EX-99 7 ex996-8kjune07lipa.txt EXHIBIT 99.6 Exhibit 99.6 EXECUTION COPY FIRST AMENDMENT TO OPTION AND PURCHASE AND SALE AGREEMENT This FIRST AMENDMENT TO OPTION AND PURCHASE AND SALE AGREEMENT (this "Amendment") is made and entered into as of March 22, 2007, by and between KEYSPAN GENERATION LLC, a limited liability company organized and existing under the laws of the State of New York ("Seller", and also referred to herein as "Genco"), and LONG ISLAND LIGHTING COMPANY d/b/a LIPA, a wholly-owned subsidiary of Long Island Power Authority, a corporate municipal instrumentality and political subdivision of the State of New York ("Buyer", and also referred to herein as "LIPA"). RECITALS WHEREAS, Seller and Buyer have previously entered into an Option and Purchase and Sale Agreement, dated as of January 1, 2006 and as amended by letter agreement, dated as of December 11, 2006 (the "Option Agreement"), pursuant to which Seller has granted Buyer an option to purchase one or both of the Far Rockaway Plant and the E.F. Barrett Plant (as such terms are defined in the Option Agreement); WHEREAS, concurrently with the execution of the Option Agreement, Seller and Buyer and, as applicable, certain of their respective Affiliates have entered into a Settlement Agreement and Release and an Amended and Restated Management Services Agreement, each dated as of January 31, 2006 (collectively with the Option Agreement, the "2006 Agreements"); WHEREAS, concurrently with the execution of this Amendment and as a condition to the effectiveness hereof, Seller and Buyer and, as applicable, certain of their respective Affiliates, are entering into an Amendment to the Amended and Restated Management Services Agreement (the "MSA Amendment"), an Agreement and Waiver (the "Waiver Agreement"), a Second Option and Purchase and Sale Agreement (the "Second Option Agreement") and certain other related agreements referred to therein (collectively, the "National Grid Agreements"); WHEREAS, on February 25, 2006 National Grid plc ("National Grid"), National Grid US8 Inc. and KeySpan Corporation entered into a certain Agreement and Plan of Merger (the "NG/KES Merger Agreement") pursuant to which National Grid US8 Inc., a wholly-owned subsidiary of National Grid, will merge with and into KeySpan Corporation, with KeySpan Corporation as the surviving entity and thereby becoming a wholly owned subsidiary of National Grid (the "Merger"), subject to the terms and conditions of the NG/KES Merger Agreement; and WHEREAS, as provided in the Waiver Agreement, in consideration for LIPA entering into the Waiver Agreement, Seller, among other things, has agreed to amend the Option Agreement to (a) extend the Expiration Date (as defined in the Option Agreement) and (b) grant LIPA the option to purchase the ICUs and related assets on the same terms and conditions as those applicable to the E.F. Barrett Plant and the Far Rockaway Plant. NOW, THEREFORE, in consideration of the premises and of such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto intending to be legally bound agree as follows: 1. Defined Terms. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Option Agreement. 2. First Recital. The first recital to the Option Agreement is amended to read in its entirety as follows: "WHEREAS, Seller is the owner of the Far Rockaway Plant (as defined herein), the E.F. Barrett Plant (as defined herein) and the ICUs (as defined herein) (together, the "Generating Facilities");" 3. Second Recital. The second recital to the Option Agreement is amended to read in its entirety as follows: "WHEREAS, Seller is willing to grant LIPA an option to purchase one or more of the Generating Facilities, on the terms and subject to the conditions set forth herein; and" 4. Definitions. a. The definition of "Business" contained in Section 1.1 of the Option Agreement is amended to read in its entirety as follows: "Business" means, with respect to one or more of the Generating Facilities that are part of the Purchased Assets, the business of operating such Generating Facilities as they are operated on the date hereof." b. The definition of "Emission Credits" contained in Section 1.1 of the Option Agreement is amended to read in its entirety as follows: "Emission Credits" means the allowances and credits issued or certified pursuant to the Federal Clean Air Act or analogous provisions of the Laws of the State of New York or other regional or local laws authorizing the emission of fixed quantities of SO2, NOx or CO2 and other emission compounds, to the extent attributable to the Purchased Assets as of the Closing Date." c. The following new definition is added to Section 1.1 of the Option Agreement: "National Grid/KeySpan Closing Date" has the meaning assigned to it in Section 2.3." d. The definition of "Purchased Assets" contained in Section 1.1 of the Option Agreement is amended to read in its entirety as follows: "Purchased Assets" means one or more of the Generating Facilities, as specified in the Option Notice delivered by Buyer hereunder, together with the Additional Assets related to such specified Generating Facilities." 2 e. The definition of "Threshold" contained in Section 1.1 of the Option Agreement is amended to read in its entirety as follows: "Threshold" means (i) if all of the Generating Facilities are purchased by Buyer, $600,000, (ii) if only the E.F. Barrett Plant and the ICUs are purchased by Buyer, $500,000 (iii) if only the E.F. Barrett Plant and the Far Rockaway Plant are purchased by Buyer, $500,000 or (iv) if only E.F. Barrett Plant or the Far Rockaway Plant is purchased by Buyer, $250,000." 5. Purchase Option. Section 2.1 of the Option Agreement is amended to read in its entirety as follows: "Section 2.1. Purchase Option. Subject to the terms and conditions of this Amendment, Seller hereby grants to Buyer an irrevocable option to purchase the Generating Facilities, or any of them, together with the related Additional Assets and the Assumed Liabilities (the "Option")." 6. Exercisability. Section 2.3 of the Option Agreement is amended to read in its entirety as follows: "Section 2.3. Exercisability. Subject to the further terms of this Agreement, the Option shall become exercisable at any time after January 1, 2006; provided, however, the Option with respect to the ICUs shall not become exercisable unless Buyer has exercised the Option with respect to the E.F. Barrett Plant. The Option shall expire and cease to be exercisable at 3:00 p.m. on the date which (i) with respect to the E.F. Barrett Plant and the ICUs, is May 31, 2008 and (ii) with respect to the Far Rockaway Plant, is May 31, 2008 (each of (i) and (ii) being an "Expiration Date")." 7. Method of Exercise. Section 2.4 of the Option Agreement is amended to read in its entirety as follows: "Section 2.4. Method of Exercise. The Option may be exercised with respect to one or more Generating Facilities only by the giving of a written notice by Buyer (the "Option Notice") to the Seller in such form and in such manner as is prescribed in Section 7.1 herein, setting forth which of the Generating Facilities, or all of them, Buyer has elected to purchase. If Buyer delivers an Option Notice with respect to less than all of the Generating Facilities prior to the Expiration Date for such Generating Facilities, it may subsequently deliver one or more Option Notices with respect to one or both of the other Generating Facilities by the delivery of an Option Notice to the Seller at any time prior to the Expiration Date for such other Generating Facilities; provided, that, in such event, the parties shall prior to the relevant Closing Date enter into a new Energy Management Agreement Amendment (substantially in the form 3 attached hereto as Exhibit E) and a new Power Supply Agreement Amendment (substantially in the form attached hereto as Exhibit D) to replace any already signed, in order to reflect such additional Option Notice, and enter into an Operation and Maintenance Agreement (substantially in the form attached hereto as Exhibit C) with respect to each Generating Facility that is the subject of such additional Option Notice. Each Option Notice must be accompanied by a certification by an authorized officer of LIPA that the exercise of the Option has been affirmatively approved by the vote of the LIPA Board of Trustees." 8. Exercise Date. Section 2.5 of the Option Agreement is amended to read in its entirety as follows: "Section 2.5. Exercise Date. The date of each exercise of the Option with respect to one or more Generating Facilities shall be the date on which the Option Notice is delivered to Seller at its address as provided in Section 7.1 of this Agreement (each an "Exercise Date")." 9. Effect of Option Notice. Section 2.6 of the Option Agreement is amended to read in its entirety as follows: Section 2.6. Effect of Option Notice. Upon receipt of an Option Notice by Seller, Buyer and Seller shall be legally bound to consummate the transactions contemplated with respect to the Generating Facilities which are the subject of such Option Notice subject to (i) the satisfaction or waiver of each of the conditions precedent set forth in Article VI hereof, including, without limitation, receipt of all Buyer Required Governmental Approvals, and (ii) all of the other terms and conditions hereof. 10. Closing Date. Section 2.7 of the Option Agreement is amended to read in its entirety as follows: Section 2.7. Closing Date. With respect to each Option Notice, the closing date of the sale, conveyance, assignment and transfer by Seller, and the purchase by Buyer, of the related Purchased Assets pursuant to this Agreement and the other transactions contemplated hereby will be a date, as mutually agreed by the parties, following satisfaction (or waiver) of all conditions precedent to closing set forth in Article VI (each a "Closing Date"), which date shall not be later than one-hundred twenty (120) days following such satisfaction (or waiver), at a location to be agreed upon by the parties hereto following the applicable Exercise Date. The Closing Date may be extended by the written agreement of the parties hereto. 11. Assignment and Assumption. Subsection (b) of Section 2.9 of the Option Agreement is amended to read in its entirety as follows: "(b) Excluded Liabilities. Pursuant to the Assignment and Assumption Agreement, Seller shall retain (i) all liabilities and obligations related to the Purchased Assets which relate to periods prior to the Closing Date, 4 other than the Assumed Liabilities, (ii) all liabilities and obligations, including environmental liabilities, relating to the Excluded Assets, and (iii) all liabilities and obligations it has assumed under the Merger Agreement and the Power Supply Agreement with respect to the Purchased Assets, including, without limitation, liabilities regarding manufactured gas plant sites (all such liabilities and obligations retained by Seller being collectively, the "Excluded Liabilities")." 12. Exercise Date. Section 3.1 of the Option Agreement is amended to read in its entirety as follows: Section 3.1. Net Book Value; Preliminary Purchase Price. (a) Not later than thirty (30) days following the Effective Date, Seller shall provide Buyer with Seller's determination of the Net Book Value of each Generating Facility and the Additional Assets as of the date of the most recent audited financial statements based on Seller's audited financial statements as of such date (the "Reference Net Book Value"), together with the working papers of Seller and Seller's independent public accountants relating to the Reference Net Book Value. Seller will also make its representatives and independent public accountants reasonably available from time to time during normal business hours to address questions with respect thereto raised by Buyer and Buyer's representatives. 13. Additional Agreements. a. Subsection (b) of Section 5.2 of the Option Agreement is amended to read in its entirety as follows: "(b) Easements. On the Closing Date, pursuant to one or more Easement Agreements, as appropriate, Buyer shall grant to Seller and its Affiliates irrevocable and perpetual easements on each of the sites and related parcels of each Generating Facility within the Purchased Assets to the extent necessary for the continued operation and maintenance of, and access to, (i) if the ICUs are not part of the Purchased Assets, the ICUs and, (ii) to the extent necessary, the other Excluded Assets." b. Subsection (d) of Section 5.2 of the Option Agreement is amended to read in its entirety as follows: "(d) Emission Credits. (i) To the extent Emission Credits are not required to satisfy the compliance obligations of the Purchased Assets, such Emissions Credits shall be pooled with those attributable to Seller's remaining generating stations under the Power Supply Agreement (for the term of the Power Supply Agreement) and such pooled credits shall be applied pro rata to all such generating stations to meet their compliance obligations under applicable Law, provided that if Buyer exercises the Option with respect to more than 5 one of the Generating Facilities, excess Emission Credits from one of the Generating Facilities shall first be applied to the other Generating Facility or Generating Facilities purchased by Buyer to the extent necessary to meet its compliance obligations under applicable Law. If any Emissions Credits attributable to the Purchased Assets are sold after the Closing Date, Buyer shall be entitled to 100% of the net sale proceeds therefrom. (ii) In the event Buyer sells or transfers one or more of the Generating Facilities that constitute Purchased Assets, the Emission Credits related to such Generating Facilities shall remain subject to the provisions of this Agreement with respect to the use of such Emission Credits for Seller's remaining generating stations, and Buyer hereby covenants to provide therefor in any agreement for any such sale or transfer to the satisfaction of Seller." 14. Schedule I. Schedule I to the Option Agreement is deleted in its entirety and replaced by a new Schedule I in the form attached hereto as Annex A. 15. Schedule II. Schedule II to the Option Agreement is deleted in its entirety and replaced by a new Schedule II in the form attached hereto as Annex B. 16. Schedule V. Schedule V to the Option Agreement is deleted in its entirety and replaced by a new Schedule V in the form attached hereto as Annex C. 17. Form of Operation and Maintenance Agreement. The form of Operation and Maintenance Agreement attached as Exhibit C to the Option Agreement is deleted in its entirety and replaced by the form thereof attached as Annex D hereto. 18. Form of Power Supply Agreement Amendment. The form of Power Supply Agreement Amendment attached as Exhibit D to the Option Agreement is deleted in its entirety and replaced by the form thereof attached as Annex E hereto. 19. Form of Energy Management Agreement Amendment. The form of Energy Management Agreement attached as Exhibit E to the Option Agreement is deleted in its entirety and replaced by the form thereof attached as Annex F hereto. 20. Effective Time of Amendment. This Amendment shall become legally binding and effective only upon satisfaction of each of the following conditions precedent (the date upon which all such conditions are satisfied, being the "Effective Date"): a. Approvals reasonably satisfactory to National Grid and LIPA from the New York State Comptroller and the New York State Attorney General (as to form) of this Amendment and each of the other National Grid Agreements shall have been obtained and be in full force and effect; b. Each of the 2006 Agreements shall have become effective pursuant to their respective terms and be in full force and effect; and 6 c. The Merger shall have been consummated. 21. Agreement Remains in Force. Except as expressly set forth in this Amendment, the Option Agreement remains unmodified. 22. Headings. The headings contained in this Amendment are for reference purposes only and shall not affect in any way the meaning or interpretation of this Amendment. 23. Miscellaneous. This Amendment, together with the Annexes annexed hereto, shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and permitted assigns and are not intended to confer upon any other Person, any rights or remedies hereunder or thereunder and may be executed in two or more counterparts which together shall constitute a single agreement. 24. Governing Law. This Amendment shall be governed by and construed in accordance with the law of the State of New York (without giving effect to conflict of law principles) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. THE PARTIES HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED TO THE SUBJECT MATTER OF THIS AMENDMENT SHALL BE IN THE STATE COURTS IN AND FOR NASSAU COUNTY, NEW YORK OR THE FEDERAL COURTS IN AND FOR THE EASTERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 7 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. KEYSPAN GENERATION LLC, as Seller By: /s/John J. Bishar Jr. --------------------- Name: John J. Bishar Jr. Title: Executive Vice President LONG ISLAND LIGHTING COMPANY d/b/a LIPA, as Buyer By: /s/Richard M. Kessel -------------------- Name: Richard M. Kessel Title: CEO & President 8 ANNEX A Schedule I Additional Assets ----------------- 1. All furniture, office supplies, tools and other equipment located at the Generating Facilities, other than facilities, tools and equipment identified as Excluded Assets. 2. All telecommunications facilities located at the Generating Facilities relating primarily to the operation of the Generating Facilities. 3. All materials, inventory, and supplies, and all related agreements and purchase orders, held by Seller as of the Closing Date, relating primarily to the Generating Facilities. 4. All motor vehicles owned, purchased or leased by Seller that are used primarily in connection with the Generating Facilities. 5. All franchises, permits and other governmental authorizations relating primarily to the Generating Facilities. 6. If the E.F. Barrett Plant is part of the Purchased Assets, the following contracts: (i) the lease arrangements related to the Flag Atlantic landing station located at the E.F. Barrett Plant; (ii) the Plantation Motel license agreement (small sign) with respect to the E.F. Barrett Plant; and (iii) all leases with the Nassau County Police for telecommunications equipment located at the E.F. Barrett Plant. 7. If the Far Rockaway Plant is part of the Purchased Assets, the following Contracts: all leases with T-Mobile for telecommunication equipment located at the Far Rockaway Plant. 8. If the ICUs are part of the Purchased Assets, all assets relating primarily to the ICUs, including, without limitation: (a) General Electric ("GE") Gas Turbines (Units 1-8); (b) Pratt & Whitney Gas Turbines (Units 9-12); (c) cranking motor breaker cubicles and generator breaker housings; (d) GE Control Room; (e) GE Warehouse; (f) fuel forwarding skids; (g) gas regulating station and associated piping; (h) Pratt & Whitney engine/control room building; (i) water wash skids; (j) CO2 tanks and associated piping; (k) Pratt & Whitney Warehouse; I-1 (l) Tank 101 and the associated dike and piping; (m) Tank 102 (D.I. Water Tank) and the associated dike and piping; (n) Tank 103 and the associated dike and piping; (o) Engine shop and engine parts storage trailers; (p) power recovery tank; (q) No. 2 fuel unloading stations; (r) office management trailer; (s) technician shop / lunch room / employee locker room building; (t) security guard building at front gate; and (u) fire hose cabinets around site. Items (a)-(u) are located within the ICU easement area identified on Schedule III. I-2 ANNEX B Schedule II ----------- Excluded Assets --------------- 1. All KeySpan Energy Delivery Long Island ("KEDLI") natural gas transmission and distribution assets located at the Generating Facilities (depicted on the attached surveys (Schedules III and IV)). 2. All KeySpan Communications Corporation's ("KCC") telecommunications assets located at the Generating Facilities, including: Far Rockaway ------------ (a) One (1) 96 strand fiber optic cable installed overhead from the property line to the telephone room (KCC Circuit No. F96204); (b) Associated rack and fiber optic cable termination shelf/patch panel in the Power Station telephone room; (c) One (1) Canoga Perkins 2262 T1 Modem and power supply; and (d) One (1) Versitron/Milan M7245 Media Converter. E.F. Barrett ------------ (a) One (1) 96 strand fiber optic cable installed overhead from the property line to the telephone room (KCC Circuit No. F96-306A); (b) One (1) 96 strand fiber optic cable installed overhead from the property line to the telephone room (KCC Circuit No. F96-306B); (c) One (1) 96 strand fiber optic cable and associated manholes/conduits installed underground from the property line to the FLAG Telecom Landing Station (KCC Circuit No. F96-222); (d) One (1) 96 strand fiber optic cable and associated manholes/conduits installed underground from the property line to the FLAG Telecom Landing Station (KCC Circuit No. F96-223); (e) One (1) 96 strand fiber optic cable and associated manholes/conduits installed underground from the property line to the FLAG Telecom Landing Station (KCC Circuit No. F96-224); (f) Five (5) 4" PVC underground duct system between the FLAG Telecom Landing Station and the LIRR right-of-way (southeast corner of property); (g) One (1) Canoga Perkins 2262 T1 Modem and power supply; (h) Associated rack and fiber optic cable termination shelf/patch panel in the Power Station telephone room; and (i) One (1) 12 strand submarine fiber optic cable and associated power cable owned by FLAG Telecom installed in the KCC duct bank between the FLAG Telecom Landing Station and the LIRR right-of-way described above (KCC Circuit No. F12-214). II-1 3. The following KeySpan IT/communications systems and equipment located at the Generating Facilities: Far Rockaway ------------ (a) Five (5) radio base stations/antennas (and related cabling) supporting Electric and Gas Operations (roof of main control building); (b) Four (4) radios/antennas (and related cabling) for Electric Distribution Automation communications (roof of main control building); (c) One (1) CISCO 3640 Router and related equipment (main PBX room); (d) One (1) CISCO 3524 Access Switch (main PBX room); (e) One (1) CISCO 2950 Recorder Switch (main PBX room); (f) One (1) CISCO 3524 Access Switch and related equipment (Admin Office); (g) Avaya Definity G3i PBX Telephone system and related equipment; (h) Avaya Intuity Voicemail System and related equipment; (i) One (1) Call Detail Reporting Polecat Buffer Box; and (j) Avaya UPS System. E.F. Barrett ------------ (a) Five (5) radio base stations/antennas (and related cabling) supporting Electric and Gas Operations (roof of main control building); (b) Four (4) radios/antennas (and related cabling) for Electric Distribution Automation communications (roof of main control building); (c) One (1) CISCO 3640 Router (Main Data Closet); (d) One (1) CISCO 6006 Access Switch and related equipment (Main Data Closet); (e) One (1) CISCO 3524 Access Switch and related equipment (Waste Water Site); (f) One (1) CISCO 3524 Access Switch and related equipment (I.C. Cabinet); (g) One (1) CISCO 3524 Access Switch and related equipment (Control Room); (h) One (1) CISCO 3524 Access Switch and related equipment (MSD Trailer); (i) Avaya Definity G3i PBX Telephone system and related equipment; (j) Avaya Intuity Voicemail System and related equipment; (k) One (1) Call Detail Reporting Polecat Buffer Box; and (l) Avaya UPS System. 4. If the ICUs are not part of the Purchased Assets, all assets relating primarily to the ICUs, including, without limitation: (a) General Electric ("GE") Gas Turbines (Units 1-8); (b) Pratt & Whitney Gas Turbines (Units 9-12); (c) cranking motor breaker cubicles and generator breaker housings; (d) GE Control Room; (e) GE Warehouse; II-2 (f) fuel forwarding skids; (g) gas regulating station and associated piping; (h) Pratt & Whitney engine/control room building; (i) water wash skids; (j) CO2 tanks and associated piping; (k) Pratt & Whitney Warehouse; (l) Tank 101 and the associated dike and piping; (m) Tank 102 (D.I. Water Tank) and the associated dike and piping; (n) Tank 103 and the associated dike and piping; (o) Engine shop and engine parts storage trailers; (p) power recovery tank; (q) No. 2 fuel unloading stations; (r) office management trailer; (s) technician shop / lunch room / employee locker room building; (t) security guard building at front gate; and (u) fire hose cabinets around site. Items (a)-(u) are located within the ICU easement area identified on Schedule III. 5. All materials, inventory, tools, supplies, property rights, agreements and purchase orders, held for use in connection with any Excluded Asset. 6. All motor vehicles owned, purchased or leased by Seller that are used primarily in connection with any Excluded Asset. 7. All patents, copyrights, trade secrets, proprietary information, licensed software, manuals and other intellectual property that relates primarily to the Excluded Asset, excluding all intellectual property owned by Buyer as of the Closing Date. 8. All franchises, permits and other governmental authorizations relating primarily to any Excluded Asset. II-3 ANNEX C Schedule V ---------- Disclosure Schedule ------------------- A. Consents and Approvals ---------------------- E.F. Barrett Plant 1. Filings with and consents, approvals and other actions by the Nassau County Health Department ("NCHD") as may be required for the issuance by the NCHD of an Article 11 permit in the name of Buyer. 2. Filings with and consents, approvals and other actions by the Nassau County Fire Marshall (the "NCFM") as may be required for the issuance by the NCFM of an Article 3 permit in the name of Buyer. Far Rockaway Plant 1. Filings with and consents, approvals and other actions by the New York City Fire Department (the "NYCFD") as may be required for the transfer of any permits issued by the NYCFD and the designation thereunder of Buyer as the owner of the Far Rockaway Plant. 2. Filings with and consents, approvals and other actions by the New York City Department of Environmental Protection (the "NYCDEP") as may be required for the transfer of the discharge permit issued by the NYCDEP and the designation thereunder of Buyer as the owner of the Far Rockaway Plant. 3. Filings with and consents, approvals and other actions by the New York State Department of Environmental Conservation ("NYSDEC") as may be required for the transfer of the Long Island wells permit issued by the NYSDEC and the designation thereunder of Buyer as the owner of the Far Rockaway Plant. ICUs 1. Filings with and consents, approvals and other actions by the Nassau County Health Department ("NCHD") as may be required for the issuance by the NCHD of an Article 11 permit in the name of Buyer. 2. Filings with and consents, approvals and other actions by the Nassau County Fire Marshall (the "NCFM") as may be required for the issuance by the NCFM of an Article 3 permit in the name of Buyer. V-1 Each of E.F. Barrett Plant, Far Rockaway Plant and ICUs 1. Approval of the FERC pursuant to Section 203 of the Federal Power Act for the transfer of the Purchased Assets. 