power supply from alternative competitive suppliers; WHEREAS, Supplier is authorized to makes sales of energy, capacity and ancillary services at market based rates pursuant to FERC Electric Tariff, First Revised Volume No. 1, dated December 28, 2000, Docket # ER01-811-000; WHEREAS, Supplier and BGE are entering into this Agreement for the purpose of establishing the terms and conditions under which Supplier will supply such full requirements service to BGE. NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the Parties hereto agree as follows: ARTICLE 1 DEFINITIONS 1.1 Definitions. For all purposes of this Agreement, the following terms as used in this Agreement shall have the following meanings. Except where the context otherwise requires, definitions and terms expressed in the singular will include the plural and vice versa. 1 "Affiliate" means, with respect to a Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such first Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" means this Full Requirements Service Agreement, including the Appendices, as amended, modified or supplemented from time to time. "Alternate SOS Supplier" means a retail supplier that is responsible for supplying former BGE SOS Customers as a result of Retail Bidding. "Alternate SOS Supplier Customers" means former BGE SOS Customers that are provided SOS from Alternate SOS Supplier as a result of Retail Bidding. "Ancillary Services" means those services, or their successors, that are necessary to support the transmission of Energy from generation resources to loads, as set forth in the PJM OATT, including, but not limited to, PJM Scheduling, System Control and Dispatch Service; RTO Scheduling, System Control and Dispatch Service; Reactive Supply and Voltage Control from Generation Sources Service; Regulation and Frequency Response Service; Energy Imbalance Service; Operating Reserve - Spinning Reserve Service; and Operating Reserve - Supplemental Reserve Service. "BGE SOS Customers" means the customers receiving SOS from BGE. "BGE" means Baltimore Gas and Electric Company, a Maryland corporation and its successors and permitted assigns hereunder. "Business Day" means a day on which Federal Reserve member banks in Baltimore Maryland are open for business; and a Business Day shall open at 8:00 a.m. and close at 5:00 p.m. Eastern Standard (or Daylight Savings) time. "Creditworthiness Criteria" with respect to a Party or its guarantor means (i) an unsecured rating of "Baa3" or better from Moody's, "BBB-" or better from S&P or investment grade as determined by another nationally recognized rating service reasonably acceptable to the other Party and (ii) a Net Worth of at least Two Hundred Million Dollars ($200,000,000). "Contract Classes" means those customers that receive SOS from BGE under certain contractual terms that may differ from the schedules found in the Retail Electric Service Tariff. 2 "Customer Classes" means (i) Schedules R, RL-1, RL-2, ES, G Option 1, G Option 2, GS Option 1, GS Option 2, GL Secondary, GL Primary, SL, PL and DS, as defined in the Retail Electric Service Tariff and (ii) Contract Classes. "Delivery Point" means any point on the PJM Transmission System as elected by Supplier. "Delivery Term" means the period commencing July 1, 2003 and ending on June 30, 2006, unless this Agreement is earlier terminated in accordance with its terms. "Effective Date" means the date upon which this Agreement is executed. "Electricity Supplier Coordination Tariff" means the BGE Electricity Supplier Coordination Tariff approved by the Maryland PSC, as amended, modified or supplemented from time to time. "Energy" means the electrical output of electric generation facilities, usually stated in kilowatt-hours or megawatt-hours. "FERC" means the Federal Energy Regulatory Commission and any successor thereto. "Fixed Transmission Rights" shall have the meaning as set forth by PJM. "Full Requirements Service" means all-requirements electric service on a continuous basis, including, but not limited to, the following products: Energy, Unforced Capacity, Ancillary Services, Unaccounted For Energy and associated losses necessary to fulfill all PJM obligations as they may change from time to time associated with providing all-requirements electric service to the SOS Load, as further defined pursuant to Article 3. Such Full Requirements Service shall include changes in customer demand for any reason, including, but not limited to, seasonal factors, daily load fluctuations, increased or decreased usage, transmission and distribution outages, customer decisions regarding whether to take generation service from an alternate supplier, demand side management activities, extremes in weather, and other similar events. "Generation Shopping Credits" means the prices stated in Appendix B, unless altered as provided in Section 6.1.b. "Governmental Authority" means the government of any federal, state, municipal or other political subdivision, including all agencies and instrumentalities of such governments and political subdivisions. 3 "Intermediate-Peak" shall have the meaning set forth in the Retail Electric Service Tariff as of the Effective Date. "Interest Rate" means, for any date, the lesser of (a) two (2) percent over the per annum rate of interest equal to the prime lending rate as may from time to time be published in The Wall Street Journal under "Money Rates" and (b) the maximum rate permitted by applicable law. "Load Serving Entity (LSE)" means an entity, including a load aggregator or power marketer, that: (i) is serving end-users within the PJM Control Area, and (ii) has been granted the authority, or has an obligation pursuant to state or local law, regulation or franchise, to sell electric energy to end-users within the PJM Control Area. "Load Response Resources" means those resources that have the effect of reducing the electric supply for SOS due to a customer's reduction in consumed electricity and/or an increase in customer-owned generation, and includes, but is not limited to (i) BGE Riders 5, 6, 14, 16, 24, as set forth in the Retail Electric Service Tariff, as amended from time to time; and (ii) any individually negotiated load response agreement between BGE and its customers; and (iii) any other load response-type service BGE may offer. "Maryland PSC" means the Maryland Public Service Commission and any successor thereto. "Maryland PSC Order" means the November 10, 1999 Order issued by the Maryland PSC allowing, among other things, retail choice for electricity consumers, requiring that BGE provide electricity supply to retail consumers who do not choose an alternate supplier, and further allowing BGE to enter into a full requirements service agreement for SOS Load. "Moody's" means Moody's Investors Service, Inc. and any successor thereto. "Network Integration Transmission Service" shall have the meaning as set forth in the PJM OATT. "Net Worth" means total assets (exclusive of intangible assets) less total liabilities as reflected on a balance sheet prepared in accordance with generally accepted accounting principles consistently applied. "Non-Summer" shall have the meaning set forth in the Retail Electric Service Tariff as of the Effective Date. 4 "Off-Peak" shall have the meaning set forth in the Retail Electric Service Tariff as of the Effective Date. "Parent" means, with respect to a Person that, directly or indirectly through one or more intermediaries, controls such first Person, where the term "control" means the possession, directly or indirectly, of power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Peak" shall have the meaning set forth in the Retail Electric Service Tariff as of the Effective Date. "Person" means any individual, sole proprietorship, corporation, partnership, joint venture, limited liability partnership, limited liability company, trust, unincorporated association, institution, Governmental Authority or any other entity. "PJM" means PJM Interconnection, L.L.C., the independent system operator for the PJM Control Area organized and operating pursuant to the PJM Operating Agreement and any successor thereto. "PJM Control Area" shall have the meaning as set forth in the PJM OA. "PJM OA" means the Amended and Restated Operating Agreement of PJM Interconnection, LLC dated June 2, 1997 and effective January 1, 1998, as amended, modified or supplemented from time to time. "PJM OATT" means the PJM Open Access Transmission Tariff administered by PJM, as amended, modified or supplemented from time to time. "PJM Transmission System" shall have the meaning as set forth in the PJM OATT. "Reliability Assurance Agreement (RAA)" means the Reliability Assurance Agreement among Load Serving Entities in the PJM Control Area dated June 2, 1997, as amended, modified or supplemented from time to time. "Retail Bidding" means a Maryland PSC approved process where BGE's SOS Customers are auctioned to Alternate SOS Supplier(s). "Retail Electric Service Tariff" means the BGE Retail Electric Service Tariff approved by the Maryland PSC, as amended, modified or supplemented from time to time. 5 "Retail Generation Revenue" means the revenue that BGE reports in its financial statements, which is an approximation of the revenue associated with the consumed electricity in any given calendar month for BGE SOS Customers, and is equal to the actual billed revenue within a calendar month plus an approximation of the revenue associated with unbilled, but consumed electricity in that month, less an approximation of the revenue associated with billed, but not consumed electricity in that month. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc. and any successor thereto. "Standard Offer Service (SOS)" means the electric generation service that is provided to retail customers that have not chosen a retail supplier other than BGE or Alternate SOS Supplier. "SOS Load" means the kW and kWh retail load used in BGE's calculation of its monthly Retail Generation Revenue from BGE SOS Customers, plus the kW and kWh retail load, determined in the same manner as load is determined for Retail Generation Revenue, associated with Alternate SOS Supplier Customers. "Summer" shall have the meaning set forth in the Retail Electric Service Tariff as of the Effective Date. "Supplier" means Allegheny Energy Supply Company, L.L.C., and its successors and permitted assigns hereunder. "Taxes" means any or all ad valorem, property, severance, generation, first use, conservation, Btu or energy, transportation, utility, gross receipts, privilege, sales, use, consumption, excise, lease, transaction, and other taxes, governmental charges, licenses, fees, permits and assessments, or increases therein, other than taxes based on net income or net worth. "Transmission Owner" shall have the meaning as set forth in the PJM OA. "Unaccounted For Energy" means the difference between the hourly BGE system load and the sum of (i) the estimated hourly customer loads (interval metered and profiled) and (ii) losses. "Unforced Capacity" shall have the meaning set forth in the RAA, and shall include any successor product(s) defined and approved by PJM. 1.2 Additional Defined Terms. Each of the following terms has the meaning specified in the Article, Section or Appendix set forth opposite such term: 6 Term Section/Appendix ---- ---------------- AAA 13.10 Affected Party 7.4(a) Bankruptcy Proceeding 7.1 Claims 9.1 Confidential Information 13.7 Defaulting Party 7.1 Early Termination Date 7.4(a) Event of Default 7.1 Force Majeure 11.1(a) Margin 7.2(c) Non-Defaulting Party 7.2(a) Price 6.1(a) Settlement Amount 7.2(b) Term 2.1 Termination Payment 7.2(c) ARTICLE 2 TERM 2.1 Term. --- ----- Unless earlier terminated in accordance with Article 7, this Agreement shall remain in effect from the Effective Date through and including the end of the Delivery Term ("Term"). At the expiration of the Term, the Parties shall no longer be bound by the terms and conditions of this Agreement, except to the extent necessary to enforce the rights and obligations of the Parties arising under this Agreement prior to the expiration of the Term. ARTICLE 3 SUPPLIER RESPONSIBILITIES 3.1 PJM Member. --- ----------- Supplier shall, prior to the Delivery Term and throughout the entire Delivery Term of this Agreement, be a member, in good standing, of PJM and maintain a settlement account established in accordance with the rules and criteria established by PJM. 7 3.2 Full Requirements Service. --- -------------------------- During the Delivery Term, Supplier shall sell and deliver to the Delivery Point and BGE shall receive and purchase Full Requirements Service sufficient to serve 10 percent share of the SOS Load. As a provider of Full Requirements Service, Supplier is solely responsible for satisfying all requirements and paying all costs incurred or to be incurred to provide such service including, without limitation, all costs, all scheduling or other requirements to furnish Unforced Capacity, Energy, losses, Unaccounted For Energy and Ancillary Services associated with the provision of Full Requirements Service. Supplier is also solely responsible for meeting any other requirements and paying any other costs now or hereafter imposed by PJM or imposed pursuant to the RAA from time to time during the Delivery Term which are attributable to any component of the provision of Full Requirements Service. If PJM allocates any expenses or uplift costs to the Full Requirements Service provided by Supplier (on a load or peak load basis or otherwise), the expenses or costs so allocated will be borne by Supplier alone without recourse to BGE. 3.3 Losses; Unaccounted For Energy. --- ------------------------------- Supplier shall be responsible for supplying sufficient Full Requirements Service to compensate for all transmission, sub-transmission and distribution losses and Unaccounted For Energy associated with the delivery of electricity supplied under this Agreement from the sources of its supply to the meters of those retail customers included in the Supplier's share of the SOS Load. 3.4 Maryland Environmental Disclosure Requirements. --- ----------------------------------------------- Since Supplier is subject and bound to third-party confidentiality provisions, Supplier will make best efforts to provide to BGE, the sources of electricity used to supply Full Requirements Service, fuel mix and environmental disclosure information in a timely manner and in an appropriate form to enable BGE to comply with Maryland PSC or other governmental or regulatory agency requirements relating to reporting of such information. Under no circumstance will Supplier be forced to provide information that would make it breach on confidentiality or law. 3.5 Renewable Energy Resources. --- --------------------------- During the Delivery Term of this Agreement, Supplier shall provide the renewable resource requirements imposed upon BGE by Article 7-516 of the Maryland Electric Customer Choice and Competition Act of 1999, as of the Effective Date. 8 3.6 Transmission Congestion. --- ------------------------ If the PJM Control Area experiences congestion, Supplier will be responsible for any congestion costs incurred in delivering power from the Delivery Point to BGE's load busses. During the Delivery Term, BGE shall, at no cost to Supplier, assign or transfer, to Supplier Fixed Transmission Rights associated with Supplier's portion of the SOS Load. ARTICLE 4 BGE RESPONSIBILITIES 4.1 Title; Risk of Loss. --- -------------------- Title to and risk of loss related to the Full Requirements Service delivered by Supplier in accordance with this Agreement shall transfer to BGE at the Delivery Point. As between the Parties, Supplier shall be deemed to be in exclusive control (and responsible for any damages or injury caused thereby) of Full Requirements Service prior to the Delivery Point and BGE shall be deemed to be in exclusive control (and responsible for any damages or injury caused thereby) of Full Requirements Service at and after the Delivery Point. 4.2 Network Integration Transmission Service. --- ----------------------------------------- BGE shall be responsible, at its sole cost and expense, for the provision of Network Integration Transmission Service pursuant to the PJM OATT and distribution service at and from the Delivery Point. 4.3 Load Response Resources. --- ------------------------ During the Delivery Term, BGE will operate its Load Response Resources in accordance with the provisions of the Electricity Supplier Coordination Tariff and the applicable Riders to the Retail Electric Service Tariff, as amended and approved by the Maryland PSC from time to time. BGE shall be responsible for payment of any credits to retail customers and for any penalties assessed in accordance with the RAA for failure to implement its Load Response Resources when so requested by PJM. BGE shall retain all of the benefits associated with its Load Response Resources. BGE shall make the appropriate adjustments and/or transactions in the retail load settlement process in order for BGE to attain such benefits, which may require Supplier's confirmation, which shall not be unreasonably withheld. 