2. Subdivision approvals as contemplated under Section 5.2(c). 3. Consents from third-parties as may be required for the transfer of leases, easements and other Contracts that are part of the Purchased Assets. 4. Filings with and consents, approvals and other actions by the NYSDEC as may be required for the transfer of the New York State Title IV Acid Rain and Title V Air permits and the designation thereunder of Buyer as the owner of the Generating Facilities. 5. Filings with and consents, approvals and other actions of NYSDEC as may be required for the transfer of the Memorandum of Understanding Regarding Voluntarily Restricting SO2 Allowance Sales to Certain Upwind States and the designation thereunder of Buyer as the owner of the Generating Facilities. 6. Filings with and consents, approvals and other actions by the NYSDEC as may be required for the issuance by the NYSDEC of New York Chemical Bulk Storage permits in the name of Buyer. 7. Filings with and consents, approvals and other actions by the NYSDEC as may be required for the transfer of the State Pollutant Discharge Elimination System ("SPDES") permits and the designation thereunder of Buyer as the owner of the Generating Facilities. 8. Filings with and consents, approvals and other actions by the NYSDEC as may be required for the issuance by the NYSDEC of Major Petroleum Facility licenses in the name of Buyer. B. Environmental ------------- E.F. Barrett Plant 1. Leak in circulating line within concrete containment dike resulted in the release of 5 gallons of No. 6 oil (NYSDEC Spill 06-09374). 2. Pump failed within pump house resulting in the release of 500 gallons of No. 6 oil. All fuel oil contained within pump house (NYSDEC Spill 05-05253). 3. Spill of approximately 1 gallon of oily water due to equipment failure. Currently awaiting final inspection and close out from the NYSDEC (spill number 05-00135). V-2 ICUs 1. Certain of the ICUs are not capable of meeting existing required daily NOx Reasonably Achievable Control Technology ("RACT") emission limitations on an individual unit basis. Compliance currently relies on a daily system wide NOx averaging program in which compliance shortfall at such units is compensated for by an excess margin of compliance at other Genco units as provided for in the Seller's NYSDEC approved NOx RACT compliance plan. Consequently, future compliant operation of the ICUs under ownership by purchaser or subsequent acquirer under existing NOx RACT emissions limits is subject to approval by NYSDEC (and possibly the U.S. Environmental Protection Agency ("US EPA")) to continued inclusion of the Purchased Assets within the Seller's NOx RACT system wide averaging compliance plan or, alternatively, the implementation of other NOx reduction measures on the Purchased Assets. 2. Broken fuel oil supply hose at Unit number 12A. Volume of fuel released is approximately 150 gallons (NYSDEC Spill 99-02621). 3. Hole in fuel oil return line within trench under roadway resulted in the release of 1,000 gallons of No. 2 oil (NYSDEC Spill 06-06424). 4. In 1984, piping associated with Tank 101 resulted in a significant release of No. 2 fuel oil through the tank containment dike. The release impacted surrounding soil and adjacent creek. A NYSDEC corrective action plan was successfully implemented. Residual petroleum products remain in the ground. Each of E.F. Barrett Plant, Far Rockaway Plant and ICUs 1. The E.F. Barrett Plant, Far Rockaway Plant and ICUs contain thermal system components and other systems that utilize insulation or other materials containing asbestos fibers (including, but not limited to, boiler insulation, pipe insulation and coverings, duct insulation and coverings and other thermal system insulations), and such circumstances could form the basis of an Environmental Claim. The extent of this asbestos and the components and other systems affected, and the amount of the remediation costs, if required, with respect thereto, are unknown. 2. The E.F. Barrett Plant, Far Rockaway Plant and ICUs contain facility components and other systems covered with paint or other coating that contain lead, and such circumstances could form the basis of an Environmental Claim. The extent of this lead and the components and other systems affected, and the amount of the remediation costs, if required, with respect thereto, are unknown. 3. The E.F. Barrett Plant, Far Rockaway Plant and ICUs contain former ash deposition areas and coal stock pile areas, with resulting run-off areas, V-3 and such circumstances could form the basis of an Environmental Claim. The extent of deposited material and the amount of the remediation costs, if required, are unknown. 4. Throughout the life of each of the E.F. Barrett Plant, the Far Rockaway Plant and the ICUs, various routine and other repairs and maintenance tasks have been performed, including various component replacements. The US EPA and other parties have made claims against a number of operators and owners of electric power plants that routine and other maintenance tasks cause a plant to be "modified" for purposes of the Clean Air Act and subject to "New Source Review" requirements, resulting in violations of the Clean Air Act. While there have been no New Source Review claims made against the E.F. Barrett Plant, the Far Rockaway Plant or the ICUs as of the date of the Agreement, future claims could be made by the US EPA or other parties alleging that previous repairs and maintenance tasks have resulted in Clean Air Act violations. The effect of such a claim, if successfully made, is not known, including, but not limited to, the type and cost of the pollution control equipment that would to required to meet "New Source Review" requirements. 5. From time to time, the Far Rockaway Plant, E.F. Barrett Plant and ICUs exceed opacity limits specified in their New York State Title V air permits. All exceedences are reported to the NYSDEC in accordance with the applicable NY DEC consent order. 6. From time to time, the Far Rockaway Plant, E.F. Barrett Plant and ICUs exceed limits specified in their SPDES permits. All exceedences are reported to the NYSDEC in accordance with the applicable SPDES permits. V-4 FINAL COPY Annex D to First Amendment to Option and Purchase and Sale Agreement OPERATION AND MAINTENANCE AGREEMENT between LONG ISLAND LIGHTING COMPANY (d/b/a LIPA) and [KEYSPAN CORPORATION SUBSIDIARY] Dated as of [_____________] TABLE OF CONTENTS -----------------
Page ARTICLE 1 DEFINITIONS.............................................................................................1 ARTICLE 2 OPERATOR'S SERVICES.....................................................................................7 2.1. Scope of Services...............................................................................7 2.1.1. Services to be Provided by Operator....................................................7 2.1.2. General Service Requirements...........................................................8 2.2. Minimum Loadings Ramp Rate, Start-Up Times and Minimum Scheduled Shut Down......................9 2.3. Plant Document Preparation......................................................................9 2.3.1. O&M Procedures.........................................................................9 2.3.2. Preventive Maintenance Program.........................................................9 2.3.3. Administrative Procedures Manual.......................................................9 2.4. Plant Staffing..................................................................................9 ARTICLE 3 OWNER RESPONSIBILITIES.................................................................................10 3.1. General........................................................................................10 3.2. Information....................................................................................10 3.3. Site Access and Facilities.....................................................................10 3.4. Permits........................................................................................10 3.5. Other Services.................................................................................10 ARTICLE 4 BUDGET PREPARATION, REVIEW AND ADOPTION................................................................10 4.1. Annual Capital Budget Preparation..............................................................10 4.2. Annual Capital Budget Review...................................................................10 ARTICLE 5 BILLING DATA AND OTHER OPERATING REPORTS...............................................................11 5.1. Reports........................................................................................11 5.1.1. Monthly Reports.......................................................................11 5.1.2. Quarterly Reports.....................................................................11 5.2. Notice from Judicial/Governmental Authorities..................................................11 5.3. Government Reports.............................................................................11 5.4. Other Information..............................................................................12 ARTICLE 6 DISPUTE RESOLUTION.....................................................................................12 6.1. General........................................................................................12 6.2. Negotiation....................................................................................12 6.3. Dispute Resolution Following Negotiation.......................................................12 6.4. Mediation......................................................................................12 6.5. Arbitration....................................................................................13 i 6.6. Provisional Relief.............................................................................13 6.7. Information Exchange...........................................................................13 6.8. Site of Arbitration............................................................................13 6.9. Awards.........................................................................................13 6.10. Grounds for Judicial Review....................................................................14 6.11. No Interruption................................................................................14 ARTICLE 7 COMPENSATION AND PAYMENT...............................................................................14 7.1. Monthly Invoices...............................................................................14 7.2. Fuel Management Fee............................................................................14 7.3. Audit..........................................................................................14 7.4. Maximum Variable Charge Payment................................................................15 ARTICLE 8 TERM AND TERMINATION...................................................................................15 8.1. Effective Date.................................................................................15 8.2. Term...........................................................................................15 8.3. Termination by Operator........................................................................15 8.3.1. Termination Rights....................................................................15 8.3.2. Payment...............................................................................16 8.4. Termination by Owner...........................................................................16 8.4.1. Termination for Cause.................................................................16 8.4.2. Termination for Convenience...........................................................17 8.5. Plant Condition at End of Term.................................................................17 ARTICLE 9 INSURANCE..............................................................................................18 9.1. Operator Insurance Coverage....................................................................18 9.1.1. Plant Liability Insurance.............................................................18 9.1.2. Workers Compensation and Employers Liability Insurance................................19 9.1.3. General Insurance Provisions..........................................................19 9.1.4. Operator Disclosure and Cooperation...................................................20 9.2. Owner Insurance Coverage.......................................................................20 9.3. Self-Insurance, etc............................................................................20 ARTICLE 10 INDEMNIFICATION.......................................................................................21 10.1. Indemnification of Owner.......................................................................21 10.2. Indemnification of Operator....................................................................22 10.3. Notice.........................................................................................23 10.4. Deferral of Dispute Resolution.................................................................23 ARTICLE 11 GENERAL LIMITATIONS OF LIABILITY......................................................................23 11.1. Total Liability................................................................................23 11.2. Consequential Damages..........................................................................24 11.3. Owner Actions..................................................................................24 ii 11.4. Survival and Application.......................................................................24 ARTICLE 12 ENVIRONMENTAL MATTERS.................................................................................24 12.1. Site Conditions................................................................................24 12.1.1. Disclosure............................................................................24 12.2. Insurance/Indemnification......................................................................24 12.3. Compliance.....................................................................................24 12.4. New Source Review Requirements.................................................................25 ARTICLE 13 NONDISCLOSURE.........................................................................................25 13.1. General........................................................................................25 13.2. Exceptions.....................................................................................25 13.3. Required Disclosure............................................................................25 ARTICLE 14 DOCUMENTS AND MATERIALS...............................................................................26 14.1. Documents and Materials........................................................................26 14.2. Review by Owner................................................................................26 ARTICLE 15 MISCELLANEOUS PROVISIONS..............................................................................26 15.1. Agreement......................................................................................26 15.2. Relationship of the Parties....................................................................26 15.3. KeySpan Guaranty...............................................................................26 15.4. Assignment.....................................................................................26 15.5. Access.........................................................................................27 15.5.1. Owner.................................................................................27 15.5.2. Cooperation...........................................................................27 15.6. Not for Benefit of Third Parties...............................................................27 15.7. Force Majeure..................................................................................27 15.7.1. Events Constituting Force Majeure.....................................................27 15.7.2. Event of Force Majeure................................................................28 15.7.3. Scope.................................................................................28 15.8. Strikes........................................................................................28 15.9. Amendments.....................................................................................28 15.10. Survival.......................................................................................29 15.11. No Waiver......................................................................................29 15.12. Notices........................................................................................29 15.13. Representations and Warranties.................................................................29 15.13.1. Owner Representations and Warranties..................................................29 15.13.2. Operator Representations and Warranties...............................................30 15.14. Counterparts...................................................................................31 15.15. Governing Law..................................................................................31 15.16. Captions; Appendices...........................................................................31 15.17. Non-Recourse...................................................................................31 15.18. Severability...................................................................................31 iii 15.19. Rules of Interpretation........................................................................31 15.20. Private Use Rules..............................................................................32 15.21. State Law Requirements.........................................................................32
APPENDICES ---------- Appendix A - Excluded Services Appendix B - Allocated Fixed O&M Cost Payment Appendix C - KeySpan Guaranty Appendix D - Fuel Management Services Appendix E - Provisions Required by State Law iv OPERATION AND MAINTENANCE AGREEMENT ----------------------------------- This OPERATION AND MAINTENANCE AGREEMENT (the "Agreement") is entered into as of [___________], by and between LONG ISLAND LIGHTING COMPANY d/b/a LIPA ("Owner", and also referred to herein as "LIPA"), a wholly-owned subsidiary of the Long Island Power Authority, a corporate municipal instrumentality and political subdivision of the State of New York, and [KEYSPAN CORPORATION SUBSIDIARY] ("Operator"), a corporation organized and existing under the laws of the State of New York. RECITALS -------- WHEREAS, LIPA and an affiliate of Operator, KeySpan Generation, LLC, are parties to an Option and Purchase and Sale Agreement dated as of January 1, 2006, as amended pursuant to the First Amendment to Option and Purchase and Sale Agreement dated as of March 22, 2007 (the "Option Agreement") pursuant to which, subject to the terms and conditions thereof, LIPA has exercised an option to purchase the Plant (as defined below); and WHEREAS, Owner and Operator are entering into this Agreement pursuant to Section 6.1 of the Option Agreement, in order for the Owner to retain Operator to operate and maintain the Plant upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises set forth herein, the parties agree as follows: ARTICLE 1 DEFINITIONS Unless otherwise required by the context in which any defined term appears, the following capitalized terms have the meanings specified in this Article 1: "Administrative Procedures Manual" has the meaning ascribed to that term in Section 2.3.3. "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with such Person. For purposes of the foregoing definition, "control" means (i) the direct or indirect ownership of fifty percent (50%) or more of the outstanding capital stock or other securities or equity interests having ordinary voting power to elect the board of directors, managing general partner or similar managing authority or (ii) the power to direct the management of such Person. "Agreement" means this Operation and Maintenance Agreement, including all Appendices annexed hereto and any terms specifically incorporated by reference, and any amendments hereto agreed in writing by the parties hereto. "Allocated Fixed O&M Cost Payment" means a monthly payment made by Owner to Operator determined in accordance with Appendix B. "Annual Capital Budget" has the meaning set forth in Section 4.2. "Applicable Law" means any Permit or any law, statute, act, regulation, code, ordinance, rule, judgment, order, decree, directive, requirement, guideline or any similar decision or determination, or any Governmental Authority's official interpretation or administration of any of the foregoing, which governs or affects the Plant, as now or hereinafter in effect. "Arbitrators" has the meaning set forth in Section 6.5. "Availability" means the availability of the Plant as measured by the North American Electric Reliability Council (NERC) - Generating Availability Data System (GADS) Availability Factor Formula, as set forth in Section II of Appendix F to the Power Supply Agreement. "Bankrupt" 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 (other than an assignment undertaken in connection with a financing) for the benefit of creditors, (c) otherwise becomes bankrupt or insolvent (however evidenced), (d) has a liquidator, administrator, receiver, bankruptcy trustee, conservator or similar official appointed with respect to it or any substantial portion of its property or assets, provided that if such action is taken without such party's consent, such party shall be allowed 60 days to dismiss such appointment, or (e) is generally unable to pay its debts as they come due. "Business Day" means any day other than a Saturday, Sunday or legal holiday. Legal holidays are those holidays set forth in Operator's collective bargaining agreements. "Calendar Year" means (i) initially, the period from the Effective Date to the last day of next succeeding December and (ii) thereafter, each 12-month period beginning on the first day of each January. "Chair" has the meaning set forth in Section 6.5. "Computerized Maintenance Management System" means a computer system to manage maintenance activities, such as work order creation and tracking, maintenance scheduling, equipment history, parts information, inventory tracking, manhours required for maintenance, and the Preventive Maintenance Program. "Confidential Information" has the meaning ascribed to that term in Section 13.1. "City Gate" means a receipt point of natural gas at any point located at the New York Facilities at which KeySpan may now have rights to receive natural gas. "CPR" means the International Institute for Conflict Prevention & Resolution. 2 "CPR Mediation Procedures" mean the procedures published from time to time by the CPR for the conduct of mediations. "CPR Rules" has the meaning set forth in Section 6.5. "Default Interest Rate" means the rate established from time to time as the "overpayment rate" pursuant to Subsection (e) of Section 1096 of the New York State Tax Law by the New York State Commission of Taxation and Finance, as applicable to Owner under Section 2880(7)(c) of the New York State Public Authorities Law. "Dispute" means any dispute arising out of or relating to the Agreement. "Effective Date" has the meaning ascribed to that term in Section 8.1. "Emergency" means an event occurring at the Plant which poses actual or imminent risk of serious personal injury, physical damage or environmental contamination requiring immediate preventative or remedial action by Operator. "Energy Management Agreement" means the Energy Management Agreement, by and between LIPA and KETS, dated as of June 26, 1997, as amended by the first amendment thereto, dated March 29, 2002, the second amendment thereto, dated December 30, 2005, and the third amendment thereto, dated _______. "Environmental Claim" means any and all administrative, regulatory or judicial actions, suits, or proceedings alleging potential liability arising out of (a) the Release into the environment of any Hazardous Materials at the Plant; or (b) any violation of any Environmental Law with respect to the Plant. "Environmental Law" means all applicable federal, state, and local statutes, ordinances, and regulations relating to pollution and the protection of the environment. "Excluded Services" means those services set forth in Appendix A annexed hereto. "FAA" has the meaning set forth in Section 6.9. "Fees-And-Costs" means reasonable fees and expenses of employees, attorneys, architects, engineers, accountants, expert witnesses, contractors, consultants and other persons, and costs of transcripts, printing of briefs and records on appeal, copying and other reimbursed expenses, and expenses of any Legal Proceeding. "FERC" means the Federal Energy Regulatory Commission. "Firm Gas Supply" means a type of natural gas supply delivered or transported to a City Gate that may not be interrupted except for Force Majeure events. Such gas may be interrupted on the gas distribution system serving KeySpan's existing gas service area whenever its continued delivery would adversely affect the reliability of the gas distribution system serving KeySpan's existing gas service area. 3 "Force Majeure" has the meaning ascribed to that term in Section 15.7.1. "Fuel" means natural gas, oil, kerosene or other fossil fuel used for operating the Plant. "Fuel Management Fee" has the meaning ascribed to that term in Section 7.2. "Gas Balancing" means the type of service currently provided by KeySpan whenever the aggregate daily gas taken for use by the Plant varies from the daily nominated quantity. When this occurs, Operator will cause certain assets currently owned or contracted for by KeySpan to be used to either provide additional quantities of gas required by the Plant or take back any excess quantities not required by the Plant. "Guarantor" means KeySpan. "Governmental Authority" means any Federal, state, local or other governmental, regulatory or administrative agency, commission, department, board, or other governmental subdivision, court, tribunal, arbitral body of other governmental authority, but excluding any owner of the Plant (if otherwise a Governmental Authority under this definition) when acting in its ownership capacity. "Hazardous Materials" means (A) any petroleum, asbestos in any form that is friable, and polychlorinated biphenyls; and (B) any chemicals, materials or substances which are now defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," or "toxic pollutants" under any Environmental Law. "Indemnified Party" has the meaning ascribed to that term in Section 10.3. "Indemnifying Party" has the meaning ascribed to that term in Section 10.3. "Interruptible Gas Supplies" means natural gas supplies that will be interrupted whenever the supplier recalls supplies pursuant to a negotiated supply contract and/or the interstate pipeline interrupts the transportation of such gas supply pursuant to its FERC approved tariff. Such gas supplies may also be interrupted for force majeure events. "KETS" means KeySpan Energy Trading Services LLC. "KeySpan" means KeySpan Corporation, a New York corporation. "KeySpan Guaranty" has the meaning ascribed to that term in Section 15.3. "Loss-and-Expense" means any and all losses, liabilities, obligations, damages, delays, fines, penalties, judgments, deposits, costs, claims, demands, charges, assessments, taxes, or expenses, including all Fees-And-Costs. 