4.4 Sales for Resale. --- ----------------- All Full Requirements Service delivered by Supplier to BGE hereunder shall be sales for resale, with BGE reselling such Full Requirements Service. At Supplier's request, 9 BGE shall obtain and provide Supplier with any resale certificates to evidence that the deliveries hereunder are sales for resale. ARTICLE 5 BILLING AND PAYMENT 5.1 Billing. --- -------- On or before the sixth (6th) Business Day of each month, unless otherwise agreed to by the Parties, BGE shall deliver to Supplier a statement that sets forth: (i) the allocation of the Supplier's 10 percent share of the SOS Load for the preceding month among the Customer Classes; (ii) the amount due and payable by BGE, based upon the Supplier's 10 percent share of the SOS Load for each Customer Class and the Prices applicable thereto as set forth in Section 6.1; and (iii) all other information reasonably requested by Supplier to facilitate Supplier's verification of the foregoing values. Such statement shall constitute an "invoice" or "bill" for purposes of amounts due and payable for Full Requirements Service under this Agreement. 5.2 Payment. --- -------- All invoices pursuant to Section 5.1 shall be due and payable, unless otherwise agreed by the Parties, on the first Business Day after the 19th calendar day of the month in which the invoice is rendered. Invoices shall be sent electronically or by other means agreed to by the Parties. BGE will make payments by wire transfer, or by other mutually agreeable method(s), to the account of Supplier as designated by Supplier. Any amounts, both principal and interest, remaining unpaid after the due date will be deemed delinquent and will accrue interest at the Interest Rate, such interest to be calculated from the due date to the date the unpaid amount is paid in full. 5.3 Disputed Bills. --- --------------- If either Party, in good faith, disputes an invoice, the disputing Party shall immediately notify the other Party of the basis for the dispute and, in the case of a dispute by BGE, pay the portion of such statement conceded to be correct no later than the due date. Each Party shall have the right to dispute any invoice prior to the lapse of 12 months from the rendition thereof. 10 If any disputed amount is ultimately determined to be due to Supplier, it shall be paid within two (2) Business Days, unless otherwise agreed to by the Parties, of such determination along with interest accrued at the Interest Rate from the due date of the bill to which the dispute relates, to the date the additional charge is paid. If any disputed amount is ultimately determined to be due to BGE, it shall be paid within two (2) Business Days, unless otherwise agreed to by the Parties, of such determination along with interest accrued at the Interest Rate from the date the amount being refunded was received by Supplier, to the date the refund is made. 5.4 Billing Adjustments. --- -------------------- (a) The invoices rendered hereunder may be adjusted by the Party rendering such invoice for any errors in arithmetic, computation, meter readings, estimating, or otherwise no later than twelve (12) months after the date the bill was rendered. Any billing adjustment shall be in writing and shall state the specific basis for the adjustment. A billing adjustment shall constitute a new bill for the purposes of this Section 5.4. An adjusted bill shall be binding on the Parties twelve (12) months after the bill is rendered. (b) Overpayments or underpayments resulting from a billing adjustment shall bear interest calculated at the Interest Rate. In the case of an underpayment, interest shall accrue from the due date of the bill to which the adjustment relates, to the date the additional charge is paid. In the case of an overpayment, interest shall accrue from the date the amount being refunded was received, to the date the refund is made. 5.5 PJM Billing. --- ------------ (a) BGE shall request PJM to invoice Supplier directly for charges and credits relating to Supplier's obligation to deliver Full Requirements Service to BGE under this Agreement. BGE shall also request PJM to invoice BGE separately for charges and credits relating to BGE's rights and obligations as a Network Integration Transmission Service customer and a Transmission Owner and otherwise as the Parties agree. Appendix A attached hereto and made a part hereof allocates between Supplier and BGE the charges and credits currently included on a PJM bill. In the event that either Party is billed by PJM for charges and/or credits identified in Appendix A, but not allocated in accordance with Appendix A, BGE shall rectify such billing in the Full Requirements Service invoice to be in accordance with Appendix A. (b) Any additional charges or credits imposed by PJM that are not identified in Appendix A will be allocated to BGE and Supplier in a manner that is consistent with Supplier's Full Requirements Service obligations and BGE's transmission-related obligations. For avoidance of doubt, charges associated with entities defaulting to PJM which are then allocated by PJM to BGE as an LSE or Transmission Owner shall not be the responsibility of the Supplier. 11 ARTICLE 6 PRICE 6.1 Price. --- ------ (a) The "Price" payable by BGE to Supplier for the delivery of Full Requirements Service hereunder shall be equal to *** percent of the Generation Shopping Credits stated in Appendix B. (b) The prices stated in Appendix B associated with Schedules G Option 1, G Option 2, GS Option 1, GS Option 2, GL Secondary and GL Primary are subject to change as a result of (i) the competitive transition charge true-up, which is required under the Maryland PSC Order; and (ii) a change to the rate-making treatment of the universal service charge, in accordance with the Maryland PSC Order. Supplier agrees to accept these aforementioned price changes as they may occur. 6.2 Taxes. --- ------ (a) Supplier shall pay all Taxes levied in respect of the Full Requirements Service, its sale, and the handling thereof prior to the Delivery Point. BGE shall pay all such Taxes levied on such Full Requirements Service at, and from, the Delivery Point. (b) For any new Taxes levied with respect to the Full Requirements Service after the Effective Date and to the extent permitted by the settlement and the Maryland PSC Order, BGE will fully support and pursue in good faith the recovery of any such new Tax levied on Supplier from BGE's Full Requirements Service customers. To the extent such new Taxes are recoverable by BGE from its SOS customers, BGE shall reimburse Supplier for such Taxes paid by Supplier. 6.3 Payment Netting. --- ---------------- Payments owing by each Party on any day under this Agreement or any other agreement between the Parties shall be offset so that only the net amount shall be paid by the Party having the greater payment obligation on such day. 12 The asterisks on this page denote that confidential portions of this exhibit have been omitted in reliance on Rule 25(b)-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission. ARTICLE 7 EVENTS OF DEFAULT; REMEDIES 7.1 Events of Default. An "Event of Default" shall mean, with respect to a Party ("Defaulting Party"), the occurrence of any of the following: (i) the failure to make, when due, any payment required pursuant to this Agreement if such failure is not remedied within five (5) Business Days after written notice of such failure is given by the other Party and provided the payment is not the subject of a good faith dispute as described in Article 5; (ii) any representation or warranty made by the Defaulting Party herein prove to be false or misleading in any material respect; (iii) the failure of the Defaulting Party, in a material respect, to perform or comply with any covenant or material obligation set forth in this Agreement and such failure is not excused by Force Majeure or cured within three (3) Business Days after receipt of written notice thereof from the other Party; (iv) the failure of the Defaulting Party or its guarantor to maintain any of the security requirements set forth in Article 8, and such failure is not cured or rectified within ten (10) days after notice from the other Party; (v) the Defaulting Party shall be subject to a Bankruptcy Proceeding ("Bankruptcy Proceeding" means with respect to a Party, such Party (a) files a petition or otherwise commences a proceeding under any bankruptcy, insolvency, reorganization or similar law, or has any such petition filed or commenced against it, (b) makes an assignment or any general arrangement for the benefit of creditors, (c) otherwise becomes bankrupt or insolvent (however evidenced), (d) has a liquidator, administrator, receiver, trustee, conservator or similar official appointed with respect to it or any substantial portion of its property or assets, or (e) is unable to pay its debts as they fall due). 