4 "New York Facilities" or "NYF" means the system of gas mains severally owned and operated by KeySpan, The Brooklyn Union Gas Company and Consolidated Edison Co. of New York, Inc. pursuant to the NYF Agreement. "NYF Agreement" means the New York Facilities Agreement entered into as of January 1, 1994, by an between The Brooklyn Union Gas Company, Consolidated Edison Co. of New York, Inc., and KeySpan, as successor to Long Island Lighting Company, as the same may be amended in accordance with its terms. "O&M Manual" means all equipment manuals, system descriptions, system operating instructions, equipment maintenance instructions and pertinent design documentation (including vendor and manufacturer manuals, as-built drawings and all final specifications) for the Plant provided by Owner, Operator, manufacturers, suppliers or vendors. "O&M Procedures" means the procedures developed by Operator as defined in Section 2.3.1. "Operator Indemnified Parties" has the meaning ascribed to that term in Section 10.2. "Owner Indemnified Parties" has the meaning ascribed to that term in Section 10.1. "Party Appointed Arbitrators" has the meaning ascribed to that term in Section 6.5. "Permits" means collectively all authorizations, approvals, licenses, rulings, permits, waivers, certifications, exemptions, variances, filings or registrations by or with any Governmental Authority required for the operation, maintenance, repair, subsequent improvement, modification, replacement and ownership of the Plant. "Person" means, unless otherwise specified, a natural person, corporation, limited liability company, partnership, joint venture, unincorporated association, society or other entity, including a Governmental Authority. "Plant" means the [insert definition(s) from Option Agreement of either E.F. Barrett Plant and ICUs, or E.F. Barrett Plant, or Far Rockaway]. "Plant Documents" means the O&M Manual, the O&M Procedures, the Administrative Procedures Manual, the Annual Capital Budget, administrative and general procedures, Emergency response procedures and other manuals and procedures for the Plant developed by Operator from time to time. "Plant Liability Insurance" has the meaning ascribed to that term in Section 9.1.1. 5 "Power Supply Agreement" or "PSA" means the Power Supply Agreement, by and between LIPA and GENCO, dated as of June 26, 1997, as amended by the amendments thereto, dated [___________]. "Preventive Maintenance Program" has the meaning ascribed to that term in Section 2.3.2. "Prudent Electric Production Practices" means any of the practices, methods and acts, as revised from time to time, that are then generally accepted by the electric generation industry and commonly used in prudent electric generation engineering and operations to operate and maintain equipment lawfully, safely, dependably and economically, and as would have been expected, in the exercise of reasonable judgment in light of the facts and characteristics of the Plant known, or should have been known, at the time the decision is made, to accomplish the desired result at the lowest reasonable cost in a manner consistent with Applicable Laws, applicable Permits, reliability, safety, environmental protection, economy and expediency, including, without limitation, those established by the North American Electric Reliability Council, as applicable to units of the size and type of the Plant. Prudent Electric Production Practices are not intended to be limited to the optimum practices, methods or acts to the exclusion of others, but rather to the spectrum of possible practices, methods and acts generally accepted by a significant portion of the electric generation industry in the relevant region, during the relevant time period, as described in the preceding sentence. "Quarterly Report" means the report prepared on a monthly basis by Operator as further described in Section 5.1.2. "Release" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, leaching, or migration into the indoor or outdoor environment (including, without limitation, the abandonment or disposal of any barrels, containers or other closed receptacles containing any hazardous materials), as well as the movement of any hazardous material through the air, soil, surface water, groundwater or property: "Services" has the meaning ascribed to that term in Section 2.1. "System Interruptible Gas Supply" means a type of natural gas supply that will be interrupted whenever its continued delivery would adversely impact the delivery of gas to the gas customers served by the KeySpan's gas transmission or distribution system; furthermore, if Operator is using non- KeySpan assets to provide natural gas to the Plant, such gas will only be interrupted on KeySpan's gas distribution system whenever its continued delivery would adversely impact the reliability of such gas distribution system. If the Plant is using gas provided from KeySpan assets, the Plant will be interrupted before KeySpan's interruptible gas customers consistent with current practices. Such gas supplies may also be interrupted for force majeure events. "Term" has the meaning ascribed to that term in Section 8.2. 6 "Termination for Convenience" has the meaning ascribed to that term in Section 8.4.2. "Transitional Labor Costs" mean the annualized labor costs, based upon actual head count (and including, without limitation, all salaries, pensions and welfare benefits and all other direct labor costs), of personnel assigned full time to the Plant on the date of a Termination for Convenience pursuant to Section 8.4.2, who are no longer required for the operation and maintenance of the Plant due to a termination of this Agreement, either with respect to the Plant or a discrete generating unit, under Section 8.4.2. "Transitional Labor Cost Payments" has the meaning ascribed to that term in Section 8.4.2. "Utility Services" means electric, telephone, potable water, municipal water, sewage and other utility services required by Operator for the provision of Services. "Variable Charge" means (i) for the period from the Effective Date through December 31, 2008, 90(cent) per net MWh produced by the Plant, and (ii) for any period beginning after December 31, 2008, an amount per MWh to be agreed by the parties based upon Operator's variable costs to provide the Services. If the parties do not agree on a new Variable Charge for the periods after December 31, 2008, then such dispute shall be resolved in accordance with Article 6. "Variable Charge Cap" has the meaning ascribed to that term in Section 7.4. "Variable Charge Excess" has the meaning ascribed to that term in Section 7.4. "Variable Charge Payment " means an amount equal to the Variable Charge multiplied by the net MWh produced by the Plant. ARTICLE 2 OPERATOR'S SERVICES 2.1. Scope of Services. Except as provided in Article 3, Operator shall provide, or cause to be provided, all services necessary to operate and maintain the Plant in accordance with the services described in this Article 2 and the other requirements set forth in this Agreement (the "Services"). Without limiting the generality of the foregoing, and subject to the requirements set forth in Section 2.1.2, Operator shall perform, or cause to be performed, the following Services for the Owner: 2.1.1. Services to be Provided by Operator. During the Term, Operator shall have the responsibility to: (a) provide Fuel management services as set forth in Appendix D; (b) develop, implement and update as necessary site specific Operations and Maintenance Procedures and a Preventive Maintenance Program; 7 (c) implement a Computerized Maintenance Management System; (d) perform routine repairs on any failed or malfunctioning equipment comprising part of the Plant; (e) schedule, procure and manage major maintenance services for the Plant; (f) identify the need for goods and services providers (which may be affiliates of the Operator) with respect to the operation and maintenance of the Plant and schedule, arrange for, procure, and coordinate the receipt of such goods and services; (g) purchase, receive and expedite, as necessary, chemicals, lubricants, consumables, operating and maintenance supplies, vehicles, spare parts, safety supplies, tools and equipment required to operate and maintain the Plant; (h) maintain an inventory of spare parts, materials, supplies and tools necessary to operate and maintain the Plant, and purchase replacement inventory as required; (i) provide periodic technical, administrative and financial reports to Owner as required with respect to the Plant, including such reports as required by regulatory agencies; (j) maintain required technical and administrative records with respect to the Plant; (k) establish and maintain a technical library with respect to the Plant; (l) make recommendations to Owner for capital improvements and changes to the Plant as part of the Annual Capital Budget as provided in Article 4 (it being acknowledged and agreed, for the avoidance of doubt, that the Services shall not include the making of any capital improvements or changes to the Plant, except as Owner and Operator may mutually agree from time to time); and (m) provide assistance to Owner in the preparation of insurance and warranty claims, preparation of reports required to comply with Environmental Laws, regulations or Permits, and such other matters relating to the operation and maintenance of the Plant as Owner may reasonably require. 2.1.2. General Service Requirements. In providing the Services, Operator shall: (a) comply with, to the extent applicable and necessary to provide the Services, (i) all Applicable Laws, (ii) Prudent Electric Production Practices, (iii) all insurance requirements applicable to the Plant, (iv) any warranty obligations applicable to the Plant, (v) vendor manuals and manufacturer's guidelines 8 applicable to the Plant or, in Operator's opinion and to the extent they comply with Prudent Electric Production Practices, Operator's current practice, (vi) O&M Manuals approved by Owner, and (vii) NYISO dispatch directions; provided, however that Operator shall be excused from such compliance with the previous clauses (i) through (vii) if the reason for non-compliance arises from (A) any act or omission by Operator to the extent necessary to respond to any Emergency; or (B) any budgetary limitations imposed by Owner pursuant to Article 4; or (C) as otherwise expressly set forth in this Agreement. (b) administer all matters pertaining to labor relations, salaries, wages, working conditions, hours of work, termination of employment, employee benefits, safety, and all other personnel matters; and (c) provide accounting, bookkeeping, and administrative services in connection with costs under the Annual Capital Budget; 2.2. Minimum Loadings Ramp Rate, Start-Up Times and Minimum Scheduled Shut Down. In providing the Services, the Operator shall not be required to operate the Plant outside of the specifications for the Plant set forth in Appendix E of the Power Supply Agreement (which Appendix is hereby incorporated by reference herein) with respect to Minimum Loadings, Ramp Rate, Start-Up Times and Minimum Scheduled Shut Down. 2.3. Plant Document Preparation. 2.3.1. O&M Procedures. Operator shall develop, implement and update as necessary Plant-specific procedures as Operator deems to be necessary or appropriate for the safe and efficient operation of the Plant during the Term (the "O&M Procedures"), which O&M Procedures shall be subject to Owner's review and approval, which approval shall not be unreasonably withheld or delayed. 2.3.2. Preventive Maintenance Program. Operator shall develop, implement and update as necessary a Plant-specific program for preventative maintenance (the "Preventive Maintenance Program"), which program shall be subject to Owner's review and approval, which approval shall not be unreasonably withheld or delayed. 2.3.3. Administrative Procedures Manual. Operator shall develop, implement and update as necessary a manual for administrative procedures with respect to the Plant's operation (the "Administrative Procedures Manual"), which Administrative Procedures Manual shall be subject to Owner's review and approval, which approval shall not be unreasonably withheld or delayed. 2.4. Plant Staffing. Operator shall provide adequate numbers of properly qualified, trained and, where required, licensed personnel for the performance of the Services. 9 ARTICLE 3 OWNER RESPONSIBILITIES 3.1. General. At Owner's sole cost and expense, Owner shall furnish to Operator the information, data, reports, services, materials and other items as provided in this Article 3. Owner shall make such items available at such times and in such a manner as may be reasonably required by Operator. 3.2. Information. Owner shall provide to Operator copies of all agreements related to the Plant and any amendments thereto or replacements thereof, as well as technical, operational and other information, all as reasonably available to Owner or in Owner's possession and necessary for the performance of the Services. Subject to the standards of performance set forth in Section 2.1.2, and unless Owner obtained such documents and information from Operator or an Affiliate of Operator, Operator shall be entitled to rely upon such information in its performance of the Services. 3.3. Site Access and Facilities. Owner shall arrange for Operator to have: (i) continuous road access to the Plant, (ii) adequate parking facilities for all Operator personnel, including its contractors and subcontractors; (iii) access to the Plant and all systems, interconnections, equipment and appurtenances of the Plant; and (iv) suitable office, warehouse and laboratory space, and maintenance shop facilities. Operator hereby acknowledges that the facilities at the Plant site as of the Effective Date satisfy the requirements of the preceding sentence. 3.4. Permits. Except for Permits that must be obtained by Operator under Applicable Law, Operator on behalf of Owner shall obtain or cause to be obtained all Permits, including the renewal, revision or modification of such Permits, as may be necessary to authorize Operator to engage in the business of operating and maintaining electric generation facilities. Operator shall comply with all terms and conditions of such Permits. 3.5. Other Services. Owner shall be responsible for the Excluded Services as set forth in Appendix A. ARTICLE 4 BUDGET PREPARATION, REVIEW AND ADOPTION 4.1. Annual Capital Budget Preparation. No later than September 1 of each Calendar Year, Operator will submit for Owner's approval a written proposed budget for capital expenditures with respect to the Plant for the next Calendar Year and each of the four (4) succeeding Calendar Years. 4.2. Annual Capital Budget Review. Within 30 days of receipt of Operator's proposed capital expenditure budget, Owner shall review the proposed budget and return it to Operator with such changes, additions, deletions or revisions as Owner shall require. The budget as returned to Operator by Owner shall be the "Annual Capital Budget" for the applicable Calendar Years. 10 ARTICLE 5 BILLING DATA AND OTHER OPERATING REPORTS 5.1. Reports. 5.1.1. Monthly Reports. On the 15th Business Day of each calendar month following the Effective Date, Operator shall submit to Owner a report summarizing, for the prior calendar month, the electric generation, availability, heat rate and Fuel consumption (each on a monthly and year-to-date basis), major equipment trips or failures, procurement, capital improvements, labor relations, training activities, safety issues, significant interactions with governmental authorities, significant environmental and permit issues including any notices of violation, significant operating problems along with remedial actions planned, a brief summary of major activities planned for the next two reporting periods and other material data in connection with the Plant operation for the prior calendar month. Such reports shall be in a format reasonably acceptable to Owner. 5.1.2. Quarterly Reports. On the 20th Business Day following each quarter following the Effective Date, Operator shall submit to Owner a report summarizing for such prior quarter (i) Annual Capital Budget performance, and various explanations thereof, and other material Annual Capital Budget data in connection with the Plant and (ii) the progress with respect to scheduled maintenance under the Preventive Maintenance Program (the "Quarterly Report"). 5.2. Notice from Judicial/Governmental Authorities. Promptly upon obtaining knowledge thereof, each party shall submit to the other party written notice of and copies of any relevant documents in the submitting party's possession relating to: (i) any litigation, claims, disputes or actions actually filed, or any material litigation, claims, disputes or actions which are threatened, concerning in each case Owner, Operator, the Plant, or the Services; (ii) any actual refusal to grant, renew or extend, or any action pending or any action filed with respect to, the granting, renewal or extension of any Permit or any material threatened action regarding the same; (iii) any dispute with any Governmental Authority which may have a material adverse effect on the business or affairs of Owner or Operator, or Plant operation or maintenance; and (iv) without regard to their materiality, all penalties or notices of violation issued by any Governmental Authority. 5.3. Government Reports. Any material reports relating to the Plant that are prepared by Operator for submittal to any Governmental Authority shall first be furnished to Owner for Owner's review and approval within a reasonable period of time prior to such submission; provided, that if necessary to comply with a prompt filing deadline, Operator shall give Owner only such notice and opportunity to review as is reasonably practicable under the circumstances. Any Owner approval shall not be unreasonably withheld or delayed. Operator shall provide to Owner a copy of all reports relating to the Plant prepared by it for submittal to any Governmental Authority concurrently with such submittal. 11 5.4. Other Information. Upon Owner's reasonable (as to time and format) request, Operator shall submit to Owner any other material information reasonably available to Operator concerning the Plant or the Services performed by Operator. ARTICLE 6 DISPUTE RESOLUTION 6.1. General. Any Dispute shall be resolved in accordance with the procedures specified below, which shall constitute the sole and exclusive procedures for the resolution of any Disputes. 6.2. Negotiation. The parties may attempt to resolve any Dispute promptly by appointing a senior executive of each party to attempt to mutually agree upon a resolution. Any party may give the other party written notice of any Dispute not resolved in the normal course of business. Within 5 days after delivery of the notice, the receiving party shall submit to the other a written response. The notice and response shall include (a) a statement of that party's position and a summary of arguments supporting that position, and (b) the name and title of the executive who will represent that party and of any other person who will accompany the executive. Within 10 days after delivery of the initial notice, the persons representing the parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the Dispute. The parties shall endeavor to complete the negotiation process within 20 days after the delivery of the negotiation notice. All negotiations pursuant to this clause shall be confidential and shall be treated as compromise settlement negotiations which shall not be used by either party as evidence in any mediation, arbitration or court proceeding. The parties are not required to undertake negotiation of any Dispute prior to commencing mediation or arbitration pursuant to Section 6.4 or Section 6.5 respectively and may commence mediation or arbitration at any time during the course of negotiation. If a party commences mediation or arbitration pursuant to Section 6.4 or Section 6.5 respectively, any previously commenced negotiation shall be immediately terminated, without any penalty or prejudice to the party commencing negotiation. 6.3. Dispute Resolution Following Negotiation. If the Dispute has not been resolved by negotiation as provided herein, either party may commence mediation or arbitration pursuant to Sections 6.4 or Section 6.5 respectively. The parties are not required to undertake mediation of any Dispute prior to commencing arbitration pursuant to Section 6.5 and a party may commence arbitration at any time during the course of mediation. If a party commences arbitration pursuant to Section 6.5, any previously commenced mediation shall be immediately terminated, without any penalty or prejudice to the party commencing arbitration. 6.4. Mediation. Either party may refer for mediation, by written notice to mediate, any Dispute not resolved by the negotiations provided for in Section 6.2. The mediation shall be conducted in accordance with the CPR Mediation Procedures then currently in effect, to the extent such procedures are consistent with the Agreement. The parties shall mutually agree on the selection of a mediator, who may, but is not required to, be on a list of neutral mediators published by the CPR. If the parties are unable to reach agreement on the selection of a mediator within 5 days after delivery of the notice to mediate, the parties shall follow the CPR procedures for selecting a mediator. The parties shall endeavor to complete the mediation process within 20 days after the delivery of the mediation notice. 12 6.5. Arbitration. Any Dispute which has not been resolved by negotiation as provided in Section 6.2 or by mediation as provided in Section 6.4 shall be settled by binding arbitration in accordance with the CPR Rules for Non-Administered Arbitrations ("CPR Rules") then currently in effect, except to the extent such rules are inconsistent with any provision of the Agreement, in which case the provisions of the Agreement shall be followed. An arbitration shall be commenced by written notice to the other party containing information regarding the Dispute as set forth in Section 6.2. The arbitration shall be conducted by three arbitrators (the "Arbitrators"). The Owner designates [name] as its arbitrator or, in the event [name] is unavailable, [name] as its alternate arbitrator. The Operator designates [name] as its arbitrator or, in the event [name] is unavailable, [name] as its alternate arbitrator. In the event that a party's designee is no longer able or is unwilling to serve as an arbitrator for a Dispute, a party may appoint a substitute or replacement arbitrator and shall promptly notify the other party thereof. The parties' designated arbitrators are hereinafter referred to as the "Party Appointed Arbitrators." The Party Appointed Arbitrators, within two business days of receiving a notice of arbitration will select a third arbitrator (the "Chair"), who will be one of the following individuals: [names]. The Chair shall be the chairperson of the panel. In the event that any one of these individuals is no longer able or is unwilling to continue to serve as the Chair, the Party Appointed Arbitrators will confer and agree on a replacement arbitrator within three Business Days. In the event no such agreement can be reached, the CPR procedures shall govern the appointment of the Chair. 6.6. Provisional Relief. Either party may, without prejudice to any negotiation, mediation, or arbitration procedures, proceed in the New York State Supreme Court, Nassau County, to obtain provisional judicial relief if, in the such party's sole discretion, such action is necessary to avoid imminent irreparable harm, to provide uninterrupted electrical and other services, or to preserve the status quo pending the conclusion of the Dispute procedures specified herein. For purposes of the foregoing, Owner and Operator each hereby agrees to submit to the jurisdiction of such court and, to the maximum extent permitted by law, waives any right to object to the bringing of an action in such court on ground of lack of venue or that such court is an inconvenient forum. 6.7. Information Exchange. The Arbitrators shall have the discretion to order a prehearing exchange of information by the parties, including, without limitation, production of requested documents, the exchange of witness statements of proposed witnesses, and the examination by deposition of parties. The parties hereby agree timely to produce all such information as ordered by the Arbitrators. 6.8. Site of Arbitration. The site of any Arbitration brought pursuant to the Agreement shall be either Mineola, New York or Hauppauge, New York, or such other site as the parties may agree. 6.9. Awards. The Arbitrators shall have no authority to award punitive damages or any other damages aside from the prevailing party's direct damages plus interest at the Default Interest Rate from the date such damages were incurred. The Arbitrators may award reasonable attorneys' fees and costs of the 13 arbitration. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. ss.ss.1-16 (the "FAA"), and judgment upon the award rendered by the Arbitrators may be entered by any court having jurisdiction thereof. 6.10. Grounds for Judicial Review. Any award made by the Arbitrators with respect to any Dispute pursuant to these dispute resolution procedures may be vacated, modified or corrected by a court only on the grounds permitted under the provisions of Sections 10 and 11 of the FAA. 6.11. No Interruption. The pendency of these Dispute resolution procedures shall not in and of itself relieve either party from its duty to perform under this Agreement or serve to delay or suspend the operation of the Project or the performance of the Services hereunder. ARTICLE 7 COMPENSATION AND PAYMENT Owner shall pay Operator for the Services in the manner and at the times specified in this Article 7. 7.1. Monthly Invoices. Operator shall prepare and submit monthly invoices to Owner no later than fifteen (15) days following the end of each calendar month for payments due hereunder, which will include charges for (i) the monthly Allocated Fixed O&M Cost Payment (ii) subject to Section 7.4, the monthly Variable Charge Payment, and (iii) the monthly portion of the Fuel Management Fee for such month as described in Section 7.2. Operator shall supply any supporting documentation for the invoice as Owner may reasonably request. Subject to Owner's right to conduct an audit pursuant to Section 7.3, Owner shall pay such invoices within ten (10) days following the receipt of Operator's invoice. Any amounts due but unpaid by Owner to Operator hereunder shall accrue interest at the Default Interest Rate from the date due until paid. Payment shall be made of all amounts owed by Owner to Operator hereunder by wire transfer, or by other mutually agreeable method(s) to an account designated by Operator. 7.2. Fuel Management Fee. The Owner shall pay Operator a management fee (the "Fuel Management Fee") commencing in the first month of the Effective Date. The Fuel Management Fee will be $125,000 per year, payable in monthly installments of $10,416.67. [The Fuel Management Fee shall be $125,000 per year prorated based upon the fuel BTU's purchased in the year prior to the exercise of the Option Agreement with respect to the Plant.] In addition, Owner shall pay Operator for the cost of Fuel and fuel related taxes, as well as third party fuel related fees and costs prudently incurred consistent with existing practice under the Energy Management Agreement and Appendix D to this Agreement. 7.3. Audit. Notwithstanding the payment of any amount under this Agreement, Owner shall remain entitled to conduct a subsequent audit and review of all costs incurred and paid by Owner pursuant to this Agreement, together with any supporting documentation requested by Owner, for a period of seven (7) years from and after the date of such payment. If, pursuant to such audit and review, it is determined that any amount previously paid by Owner did not constitute a due and payable item pursuant to this Agreement, Owner may recover such amount from Operator or deduct or cause to be deducted such amount from any payment that may be due to Operator. 14 7.4. Maximum Variable Charge Payment. Notwithstanding anything to the contrary, the maximum aggregate Variable Charge Payments payable to Operator for any Calendar Year shall not exceed an amount (the "Variable Charge Cap") equal to twenty percent (20%) of the sum of the Allocated Fixed O&M Cost Payments, Variable Charge Payments, and Fuel Management Fee paid to Operator for such Calendar Year. If the payment of the Variable Charge Payment for any month would cause the sum of all Variable Charge Payments for the applicable Calendar Year to exceed the Variable Charge Cap, then the amount (the "Variable Charge Excess") by which such sum exceeds the Variable Charge Cap shall not be payable to Operator. Thereafter, if the sum of all Variable Charge Payments for the applicable Calendar Year actually paid to Operator is less than the Variable Charge Cap, then there shall be paid to Operator with the next monthly payment pursuant to Section 7.1, an amount equal to the lesser of (i) the difference between the sum of all Variable Charge Payments for the applicable Calendar Year actually paid to Operator (taking into consideration such month's payments) and the Variable Charge Cap and (ii) the aggregate Variable Charge Excesses not paid to Operator for such Calendar Year and any previous Calendar Years (plus a carrying charge accruing at the Default Rate until such Variable Charge Excesses are paid). ARTICLE 8 TERM AND TERMINATION 8.1. Effective Date. This Agreement shall become legally binding and effective only upon satisfaction of the following conditions precedent (the date upon which all such conditions are satisfied, the "Effective Date"): (a) Approvals of this Agreement (reasonably satisfactory to Owner and Operator) from the Public Authorities Control Board, New York State Comptroller, and the New York Attorney General (as to form) shall have been obtained and be in full force and effect; (b) The closing of the purchase of the Plant under the Option Agreement shall have occurred; and (c) Each of the Power Supply Agreement Amendment and the Energy Management Agreement Amendment (each as defined in the Option Agreement) shall have become effective in accordance with their respective terms. 8.2. Term. The term of this Agreement shall commence on the Effective Date and expire May 28, 2013 unless earlier terminated. 8.3. Termination by Operator. 8.3.1. Termination Rights. Operator has the right to terminate this Agreement without liability if: 15 (a) Owner fails to pay any undisputed sum due under this Agreement within 30 days after Owner has received notice of such default from Operator; (b) Owner fails to perform any of its other obligations under this Agreement in any material respect and such failure continues after notice is provided by Operator to Owner, provided that Owner shall have up to 60 Business Days to cure or make substantial progress towards curing such default; (c) any Governmental Authority suspends or revokes any approvals issued by such Governmental Authority to permit Operator to perform its obligations under this Agreement, or otherwise prohibits Operator from performing its obligations under this Agreement, provided that such suspension, revocation or prohibition, as the case may be, was not the result of Operator's negligence or failure to comply with the requirements of any Applicable Law, Permit or approval; or (d) Owner is Bankrupt; 8.3.2. Payment. In the event of a termination by Operator under this Section 8.3, Owner shall pay Operator for all amounts due for the period prior to such termination. 8.4. Termination by Owner. 8.4.1. Termination for Cause. Owner has the right to terminate this Agreement for cause without liability if: (a) Operator fails to perform any of its obligations under this Agreement in any material respect and such failure continues after notice is provided by Owner to Operator, provided that Operator shall have up to 60 Business Days to cure or make substantial progress towards curing such default; (b) Operator is Bankrupt; (c) Operator's total liability under this Agreement during two consecutive Calendar Years shall have exceeded its maximum liability hereunder for each such Calendar Year pursuant to Section 11.1; (d) the KeySpan Guaranty shall be held to be unenforceable or the Guarantor shall disavow, or default in the performance of, its obligations under the KeySpan Guaranty; or (e) The Availability of the Plant in any two consecutive full Calendar Years is less than ____ percent (___%) other than as a result of (i) any one or more events of Force Majeure, (ii) Owner's acting unreasonably with respect to the approval of any Annual Capital Budget, (iii) the failure of Owner to pay for expenses included in any Annual Capital Budget or otherwise to cause or permit to be made any capital improvement or change to 16 the Plant included in any Annual Capital Budget on the schedule provided therein or (iv) any negligent act or omission of Owner or any of Owner's contractors, subcontractors, agents or invitees (other than Operator and any of its contractors, subcontractors, agents and invitees). [Specify 90% for only E.F. Barrett Plant; 85% for only Far Rockaway Plant; 85% for only the ICUs] 8.4.2. Termination for Convenience. Owner has the right, by not less than 30 days prior written notice to Operator, to terminate this Agreement with respect to the Plant (or with respect to a discrete generating unit thereof) for convenience (a "Termination for Convenience") in the event of: (a) The Plant's or such unit's, as the case may be, retirement; or (b) The Plant's or such unit's, as the case may be, shutdown in connection with a repowering. In the event of a termination pursuant to this Section 8.4.2, Operator shall be entitled, in addition to all other amounts due to it hereunder as of the date of termination, monthly payments (the "Transitional Labor Cost Payments") equal to the product of (i) one twelfth (1/12) of the Transitional Labor Costs times (ii) the applicable percentage set forth in table below. Beginning with the next succeeding month following a termination under Section 8.4.2, Owner shall make Transitional Labor Cost Payments to Operator on the fifteenth (15th) of each month until the earlier to occur of (a) Owner's having made forty eight (48) Transitional Labor Cost Payments or (b) May 28, 2013. Transitional Labor Cost Percentage Payment (Month) 1 to 12 100% 13 to 24 75% 25 to 36 50% 37 to 48 25% 8.5. Plant Condition at End of Term. Upon the expiration or earlier termination of this Agreement, Operator shall remove its personnel and equipment from the Plant in an orderly fashion. All special tools, improvements, inventory of supplies, spare parts, safety equipment, O&M Manuals, documentation, whether or not marked as confidential or proprietary in accordance with Article 13 hereof (in each case as provided to, obtained by or provided by, and as modified by Operator pursuant to this Agreement during the Term) and any other items furnished by or on behalf of Operator and paid for by Owner will remain at the Plant and will remain or become the property of Owner without any additional 17 charge. Owner shall also have the right, in its sole discretion, to directly assume any contracts entered into by or obligations of Operator solely in connection with the Services, provided Owner also assumes sole liability under such contracts. Operator shall execute all documents and take all other reasonable steps requested by Owner that are required to assign to and vest in Owner all rights, benefits, interests and title in connection with such contracts or obligations and release Operator from same; provided, however, that Owner shall indemnify and hold harmless Operator from and against any and all liabilities arising thereunder after the date of any such assumption and release. Prior to the effective date of such expiration or earlier termination, Operator shall reasonably cooperate with Owner regarding the transition to a new operator. If Owner requests Operator to continue to provide such transition cooperation after the effective date of such expiration or earlier termination, Operator shall provide such transition cooperation for a reasonable period of time and Owner shall reimburse Operator for all costs incurred during such transition period. ARTICLE 9 INSURANCE 9.1. Operator Insurance Coverage. Throughout the Term, except as otherwise required herein, Operator shall at its own cost, procure and maintain, with insurers having an A.M. Best policyholders' rating of "A" or better, or self-insure in accordance with the requirements made herein the following kinds and amounts of insurance: 9.1.1. Plant Liability Insurance. (A) Such insurance as will protect Operator from claims which may arise out of or result from services of Operator as more fully described in this Agreement, whether such services be by the Operator or by a contractor or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable, claims for bodily injury and property damage of the kind usually and customarily insured in a policy of: (i) commercial general liability insurance, including at a minimum, coverage for contractual liability, products and completed operations liability, and (ii) pollution or environmental legal liability insurance as an extension of (i) above or in a separate policy providing at the minimum sudden and accidental pollution liability, and (iii) automobile liability insurance covering all vehicles owned, operated, used, or the responsibility of Operator and (B) All Risk Property Insurance for the full replacement value of the Plant, with Owner named as the named insured. Operator shall cause Owner and its Affiliates with the employees, agents, officers, directors, trustees, and representatives of each to be named as additional insureds on the policies described in (i), (ii) and (iii) of clause (A) above, with each policy having a combined single limit of not less than $25,000,000.00 for each occurrence (all insurance set forth in (i), (ii) and (iii) of clause (A) above are collectively referred to as "Plant Liability Insurance"). Notwithstanding anything to the contrary in this Section 9.1 or any other provision hereof, Owner shall pay or reimburse Operator for Owner's proportionate share of all incremental costs incurred by Operator with respect to the Plant Liability Insurance, or the All Risk Property Insurance referred to above, as a result of the transfer to Owner of the Plant and its ownership thereof. 18 9.1.2. Workers Compensation and Employers Liability Insurance. Such insurance as will protect Operator from claims by employees for bodily injury and occupational disease: (i) as required by the state of New York and any other applicable state or governmental authority and (ii) employers liability of not less than $25,000,000.00. 9.1.3. General Insurance Provisions. The insurance requirements set forth herein are to fully protect Owner and its Affiliates from any and all claims by third-parties, including employees of Operator or its agents, subcontractors or employees and shall provide the following: (a) Operator Insurance is Primary. The Plant Liability Insurance shall apply as primary insurance with respect to any and all other insurance or self-insurance programs carried by or maintained by Owner or its Affiliates. (b) Evidence of Coverage. Operator shall, prior to the Effective Date of this Agreement, and within five (5) days after each request by Owner, provide certificates of insurance to Owner's insurance consultant evidencing all insurance policies, and if requested by Owner or Owner's insurance consultant, a true, correct and complete copy of all such insurance policies, required pursuant to this Section 9.1. If the Plant Liability Insurance is available only on a claims-made basis, then the dates of coverage (including the retroactive date) will be so stated on the certificate of insurance. (c) Waiver of Subrogation. Owner and any other party reasonably requested by Owner shall be granted waivers of subrogation by all insurers providing coverage to Operator whether or not such insurance policies are maintained pursuant to the requirements of this Section 9.1 of the Agreement, including any amendments thereto, or otherwise. (d) Severability of Insureds. All policies required in this Section 9.1 shall provide that (i) inclusion of more that one person or organization as insured hereunder shall not in any way affect the rights of any such person or organization as respects any claim, demand, suit or judgment made, brought or recovered, by or in favor of any other insured, or by or in favor of any employee of such other insured, and (ii) each person or organization is protected thereby in the same manner as though a separate policy had been issued to each, but nothing therein shall operate to increase the insurance company's liability as set forth elsewhere in the policy beyond the amount for which the insurance company would have been liable if only one person or interest had been named as insured. (e) Notice of Cancellation. All policies required in this Section 9.1 may not be cancelled or materially altered without giving at least thirty (30) days (or ten (10) days if such cancellation is due to a failure to pay premiums) prior written notice of cancellation to Owner. 19 (f) Deductibles. Any and all deductible or retention amounts under policies provided by Operator pursuant to this Section 9.1 shall be assumed by, for the account of, and at the sole risk of Operator. (g) Claims Made Policies. When the insurance policies required herein are issued on a "claims made" or "claims first made" form, the retroactive date shall be on or before the Effective Date of this Agreement and such policies must be maintained for a period of at least five (5) years after Termination of this Agreement or shall be specifically endorsed to provide that claims made for at least five (5) years after the event or occurrence giving rise to the claim will be covered. 9.1.4. Operator Disclosure and Cooperation. Where Operator is providing insurance coverage for benefit of Owner, procuring insurance at request of Owner, and/or securing coverage at the expense of Owner, Operator shall make complete and timely disclosure of all information as may be requested from time to time by Owner and provide full cooperation in securing such coverages as may be requested by Owner. Such disclosure and cooperation shall include, without limit, an exact copy of the applicable insurance policy wording, premium calculation, rating structure, disclosure of No Claims Bonuses and/or profit sharing, information regarding cargo shipments and related surveys, fees or commissions paid to brokers or consultants, and/or other fees or expenses which may be incurred by Owner in conjunction with the procurement of said insurance. In the event that any Plant Liability Insurance policy or the coverage extended thereunder to Owner or Owner's Affiliates is not renewed or is canceled and is not replaced by Operator or its Affiliates with insurance policies providing comparable coverage thereto, or if the Plant Liability Insurance policies, in Owner's or Owner's Affiliates' reasonable judgment, undergo any material change such that the coverage afforded thereunder is not commercially reasonable, Owner and its Affiliates may secure separate general liability insurance policies and/or pollution legal liability policies and/or automobile liability policies to provide comparable commercially reasonable insurance coverage and Operator shall reimburse Owner and its Affiliates, as the case may be, for the Operator's proportionate share of the premiums paid by Owner and its Affiliates, as the case may be, for such insurance. 9.2. Owner Insurance Coverage. Throughout the Term, Owner shall, at its cost, maintain third party liability insurance similar to that required of Operator and workers compensation insurance for its employees. 9.3. Self-Insurance, etc. Operator and Owner may carry such self insured retentions, deductibles, or may self-insure any of the above Plant Liability Insurance, All Risk Property Insurance, and Worker's Compensation insurance to the extent that it is doing so on the Effective Date or to such greater extent as may be approved in writing by Owner. Nothing in this Article 9 is intended to nor shall it relieve Owner or Operator of any of their respective obligations and liabilities under this Agreement including, but not limited to, the indemnification obligations set forth in Article 10 below. 20 ARTICLE 10 INDEMNIFICATION 10.1. Indemnification of Owner. Operator agrees that to the extent permitted by law it will protect, indemnify and hold harmless Owner and its Affiliates and their respective representatives, trustees, directors, officers, employees and subcontractors (as applicable in the circumstances), (the "Owner Indemnified Parties") from and against (and pay the full amount of) any Loss-and-Expense and will defend the Owner Indemnified Parties in any suit, including appeals, for personal injury to, or death of, any person, or loss or damage to property arising out of: (a) the gross negligence or willful misconduct of Operator; (b) a violation of law by Operator which materially and adversely affects (i) the condition or operations of the Plant, (ii) the financial condition of Owner, (iii) the performance or ability of Operator to perform its obligations under this Agreement or (iv) the cost of providing electric service to the customers of the Plant (in each case other than for any violation of environmental Law for which Owner or Operator may be strictly liable provided Operator acted in a manner consistent with Prudent Electric Production Practices), or (c) a criminal violation of Law by Operator. Operator shall not, however, be required to reimburse or indemnify any Owner Indemnified Party for any Loss-and-Expense to the extent any such Loss-and-Expense is due to (a) any matter for which Owner is responsible under Article 3 hereof, (b) the negligence or other wrongful conduct of any Owner Indemnified Party, (c) any event of Force Majeure, (d) any act or omission of any Owner Indemnified Party judicially determined to be responsible for or contributing to the Loss-and-Expense, or (e) any matter for which the risk has been specifically allocated to the Owner hereunder. An Owner Indemnified Party shall promptly notify Operator of the assertion of any claim against it for which it is entitled to be indemnified hereunder, shall give Operator the opportunity to defend such claim, and shall not settle the claim without the approval of Operator. Operator shall be entitled to control the handling of any such claim and to defend or settle any such claim, in its sole discretion, with counsel of its own choosing that is reasonably acceptable to the Owner Indemnified Parties; provided, however, that, in the case of any such settlement, Operator shall obtain written release of all liability of the Owner Indemnified Parties, in form and substance reasonably acceptable to the Owner Indemnified Parties. Notwithstanding the foregoing, each Owner Indemnified Party shall have the right to employ its own separate counsel in connection with, and to participate in (but, except as provided below, not control) the defense of, such claim, but the fees and expenses of such counsel incurred after notice to Operator of its assumption of the defense thereof shall be at the expense of such Owner Indemnified Party unless: (i) the employment of counsel by such Owner Indemnified Party has been authorized by the Operator; (ii) counsel to such Owner Indemnified Party shall have reasonably concluded that there may be a conflict on any significant issue between Operator and such Owner Indemnified Party in the conduct of the defense of such claim; or (iii) Operator shall not in fact have employed counsel reasonably acceptable to the Owner Indemnified Party to assume the defense of such claim within twenty (20) days following the receipt by Operator of the notice from the Owner Indemnified Party regarding the assertion of the applicable claim, 21 in each of which cases the fees and expenses of counsel for such Owner Indemnified Party shall be at the expense of Operator; provided, however, that, with respect to clauses (ii) and (iii) of this sentence, Operator shall not be obligated to pay the fees and expenses of more than one law firm, plus local counsel if necessary in each relevant jurisdiction, for all such Owner Indemnified Parties with respect to any claims arising out of the same events or facts or the same series of events or facts. The Operator shall not be entitled, without the consent of such Owner Indemnified Party, to assume or control the defense of any claim as to which counsel to such Owner Indemnified Party shall have reasonably made the conclusion that there may be a conflict on any significant issue between Operator and such Owner Indemnified Party in the conduct of the defense of such claim as set forth in clause (ii) above, provided that the foregoing limitation shall apply only with respect to those issues for which there may be such a conflict. These indemnification provisions are for the protection of the Owner Indemnified Parties only and shall not establish, of themselves, any liability to third parties. The provisions of this Section 10.1 shall survive termination of this Agreement. 10.2. Indemnification of Operator. Owner agrees that to the extent permitted by law, it will protect, indemnify and hold harmless Operator and its Affiliates and their respective officers, directors, subcontractors (as applicable in the circumstances) and employees (the "Operator Indemnified Parties") from and against (and pay the full amount of) any Loss-and-Expense, and will defend the Operator Indemnified Parties in any suit, including appeals, for personal injury to, or death of, any person, or loss or damage to property arising out of any matter for which Owner is responsible under Article 3 hereof. Owner shall not, however, be required to reimburse or indemnify any Operator Indemnified Party for any Loss-and-Expense to the extent any such Loss-and-Expense is due to (a) any matter for which Operator is responsible under Article 2 hereof or for which Operator is required to indemnify Owner under Section 10.1, (b) the negligence or other wrongful conduct of any Operator Indemnified Party, (c) any event of Force Majeure, (d) any act or omission of any Operator Indemnified Party judicially determined to be responsible for or contributing to the Loss-and-Expense, or (e) any matter for which the risk has been specifically allocated to Operator hereunder. An Operator Indemnified Party shall promptly notify Owner of the assertion of any claim against it for which it is entitled to be indemnified hereunder, shall give Owner the opportunity to defend such claim, and shall not settle the claim without the approval of Owner. Owner shall be entitled to control the handling of any such claim and to defend or settle any such claim, in its sole discretion, with counsel of its own choosing that is reasonably acceptable to the Operator Indemnified Party; provided, however, that, in the case of any such settlement, Owner shall obtain written release of all liability of the Operator Indemnified Party, in form and substance reasonably acceptable to the Operator Indemnified Party. Notwithstanding the foregoing, each Operator Indemnified Party shall have the right to employ its own separate counsel in connection with, and to participate in (but, except as provided below, not control) the defense of, such claim, but the fees and expenses of such counsel incurred after notice to Owner of its assumption of the defense thereof shall be at the expense of such Operator Indemnified Party unless: (i) the employment of counsel by such Operator Indemnified Party has been authorized by Owner; 22 (ii) counsel to such Operator Indemnified Party shall have reasonably concluded that there may be a conflict on any significant issue between Owner and such Operator Indemnified Party in the conduct of the defense of such claim; or (iii) Owner shall not in fact have employed counsel reasonably acceptable to the Owner Indemnified Party to assume the defense of such claim within twenty (20) days following the receipt by Owner of the notice from the Operator Indemnified Party regarding the assertion of the applicable claim, in each of which cases the fees and expenses of counsel for such Operator Indemnified Party shall be at the expense of Owner; provided, however, that, with respect to clause (ii) and clause (iii) of this sentence, Owner shall not be obligated to pay the fees and expenses of more than one law firm, plus local counsel if necessary in each relevant jurisdiction, for all such Operator Indemnified Parties with respect to any claims arising out of the same events or facts or the same series of events or facts. Owner shall not be entitled, without the consent of such Operator Indemnified Party, to assume or control the defense of any claim as to which counsel to such Operator Indemnified Party shall have reasonably made the conclusion that there may be a conflict on any significant issue between Owner and such Operator Indemnified Party in the conduct of the defense of such claim as set forth in clause (ii) above, provided that the foregoing limitation shall apply only with respect to those issues for which there may be such a conflict. These indemnification provisions are for the protection of the Operator Indemnified Parties only and shall not establish, of themselves, any liability to third parties. The provisions of this Section 10.2 shall survive termination of this Agreement. 