7.2. Remedies upon an Event of Default. ---- ---------------------------------- (a) After the occurrence of an Event of Default with respect to a Defaulting Party, the other Party (the "Non-Defaulting Party") shall have the right, without prior notice, to liquidate and terminate this Agreement at any time and from time to time, with the minimum period of notice required by FERC, if applicable, and shall calculate, in a commercially reasonable manner, a Settlement Amount for this Agreement as of the time of its termination or as soon thereafter as is reasonably practicable and shall net such Settlement Amounts in the manner provided for in Section 7.2(c). 13 (b) "Settlement Amount" shall mean, with respect to this Agreement and the Non-Defaulting Party, the losses and costs (or gains), expressed in U.S. Dollars, which such party incurs as a result of the liquidation, including, but not limited to, losses and costs (or gains) based upon the then current replacement value of this Agreement together with, at the Non-Defaulting Party's option, but without duplication, all losses and costs which such party incurs as a result of maintaining, terminating, obtaining or re-establishing any hedge or related trading positions. The Settlement Amount shall be due to or from the Non-Defaulting Party as appropriate. In calculating a Settlement Amount, the Non-Defaulting Party shall discount to present value (in a commercially reasonable manner based on the Prime Rate as of the date of termination) any amount which would otherwise have been due at a later date and shall add interest at the Prime Rate to any amount due prior to the date of the calculation. "Prime Rate" shall mean the prime rate of interest as published from time to time under "Money Rates" by The Wall Street Journal. (c) If the Settlement Amount (i) is due the Non-Defaulting Party, the Non-Defaulting Party shall set off against the Settlement Amount any Margin then available to the Non-Defaulting Party, plus (at the Non-Defaulting Party's election) any or all other amounts due to the Defaulting Party under this Agreement; or (ii) is due the Defaulting Party, the Non-Defaulting Party shall set off against the Settlement Amount any Margin then available to the Defaulting Party, plus (at the Non-Defaulting Party's election) any or all other amounts due to the Non-Defaulting Party under this Agreement, so that all such amounts shall be netted to a single liquidated amount (the "Termination Payment") payable by one Party to the other. "Margin" shall mean cash, securities or other property held by or due from one Party to guarantee or secure obligations of the other party under the Agreement. (d) Notice that a liquidation pursuant to this Article 7.2 has occurred shall be given by the Non-Defaulting Party to the Defaulting Party before the close of business on the Business Day following such liquidation, provided that failure to give such notice shall not affect the validity or enforceability of the liquidation or give rise to any claim by the Defaulting Party against the Non-Defaulting Party. The notice shall specify the amount of the Termination Payment and whether it is owed by or to the Defaulting Party. The notice shall include a written statement explaining in reasonable detail the calculation of such amount. The Termination Payment shall be made by the Party that owes it on the second Business Day after such notice is given. (e) If the Defaulting Party disputes the Non-Defaulting Party's calculation of the Termination Payment, in whole or in part, the Defaulting Party shall, within two (2) Business Days of receipt of Non-Defaulting Party's calculation of the Termination Payment, provide to the Non-Defaulting Party a detailed written explanation of the basis for such dispute and, if the Termination Payment is due from the Defaulting Party, shall promptly pay to the Non-Defaulting Party such portion thereof as is conceded to be correct. If the Parties cannot resolve such dispute within three (3) Business Days of the Non-Defaulting Party's receipt of the Defaulting Party's written explanation, then the Defaulting Party may submit such dispute to arbitration in accordance with the arbitration procedures set forth in Section 13.10 hereof; provided, however, that if the Termination Payment is due from the Defaulting Party, the Defaulting Party shall first transfer 14 collateral (of a type and in a form acceptable to the Non-Defaulting Party) to the Non-Defaulting Party in an amount equal to the disputed and unpaid portion of the Termination Payment. Any payment that is due as a result of the arbitrator's award shall be paid by the Party that owes it within two (2) Business Days after the award is rendered. (f) The enumeration of the foregoing remedies shall not be deemed a waiver of any other remedies, legal or equitable, to which either Party is entitled. 7.3 Setoffs. --- -------- (a) Without limiting its rights under this Article 7 or otherwise, after an Event of Default, the Non-Defaulting Party may from time to time set off any or all amounts which the Defaulting Party owes to it (whether under the Agreement or otherwise and whether or not then due) against any or all amounts which it owes to the Defaulting Party (whether under the Agreement or otherwise and whether or not then due), provided that any amount not then due which is included in such setoff shall be discounted to present value (in the manner specified in Section 7.2(b)) as at the time of setoff (to take account of the period between the date of setoff and the date on which such amount would have otherwise been due). (b) Notwithstanding any other provision of this Agreement, after the occurrence of an Event of Default, or an event which, with the giving of notice or the passage of time or both, would constitute an Event of Default, with respect to a Party, the other Party shall have the right to suspend performance under this Agreement. 7.4 Other Terminating Events. --- ------------------------- (a) If performance by either Party (an "Affected Party") under this Agreement becomes subject to regulation of any kind whatsoever under any law, rule, regulation, order or the like, including any change by the FERC regarding a Party's authority to sell wholesale power at market-based rates, to a greater or different extent than that existing on the Effective Date and such regulation renders this Agreement illegal or unenforceable then such Party (or either Party if both Parties are Affected Parties) may terminate and liquidate this Agreement ("Early Termination Date") in the manner contemplated by Section 7.2 above, which notice shall specify the basis for declaring such Early Termination Date. (b) If an Early Termination Date is declared under circumstances described in Section 7.4 (a) above, both Parties shall calculate their respective gains, losses or costs in respect of this Agreement as provided in Section 7.2, and endeavor in good faith to agree upon the Termination Payment payable by either Party, and notify the other Party of the Termination Payment, as provided in Section 7.2. 