10.3. Notice. In the event that a party (the "Indemnified Party") becomes aware of any event or circumstance which might entitle it to indemnification under this Article 10, it shall provide the other party (the "Indemnifying Party") with written notification within the earlier of thirty (30) days after discovery of such event or circumstance or ten (10) Business Days prior to the time any response is required by law regarding such event or circumstance. 10.4. Deferral of Dispute Resolution. In the event that a party makes claim for indemnification under this Article 10 and such claim is the subject of Dispute Resolution under Article 6 of this Agreement, then, upon mutual agreement of the parties, such Dispute Resolution may be suspended pending the resolution of the indemnification claim. ARTICLE 11 GENERAL LIMITATIONS OF LIABILITY 11.1. Total Liability. Operator's total liability to Owner during any Calendar Year during the Term for all claims of any kind, whether based upon contract obligation, tort liability (including negligence) or otherwise, for any loss or damage arising out of, connected with or resulting from this Agreement during such each Calendar Year, or from the performance or breach thereof, shall in no case exceed the Fuel Management Fee for such Calendar Year; provided, however, that the foregoing limitation of liability shall not apply to damages resulting from Operator's gross negligence or willful misconduct or to Operator's obligation to indemnify Owner against third party claims pursuant to Article 10. 23 11.2. Consequential Damages. Notwithstanding any provision in this Agreement to the contrary, neither party nor any of its respective Affiliates, shareholders, principals, directors, trustees, officers, employees, agents, subcontractors or vendors shall be liable for consequential or indirect losses or damages, including loss of profit, cost of replacement for electricity, cost of capital, loss of goodwill, increased operating costs or any other special or incidental damages or losses, damages or liabilities under any agreements to which Owner may be a party irrespective of whether such claims are based upon warranty, negligence, strict liability, contract, operation of law or otherwise. 11.3. Owner Actions. Operator shall not be liable for any claims, losses, damages, costs, expenses, fines, penalties and liabilities, including but not limited to Environmental Claims, arising out of (i) Owner's inability or refusal to allocate monies for capital expenditures with respect to the Plant after Operator's specific, detailed, request for funds for specified projects pursuant to Section 4.1; (ii) failure of Plant equipment that is not the result of Operator's or its agent's gross negligence or willful misconduct in the operation and maintenance of the Plant; or (iii) Operator's or its agent's compliance with any instructions or directives provided by Owner. 11.4. Survival and Application. The waivers and disclaimers of liability, indemnities, releases from liability, and limitations on liability expressed in this Agreement shall survive the expiration or earlier termination of this Agreement and shall apply at all times, whether in contract, equity, tort or otherwise, regardless of the fault, negligence (in whole or in part), strict liability, breach of contract or breach of warranty of the party indemnified, released or whose liabilities are limited, and shall extend to the Affiliates, shareholders, principals, directors, officers and employees, agents and related or affiliated entities of such party, and their Affiliates, principals, officers, directors and employees. ARTICLE 12 ENVIRONMENTAL MATTERS 12.1. Site Conditions. 12.1.1. Disclosure. Owner agrees that it will fully disclose to Operator all information, both written and oral, that becomes known to or comes into the possession of Owner after the Effective Date from time to time regarding the environmental conditions at the Plant, including any and all reports, audits or other correspondence from environmental consultants and/or Governmental Authorities. 12.2. Insurance/Indemnification. Owner shall cause Operator and its Affiliates to be designated as a named insured on any insurance policy covering Environmental Claims carried by Owner and its Affiliates. 12.3. Compliance. Without limiting the generality of Section 2.1.2 above, Operator shall comply with all requirements of Environmental Laws, including the terms and conditions of all Permits issued or obtained under Environmental Laws, in connection with Operator's provision of the Services. Operator shall be responsible for complying with all reporting obligations that arise under 24 Environmental Laws in connection with any Emergency or other event or condition related to the Plant, including the reporting of any release of any Hazardous Materials. Owner shall indemnify, defend and hold harmless Operator, its shareholders, Affiliates, officers, directors, employees, agents and representatives from and against any and all Environmental Claims directly or indirectly related to or arising out of the actual or alleged existence, generation, use, collection, treatment, storage, transportation, recovery, removal, discharge or disposal of Hazardous Materials at the Plant and/or adjacent areas to the Plant, except for Environmental Claims arising directly out of the gross negligence or willful misconduct of the Operator or any "Environmental Loss" for which Operator is liable under Section D5, Fuel Indemnification Provisions, of Appendix D (as such term is defined in such appendix). 12.4. New Source Review Requirements. Notwithstanding anything to the contrary in this Agreement, Owner shall bear all responsibility and liability for compliance with all requirements with respect to New Source Review under the Clean Air Act and any similar provisions of any other Applicable Law, including, without limitation (i) all responsibility and liability with respect to decisions made by the Owner (and the consequences thereof) about potential regulatory implications of routine repairs, upgrades, maintenance and modifications of the Plant and (ii) all responsibility and liability for all costs, penalties and other Losses and Expenses associated with New Source Review relating to the Plant (whether from third-party claims or otherwise) as a consequence of such decisions (or the consequences thereof). ARTICLE 13 NONDISCLOSURE 13.1. General. Each party agrees, to the extent permitted by Applicable Law, to hold in confidence any confidential information supplied to that party and designated in writing as confidential by the supplier thereof ("Confidential Information"). Each party further agrees, to the extent requested by the supplier of such information, to require its subcontractors, vendors, suppliers and employees to enter into appropriate nondisclosure agreements relative to such Confidential Information, prior to the receipt thereof. The nondisclosure obligations set forth in this Article 13 shall survive for a period of five (5) years following the expiration or earlier termination of this Agreement. 13.2. Exceptions. The provisions of this Article 13 shall not apply to information covered by any one of the following exceptions or any combination thereof: (i) information that was in the public domain prior to the receiving party's receipt or that subsequently becomes part of the public domain by publication or otherwise, except by the receiving party's wrongful act; (ii) information that the receiving party can demonstrate was in its possession prior to receipt thereof from the disclosing party; (iii) information received by a party from a third party having no obligation of confidentiality with respect thereof; and (iv) information which was developed independently by the receiving party without access to the disclosing party's Confidential Information. 13.3. Required Disclosure. Notwithstanding anything in this Article 13 to the contrary, if any party is required by Applicable Laws, or in the course of administrative or judicial proceedings, to disclose Confidential Information, 25 such party may make such disclosure of such Confidential Information; provided, however, that the party making such disclosure shall immediately notify the other party of the requirement prior to disclosing the Confidential Information so that the disclosing party may attempt to cause such third-party to treat the Confidential Information in a confidential manner and to prevent such Confidential Information from becoming part of the public domain. ARTICLE 14 DOCUMENTS AND MATERIALS 14.1. Documents and Materials. Operator shall maintain at the Plant current as-built drawings, plans, specifications, descriptions, O&M Manuals, and related materials regarding the Plant, in each case to the extent such documents and materials were furnished to or prepared by Operator during the Term. All such materials and documents, together with any materials and documents furnished to Operator by Owner in connection with the Plant, shall be delivered to Owner upon the expiration of the Term or earlier termination of this Agreement; provided, however, that Operator may retain and use copies of all such documents and materials in the course of its current and future business activities. 14.2. Review by Owner. All materials and documents referenced in Section 14.1 shall be available for review by Owner at all reasonable times and upon reasonable notice during development and promptly upon completion thereof. ARTICLE 15 MISCELLANEOUS PROVISIONS 15.1. Agreement. This Agreement consists of the terms and conditions set forth in the body hereof and the Appendices and other attachments hereto. In the event of a conflict, variation or inconsistency between or among the Appendices, other attachments and the terms and conditions set forth in the body hereof, the terms contained in the body hereof shall govern. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof. 15.2. Relationship of the Parties. Operator is deemed to be an independent contractor hereunder and shall not be deemed to be (i) a partner, joint venturer or affiliate of Owner, (ii) an owner, lessee, or sublessee of the Plant, or (iii) an assignee or obligor under any agreements with respect to the Plant to which it is not a party. 15.3. KeySpan Guaranty. Operator shall provide to Owner upon the execution and delivery of this Agreement a guaranty from KeySpan Corporation, Operator's parent, of Operator's obligations hereunder in the form of an amendment to the Guaranty Agreement dated May 28, 1998, from KeySpan Corporation to the Long Island Power Authority, which amendment shall be substantially in the form set forth in Appendix C (the "KeySpan Guaranty"). 15.4. Assignment. This Agreement shall not be assigned by either party without the prior written consent of the other party hereto, which consent shall not be unreasonably withheld, delayed or conditioned. This Agreement shall be binding upon and shall inure to the benefit of the parties and their successors and permitted assigns. 26 15.5. Access. 15.5.1. Owner. During the Term, Owner and its authorized agents and representatives shall have continuous access at all times to the Plant. Owner shall comply with all Operator access and safety requirements while at the Plant. Upon the request of Owner, or its authorized agents and representatives, Operator shall provide such Persons with access to any Plant operating data and logs. 15.5.2. Cooperation. During any such inspection or review of the Plant undertaken during the Term, Owner and its authorized agents and representatives must strictly comply with all of Operator's safety and security procedures, and Owner and its authorized agents and representatives must conduct such inspection and reviews in such a manner as to not unreasonably interfere with Operator's activities. Operator also shall reasonably cooperate with Owner in allowing other visitors access to the Plant under conditions mutually agreeable to the parties. 15.6. Not for Benefit of Third Parties. Except as otherwise expressly provided herein, this Agreement and each and every provision hereof is for the exclusive benefit of the parties hereto and is not for the benefit of any third party. 15.7. Force Majeure. 15.7.1. Events Constituting Force Majeure. As used in this Agreement, "Force Majeure" means any act, event, or condition that causes delay in or failure of performance of obligations under this Agreement, or otherwise materially and adversely affects a party's ability to perform, if such act, event or condition (i) is beyond the reasonable control of the party relying thereon, (ii) is not the result of the willful misconduct or negligent act or omission of such party, and (iii) is not an act, event or condition, the risk or consequence of which such party expressly assumed under this Agreement, and then only to the extent that such Force Majeure event cannot be cured, remedied, avoided, offset, or otherwise overcome by the prompt exercise of reasonable due diligence of the party relying thereon including, but not limited to: (a) acts of God, accident, flood, sabotage, fire, explosion, vehicular accident, epidemic, earthquake, lighting, drought, or similar occurrence, acts of utilities, transmission outages or sudden or disruptive electrical events or disturbance on the transmission or distribution system, disruption of Fuel or materials supply, acts of public or foreign enemy, war and other hostilities, invasion, blockade, insurrection, rebellion, riot and disorder, strikes or labor disturbances, general arrest or restraint of government and people, civil disturbance or similar occurrence; (b) entry of an injunctive or restraining order or judgment of any Governmental Authority, if such order or judgment is not the result of the act, or failure to act, of a party or its subcontractors or suppliers; or 27 (c) suspension, termination, interruption of, or failure to obtain any Permit required or necessary for the construction, operation or maintenance of the Plant, provided such suspension, termination, interruption or failure is not the result of the action or inaction of a party relying thereon or its subcontractors or suppliers. Notwithstanding the foregoing, events of Force Majeure excusing Operator's obligations to operate and maintain the Plant shall not include (i) a strike or labor action by Operator's employees at the Plant; (ii) the failure of any subcontractor, supplier or vendor of Operator to perform its obligations under any agreement or undertaking with Operator unless the failure of such subcontractor, supplier or vendor to perform is caused by an event or condition that would qualify as an event of Force Majeure for Operator; or (iii) any change in general economic conditions or costs of materials, supplies and labor. 15.7.2. Event of Force Majeure. Except for the obligations of either party to make payments of amounts due to the other party, the party claiming Force Majeure shall be excused from performance and shall not be considered to be in default in respect of any obligation under this Agreement to the extent that a failure of performance of such obligation shall be due to Force Majeure. If either party's ability to perform its obligations under this Agreement is affected by Force Majeure, the party claiming such inability shall: (i) promptly notify the other party of such Force Majeure and its cause and confirm the same in writing within five (5) Business Days of discovery of the event or circumstances constituting such Force Majeure; (ii) immediately supply such available information about the event or circumstances constituting the Force Majeure and the cause thereof as is reasonably requested by the other party; and (iii) immediately initiate removal of the cause of the Force Majeure or, if immediate removal is not possible, to mitigate the effect thereof. 15.7.3. Scope. The suspension of performance due to Force Majeure shall be of no greater scope and no longer duration than that which is necessary. The excused party shall use its reasonable best efforts to remedy its inability to perform. 15.8. Strikes. In the event that the Plant is unable to supply capacity, energy or ancillary services to Owner due to a strike or other form of labor action by Operator's employees, or the employees of its contractors or subcontractors, Owner shall have the right to operate the Plant and to retain such other personnel or agents as Owner in its sole discretion and at its sole cost and expense deems necessary or advisable for such purposes. For so long as Owner operates the Plant and/or retains such other personnel, the Allocated Fixed O&M Costs Payment, Variable Charge Payment and the Fuel Management Fee, as applicable, payable under this Agreement shall be reduced (but not less than to zero) by an amount equal to Owner's costs to operate and maintain the Plant; provided, however that Operator shall resume operation of the Plant, upon termination of such strike. 15.9. Amendments. No amendments or modifications of this Agreement shall be valid unless evidenced in writing and signed by duly authorized representatives of both parties. 28 15.10. Survival. Notwithstanding any provisions herein to the contrary, the provisions set forth in Articles 6, 10, 11,12 and 13, and Sections 5.3, 7.3, 8.5, 15.1, 15.2, 15.6, 15.7, 15.10, 15.12, 15.15, 15.16, 15.17, 15.18, and 15.19 shall survive in full force the expiration or earlier termination of this Agreement. In addition, any and all rights and obligations accruing under this Agreement prior to the termination date or expiration date shall survive such termination or expiration. 15.11. No Waiver. It is understood and agreed that any delay, waiver or omission by Owner or Operator to exercise any right arising from any breach or default by Owner or Operator with respect to any of the terms, provisions, or covenants of this Agreement shall not be construed to be a waiver by Owner or Operator, as the case may be, of any subsequent breach or default of the same or other terms, provisions or covenants on the part of the other party. 15.12. Notices. Any written notice required or permitted under this Agreement shall be deemed to have been duly given on the date of receipt, and shall be either delivered personally to the party to whom notice is given, or mailed to the party to whom notice is to be given, by facsimile or first class registered or certified mail, return receipt requested, postage prepaid, and addressed to the addressee at the most recent address specified by written notice given to the other party in the manner provided in this Article 15.12. The parties' addresses for such notices are as follows: To Operator: [KeySpan Corporation Subsidiary] c/o KeySpan Corporation 175 E. Old Country Road Hicksville, NY 11801 Attention: James Brennan FAX No.: [____________] To Owner: Long Island Lighting Company (d/b/a LIPA) 333 Earle Ovington Blvd, Suite 403 Uniondale, New York 11553 Attention: Chief Operating Officer w/copy to: General Counsel FAX No.: [____________] 15.13. Representations and Warranties. 15.13.1. Owner Representations and Warranties. Owner, as of the date of this Agreement, makes the following representations and warranties as the basis for its undertakings contained herein: (a) Owner has all requisite power and authority to execute and deliver this Agreement and to perform each of its obligations hereunder. Owner has duly authorized the execution, delivery and performance of this Agreement. This Agreement is the legal, valid 29 and binding obligation of Owner and (assuming that this Agreement has been duly authorized, executed and delivered by Operator) is enforceable against Owner in accordance with its terms. (b) The execution and delivery of this Agreement, the consummation of the transactions contemplated herein and the fulfillment of and compliance with the provisions of this Agreement do not materially conflict with or constitute a material breach of or a material default under any of the terms, conditions or provisions of any law, any order of any court or other agency of government, the organizational documents of Owner or any contractual limitation, restriction or outstanding trust indenture, deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or instrument to which Owner is a party or by which it or any of its property is bound or result in a material breach of or a material default under any of the foregoing. (c) All organizational consents and authorizations, and all other actions required for Owner to execute and deliver this Agreement have been obtained or completed. (d) Owner has obtained, or will obtain as of the Effective Date, all Permits required to be obtained by Owner for the ownership, operation, maintenance, and repair of the Plant. 15.13.2. Operator Representations and Warranties. Operator, as of the date of this Agreement, makes the following representations and warranties as the basis for its undertakings contained herein: (a) Operator has all requisite power and authority to execute and deliver this Agreement and to perform each of its obligations hereunder. Operator has duly authorized the execution, delivery and performance of this Agreement. This Agreement is the legal, valid and binding obligation of Operator and (assuming that this Agreement has been duly authorized, executed and delivered by Owner) is enforceable against Operator in accordance with its terms. (b) The execution and delivery of this Agreement, the consummation of the transactions contemplated herein and the fulfillment of and compliance with the provisions of this Agreement do not materially conflict with or constitute a material breach of or a material default under, any of the terms, conditions or provisions of any law, any order of any court or other agency of government, the Operator's organizational documents or any contractual limitation, corporate or partnership restriction or outstanding trust indenture, deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or instrument to which Operator is a party or by which it or any of its property is bound or result in a material breach of or a material default under any of the foregoing. 30 (c) All organizational consents and authorizations, and all other actions required for Operator to execute and deliver this Agreement have been obtained or completed. (d) Operator has either obtained or will obtain all licenses or certificates that it or its employees are required to secure under Applicable Law to perform the Services. 15.14. Counterparts. The parties may execute this Agreement in counterparts, which shall, in the aggregate, when signed by both parties constitute one and the same instrument; and, thereafter, each counterpart shall be deemed an original instrument. 15.15. Governing Law. This Agreement shall be interpreted, governed and construed in accordance with the laws of the State of New York. Any action arising out of or relating to this Agreement shall be brought in New York Supreme Court, Nassau County, or United States District Court for the Eastern District of New York. 15.16. Captions; Appendices. Titles or captions of the articles contained in this Agreement and the Appendices annexed hereto are inserted only as a matter of convenience and for reference, and in no way define, limit, extend, describe or otherwise affect the scope or meaning of this Agreement or the intent of any provision hereof. 15.17. Non-Recourse. Except for Owner's rights under the KeySpan Guaranty, neither party shall have any recourse against any of the other party's Affiliates and each party expressly waives its rights of recourse against, and releases from liability, the other party's Affiliates. Each party shall look solely to the other party, and the assets thereof, to effect recovery of such party's claims against the other party. 15.18. Severability. The invalidity or unenforceability of any provision of this Agreement shall be determined only by a court of competent jurisdiction, and the parties hereby agree to negotiate an equitable adjustment to the invalid or unenforceable provisions with a view toward effecting the purposes of this Agreement; the validity or enforceability of the remaining provisions or portions or applications thereof, shall not be affected thereby. 15.19. Rules of Interpretation. The terms and provisions of this Agreement shall be interpreted and construed as follows: (a) words of the masculine gender shall include corresponding words of the feminine or neuter genders and vice versa; (b) the plural shall include the singular and vice versa; (c) unless the context indicates otherwise, all references herein to Articles, Sections, paragraphs, appendices, schedules, and Appendices shall refer, respectively, to the Articles, Sections, paragraphs, appendices, schedules and Appendices of this Agreement; (d) the words "includes" or "including" mean "including, but not limited to" and are not limiting; (e) any reference to an agreement, a contract or any other document means the same as it may be amended, modified, supplemented or replaced from time to time, unless otherwise noted; (f) any reference to a Person includes such Person's successors and assigns; and (g) "ensure", shall not be construed as a guarantee, but shall imply only a duty to use reasonable effort and care, consistent with Prudent Electric Production Practices. 31 15.20. Private Use Rules. In the event that it is determined that the compensation provisions contained in this Agreement do not comply with the applicable Internal Revenue Service "private use" rules, the parties shall cooperate with each other and negotiate in good faith to amend or modify such compensation provisions so that they do so comply while retaining the relative economic benefits of the parties under this Agreement. 15.21. State Law Requirements. All contracts entered into by Owner are required under New York State law to contain certain terms and conditions, as set forth in Appendix E hereto and the provisions of such Appendix E are hereby deemed incorporated in this Agreement at this place. To the extent of any conflict between any other provision of this Agreement and Appendix E, Appendix E shall control. The Operator shall comply with such terms and conditions during the Term of this Agreement. 32 IN WITNESS WHEREOF, the parties have executed this Agreement through their duly authorized officers as of the date set forth in the preamble to this Agreement. LONG ISLAND LIGHTING COMPANY [KEYSPAN CORPORATION (d/b/a LIPA) SUBSIDIARY] By: ________________________ By: __________________________ Name: _______________________ Name: ________________________ Title: _______________________ Title: _______________________ 33 APPENDIX "A" ------------ EXCLUDED SERVICES ----------------- The following costs and other obligations are Owner's responsibility: 1. Property Taxes 2. Inventory Taxes 3. Emission credits and allowances 4. Costs imposed by the New York Independent System Operator (or other regional transmission or electrical pool operator) rules or procedures, including any costs associated with the sale or other marketing of any energy produced by the Plant. 5. Costs relating to unforeseen, sudden major equipment or component failures not covered under equipment warranty, including major component failures. 6. Initial inventory of spare parts, consumables and tools, and storage of spare parts. 7. Costs to replace Plant equipment to the extent that such costs are capital expenditures and all other capital improvements. 8. Cost of any capital expenditures for alterations, modifications, improvements or additions to the Plant which are required by any Governmental Authority or otherwise required to comply with Applicable Laws. 9. Costs subject to Owner's indemnification obligations under this Agreement. 10. Costs to remedy any notice of violation or non-compliance issued by any Governmental Authority with regard to air emissions, water discharges, noise emissions, hazardous discharges or any other environmental, health or safety problems affecting the Plant. A-1 APPENDIX "B" ------------ ALLOCATED FIXED O&M COST PAYMENT -------------------------------- On the Effective Date and for the first Calendar Year, the Allocated Fixed O&M Cost Payment shall be an amount determined as follows: AFOMCP = (CC + $7,120,000 - PT - DEP- RORB - TAXES - CARC - ASC)*(PE/TE)/12 Where: AFOMCP = Allocated Fixed O&M Charge Payment CC = The Capacity Charge in effect under the PSA. PT = The component for property taxes included in the Capacity Charge. DEP = The component for depreciation included in the Capacity Charge. RORB = The component for return on rate base included in the Capacity Charge. TAXES = The component for state and federal income taxes included in the Capacity Charge. CARC = The component for common assets recovery charge included in the Capacity Charge. ASC = The component for the amortization of security costs included in the Capacity Charge. PE = The total number of operator's full time equivalent employees working at the Plant as of the date immediately preceding the Effective Date, excluding, however, any MSD workers. In no event shall PE exceed the average number of such employees for the two (2) Calendar Years immediately preceding the Effective Date. TE = The total number of full time equivalent employees working as of the day immediately preceding the Effective Date for Operator or its affiliates at all generating facilities covered under the PSA as of such date. On January 1 of each Calendar Year during the Term through December 31, 2008, the Allocated Fixed O&M Charge shall be equal to the Allocated Fixed O&M Charge for the previous year plus the Labor Cost Index Adjustment plus the Benefit Cost Index Adjustment, where: "Labor Cost Index Adjustment (Production)" means the sum of (1) the average monthly labor costs for the Plant contained in the Allocated Fixed O&M Charge Payments for the prior Calendar Year and (2) the product of (a) the Defined Labor Index times (b) average monthly base labor costs contained in the Allocated Fixed O&M Charge Payments for the prior Calendar Year. "Defined Labor Index" means the percentage change for the twelve month period ending on the preceding September 30 for the Employment Cost Index for Wages and Salaries Only, Private Industry Workers, Northeast, Not Seasonally Adjusted, as published by the United States Bureau of Labor Statistics. B-1 "Benefit Cost Index Adjustment" means the sum of (1) the average monthly benefit costs contained in the Allocated Fixed O&M Charge Payments for the Plant in the prior Calendar Year and (2) the product of (a) the Defined Labor index times (b) average monthly base benefit costs contained in the Allocated Fixed O&M Charge Payments for the prior Calendar Year. For each Calendar Year during the term after December 31, 2008, the Allocated Fixed O&M Charge shall be an amount to be agreed upon by the parties based upon a cost of service analysis. If the parties do not agree on a new Allocated Fixed O&M Charge for the Calendar Years after December 31, 2008, then such dispute shall be resolved in accordance with Article 6. B-2 APPENDIX "C" ------------ FORM OF KEYSPAN GUARANTY AMENDMENT AMENDMENT TO GUARANTY AGREEMENT THIS AMENDMENT TO THE GUARANTY AGREEMENT is made and dated as of [_________________] (this "Amendment") to the Guaranty Agreement, dated as of May 28, 1998 (the "Guaranty"), from KEYSPAN CORPORATION (f/k/a Marketspan Corporation), a corporation organized and existing under the laws of the State of New York (together with any permitted successors and assigns hereunder, the "Guarantor"), to LONG ISLAND POWER AUTHORITY (together with its subsidiaries and other permitted assignees of the Agreements, the "Authority"). RECITALS WHEREAS, Long Island Lighting Company d/b/a LIPA (the "Owner"), a wholly-owned subsidiary of the Authority, and [KeySpan Corporation Subsidiary] (the "Operator"), a subsidiary of the Guarantor are parties to an Operation and Maintenance Agreement, dated as of the date hereof (the "O&M Agreement"), whereby the Operator has agreed to operate and maintain the Plant (as defined in the O&M Agreement) upon the terms and conditions set forth in the O&M Agreement; and WHEREAS, pursuant to Section 15.3 of the O&M Agreement, the Guarantor is entering into this Amendment to guarantee the obligations of the Operator under the O&M Agreement on the terms and subject to the conditions of the Guaranty. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Definitions. All capitalized terms used in this Amendment and not otherwise defined shall have the meanings assigned to them in the Guaranty. Section 2. Amendment to the Guaranty Agreement. The parties hereby agree that (i) the term "Agreements" as used in the Guaranty shall be deemed to include the O&M Agreement for all purposes of the Guaranty and (ii) the term "Subsidiaries" as used in the Guaranty shall be deemed to include the Operator for all purposes of the Guaranty. Section 3. Miscellaneous (a) Incorporation by Reference. Sections 1.2(A), (B), (C) and (D) of the Guaranty shall be incorporated by reference herein as if fully set forth herein. (b) Entire Agreement; Authority. The Guaranty, as amended by this Amendment, together with the Agreement and the Transaction Agreements, constitute the entire agreement between the parties hereto with respect to C-1 the transactions contemplated by the Guaranty. Nothing in this Amendment is intended to confer on any person other than the Guarantor, the Authority and their successors and assigns as permitted hereunder any rights or remedies under or by reason of this Amendment. (c) Counterparts. This Amendment may be executed in any number of original counterparts. All such counterparts shall constitute but one and the same Amendment. (d) Applicable Law. This Amendment shall be governed by and construed in accordance with the applicable laws of the State of New York. (e) Full Force and Effect of Guaranty. Notwithstanding the amendment and extension of the Management Services Agreement, or the amendments to the Power Supply Agreement and the Energy Management Agreement, the Guaranty, as modified by this Amendment, and as this Amendment is made a part thereof, shall remain in full force and effect. C-2 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized officers or representatives as of the date first above written. LONG ISLAND POWER AUTHORITY By ___________________________ Name: Title: KEYSPAN CORPORATION By ___________________________ Name: Title: C-3 APPENDIX "D" ------------ FUEL MANAGEMENT SERVICES ------------------------ D1. General. Operator shall manage all aspects of the fuel supply for the Plant including determinations regarding the type of fuel used for operating the Plant and the source of such fuel supply taking into account the purchase of alternate sources of electricity in lieu of electricity from the Plant when economic. Owner will compensate Operator for such fuel management services in accordance with the terms of this Agreement. In this respect, Operator shall, among other things: (a) Acquire required gas supplies which includes a mix of Interruptible and Firm Gas Supplies as deemed appropriate; (b) Acquire required fuel oil supplies in accordance with generating unit specific requirements as determined by Operator; (c) Negotiate, execute and administer fuel supply contracts with one or more entities; (d) Obtain and schedule transportation for all fuel deliveries, including daily nomination and dispatch; (e) Arrange for the displacement of gas across KeySpan's gas distribution system and the New York Facilities to facilitate deliveries to the Plant; and (f) Arrange-for the delivery, receipt, fuel analysis, handling, storage, local and on site transportation and use of Fuel. Unless otherwise arranged and agreed to between Owner and Operator, all gas supplies to be used at the Plant will be Interruptible Gas Supplies or short term Firm Gas Supplies with contracts extending no longer than one month from the date entered into, all of which are System Interruptible Gas Supplies. Operator will arrange for the most cost-effective fuel for use at the Plant, subject to the existing obligations of KeySpan Energy Delivery-Long Island with respect to the delivery of gas to its customers. Operator will arrange for Gas Balancing services to be provided associated with use of gas at the Plant. Operator will provide these services from existing assets of Operator or its affiliates. Operator will not contract for additional firm assets (including storage, pipeline capacity or swing gas supply) specifically for use in the Plant unless Owner and Operator agree to the contract. Such Interruptible Gas Supplies will be provided only as long as it is available for use, in the Plant. D2. Fuel Measurement. To the extent not already in place, installation, maintenance and operation of all fuel metering and telemetering equipment shall be undertaken by Operator in accordance with applicable requirements. Operator shall cooperate with Owner in Owner's verification of the accuracy of all measurements of fuel made by Operator and Owner shall have access to all records of Operator necessary for such purpose. D-1 D3. General Fuel Service Requirements. D3.1 Minimization of Costs. In providing the fuel, Operator shall use best efforts to minimize fuel costs for the Plant, such efforts being consistent with (i) all applicable insurance policies, (ii) all applicable prudent industry practices and standards, including Prudent Electric Production Practices, (iii) all applicable operating and contract constraints for fuel delivery, (iv) Operator's collective bargaining agreements and (v) applicable Laws. D3.2 Accounting Controls. Operator, on a monthly basis, shall provide, or cause to be provided, all accounting, bookkeeping, and administrative services in connection with the fuel costs, such accounting to be consistent with the FERC Uniform System of Accounts and generally accepted accounting principles consistently applied. In areas of conflict, FERC accounting principles shall control. All records relating to such services shall be subject to review and audit in accordance with Section 7.3. D4. Ownership of Fuel. D4.1 Ownership of the Fuel. In order to eliminate any ambiguity in this Agreement with respect to the ownership of the Fuel purchased by Operator or any Affiliate of Operator on behalf of Owner pursuant to this Agreement, Owner and Operator agree as follows: (i) Owner acknowledges that it is the owner of the Fuel; and (ii) Operator acknowledges and confirms that it is obligated to, and agrees that it will, indemnify the Owner Indemnified Parties in the manner set forth in this Appendix D for any Loss, as defined in this Appendix D. D4.2 Owner's Agreements. Owner hereby acknowledges ownership of the Fuel throughout the effective term of this Agreement and agrees that from the date of this Agreement it will: (i) take no position inconsistent with its ownership of the Fuel in any filing with a governmental agency or department (including any tax return) or in any judicial or administrative proceeding (other than a judicial proceeding in which the provisions of this Agreement may be at issue); (ii) account for the Fuel as an asset of Owner and cause the Fuel to be reflected as such in its financial statements; and (iii) provide from time to time such further assurances and written confirmation of its ownership of the Fuel as shall reasonably be requested by Operator. D5. Fuel Indemnification Provisions D5.1 General Indemnity. Operator acknowledges and confirms that during the Term it is obligated to, and agrees that it will, indemnify, defend and hold harmless the Owner Indemnified Parties against any and all Losses (as defined in Section D5.2, below), other than any Losses caused by the negligence, willful misconduct or breach of statutory or regulatory duty of one or more Owner Indemnified Parties; provided, however that no Loss shall be deemed to have been caused by the negligence, willful misconduct or breach of statutory or regulatory duty of any Owner Indemnified Party if any action or failure to act giving rise to such Loss is that of Operator or any Affiliate of Operator acting D-2 on behalf of any Owner Indemnified Party pursuant to one of this Agreement, the Energy Management Agreement or the Power Supply Agreement. In no event shall the term "Loss" and "Losses" mean Economic Loss, as that term is defined in Section D5.2 below. D5.2 Certain Definitions. As used in this Appendix D, the term "Loss" and "Losses" mean any loss, claim, damage, liability, demand, action, suit, judgment, assessment, penalty, award, cost and/or expense suffered by or asserted against any Owner Indemnified Party or to which any Owner Indemnified Party may become subject insofar as any such loss, claim, damage, liability, demand, action, suit, judgment, assessment, penalty, award, cost and/or expense arises out of, or is based upon, Owner's ownership of the Fuel, including, without limitation, any Environmental Loss, Fuel Loss, General Claim and/or Collection Expense, each as defined below. For the purpose of defining "Loss" and exclusions thereto and as otherwise used in this Appendix D, in addition to the definitions set forth in Article 1 of this Agreement, the following terms are used with the meanings set forth below: "Attorneys' Fees" means and includes all reasonable costs, fees and charges (including, without limitation, charges for disbursements) of any attorney, legal assistant and paralegal, and shall include both outside counsel retained by any Owner Indemnified Party and in-house counsel for any Owner Indemnified Party and shall also include, without limitation, expert witness payments (whether consulting or testifying) and other court costs whether or not incurred in a judicial or administrative proceeding. "Collection Expense" means any expense (including, without limitation, Attorneys' Fees) incurred by an Owner Indemnified Party in order to obtain payment from Operator or an insurer in respect of a Loss or otherwise to enforce the terms of this Appendix D. "Economic Loss" shall mean any loss in economic value of the Fuel resulting from, but not limited to, such factors as: changes in the unit price of the Fuel in the open market, changes in the cost of transporting the Fuel to the point of consumption, changes in the cost of storing the Fuel prior to consumption, and changes in the cost of injecting or withdrawing the Fuel. "Economic Loss" shall also mean any loss resulting from trading in financial derivatives in the commodities markets that are designed to hedge price risk associated with the Fuel, but in no event will any loss that falls within the definition of "Fuel Loss" (as that term is defined in this Appendix D) also be considered to be "Economic Loss." "Fuel Environmental Law" means and includes any present and/or future federal, state or local law, ordinance, code, rule, regulation or order regulating, relating to, or imposing liability or standards of conduct concerning environmental matters, permits, pollution, waste disposal, industrial hygiene, land use or the protection of human or animal health or welfare, including, without limitation, those related to any Release or threatened Release of hazardous materials and to the ownership, transportation, storage, use or disposition of hazardous materials, in any manner applicable to the Fuel and other requirements of governmental authorities relating to the environment or to any hazardous material or Fuel-Related Activity (including, without limitation, the U. S. Comprehensive Environmental Response, Compensation and Liability Act, the U. S. Superfund Amendment and Reauthorization Act, the U. S. Toxic Substances Control Act, the U. S. Resources Conservation and Recovery Act, D-3 the U. S. Hazardous Material Transportation Act, the U. S. Clean Air Act, the U. S. Water Pollution Control Act, the U. S. River and Harbors Act of 1899, the Oil Pollution Act of 1990, the New York Environmental Conservation Law and all rules arid regulations of the United States Environmental Protection Agency, the New York Department of Environmental Conservation, or any other agency or governmental board or entity having jurisdiction over the Fuel or the ownership, transportation, storage, use or disposition thereof, as any of the foregoing have been or are hereafter amended). "Environmental Loss" means a Loss suffered or incurred by an Owner Indemnified Party arising out of or as a result of: (i) any violation of any applicable Fuel Environmental Law relating to the Fuel or to the ownership, transportation, storage, use or disposition thereof; (ii) any investigation, inquiry, order, hearing, action, or other proceeding by or before any governmental agency addressing the violation of any applicable Fuel Environmental Law in connection with any Fuel-Related Activity; (iii) any claim, demand or cause of action, or any action or other proceeding, whether meritorious or not, brought or asserted against any Owner Indemnified Party which directly or indirectly relates to, arises from or is based on any of the matters described in clauses (i) or (ii), or any allegation of any such matters; or (iv) any cost of reclamation or remediation with respect to any property, whether then owned by such Owner Indemnified Party or by another person and whether legally imposed under a Fuel Environmental Law or as a result of a Legal Proceeding or necessary to restore an Owner Indemnified Party's property to the condition it was in and/or the value it held prior to any damage suffered as a result of any Fuel-Related Activity. "Fuel Loss" means any actual loss or deprivation of Fuel to Owner so that such Fuel is not available for its intended use under this Agreement through either a loss, damage, theft, seizure or destruction of such Fuel or a diminution of the value of Fuel through the attachment of liens or other encumbrances or claims to title for which Owner is not responsible; provided, however, that, at the sole option of Owner, the amount of any Fuel Loss for purposes of this Appendix D may be measured by the expense, as reasonably determined by Owner, of acquiring power in substitution for that which would have been generated with the Fuel to which such Fuel Loss relates; provided, further that under no circumstances shall Operator be liable hereunder for any amount in excess of the amount of the replacement value of the Fuel which is the subject of the Fuel Loss at the time it is replaced. "Fuel-Related Activity" means any storage, holding, release, emission, discharge, processing, abatement, removal, disposition, handling or transportation of Fuel. "General Claim" means a claim for damages; other than a claim brought under a Fuel Environmental Law, asserted against an Owner Indemnified Party because of Owner's ownership of the Fuel, including and expressly limited to, a claim asserted by: (i) a party claiming bodily injury or property damage caused by the Fuel or by the transportation, storage, use or disposition thereof; (ii) an employee or former employee of Operator or KeySpan Corporation or its various subsidiaries seeking worker's compensation, pension or other benefits of employment or alleging violations of the Occupational Safety and Health Act, or other statutes or governmental regulations governing safety in the workplace, labor relations or other aspects of the employer/employee relationship as a result of a Fuel-Related Activity.; (iii) a government or agency or department thereof seeking the assessment of fines or penalties in connection with the transportation of the Fuel or any other aspect of the ownership, storage, use or D-4 disposition of the Fuel; or (iv) any other party seeking to hold such Owner Indemnified Party legally responsible for damage caused by the Fuel or for the acts or omissions of Operator or KeySpan Corporation or its various subsidiaries managing the Fuel. "Legal Proceeding" means an action, suit, investigation, administrative proceeding or formal proceeding of an adversarial nature before a court or other governmental tribunal with jurisdiction over the parties and authority to assess fines or penalties and/or to award damages or issue an order binding on a party thereto. D5.3 Fuel Indemnification Procedure. (a) Losses Not Asserted or Incurred in a Legal Proceeding. If, other than in the course of a Legal Proceeding, an Owner Indemnified Party shall incur a Loss or receive a demand or claim for payment by it which, if paid, would constitute a Loss, such Owner Indemnified Party shall deliver to Operator (in the case of any such demand or claim, promptly, but in any case .within twenty days after receipt thereof), a written request for indemnification (a "Request"), setting forth in reasonable detail the nature of such Loss, demand or claim, the amount thereof (or if the precise amount of such Loss, demand or claim is not yet known or determinable, the estimated amount or magnitude thereof or a statement to the effect that such. amount is not yet known or determinable) and the basis on which such Owner Indemnified Party believes that it is entitled to be indemnified pursuant to this Appendix D, accompanied by any appropriate supporting documentation. If (i) the amount of the Loss, demand or claim is set forth in the Request, the Operator shall pay the requested amount within thirty (30) Business Days (as used in this Appendix D, the term "Business Day" means any day on which commercial banks are not authorized or required to be closed in Nassau County, New York); provided, however, that, if Operator believes that the information provided in such Request is incomplete or insufficient to support a claim for indemnification in the amount stated or that the Request does not state a valid claim for indemnification pursuant to this Appendix D, it shall, not more than ten (10) Business Days after receipt of the Request, deliver written notice to such Owner Indemnified Party that it (i) requires further information in order to evaluate the claim for indemnification, stating the nature of the required information, or (ii) acknowledges that such Owner Indemnified Party is entitled to indemnification but disagrees with the amount requested, stating the basis for its disagreement and. the amount it believes to be appropriate, or (iii) disclaims liability under this Appendix D with respect to the Loss, demand or claim described in the Request, stating the basis for its denial of liability; or (ii) the precise amount of the Loss, demand or claim is not set forth in the Request, Operator shall, within ten (10) Business Days, deliver written notice to such Owner Indemnified Party either (a) acknowledging the Loss as covered by this Appendix D, subject to the ultimate determination of the amount thereof; or (b) if Operator believes that the information provided in such Request is incomplete or insufficient to support a claim for indemnification or that the Request does not state a valid claim for indemnification pursuant to this Appendix D, notifying such D-5 Owner Indemnified Party that Operator (x) requires further information in order to evaluate the claim for indemnification, stating the nature of the required information, or (y) disclaims liability under this Appendix D with respect to the Loss, demand or claim described in the Request, stating the basis for its denial of liability. If Operator has made a request for further information, such Owner Indemnified Party shall, within ten (10) Business Days, either provide the requested information or notify Operator in writing that it does not believe any further information is necessary. If the Owner Indemnified Party fails to respond within ten (10) Business Days or fails to satisfy Operator's request for further information, Operator shall deliver written notice to such Owner Indemnified Party that it disclaims liability under this Appendix D with respect to the Loss, demand or claim described in the Request, stating the basis for its denial of liability. If the Owner Indemnified Party provides further information satisfying Operator's request, Operator shall, within ten (10) Business Days, either (a) if the Request stated a specific amount of the Loss, pay the requested amount; (b) if the Request did not state a specific amount of Loss, deliver written notice to such Owner Indemnified Party that it acknowledges the Loss, demand or claim as covered by this Appendix D, subject to the ultimate determination of the amount thereof; or (c) deliver written notice to such Owner Indemnified Party that it disclaims liability under this Appendix D with respect to the Loss, demand or claim described in the Request, stating the basis for its denial of liability. If the Request does not state a precise amount of Loss, demand or claim, within five (5) Business Days after it becomes aware of or is able to determine the amount of the Loss, demand or claim, such Owner Indemnified Party shall deliver to Operator, a written supplement to the Request, setting forth in reasonable detail the amount of such Loss, demand or claim and the manner in which it was determined, accompanied by any appropriate supporting documentation. Operator shall respond to any such supplement to a Request in the manner contemplated by clause (i), above. Any dispute as to the amount or appropriateness of any indemnification requested hereunder shall be resolved in the manner provided in Article 6 of this Agreement. (b) Indemnification in Connection with Losses Incurred or Asserted in Legal Proceedings. Promptly after receipt by an Owner Indemnified Party of notice of the commencement of any Legal Proceeding which may result in a Loss to such Owner Indemnified Party, but in any case within ten (10) Business Days thereof, such Owner Indemnified Party will, if a claim in respect thereof is to be made against Operator under this Appendix D, notify Operator in writing of the commencement thereof. In case any such action is brought against any Owner Indemnified Party, and it notifies Operator of the commencement