15 7.5 Duty to Mitigate. --- ----------------- Each Party agrees that it has a duty to mitigate damages and covenants that it will use commercially reasonable efforts to minimize any damages it may incur as a result of the other Party's failure to perform pursuant to this Agreement. ARTICLE 8 CREDIT SUPPORT 8.1 Supplier Credit Support. --- ------------------------ (a) On or before the Effective Date, unless Supplier satisfies the Creditworthiness Criteria at such time, as security for Supplier's obligations hereunder, Supplier shall deliver to BGE a guaranty of payment from either Parent, or another Affiliate of Supplier that satisfies the Creditworthiness Criteria, in an amount equal to the reasonably determined credit exposure of BGE to Supplier taking into account such factors as market risk, settlement risk, the underlying creditworthiness of Supplier, or such other considerations as are commercially reasonable under the circumstances. Such credit support shall be available to be drawn upon by BGE in the event of a default by Supplier of its obligations hereunder, and, subject to Sections 8.1(b) and (c), shall be maintained in effect (by annual renewal or otherwise) by Supplier for the Term of this Agreement. (b) Supplier may, at any time during the Term of this Agreement and at its election, deliver substitute credit support to BGE in any of the following forms: (i) a direct pay irrevocable letter of credit directed to BGE from a commercial bank with long-term debt ratings of "Baa2" or better from Moody's and "BBB" or better from S&P; (ii) a performance bond issued by a surety company with a rating of "B+" or better from A.M. Best Company; or (iii) such other credit support that is acceptable to BGE. The substitute credit support to BGE will be in an amount equal to the reasonably determined credit exposure of BGE to Supplier taking into account such factors as market risk, settlement risk, the underlying creditworthiness of Supplier, or such other considerations as are commercially reasonable under the circumstances. (c) If at any time during the Term of this Agreement Supplier satisfies the Creditworthiness Criteria, its obligation to deliver any credit support pursuant to this Section 8.1 shall be suspended for so long as Supplier continues to satisfy the Creditworthiness Criteria. From and after the date on which Supplier satisfies the Creditworthiness Criteria, Supplier shall certify to BGE within thirty (30) days after the end of every calendar quarter that Supplier satisfies the Creditworthiness Criteria (which certification shall include evidence as BGE shall reasonably request from time to time), and shall deliver financial statements to BGE certified by a firm of certified public accountants of national standing at least annually within one hundred twenty (120) days following the end of Supplier's fiscal year. If at any time thereafter Supplier no longer satisfies the Creditworthiness Criteria, then Supplier shall, within ten (10) Business 16 Days after receipt of a written notice with respect thereto, deliver a guaranty that satisfies the requirements of Section 8.1(a) or other credit support in accordance with Section 8.1(b). 8.2 BGE Credit Support. --- ------------------- (a) Commencing with the Effective Date and thereafter during the Term, within thirty (30) days after the end of every calendar quarter, BGE shall certify to Supplier that it satisfies the Creditworthiness Criteria (which certification shall include evidence as Supplier shall reasonably request from time to time), and shall deliver financial statements to Supplier certified by a firm of certified public accountants of national standing at least annually within one hundred twenty (120) days following the end of BGE's fiscal year. BGE may satisfy its obligation under this paragraph by delivering a copy of its parent company's Annual Report or Form 10K. If at any time during the Term BGE no longer satisfies the Creditworthiness Criteria, then BGE shall, within ten (10) Business Days after receipt of a written notice with respect thereto, deliver to Supplier, in an amount equal to the reasonably determined credit exposure of Supplier to BGE taking into account such factors as market risk, settlement risk, the underlying creditworthiness of BGE, or such other considerations as are commercially reasonable under the circumstances, either: (i) a guaranty of payment from either Parent or another Affiliate of BGE that satisfies the Creditworthiness Criteria; (ii) a letter of credit directed to Supplier from a commercial bank with long-term debt ratings of "Baa2" or better from Moody's and "BBB" or better from S&P; (iii) a performance bond issued by a surety company with a rating of "B+" or better from A.M. Best Company; or (iv) such other credit support that is acceptable to Supplier. (b) If at any time after delivering credit support pursuant to Section 8.2(a), BGE satisfies the Creditworthiness Criteria, then its obligation to deliver any credit support pursuant to this Section 8.2 shall be suspended for so long as BGE continues to satisfy the Creditworthiness Criteria, as provided in Section 8.2(a). 8.3 Modification or Waiver. --- ----------------------- The Parties may agree in writing to modify or waive the provisions of Article 8. ARTICLE 9 INDEMNIFICATION 9.1 Indemnification. --- ---------------- Each Party ("Indemnifying Party") shall indemnify, defend and hold harmless the other Party ("Indemnified Party") and its Affiliates, trustees, directors, board members, officers, employees and agents from any and all Claims arising from or out of any event, circumstance, act or incident occurring during the period when control and title to Full Requirements Service is vested, as between the Parties as provided in Section 4.1, in the Indemnifying Party. 17 "Claims" means all claims or actions, threatened or filed and, whether groundless, false or fraudulent, that directly or indirectly relate to the subject matter of an indemnity, and the resulting losses, damages, expenses, attorney's fees and court costs, whether incurred by settlement or otherwise, and whether such claims or actions are threatened or filed prior to or after the termination of the Agreement. In the event injury or damage results from the joint or concurrent negligent or willful misconduct of the Parties, each Party shall be liable under this indemnification in proportion to its relative degree of fault. Such duty to indemnify shall not apply to any claims which arise or are first asserted more than two (2) years after the termination of this Agreement. 9.2 Indemnification Procedure. --- -------------------------- Each Indemnified Party shall promptly notify the Indemnifying Party of any Claim with respect to which the Indemnified Party is entitled to be indemnified hereunder. Such notice shall be given as soon as is reasonably practicable after the Indemnified Party becomes aware of each Claim; provided, however, that failure to give prompt notice shall not adversely affect any Claim for indemnification hereunder except to the extent the Indemnifying Party's ability to contest any Claim by any third party is materially adversely affected. The Indemnifying Party shall have the right, but not the obligation, at its expense, to contest, defend and litigate, and to control the contest, defense or litigation of, any Claim by any third party alleged or asserted against any Indemnified Party arising out of any matter with respect to which such Indemnified Party is entitled to be indemnified hereunder. The Indemnifying Party shall promptly notify such Indemnified Party of its intention to exercise such right set forth in the immediately preceding sentence and shall reimburse the Indemnified Party for the reasonable costs and expenses paid or incurred by it prior to the assumption of such contest, defense or litigation by the Indemnifying Party. If the Indemnifying Party exercises such right in accordance with the provisions of this Section 9 and any Indemnified Party notifies the Indemnifying Party that it desires to retain separate counsel in order to participate in or proceed independently with such contest, defense or litigation, such Indemnified Party may do so at its own expense. If the Indemnifying Party fails to exercise its rights set forth in the third sentence of this paragraph, then the Indemnifying Party shall reimburse the Indemnified Party for its reasonable costs and expenses incurred in connection with the contest, defense or litigation of such Claim. ARTICLE 10 LIMITATION OF LIABILITY UNLESS EXPRESSLY HEREIN PROVIDED, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING 18 THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT AND THE LIQUIDATED DAMAGES CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS. ARTICLE 11 FORCE MAJEURE 11.1 Definition. ---- ----------- (a) As used in this Agreement, "Force Majeure" means any cause beyond the reasonable control of, and without the fault or negligence of, the Party claiming Force Majeure. A Force Majeure shall include, without limitation, sabotage, strikes, riots or civil disturbance, acts of God, acts of a public enemy, drought, earthquake, flood, explosion (unless resulting from the fault or negligence of the Party asserting Force Majeure), fire, lightning, landslide, or any similar cataclysmic occurrence, or appropriation or diversion of electricity by sale or order of any governmental authority having jurisdiction thereof, but only if and to the extent that the event adversely affects the availability of the PJM Transmission System or BGE distribution facilities, and such affected facilities are necessary to deliver Full Requirements Service electricity to the SOS Load. (b) An event that affects the availability or cost of operating any transmission or distribution facilities outside the PJM Control Area, affects the availability or cost of operating a generating facility, or any event that merely causes an economic hardship to either Party shall not be deemed a Force Majeure. 