thereof, Operator will be entitled to participate therein, and, to the extent that it may wish to assume the defense thereof, with counsel reasonably satisfactory to such Owner Indemnified Party, it may elect by written notice delivered to the Owner Indemnified Party promptly after receiving the aforesaid notice from such Owner Indemnified Party, to assume the defense thereof, with counsel reasonably satisfactory. to such Owner Indemnified Party; provided, however, that if the defendants (including impleaded parties) in any such action include both such Owner Indemnified Party and Operator and such Owner Indemnified Party shall have reasonably concluded that- there may be legal defenses available to it and/or other Owner Indemnified Parties which are different from or additional to' those available to Operator, such Owner Indemnified Party or Owner Indemnified Parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such D-6 Owner Indemnified Party or Owner Indemnified Parties. Upon receipt of notice from Operator to such Owner Indemnified Party of its election so to assume the defense of such action and approval by the Owner Indemnified Party of counsel, Operator will not be liable to such Owner Indemnified Party under this Appendix D for any legal or other expenses subsequently incurred by such Owner Indemnified Party in connection with the defense thereof unless (i) such Owner Indemnified Party shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that Operator shall not be liable for the expenses of more than one separate counsel representing the Owner Indemnified Parties who are parties to such action); (ii) Operator shall not have employed counsel satisfactory to such Owner Indemnified Party to represent such Owner Indemnified Party within a reasonable time after notice of commencement of the action; or (iii) Operator has authorized the employment of counsel for such Owner Indemnified Party at the expense of Operator; and except that if clause (i) or (iii) is applicable, such liability shall be only in respect of the counsel referred to in such clause (i) or (iii). (c) Contribution. In order to provide for just and equitable contribution in connection with any Legal Proceeding under circumstances in which the indemnification provided for in this Appendix D is due in accordance with the terms hereof but is for any reason held by a court to be unavailable from Operator, on the grounds of policy or otherwise, Operator and the affected Owner Indemnified Parties shall contribute to the aggregate Losses (including any legal and other expenses reasonably incurred in connection with investigating or defending any portions of the complaint to which Operator and one or more Owner Indemnified Parties may be subject) in such proportion as the court or other tribunal shall find equitable in light of the relative fault or responsibility of Operator and the Owner Indemnified Parties. Any Owner Indemnified Party entitled to contribution shall, promptly after receipt of notice of commencement of a Legal Proceeding against such Owner Indemnified Party in respect of which a claim for contribution may be made against Operator under this paragraph (c), but in any case within ten (10) Business Days thereof, whether or not a request for indemnification is to be made in respect of such Legal Proceeding, notify Operator in writing of the commencement thereof. Each Owner Indemnified Party's obligation to contribute pursuant to this paragraph (c) shall be several and not joint. (d) Progress Payments. Notwithstanding any other provision of this Section D5.3, if an Owner Indemnified Party has delivered a Request with respect to a Loss, claim or demand pursuant to Section D5.3(a) hereof or a notice with respect to a Legal Proceeding pursuant to Section D5.3(b) hereof, Operator shall pay promptly, but in any case within thirty (30) Business Days of the receipt of a written request therefor, such amounts disbursed by such Owner Indemnified Party in connection with such Loss, claim or demand or such Legal Proceeding as are set forth in such written request; provided, however, that all amounts paid by Operator pursuant to this Section D5.3(d) shall be credited against the full amount of the Loss suffered by such Owner Indemnified Party as finally determined pursuant hereto; provided, further, that if the aggregate amount paid to any Owner Indemnified Party pursuant to this Section D5.3(d) shall ultimately be determined to have been paid in respect of a claim for which such Owner Indemnified Party was not legally entitled to be indemnified pursuant to this Appendix D or in an amount which exceeded the full amount of the Loss ultimately determined to be subject to this Appendix D, such Owner Indemnified Party shall, promptly after receipt of a written request therefor from Operator, but in any case within five (5) Business Days thereafter, repay to Operator such aggregate amount or the portion thereof which exceeded the amount of the Loss, as the case may be. D-7 (e) Effect of Insurance Coverage, Claims and Payments. Notwithstanding any other provision of this Appendix D, no payment required to be made to an Owner Indemnified Party in respect of a Loss pursuant to this Section D5.3 shall be delayed, reduced, offset or affected in any way by (i) the existence of any insurance policy or policies which may cover or result in the payment of insurance proceeds with respect to such Loss; (ii) the pendency of any claim filed under any such insurance policy or asserted against any third party which may result in the payment of insurance proceeds or other amounts in respect of such Loss; or (iii) any other possibility or potential for payment in respect of such Loss by any person other than Operator; provided, however; that (x) if any amount is received by an Owner Indemnified Party in the form of payment of a type contemplated by clause (i), (ii) or (iii) of this Section D5.3(e) prior to the time that Operator is required to pay such amount pursuant to this Section D5.3, the amount required to be paid pursuant to this Section D5.3 shall be reduced to the extent of such amount theretofore actually received by such Owner Indemnified Party and (y) if any amount is received by an Owner Indemnified Party in the form of payment of -a type contemplated by clause (i), (ii) or (iii) of this Section D5.3(e) subsequent to the time that a portion or the full amount of a Loss has been paid to such Owner Indemnified Party by Operator with the result that such Owner Indemnified Party has actually received an aggregate amount in excess of the full amount of such Loss, such Owner Indemnified Party shall, promptly after receipt of a written request therefor from Operator, but in any case within five (5) Business Days thereafter, repay to Operator such amount or the portion thereof which resulted in such Owner Indemnified Party receiving an amount in excess of the full amount of such Loss, as the case may he. (f) Failure of an Owner Indemnified Party to Comply with the Indemnification Procedures. Notwithstanding any other provision of this Appendix D, failure of an Owner Indemnified Party to comply with the foregoing indemnification procedures, including but not limited to the time periods set forth for compliance herein, shall relieve Operator of its obligations to make any payment until such failure to comply by an Owner Indemnified Party has been remedied to the reasonable satisfaction of Operator; provided, however, that the failure by an Owner Indemnified Party to take an action within a specified time period shall only toll Operator's obligation to make payments hereunder during such failure to comply and shall not prevent such Owner Indemnified Party from perfecting a valid and enforceable claim to indemnification once such action has been taken. D6. Insurance in Respect of Fuel D6.1 Operator to Maintain Insurance Coverage. (a) Operator will, for the mutual benefit of Operator and the Owner Indemnified Parties, obtain and maintain during the entire Term: (i) Policies of insurance, with respect to the Fuel, insuring the Fuel against loss or damage by fire, lightning and such other perils as are included in a standard "all-risk" policy, including, without limitation, flood and earth movement, extra expense, riot and civil commotion, vandalism, malicious mischief, D-8 burglary and theft. Such insurance shall be in an amount equal to the full replacement cost of the Fuel. The Owner Indemnified Parties shall be included as additional insureds and shall, where applicable, be included as loss payees; (ii) Comprehensive or Commercial General Liability insurance, including broad form property damage, blanket contractual, acts of contractors/subcontractors, sudden and accidental pollution and personal injury coverages and containing minimum limits per occurrence of $100,000,000 and $200,000,000 in the aggregate for any policy year; (iii) Insurance covering the replacement cost of any Fuel which may be the subject of a Fuel Loss or the cost of purchasing power in substitution for the power which would have been generated through the use of such Fuel, whichever is greater; (iv) Worker's compensation insurance with respect to any employees of Operator, as required by any governmental authority or legal requirement and employer's liability coverage with limits of $100,000,000; (v) To the extent that such coverage is not otherwise provided by insurance maintained by Operator, during any period of repair or restoration of the Plant or any other location at which the Fuel is regularly stored or used, builder's "all risk" insurance in an amount equal to not less than the full insurable value of the Fuel insuring against such risks (including, without limitation, fire and extended coverage) as Owner may request, in form and substance acceptable to Owner, and, in addition, provision shall be made by Operator to require any contractor performing such repair or restoration to maintain comparable coverage; (vi) If it is determined by an environmental state and/or federal agency that a site must be cleaned up Operator and/or any Owner Indemnified Party with an estimated aggregate cost in excess of $10,000,000, Clean-up Cost Cap (CCC) coverage providing catastrophic protection for cost overruns on clean-up cost estimates associated with any Fuel-Related Activity and resulting known liabilities in any determined Area of Concern as well as new found conditions within the Areas of Concern with a deductible not in excess of 10% of such cost estimates; (vii) Pollution Legal Liability (PLL), if available from companies with a claims paying ability rating of "A" or better by Best's Rating Guide, covering bodily injury, property damage and clean-up costs arising from new conditions arising from future spills/releases from any Fuel-Related Activity; and (viii) Such other insurance as may from time to time be reasonably required by Owner in order to protect the interests of the Owner Indemnified Parties. (b) Self-Insurance, Etc. -Notwithstanding the requirements of Section D6.1(a) hereof, it is agreed that (i) Operator may self-insure any of the above coverages to the extent that it is doing so on the Effective Date or to such greater extent as may be approved in writing by Owner and, with such terms and in such amounts, as a prudent company with the same debt rating as KeySpan Corporation would maintain with respect to similar properties and a similar business, and, in any D-9 event, will maintain insurance on all its property of a character usually insured by a company engaged in the same or a similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such companies, and carry or cause to be carried, with such insurers in customary amounts, such other insurance, including public liability insurance as is usually carried by companies engaged in the same or a similar business similarly situated; provided, however, that if at any time KeySpan Corporation's debt ratings fall below minimum investment grade as rated by both Standard and Poors and by Moody's, Operator shall not be permitted to self-insure pursuant to this Section D6.1(b) and shall fully comply with the requirements of Section D6.1(a) hereof within ninety (90) days, except to the extent that Owner has otherwise agreed in writing. D6.2 Requirements for All Policies. All policies of insurance (the "Policies") required pursuant to this Section D6: (i) if they cover property damage to any Fuel, shall contain a "Replacement Cost Endorsement" and shall have a deductible no greater than $3,000,000 or twenty percent (20%) of such replacement cost, whichever is less unless otherwise agreed by Owner; (ii) shall be issued by companies with a claims paying ability rating of "A" or better by Best's Rating Guide; (iii) to the extent that it covers loss of, or damage to, Fuel, shall name Owner, as its interest may appear, as a loss payee or the equivalent, naming Owner as the person to which (or at the direction of which) all payments made by such insurance company shall be paid; (iv) shall contain a waiver of subrogation against Owner; (vi) shall be maintained throughout the Term without additional cost to Owner; (vii) shall contain such provisions as Owner deems reasonably necessary to protect the interests of the Owner Indemnified Parties, including, without limitation, endorsements providing that neither Operator, any Owner Indemnified Party nor any other party shall be a co-insurer under said Policies, and that the Owner Indemnified Parties shall receive at least thirty (30) days prior written notice of any modification, reduction or cancellation; and (viii) shall he reasonably satisfactory in form and substance to Owner and shall be approved by Owner as to, amounts, form, risk coverage, deductibles, loss payees and insureds. D6.3 Payment of Insurance Premiums. To the extent that Operator does not self-insure pursuant to Section D6.1(b) hereof, Operator shall pay the premiums for such Policies (the "Insurance Premiums") as the same become due and payable and shall furnish to Owner evidence of the renewal of each of the Policies with receipts for the payment of the Insurance Premiums or other evidence of such payment reasonably satisfactory to Owner. If Operator does not furnish such evidence and receipts at least thirty (30) days subsequent to the expiration of any expiring Policy, then Owner may procure, but shall not be obligated to procure, such insurance and pay the Insurance Premiums therefor, and Operator agrees to reimburse Owner for the cost of such Insurance Premiums promptly on demand. Within thirty (30) days after request by Owner, Operator shall obtain such increases in the amounts of coverage required hereunder as may be reasonably requested by Owner, taking into consideration changes in the value of money over time, changes in liability laws, changes in prudent customs and practices. The payment by Operator of Insurance Premiums pursuant to this Section D6.3 shall not in any way reduce or offset the amount of any payment which Operator is required to make in respect of any Loss pursuant to Section D5 hereof. D-10 APPENDIX "E" ------------ PROVISIONS REQUIRED BY STATE LAW -------------------------------- NON-ASSIGNMENT CLAUSE. In accordance with Section 138 of the State Finance Law, this Agreement may not be assigned by the Operator or its right, title or interest therein assigned, transferred, conveyed, sublet or otherwise disposed of without the previous consent, in writing, of Owner and any attempts to assign this Agreement without the Owner's written consent are null and void. The Operator may, however, assign its right to receive payment without Owner's prior written consent unless this Agreement concerns Certificates of Participation pursuant to Article 5-A of the State Finance Law. COMPTROLLER'S APPROVAL. In accordance with Section 112 of the New York State Finance Law (the "State Finance Law"), this Agreement shall not be valid, effective or binding upon Owner until it has been approved by the State Comptroller and filed in his office. WORKER'S COMPENSATION BENEFITS. In accordance with Section 142 of the State Finance Law, this Agreement shall be void and of no force and effect unless the Operator provides and maintains coverage during the life of this Agreement for the benefit of such employees as are required to be covered by the provisions of the Workers' Compensation Law. NON-DISCRIMINATION REQUIREMENTS. In accordance with Article 15 of the Executive Law (also known as the Human Rights Law) and all other New York State and Federal statutory and constitutional non-discrimination provisions, the Operator shall not discriminate against any employee or applicant for employment because of race, creed, color, sex, national origin, age, disability, marital status, sexual orientation, genetic predisposition or carrier status. Furthermore, in accordance with Article 220-e of the New York Labor Law, and to the extent that this Agreement shall be performed within the State of New York, the Operator agrees that neither it nor its subcontractors shall, by reason of race, creed, color, disability, sex, national origin, sexual orientation, genetic predisposition or carrier status; (a) discriminate in hiring against any New York State citizen who is qualified and available to perform the work; or (b) discriminate against or intimidate any employee for the performance of work under this Agreement. WAGE AND HOURS PROVISIONS. If this Agreement is a public work contract covered by Article 8 of the Labor Law or a building service contract covered by Article 9 thereof, neither the Operator's employees nor the employees of its subcontractors may be required or permitted to work more than the number of hours or days stated in said statutes, except as otherwise provided in the Labor Law and as set forth in prevailing wage and supplement schedules issued by the State Labor Department. Furthermore, the Operator and its subcontractors must pay at least the prevailing wage rate and pay or provide the prevailing supplements, including the premium rates for overtime pay, as determined by the State Labor Department in accordance with the Labor Law. E-1 NON-COLLUSIVE BIDDING CERTIFICATION. In accordance with Section 2878 of the Public Authorities Law, if this Agreement was awarded based upon the submission of bids, the Operator warrants, under penalty of perjury, that its bid was arrived at independently and without collusion aimed at restricting competition. The Operator further warrants that, at the time the Operator submitted its bid, an authorized and responsible person executed and delivered to the Owner a non-collusive bidding certification on the the Manager's behalf. INTERNATIONAL BOYCOTT PROHIBITION. In accordance with Section 220-f of the Labor Law and Section 139-h of the State Finance Law, if this Agreement exceeds $5,000, the Operator agrees, as a material condition of this Agreement, that neither the Operator nor any substantially owned or affiliated person, firm, partnership or corporation has participated, is participating, or shall participate in an international boycott in violation of the federal Export Administration Act of 1979 (50 USC app. Sections 2401 et seq.) or regulations thereunder. If the Manager, or any of the aforesaid affiliates of the Manager, is convicted or is otherwise found to have violated said laws or regulations upon the final determination of the United States Commerce Department or any other appropriate agency of the United States subsequent to this Agreement's execution, such contract, amendment or modification thereto shall be rendered forfeit and void. The Operator shall so notify the State Comptroller within five (5) business days of such conviction, determination or disposition of appeal (2NYCRR 105.4). SET-OFF RIGHTS. Owner shall have all of its common law, equitable and statutory rights of set-off. These rights shall include, but not be limited to, Owner's option to withhold for the purposes of set-off any moneys due to the Operator under this Agreement up to any amounts due and owing to Owner with regard to this Agreement, any other contract with Owner, including any contract for a term commencing prior to the term of this Agreement, plus any amounts due and owing to Owner for any other reason including, without limitation, tax delinquencies, fee delinquencies or monetary penalties relative thereto. Owner shall exercise its set-off rights in accordance with normal State practices including, in cases of set-off pursuant to an audit, the finalization of such audit by Owner, its representatives, or the State Comptroller. RECORDS. The Operator shall establish and maintain complete and accurate books, records, documents, accounts and other evidence directly pertinent to performance under this Agreement (hereinafter, collectively, "the Records"). The Records must be kept for the balance of the calendar year in which they were made and for six (6) additional years thereafter. The State Comptroller, the Attorney General and any other person or entity authorized to conduct an examination, as well as the agency or agencies involved in this Agreement, shall have access to the Records during normal business hours at an office of the Operator within the State of New York or, if no such office is available, at a mutually agreeable and reasonable venue within the State, for the term specified above for the purposes of inspection, auditing and copying. Owner shall take reasonable steps to protect from public disclosure any of the Records which are exempt from disclosure under Section 87 of the Public Officers Law (the "Statute") provided that: (i) the Operator shall timely inform the Owner in writing, that said records should not be disclosed; and (ii) said records shall be sufficiently identified; and (iii) designation of said records as exempt under the Statute is reasonable. Nothing contained herein shall diminish, or in any way adversely affect, the State's right to discovery in any pending or future litigation. E-2 EQUAL EMPLOYMENT FOR MINORITIES AND WOMEN. In accordance with Section 312 of the New York Executive Law: (i) the Operator shall not discriminate against employees or applicants for employment because of race, creed, color, national origin, sex, age, disability, marital status, sexual orientation, genetic predisposition or carrier status and shall undertake or continue existing programs of affirmative action to ensure that minority group members and women are afforded equal employment opportunities without discrimination ("affirmative action" shall mean recruitment, employment, job assignment, promotion, upgradings, demotion, transfer, layoff, or termination and rates of pay or other forms of compensation); (ii) at the request of the Owner, the Operator shall request each employment agency, labor union, or authorized representative of workers with which it has a collective bargaining or other agreement or understanding, to furnish a written statement that such employment agency, labor union or representative will not discriminate on the basis of race, creed, color, national origin, sex, age, disability, marital status, sexual orientation, genetic predisposition or carrier status and that such union or representative will affirmatively cooperate in the implementation of the Manager's obligations herein; and (iii) the Operator shall state, in all solicitations or advertisements for employees, that, in the performance of this Agreement, all qualified applicants will be afforded equal employment opportunities without discrimination because of race, creed, color, national origin, sex, age, disability, marital status, sexual orientation, genetic predisposition or carrier status. The Operator shall include the provisions of (i), (ii) and (iii) above, in every subcontract over twenty-five thousand dollars ($25,000.00) for the construction, demolition, replacement, major repair, renovation, planning or design of real property and improvements thereon (the "Work") except where the Work is for the beneficial use of the Manager. CONFLICTING TERMS. In the event of a conflict between the terms of this Agreement (including any and all attachments thereto and amendments thereof) and the terms of this Appendix E, the terms of this Appendix E shall control. GOVERNING LAW. This Agreement shall be governed by the laws of the State of New York except where the Federal supremacy clause requires otherwise. LATE PAYMENT. Timeliness of payment and any interest to be paid to the Operator for late payment shall be governed by Section 2880 of the Public Authorities Law and the guidelines adopted by Owner thereto. PROHIBITION ON PURCHASE OF TROPICAL HARDWOODS. The Operator certifies and warrants that all wood products to be used under this contract award will be in accordance with, but not limited to, the specifications and provisions of State Finance Law ss.165 (Use of Tropical Hardwoods) which prohibits purchase and use of tropical hardwoods, unless specifically exempted, by the State or any governmental agency or political subdivision or public benefit corporation. Qualification for an exemption under this law will be the responsibility of the Operator to establish to meet with the approval of the State. In addition, when any portion of this Agreement involving the use of woods, whether supply or installation, is to be performed by any subcontractor, the Operator will indicate and certify in the submitted bid proposal that the subcontractor has been informed and is in compliance with specifications and provisions regarding use of tropical hardwoods as detailed in ss.165 State Finance Law. Any such use must meet with the approval of the State; otherwise, the bid may not be considered responsive. Under bidder certifications, proof of qualification for exemption will be the responsibility of the Operator to meet with the approval of the State. E-3 MACBRIDE FAIR EMPLOYMENT PRINCIPLES. In accordance with the MacBride Fair Employment Principles (Chapter 807 of the New York Laws of 1992), the Operator hereby stipulates that the Operator either (i) has no business operations in Northern Ireland, or (ii) shall take lawful steps in good faith to conduct any business operations in Northern Ireland in accordance with the MacBride Fair Employment Principles (as described in Article 165 of, the New York State Finance Law), and shall permit independent monitoring of compliance with such principles. OMNIBUS PROCUREMENT ACT OF 1992. It is the policy of New York State to maximize opportunities for the participation of New York State business enterprises, including minority and women-owned business enterprises as bidders, subcontractors and suppliers on its procurement contracts. Information on the availability of New York State subcontractors and suppliers is available from: NYS Department of Economic Development Division for Small Business One Commerce Plaza Albany, New York 12245. A directory of certified minority and women-owned business enterprises is available from: NYS Department of Economic Development Minority and Women's Business Development Division One Commerce Plaza Albany, New York 12245 The Omnibus Procurement Act of 1992 requires that by signing this Agreement, the Operator certifies that: (a) The Operator has made commercially reasonable efforts to encourage the participation of New York State Business Enterprises as suppliers and subcontractors, including certified minority and woman-owned business enterprises, on this project, and has retained the documentation of these efforts to be provided upon request to the State; (b) The Operator has complied with the Federal Equal Opportunity Act of 1972 (P.L. 92-261), as amended; and (c) The Operator agrees to make commercially reasonable efforts to provide notification to New York State residents of employment opportunities on this Project through listing any such positions with the Job Service Division of the New York State Department of Labor, or providing such notification in such manner as is consistent with existing collective bargaining contracts or agreements. The Operator agrees to document these efforts and to provide said documentation to the State upon request. E-4 (d) The Operator acknowledges that the State may seek to obtain offset credits from foreign countries as a result of this Agreement and agrees to cooperate with the State in these efforts. RECIPROCITY AND SANCTIONS PROVISIONS. The Operator is hereby notified that if its principal place of business is located in a state that penalizes New York State vendors, and if the goods or services it offers are substantially produced or performed outside New York State, the Omnibus Procurement Act 1994 amendments (Chapter 684, Laws of 1994) require that the Operator be denied contracts which it would otherwise obtain. PURCHASES OF APPAREL. In accordance with State Finance Law 162 (4-a), Owner shall not purchase any apparel from any contractor unable or unwilling to certify that: (i) such apparel was manufactured in compliance with all applicable labor and occupational safety laws, including, but not limited to, child labor laws, wage and hours laws and workplace safety laws, and (ii) the Operator will supply, prior to or on the Contract Date, the names and addresses of each subcontractor and a list of all manufacturing plants to be utilized by the Manager. CERTIFICATION OF COMPLIANCE WITH EXECUTIVE ORDER 127. The Operator certifies that all information provided to Owner with respect to Executive Order Number 127 is complete, true, and accurate. OPTIONAL TERMINATION BY THE AUTHORITY. Owner reserves the right to terminate this Agreement in the event it is found that the certification filed by the Operator in accordance with New York State Executive Order Number 127, signed by Governor Pataki on June 16, 2003, was intentionally false or intentionally incomplete. Upon such finding, Owner may exercise its termination right by providing written notification to the Operator in accordance with the written notification terms of this Agreement. CONTINGENT FEES. The Operator hereby certifies and agrees that (a) the Operator has not employed or retained and will not employ or retain any individual or entity for the purpose of soliciting or securing any Owner contract or any amendment or modification thereto pursuant to any agreement or understanding for receipt of any form of compensation which in whole or in part is contingent or dependent upon the award of any such contract or any amendment or modification thereto; and (b) the Operator will not seek or be paid an additional fee that is contingent or dependent upon the completion of a transaction by Owner. E-5 Annex E to First Amendment to Option and Purchase and Sale Agreement FINAL COPY [SECOND] AMENDMENT Dated as of [_________] to POWER SUPPLY AGREEMENT between LONG ISLAND LIGHTING COMPANY and KEYSPAN GENERATION LLC Dated as of June 26, 1997 This AMENDMENT (the "Amendment") is made and entered into as of [___________], by and between LONG ISLAND LIGHTING COMPANY d/b/a LIPA, a New York corporation ("LIPA"), and KEYSPAN GENERATION LLC, a New York limited liability company ("GENCO"), to the Power Supply Agreement, by and between LIPA and GENCO, dated as of June 26, 1997 (as amended, supplemented or otherwise modified from time to time, the "PSA"). RECITALS WHEREAS, LIPA and GENCO are parties to an Option and Purchase and Sale Agreement, dated as of January 1, 2006, as amended by a First Amendment to Option and Purchase and Sale Agreement, dated as of March 22, 2007 (the "Option Agreement"), pursuant to which LIPA was granted an option to purchase the Far Rockaway generating facility and certain related assets (the "Far Rockaway Plant") and/or the E.F. Barrett generating facility and certain related assets (the "E.F. Barrett Plant") or the E.F. Barrett Plant and the E.F. Barrett internal combustion units 1-8 and 9-12 (the "ICUs") and certain related assets on the terms and subject to the conditions set forth therein; WHEREAS, LIPA exercised its option under the Option Agreement to purchase [the Far Rockaway Plant, the E.F. Barrett Plant and the ICUs] [the Far Rockaway Plant and the E.F. Barrett Plant] [the E.F. Barrett Plant and the ICUs] [the E.F. Barrett Plant] [the Far Rockaway Plant]; and WHEREAS, as a condition to the purchase of the Purchased Assets under the Option Agreement, LIPA and GENCO are entering into this Amendment to the PSA to reflect the purchase of the Purchased Assets. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.1. Definitions. All capitalized terms used in this Amendment and not otherwise defined shall have the meanings assigned to them in the PSA. ARTICLE 2 AMENDMENTS TO PSA Section 2.1. Amendment to Article 1 of the PSA. (a) Article 1.1 of the PSA is hereby amended by inserting the following new definitions in the appropriate alphabetical order: "E.F. Barrett Plant" means the 350 MW E.F. Barrett generating station, Unit Nos. 1 and 2 (but excluding the ICUs), as more fully described in the Option Agreement. 1 "Far Rockaway Plant" means the 100 MW Far Rockaway generating station, as more fully described in the Option Agreement. "ICUs" means the E.F. Barrett internal combustion units 1-8 and 9-12. "LIPA Generating Facilities" means the electric generating facilities and appurtenant facilities purchased by LIPA from GENCO, which as of the effective date of the [Second] Amendment [is/are] [the E.F. Barrett Plant] [,] [the Far Rockaway Plant] [,] [the ICUs] [,] [the Shoreham Plant] [, and] [the Wading River Plant]. "Option Agreement" means the Option and Purchase and Sale Agreement, dated as of January 1, 2006, between LIPA and GENCO, as amended, supplemented or otherwise modified from time to time. "[Second] Amendment" means this Amendment to the PSA, dated as of [________]. "Step-Up Percentage" means the step-up in the tax basis of each Generating Facility's tax basis expressed as a percentage of the total step-up in the tax bases of Generating Facilities that were recorded as a result of the sale of the Genco assets to KeySpan. For the E.F. Barrett Plant, the percentage shall be 10.87%, for the Far Rockaway Plant, the percentage shall be 4.05% and for the ICUs the percentage shall be 2.43%. (b) The definitions of "Generating Facilities" and "Generating Facility Sites" in Article 1 of the PSA are hereby amended by deleting such definitions in their entirety and inserting in lieu thereof the following new definitions: "Generating Facilities" means the electric generating facilities owned by GENCO as of March 19, 1997 (but excluding the LIPA Generating Facilities), including, but not limited to: (a) all systems, structures, equipment and appurtenances associated with each Generating Facility's operation and forming a part thereof; (b) permanent administrative offices and building structures housing Generating Facility equipment, and site improvements such as roads, drainage, fencing and landscaping; and (c) structures, pipelines and equipment for (i) the delivery of Fuel, and (ii) the transport of water, waste water and other waste disposal, and (iii) other materials, supplies and commodities required for the Services. A list of GENCO's generating units is contained in Appendix C. "Generating Facility Sites" means each parcel of land upon which each existing Generating Facility is situated, as well as the land contiguous thereto, owned by Genco as of March 19, 1997 (but excluding the LIPA Generating Facilities). 2 Section 2.2. Amendment to Section 2.6 of the PSA. Section 2.6 of the PSA is hereby amended by deleting the first sentence thereof and substituting in lieu thereof the following: "GENCO will use reasonable efforts, in accordance with Prudent Utility Practice to maintain a DMNC level for the Generating Facilities of [3973 MW minus the following amounts for each generating facility which is a LIPA Generating Facility as of the Closing Date specified in the Option Agreement: Far Rockaway Plant--110 MW; E.F. Barrett Plant--386 MW; ICUs-- 281 MW; Shoreham Plant--67 MW; and Wading River Plant--242 MW]. Section 2.3 Amendment to Section 3.1.1 of the PSA. Unless previously amended to reflect a transfer of Generating Facilities to LIPA, Section 3.1.1 of the PSA is hereby amended as follows: (a) by deleting the second sentence thereof and substituting in lieu thereof the following: "This analysis would evaluate all available resource options, including the LIPA Generating Facilities, to meet the electric energy requirements of LIPA's Electricity Customers." (b) by deleting the fourth sentence thereof and substituting in lieu thereof the following: "The IERP analysis is intended to be performed to determine the optimum mix of the LIPA Generating Facilities, the Generating Facilities, and purchased power from other sources in an effort to provide the least cost mix of electricity resources including demand side management (DSM) options for LIPA's Electricity Customers while observing established reliability criteria." Section 2.4. Amendment to Section 9.1.1 of the PSA. Unless previously amended to reflect a transfer of Generating Facilities to LIPA, Section 9.1.1 of the PSA is hereby amended by adding the following new sentence at the end thereof. If such sentence has previously been added to the PSA, it shall be amended to read as follows: "In addition to the foregoing, on or before [_________], GENCO shall prepare and submit to LIPA for review and approval a revised Five Year Budget Plan, which shall contain fixed and variable costs developed by GENCO in calendar year 2008 to account for the fact that the LIPA Generating Facilities are no longer Generating Facilities." Section 2.5. Amendment to Section 9.1.2 of the PSA. Unless previously amended to reflect a transfer of Generating Facilities to LIPA, Section 9.1.2 of the PSA is hereby amended by adding the following new sentence after the first sentence thereof. If such sentence has previously been added to the PSA, it shall be amended to read as follows: 3 "On or before [________________], GENCO shall prepare and submit to LIPA a revised rolling Five Year Capital Improvement Budget showing incremental capital expenditures and associated rate adjustments for the Generating Facilities excluding the LIPA Generating Facilities for LIPA's review and approval." Section 2.6. Amendment to Section 9.2 of the PSA. Unless previously amended to reflect a transfer of Generating Facilities to LIPA, Section 9.2 of the PSA is hereby amended by adding the following new sentence at the end thereof. If such sentence has previously been added to the PSA, it shall be amended to read as follows: "The parties shall establish mutually agreed upon timelines following LIPA's receipt of the revised rolling Five Year Capital Improvement Budget for review and revision of the revised Five Year Capital Improvement Budget pursuant to the procedures set forth above." Section 2.7. Amendment to Article 11.1 of the PSA. Section 11.1 of the PSA is hereby amended by deleting the LIPA Generating Facilities and associated capacity values from the Capacity Ramp Down schedule and by amending the first sentence of the second paragraph thereof to read as follows: "The Ramp Down will be an aggregate potential reduction amount of no greater than 1500 MW, less the amount of generating capacity in the LIPA Generating Facilities." Section 2.8. Amendment to Appendix A of the PSA. (a) Unless previously amended to reflect a transfer of Generating Facilities to LIPA, Appendix A to the PSA is hereby amended by inserting the following new paragraph (H) in Section I thereof. "Notwithstanding the foregoing Section I, on and after the effective date of the [Second] Amendment, the Capacity Charge for the Generating Facilities (excluding the LIPA Generating Facilities) shall be determined by removing the costs being recovered through the Capacity Charge in effect for that Contract Year for the LIPA Generating Facilities. The costs to be removed will include the: return on rate base calculated at the rate of 7.17% for each of the LIPA Generating Facilities individually less its share of the $7.120 million revenue credit; depreciation charges; property taxes specifically identified as attributable to the appropriate LIPA Generating Facilities; state and federal income taxes (including the effect of the costs of removal); and an allocable share of operations and maintenance expenses (net of contractual synergy savings). The allocable share of operations and maintenance expenses to be attributable to each of the LIPA Generating Facility shall be determined by multiplying the Total Fixed O&M Cost Component by the total number of full time equivalent employees dedicated to the LIPA Generating Facility divided by the total number of full time equivalent employees working at each of the GENCO Generating Facilities covered under the PSA ("Allocated Fixed O&M Cost"). The Total Fixed O&M Cost Component shall be determined by 4 subtracting from the sum of the Capacity Charge and the $7.120 million revenue credit, the following components: property taxes, depreciation, return on rate base, state and federal income taxes (including the effects of cost of removal), common assets recovery charge and the amortization of security costs. The share of the revenue credit assignable to each of the LIPA Generating Facilities shall be determined by multiplying $7.120 million by the amount of the Step-Up Percentage for the Generating Facility." (b) Unless previously amended to reflect a transfer of Generating Facilities to LIPA, Appendix A to the PSA is hereby amended by inserting the following new paragraph in Section III(B) thereof relating to the Tax True-Up. If such sentence has previously been added to the PSA, it shall be amended to read as follows: "Notwithstanding the foregoing, on and after the effective date of the [Second] Amendment, the base amount of property taxes shall be revised by removing the base amount of property taxes attributed to the LIPA Generating Facilities that is included in the base amount of property taxes at the time of Closing (as defined in the Option Agreement)." (c) Unless previously amended to reflect a transfer of Generating Facilities to LIPA, Appendix A to the PSA is hereby amended by inserting the following new paragraph in Section III(C) thereof relating to the Plant Additions True up. If such sentence has previously been added to the PSA, it shall be amended to read as follows: "(4) On and after the effective date of the [Second] Amendment, the Budgeted Incremental Depreciation Expense and the Budgeted Incremental Net Utility Plant shall be revised by removing the Budgeted Incremental Depreciation Expense and Budgeted Incremental Net Utility Plant attributed to the LIPA Generating Facilities." (d) Unless previously amended to reflect a transfer of Generating Facilities to LIPA, Appendix A to the PSA is hereby amended by deleting Section IV thereof relating to Reopeners. (e) Section V of Appendix A to the PSA is hereby amended by restatement of (i) the amount of the Incremental Synergy Savings as set forth in Section V.J.; (ii) the base year labor costs (production) and base year benefit costs (production) as set forth in the Labor Cost Index Adjustment (Production) and Benefit Cost Index Adjustment (Production) as set forth in Section V.K., and (iii) base year labor costs (support) and base year benefit costs (support) as set forth in the Labor Cost Index Adjustment (Support) and Benefit Cost Index Adjustment (Support) in Section V.L., to reflect removal of the LIPA Generating Facilities. 5 Section 2.9. Amendment to Appendix B of the PSA. Appendix B of the PSA is hereby amended by deleting each of the LIPA Generating Facilities and the amounts associated with each of the LIPA Generating Facilities from the Tables. Section 2.10. Amendment to Appendix C of the PSA. Appendix C of the PSA is hereby amended by deleting the LIPA Generating Facilities and their associated name plate ratings from the list of Generating Units. Section 2.11. Amendment to Appendix E of the PSA. Appendix E of the PSA is hereby amended by deleting the LIPA Generating Facilities from the tables. Section 2.12. Amendment to Appendix F of the PSA. Schedule F to the PSA is hereby amended by inserting the following new paragraph (V) as follows: "Upon the effective date of the [Second] Amendment, the original targets for (i) the DMNC Incentive/Disincentive; (ii) the Availability Incentive/Disincentive; and (iii) the Heat Rate Incentive, shall be adjusted to reflect the targets for Genco Generating Facilities as shown in the graph below. The incentive maximums shall be reduced by __%." [insert: 2.77% if only Far Rockaway Plant is purchased; 9.72% if only E.F. Barrett Plant is purchased; 12.48% if only Far Rockaway Plant and E.F. Barrett Plant are purchased; 16.79% if only E.F. Barrett and the ICUs are purchased; 19.55% if the Far Rockaway Plant, the E.F. Barrett Plant and the ICUs are purchased]
---------------------- ------------------ ------------------ ------------------- ------------------ --------------------------- [If only Far [If only E.F. [If only Far [If only E.F. [If Far Rockaway Plant, Rockaway Plant Barrett Plant Rockaway Plant Barrett Plant E.F. Barrett Plant and is purchased] is purchased] and E.F. Barrett and the ICUs are the ICUs are purchased] Plant are purchased] purchased] ---------------------- ------------------ ------------------ ------------------- ------------------ --------------------------- Availability 94.2% 94.0% 94.0% 94.1% 94.2% ---------------------- ------------------ ------------------ ------------------- ------------------ --------------------------- DMNC 3863 MW 3587 MW 3477 MW 3306 MW 3196 MW ---------------------- ------------------ ------------------ ------------------- ------------------ --------------------------- Heat Rate MMBTU = MMBTU = MMBTU = MMBTU = MMBTU = 10.6676* 10.6992* 10.6332* 10.6992* 10.6332* MWhN MWhN + MWhN + MWhN + MWhN + + 166,014 181,492 151,140 166,014 151,140 ---------------------- ------------------ ------------------ ------------------- ------------------ ---------------------------
6 ARTICLE 3 MISCELLANEOUS Section 3.1. Effective Date. This Amendment shall be effective upon satisfaction of each of the following conditions (the date upon which all such conditions are satisfied, the "Effective Date"): (i) the consummation of the sale and purchase of the Purchased Assets pursuant to the Option Agreement; (ii) approval of this Amendment from the New York State Attorney General (as to form); (iii) approval (satisfactory to LIPA and Genco) of this Amendment from the New York State Comptroller; and (iv) the Federal Energy Regulatory Commission shall have permitted this Amendment to become effective. The conditions set forth in items (ii), (iii) and (iv) above are hereinafter referred to as the "Approvals". Upon receipt of all the Approvals, LIPA shall provide Genco with a copy of each such Approval. Section 3.2. Affirmation of Representations. The representations and warranties of GENCO set forth in Section 21.9.1 of the PSA shall be true and correct in all material respects as of the Effective Date. The representations and warranties of LIPA set forth in Section 21.9.2 of the PSA shall be true and correct in all material respects as of the Effective Date. Section 3.4. Miscellaneous. (a) This Amendment provides for certain values used to calculate the rates and charges payable by LIPA to be determined by removing from the values in the PSA in effect prior to the Effective Date of this Amendment certain amounts associated with the LIPA Generating Facilities. The exact value to be used is subject to (i) a final determination of whether the E.F. Barrett Plant, the Far Rockaway Plant and the ICUs, or only the Far Rockaway Plant and the E.F. Barrett Plant, or only the Far Rockaway Plant, or only the E.F. Barrett Plant, or only the E.F. Barrett Plant and the ICUs have become LIPA Generating Facilities, and (ii) identification of values properly attributable to the LIPA Generating Facilities. The final values to be used in calculating such rates and charges after the Effective Date shall be determined by mutual agreement of the parties no later than 30 days after the Effective Date. (b) Except as amended hereby, the PSA shall remain in full force and effect. The parties shall cooperate in preparation of an amended and restated PSA which incorporates the provisions of the original PSA and all amendments thereto, including this Amendment to be effective as of the Effective Date. (c) This Amendment shall be governed, including, without limitation, as to validity, interpretation and effect, by the Laws of the State of New York. (d) This Amendment may be executed in two or more counterparts which together shall constitute a single agreement. 7 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized officers or representatives as of the date first above written. LONG ISLAND LIGHTING COMPANY d/b/a LIPA By /s/ ___________________ Name: [_________________] Title: [_________________] KEYSPAN GENERATION LLC By /s/ __________________ Name: [_________________] Title: [_________________] 8 FINAL COPY Annex F to First Amendment to Option and Purchase and Sale Agreement THIRD AMENDMENT Dated as of [_______________________] to ENERGY MANAGEMENT AGREEMENT between LONG ISLAND LIGHTING COMPANY and KEYSPAN ENERGY TRADING SERVICES LLC Dated as of June 26, 1997 This THIRD AMENDMENT (the "Amendment") is made and entered into as of [___________], by and between LONG ISLAND LIGHTING COMPANY d/b/a LIPA, a New York corporation ("LIPA"), and KEYSPAN ENERGY TRADING SERVICES LLC, a New York limited liability company formerly known as MarketSpan Trading Services LLC (the "Energy Manager"), to the Energy Management Agreement, by and between LIPA and the Energy Manager, dated as of June 26, 1997, as previously amended as of March 29, 2002 and as of December [__], 2005 (the "EMA"). RECITALS WHEREAS, Energy Manager is responsible under the EMA, inter alia, for fuel procurement, delivery, storage, and management ("Fuel Management Services") for the GENCO Generating Facilities to meet the energy generation requirements of the Electricity Customers; WHEREAS, LIPA and KeySpan Generation LLC are parties to an Option and Purchase and Sale Agreement, dated as of January 1, 2006, as amended by a First Amendment to Option and Purchase and Sale Agreement, dated as of March 22, 2007 (the "Option Agreement"), pursuant to which LIPA was granted an option to purchase the Far Rockaway Plant (as defined in the Option Agreement) and/or the E.F. Barrett Plant (as defined in the Option Agreement) or the Far Rockaway Plant, the E.F. Barrett Plant and the ICUs, or the E.F. Barrett Plant and the ICUs (as defined in the Option Agreement) and certain related assets on the terms and subject to the conditions set forth therein; WHEREAS, on [_____] LIPA exercised its option under the Option Agreement to purchase [the Far Rockaway Plant, the E.F. Barrett Plant and the ICUs] [the Far Rockaway Plant and the E.F. Barrett Plant] [the E.F. Barrett Plant and the ICUs] [the E.F. Barrett Plant] [the Far Rockaway Plant] as specified in the Option Notice (as defined in the Option Agreement) delivered by LIPA under the Option Agreement (the "Purchased Assets"); WHEREAS, LIPA and [KEYSPAN CORPORATION SUBSIDIARY] ("Operator") are contemporaneously entering into an Operation and Maintenance Agreement (the "O&M Agreement") pursuant to which LIPA will retain Operator to, among other things, perform Fuel Management Services for the Purchased Assets upon the terms and conditions set forth therein; and WHEREAS, as a condition to the consummation of the purchase and sale of the Purchased Assets under the Option Agreement, LIPA and the Energy Manager are entering into this Amendment. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 2 ARTICLE 1 DEFINITIONS Section 1.1. Definitions. All capitalized terms used in this Amendment and not otherwise defined shall have the meanings assigned to them in the EMA. ARTICLE 2 AMENDMENTS TO EMA Section 2.1. Amendment to Section 3.2.1 of the EMA. Section 3.2.1 of the EMA is hereby amended by deleting "$750,000"[or such other amount, if the EMA has been amended prior to this Amendment] in the 4th line thereof and inserting in lieu thereof "$625,000"[or an amount that is $125,000 less than the other amount referred to above]. [If LIPA purchases less than all of the Plants, then the $125,000 fee reduction will be pro rated based upon the fuel BTU's purchased in the year prior to the exercise of the Option Agreement.] ARTICLE 3 MISCELLANEOUS Section 3.1. Effective Date. This Amendment shall be effective upon satisfaction of the following conditions (the date upon which all such conditions are satisfied, the "Effective Date"): (i) the consummation of the sale and purchase of the Purchased Assets pursuant to the Option Agreement, (ii) approval of this Amendment (satisfactory to Energy Manager and LIPA) from the New York State Comptroller, (iii) approval (as to form) of this Amendment from the New York Attorney General, and (iv) if required in LIPA's sole judgment, receipt of a private letter ruling from the Internal Revenue Service that this Amendment constitutes a "qualified management services agreement" under the Internal Revenue Code of 1986, as amended, and the regulations thereunder. The conditions set forth in items (ii), (iii) and (iv) above are hereinafter referred to as the "Approvals". Section 3.2. Affirmation of Representations. The representations and warranties of the Energy Manager set forth in Section 13.11.1 of the EMA shall be true and correct in all material respects as of the Effective Date. The representations and warranties of LIPA set forth in Section 13.11.2 of the EMA shall be true and correct in all material respects as of the Effective Date. Section 3.4. Miscellaneous. Except as amended hereby, the EMA shall remain in full force and effect. This Amendment shall be governed, including, without limitation, as to validity, interpretation and effect, by the Laws of the State of New York. This Amendment may be executed in two or more counterparts which together shall constitute a single agreement. 3 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized officers or representatives as of the date first above written. LONG ISLAND LIGHTING COMPANY d/b/a LIPA By /s/ ______________________________ Name: Title: KEYSPAN ENERGY TRADING SERVICES LLC By /s/ ______________________________ Name: Title: 4