11.2 Performance Excused. ---- -------------------- (a) If either Party is rendered wholly or partly unable to perform its obligations under this Agreement because of Force Majeure as defined above, that Party shall be excused from whatever performance is affected by the Force Majeure, to the extent so affected, provided that: (i) the non-performing Party promptly, but in no case longer than three (3) Business Days after the occurrence of the Force Majeure, gives the other Party written notice describing the particulars of the occurrence; (ii) the suspension of performance shall be of no greater scope and of no longer duration than is reasonably required by the Force Majeure; 19 (iii) the non-performing Party uses due diligence to remedy its inability to perform and expeditiously takes reasonable action to correct or cure the event or condition; and (iv) the non-performing Party exercises all reasonable efforts to mitigate or limit damages to the other Party. With respect to Supplier, this shall mean that Supplier must purchase, at its own expense, electricity from the PJM market to meet its obligations under this Agreement, to the extent such electricity is available and deliverable. (b) Neither Party to this Agreement will be required by the foregoing to settle a strike affecting it except when, according to its judgment, such a settlement is advisable. Nothing in this Article 11 will excuse BGE from making payment for services provided under this Agreement. ARTICLE 12 REPRESENTATIONS AND WARRANTIES Each Party represents and warrants to the other Party, as of the Effective Date, that: (i) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation, (ii) it has all regulatory authorizations necessary for it to legally perform its obligations under this Agreement and any other documentation relating to this Agreement to which it is a party, (iii) the execution, delivery and performance of this Agreement and any other documentation relating to this Agreement to which it is a party are within its powers, have been duly authorized by all necessary action and do not violate any of the terms and conditions in its governing documents, any contracts to which it is a party or any law, rule, regulation, order or the like applicable to it, (iv) this Agreement and each other document executed and delivered in accordance with this Agreement constitutes its legally valid and binding obligation enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights and by general principles of equity, (v) there are no Bankruptcy Proceedings pending or being contemplated by it or, to its knowledge, threatened against it, (vi) there is not pending or, to its knowledge, threatened against it or any of its Affiliates any legal proceedings that could materially adversely affect its ability to perform its obligations under this Agreement or any other document relating to this Agreement to which it is a party except as disclosed in BGE's or BGE's parent company's Form 10-Q for the quarterly period ended June 30, 2001 or Annual Report for the fiscal year ended December 2000, as well as the proceedings listed on Appendix C hereto, and (vii) no Event of Default or event which, absent a cure, with the giving of notice or lapse of time, or both, would constitute an Event of Default with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any other document relating to this Agreement. 20 ARTICLE 13 MISCELLANEOUS 13.1 Regulatory Action. ---- ------------------ If, after the Effective Date, any court or agency having jurisdiction over this Agreement finds any term or condition to be unjust, unreasonable or otherwise unlawful, the Parties shall enter into good faith negotiations of such changes as are reasonably required to conform to the requirements of law. 13.2 Assignment. ---- ----------- Neither Party shall assign this Agreement or its rights hereunder without the prior written consent of the other Party; provided, however, either Party may, without the consent of the other Party (and without relieving itself from liability hereunder); (i) transfer, sell, pledge, encumber or assign this Agreement or the accounts, revenues or proceeds hereof in connection with any financing or other financial arrangements; (ii) transfer or assign this Agreement to an Affiliate of such Party which Affiliate's creditworthiness is comparable to or higher than that of such Party, or (iii) transfer or assign this Agreement to any Person succeeding to all or substantially all of the assets of such Party; provided, however, that said successor Person possess creditworthiness comparable to or higher than such Party and any such assignee shall agree to in writing be bound by the terms and conditions hereof. 13.3 Compliance With Laws. ---- --------------------- At all times during the term of this Agreement, the Parties shall comply with all laws, rules, requisitions, and codes of all governmental authorities having jurisdiction over each of their respective businesses which are now applicable, or may be applicable hereafter, including without limitation, all special laws, policies, ordinances, or regulations now in force, as amended or hereafter enacted. The Parties hereto shall maintain all licenses, permits and other consents from all governmental authorities having jurisdiction for the necessary use and operation of their respective business. Nothing herein shall be deemed a waiver of the Parties' right to challenge the validity of any such law, rule or regulation. 13.4 Choice of Law and Jurisdiction. ---- ------------------------------- THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED, ENFORCED AND PERFORMED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Except as provided in Section 13.11, all disputes hereunder or relating hereto shall be resolved in the Federal or State courts of Maryland and each Party hereby irrevocably submits to the in personam jurisdiction of 21 such courts. Each Party herein waives its respective right to any jury trial with respect to any litigation arising under or in connection with this Agreement. 13.5 Counterparts to this Agreement. ---- ------------------------------- This Agreement may be executed in any number of counterparts each of which shall be an original, but all of which together shall constitute one and the same instrument. 13.6 Notices. ---- -------- All notices, requests, statements or payments shall be made as specified below. Notices required to be in writing shall be delivered by letter, facsimile or other documentary form. Notice by facsimile or hand delivery shall be deemed to have been received by the close of the Business Day on which it was transmitted or hand delivered (unless transmitted or hand delivered after close in which case it shall be deemed received at the close of the next Business Day). Notice by overnight mail or courier shall be deemed to have been received two (2) Business Days after it was sent. A Party may change its addresses by providing notice of same in accordance herewith: To ALLEGHENY ENERGY SUPPLY COMPANY, LLC: -------------------------------------- NOTICES & CORRESPONDENCE: PAYMENTS: ------------------------ -------- Joseph P. Limone Federal Wire Transfer 909 Third Avenue, 33rd Floor *** New York, New York 10022 ABA Routing *** FAX No.: (212) 224-8720 Account: Allegheny Energy Supply Co., LLC Phone No.: (212) 224-8690 Account #: *** INVOICES: CREDIT AND COLLECTIONS: -------- ---------------------- Michael Schubiger Michael Schubiger 909 Third Avenue, 33rd Floor 909 Third Avenue, 33rd Floor New York, New York 10022 New York, New York 10022 FAX No.: (212) 224-8438 FAX No.: (212) 224-8438 Phone No.: (212) 224-7028 Phone No.: (212) 224-7028 SCHEDULING: ----------- Scheduling Desk 909 Third Avenue, 33rd Floor New York, New York 10022 FAX No.: (212) 224-8720 Phone No.: (212) 224-8750 22 The asterisks on this page denote that confidential portions of this exhibit have been omitted in reliance on Rule 25(b)-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission. To BGE: --- NOTICES & CORRESPONDENCE: PAYMENTS: ------------------------ -------- Baltimore Gas and Electric Company Federal Wire Transfer General Counsel *** 39 W. Lexington Street ABA Routing *** Baltimore, Maryland 21201 Account: Baltimore Gas & Electric Company FAX No.: (410) 234-7043 Account # *** Phone No.: (410) 234-5805 INVOICES: CREDIT AND COLLECTIONS: -------- ---------------------- Attn: Electric Supply Manager - Finance & Accounting 7225 Windsor Boulevard 39 West Lexington Street, 11th Floor Baltimore, Maryland 21244 Baltimore, Maryland 21201 FAX No.: (410) 265-4005 FAX No.: (410) 234-5858 Phone No.: (410) 265-4229 Phone No.: (410) 234-6888 SCHEDULING: ---------- Attn: Electric Supply 7225 Windsor Boulevard Baltimore, Maryland 21244 FAX No.: (410) 265-4005 Phone No.: (410) 265-4229 13.7 Confidentiality. ---- ---------------- Each Party agrees that it will treat in strictest confidence all documents, materials, and other information marked "Confidential" or "Proprietary" by the disclosing Party ("Confidential Information") which it shall have obtained regarding the other Party 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 person (other than to the receiving Party's counsel, accountants, financial or tax advisors, or in connection with its financings); provided that in the event the receiving Party is required by law, regulation or court order to disclose any Confidential Information, the receiving Party will promptly notify the disclosing Party in writing prior to making any such disclosure in order to facilitate the disclosing Party's seeking a protective order or other appropriate remedy from the proper authority and further provided that the receiving Party further agrees that if the disclosing Party ultimately discloses such Confidential Information to the requesting legal body, it will furnish only that portion of the Confidential Information which is legally required and will 23 The asterisks on this page denote that confidential portions of this exhibit have been omitted in reliance on Rule 25(b)-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission. exercise all reasonable efforts to obtain reliable assurances that confidential treatment will be accorded the Confidential Information. The Parties shall be entitled to all remedies available at law or in equity to enforce, or seek relief in connection with these confidentiality obligations. 13.8 General. ---- -------- This Agreement (including the Appendices hereto) constitutes the entire agreement between the Parties relating to the subject matter contemplated by this Agreement. The Agreement shall be considered for all purposes as prepared through the joint efforts of the Parties and shall not be construed against one Party or the other as a result of the preparation, substitution, submission or other event of negotiation, drafting or execution hereof. No amendment or modification to this Agreement shall be enforceable unless reduced to writing and executed by both Parties. This Agreement shall not impart any rights enforceable by any third-party (other than a permitted successor or assignee bound to this Agreement). No waiver by a Party of any default by the other Party shall be construed as a waiver of any other default. Any provision declared or rendered unlawful by any applicable court of law or regulatory agency or deemed unlawful because of a statutory change will not otherwise affect the remaining lawful obligations that arise under this Agreement. The term "including" when used in this Agreement shall be by way of example only and shall not be considered in any way to be in limitation. The headings used herein are for convenience and reference purposes only. All indemnity and audit rights shall survive the termination of this Agreement for two years. 13.9 Changes in Rates, Charges, Terms or Conditions. ---- ----------------------------------------------- Each Party hereby waives its rights to seek any change to the rates, charges, terms and conditions contained in this Agreement under Sections 205 or 206 of the Federal Power Act, as either section may be amended or superseded or to support a complaint or other judicial, regulatory or legislative action seeking a change in this Agreement, absent mutual written agreement of the Parties. It is the intent of this Section that, to the maximum extent permitted by law, the rates, charges, terms and conditions of this Agreement shall not be subject to change, regardless of whether such change is sought (a) by the FERC acting sua sponte on behalf of a Party or a third party, (b) by a Party, (c) by a third party, or (d) in any other manner. 13.10 Arbitration Proceedings. ----- ------------------------ (a) In the event that any dispute or need for interpretation arises between the Parties hereto pertaining to the calculation of a Termination Payment or a payment otherwise required pursuant to this Agreement, the Parties shall refer the matter to their duly authorized representatives for resolution. Should such representatives of the respective Parties fail to resolve the dispute within ten (10) days from such referral, the Parties agree that any such dispute will not be referred to any court, but will be referred to binding arbitration in the city where BGE's corporate headquarters is located. 24 (b) If any dispute has not been resolved by the duly authorized representatives with ten (10) days from referral to them, either Party may give notice, in writing, to the other Party of its desire to submit the dispute to arbitration and may designate an arbitrator. Within ten (10) days after the receipt of such notice, the other Party may, in writing, serve upon the Party invoking such arbitration, a notice designating an arbitrator on its behalf. The two arbitrators so chosen shall within fifteen (15) days after the appointment of the second arbitrator designate, in writing, a third arbitrator. Upon the failure of the Party notified to appoint the second arbitrator within the permitted time, the Parties shall proceed with arbitration using a single arbitrator. If the first and second arbitrators are unable to agree on a third arbitrator within (15) days of the appointment of the second arbitrator, the first and second arbitrator shall invoke the services of the American Arbitration Association ("AAA") to appoint a third arbitrator. The third arbitrator shall, to the extent practicable, have special competence and experience with respect to the subject matter under consideration. Any arbitrator so appointed under this Section shall have full authority to act pursuant to this Section. No arbitrator so appointed shall have the authority to amend or add to this Agreement. The arbitrator or arbitrators shall, thereupon, proceed promptly to hear and determine the controversy pursuant to the then current rules of the American Arbitration Association for the conduct of commercial arbitration proceedings. Such arbitrator or arbitrators shall fix a time within which the matter shall be submitted to the arbitrator or the panel by either or both of the Parties. The arbitrator or the panel shall make a decision on the dispute within ten (10) days of final submission by the Parties. The decision of the single arbitrator, or two of the three arbitrators, shall be taken as the arbitration decision. Such decision shall be made in writing and in duplicate, and one copy shall be delivered to each of the Parties. The arbitrator(s) shall determine the manner in which the expense of the arbitration shall be borne, except that each Party shall pay the costs of its own counsel. Each Party shall accept and abide by the decision. The award shall be final except as otherwise provided by applicable law. Judgment upon such award may be entered by the prevailing Party in any Maryland state circuit court or any federal court within Maryland or application may be made in any such court for judicial acceptance of such award and an order of enforcement. 13.11 Audit. ----- ------ Each Party has the right, at its sole expense and during normal working hours, to examine the records of the other Party to the extent reasonably necessary to verify the accuracy of any statement, charge or computation made pursuant to this Agreement. If requested, a Party shall provide to the other Party statements evidencing the quantities of Full Requirements Service delivered at the Delivery Point. If any such examination reveals any inaccuracy in any statement, the necessary adjustments in such statement and the payments thereof will be made promptly and shall bear interest at the Interest Rate from the date the overpayment or underpayment was made until paid; provided, however, that no adjustment for any statement or payment will be made unless objection to the accuracy thereof was made prior to the lapse of 12 months from the rendition thereof. 25 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date set forth at the beginning of this Agreement. BALTIMORE GAS AND ELECTRIC COMPANY By: _______________________________________ Name and Title: Frank O. Heintz President and CEO ALLEGHENY ENERGY SUPPLY COMPANY, L.L.C. By: _______________________________________ Name and Title: Joseph P. Limone Authorized Signatory for Allegheny Energy Supply Company, L.L.C. 26 APPENDIX A TO FULL REQUIREMENTS SERVICE AGREEMENT PAGE 1 of 4 PARTICIPANT: Baltimore Gas and Electric Company FINAL BILLING STATEMENT ISSUED ON: MM/DD/YYYY FOR PERIOD: MM/DD/YYYY TO MM/DD/YYYY -------------------------------------------------------------------------------- Billing Statement Summary: Total Net Charge/Credit per Operating Agreement of PJM Interconnection, L.L.C. $ Net Charge/Credit per PJM Open Transmission Tariff $ Net Charge/Credit per Reliability Assurance Agreement Among Load Serving Entities in the PJM Control Area $ Total Net Charge/Credit. $ -------------------------------------------------------------------------------- TERMS: PAYABLE IN FULL BY 01:00 PM EDT ON MM/DD/YYYY WIRE TRANSFER FUNDS TO: PJM INTERCONNECTION, L.L.C PNC BANK N.A. NEW JERSEY ABA NUMBER **** ACCOUNT NUMBER **** A-1 The asterisks on this page denote that confidential portions of this exhibit have been omitted in reliance on Rule 25(b)-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission. APPENDIX A TO FULL REQUIREMENTS SERVICE AGREEMENT PAGE 2 of 4 PARTICIPANT: Baltimore Gas and Electric Company FINAL BILLING STATEMENT ISSUED ON: MM/DD/YYYY FOR PERIOD: MM/DD/YYYY TO MM/DD/YYYY -------------------------------------------------------------------------------- OPERATING AGREEMENT OF PJM INTERCONNECTION, L.L.C.: Day-ahead Balancing Total Charges: Spot Market Energy $ Supplier $ Supplier $ Supplier Regulation $ Supplier Operating Reserves $ Supplier $ Supplier $ Supplier Transmission Congestion $ Supplier $ Supplier $ Supplier Transmission Losses $ Supplier $ Supplier $ Supplier Emergency Energy $ Supplier Capacity Credit Market $ Supplier FTR Auction $ Supplier Meter Error Correction $ Supplier Unscheduled Transmission Service $ Supplier Ramapo PAR Facilities $ BGE Reconciliation for Spot Market $ Supplier Reconciliation for Regulation $ Supplier Reconciliation for Operating Reserves $ Supplier Credits: Spot Market Energy $ Supplier $ Supplier $ Supplier Regulation $ Supplier Operating Reserves $ Supplier $ Supplier $ Supplier Transmission Congestion $ BGE Transmission Losses $ Supplier Emergency Energy $ Supplier Capacity Credit Market $ Supplier FTR Auction $ Supplier FTR Auction Revenue Allocations $ BGE Ramapo PAR $ BGE Reconciliation for Transmission Losses $ Supplier Unscheduled Transmission Service $ BGE -------------------------------------------------------------------------------- A-2 APPENDIX A TO FULL REQUIREMENTS SERVICE AGREEMENT PAGE 3 of 4 PARTICIPANT: Baltimore Gas and Electric Company FINAL BILLING STATEMENT ISSUED ON: MM/DD/YYYY FOR PERIOD: MM/DD/YYYY TO MM/DD/YYYY
------------------------------------------------------------------------------------------- PJM OPEN ACCESS TRANSMISSION TARIFF: Total Charges: PJM Scheduling, System Control and Dispatch Service $ Supplier RTO Scheduling, System Control and Dispatch Service $ Supplier Reactive Supply and Voltage Control from Generation Sources Service $ Supplier Network Integration Transmission Service $ BGE Firm Point-to-Point Transmission Service $ Supplier Non-Firm Point-to-Point Transmission Service $ Supplier Firm Point-to-Point - Other Supporting Facilities and Taxes $ Supplier Non-Firm Point-to-Point - Other Supporting Facilities and Taxes $ Supplier Mid-Atlantic Area Council $ BGE Distribution Facilities $ Supplier Reconciliation for PJM Scheduling, System Control and Dispatch Service $ Supplier Reconciliation for RTO Scheduling, System Control and Dispatch Service $ Supplier Special Studies $ Requestor Credits: RTO Scheduling, System Control and Dispatch Service $ BGE Reactive Supply and Voltage Control from Generation Sources Service $ Supplier Network Integration Transmission Service $ BGE Firm Point-to-Point Transmission Service $ BGE Non-Firm Point-to-Point Transmission Service $ BGE Distribution Facilities $ BGE -------------------------------------------------------------------------------------------
A-3 APPENDIX A TO FULL REQUIREMENTS SERVICE AGREEMENT PAGE 4 of 4 PARTICIPANT: Baltimore Gas and Electric Company FINAL BILLING STATEMENT ISSUED ON: MM/DD/YYYY FOR PERIOD: MM/DD/YYYY TO MM/DD/YYYY -------------------------------------------------------------------------------- Reliability Assurance Agreement Among Load Serving Entities in the PJM Control Area: Total Charges: Capacity Deficiency $ Supplier Credits: Capacity Excess $ Supplier -------------------------------------------------------------------------------- A-4 APPENDIX B TO FULL REQUIREMENTS SERVICE AGREEMENT CONFIDENTIAL Generation Shopping Credits
Residential Service - Schedule R Jul 2003 - May 2004 Jun 2004 - May 2005 Jun 2005 - May 2006 Jun-06 ------------------- ------------------- ------------------- ------ Energy Charges in (cent)/kWh Summer 5.286 5.396 5.492 5.756 Non-Summer 3.489 3.599 3.695 n/a Residential Large Service - Schedule RL-1 Jul 2003 - May 2004 Jun 2004 Jul 2004 - May 2005 Jun 2005 - May 2006 Jun-06 ------------------- -------- ------------------- ------------------- ------ Energy Charges in (cent)/kWh Summer Peak 7.279 7.389 7.528 7.624 7.888 Intermediate-Peak 5.172 5.282 5.376 5.472 5.736 Off-Peak 2.895 3.005 3.050 3.146 3.410 Non-Summer Peak 3.985 n/a 4.164 4.260 n/a Intermediate-Peak 3.622 n/a 3.793 3.889 n/a Off-Peak 2.689 n/a 2.841 2.937 n/a Residential Optional Time-of-Use Service - Schedule RL-2 Jul 2003 - May 2004 Jun 2004 - May 2005 Jun 2005 - May 2006 Jun-06 ------------------- ------------------- ------------------- ------ Energy Charges in (cent)/kWh Summer Peak 7.921 8.031 8.127 8.391 Intermediate-Peak 5.607 5.717 5.813 6.077 Off-Peak 3.104 3.214 3.310 3.574 Non-Summer Peak 4.301 4.411 4.507 n/a Intermediate-Peak 3.904 4.014 4.110 n/a Off-Peak 2.879 2.989 3.085 n/a Economy Service - Schedule ES Jul 2003 - May 2004 Jun 2004 - May 2005 Jun 2005 - May 2006 Jun-06 ------------------- ------------------- ------------------- ------ Energy Charges in(cent)/kWh 2.627 2.737 2.833 3.097 General Service - Schedule G Jul 2003 - Jun 2004 ------------------- Option 1: Energy Charges in(cent)/kWh Summer 5.368 Non-Summer 3.739 Option 2: Energy Charges in(cent)/kWh Summer 5.270 Non-Summer 3.641 General Service Small - Schedule GS Jul 2003 - Jun 2004 ------------------- Option 1: Energy Charges in(cent)/kWh Summer Peak 7.383 Intermediate-Peak 5.563 Off-Peak 3.177 Non-Summer Peak 4.462 Intermediate-Peak 4.088 Off-Peak 3.070 Option 2: Energy Charges in(cent)/kWh Summer Peak 7.284 Intermediate-Peak 5.464 Off-Peak 3.079 Non-Summer Peak 4.363 Intermediate-Peak 3.990 Off-Peak 2.973
B-1 APPENDIX B TO FULL REQUIREMENTS SERVICE AGREEMENT General Service Large - Schedule GL Jul 2003 - Jun 2004 ------------------- Secondary Service: Demand Charges in $/kW Summer 10.44 Non-Summer 4.85 Energy Charges in (cent)/kWh Summer Peak 4.238 Intermediate-Peak 3.049 Off-Peak 1.601 Non-Summer Peak 2.561 Intermediate-Peak 2.219 Off-Peak 1.627 Primary Service: Demand Charges in $/kW Summer 10.15 Non-Summer 4.72 Energy Charges in (cent)/kWh Summer Peak 4.092 Intermediate-Peak 2.944 Off-Peak 1.535 Non-Summer Peak 2.473 Intermediate-Peak 2.141 Off-Peak 1.558 Street Lighting - Schedule SL Jul 2003 - Jun 2004 ------------------- Energy Charges in(cent)/kWh 3.255 Private Area Lighting - Schedule PL Jul 2003 - Jun 2006 ------------------- Energy Charges in(cent)/kWh 3.260 Default Service - Schedule DS market-based price1 Contract Classes Class 1 market-based price1 Class 2 2.73(cent)/kWh2 1 "Market-based price" for Default Service and Contract Class 1 includes the market price associated with energy, capacity and ancillary services, as defined under the Default Service Schedule in BGE's Retail Electric Service Tariff. 2 The price of Contract Class 2 varies with the Baltimore Locational Marginal Price. The stated(cent)/kWh price represents the average price for the 12 months ending April 2001. B-2 APPENDIX C TO FULL REQUIREMENTS SERVICE AGREEMENT LITIGATION DISCLOSURE None. C-1