0000950136-99-001520.txt : 19991201 0000950136-99-001520.hdr.sgml : 19991201 ACCESSION NUMBER: 0000950136-99-001520 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19991129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CE GENERATION LLC CENTRAL INDEX KEY: 0001097322 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 470818523 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-89521 FILM NUMBER: 99765875 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400 CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023414500 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400 CITY: OMAHA STATE: NE ZIP: 68131 S-4/A 1 AMENDMENT NO. 1 TO FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 29, 1999 REGISTRATION NO. 333-89521 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- CE GENERATION, LLC (Exact name of registrant as specified in its charter) DELAWARE 4911 47-0818523 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
-------------- 302 SOUTH 36TH STREET, SUITE 400 OMAHA, NEBRASKA 68131 (402) 231-1641 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) DOUGLAS L. ANDERSON VICE PRESIDENT AND GENERAL COUNSEL CE GENERATION, LLC 302 SOUTH 36TH STREET, SUITE 400 OMAHA, NEBRASKA 68131 (402) 231-1641 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------- Copy to: KELLEY M. GALE, ESQ. LATHAM & WATKINS 701 B STREET, SUITE 2100 SAN DIEGO, CALIFORNIA 92101 (619) 236-1234 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] -------------- CALCULATION OF REGISTRATION FEE --------------------------------------------------------------------------------
PROPOSED PROPOSED AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) FEE(2) 7.416% Senior Secured Bonds Due December 15, 2018 $400,000,000 100% $400,000,000 $111,200
-------------------------------------------------------------------------------- (1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457. (2) Paid with the initial filing of the Registration Statement. -------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED NOVEMBER 29, 1999 PROSPECTUS CE GENERATION, LLC Exchange Offer for 7.416% Senior Secured Bonds Due December 15, 2018 ---------------- This is an offer to exchange our outstanding, unregistered 7.416% Senior Secured Bonds you now hold for new, substantially identical 7.416% Senior Secured Bonds that will be free of the transfer restrictions that apply to the old bonds. This offer will expire at 5:00 p.m., New York City time, on , 1999, unless we extend it. You must tender the old, unregistered bonds by the deadline to obtain new, registered bonds and the liquidity benefits they offer. We agreed with the initial purchasers of the old bonds to make this offer and register the issuance of the new bonds following the closing. This offer applies to any and all old bonds tendered before the deadline. The new bonds will not trade on any established exchange. The new bonds have the same financial terms and covenants as the old bonds, and are subject to the same business and financial risks. A DESCRIPTION OF THOSE RISKS BEGINS ON PAGE 14. The terms of the exchange offer will include the following: o We will exchange all old securities that are validly tendered and not withdrawn prior to the expiration of the exchange offer. o You may withdraw tenders of old securities at any time prior to the expiration of the exchange offer. o We will not receive any proceeds from the exchange offer. ---------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------- The date of this prospectus is November , 1999 TABLE OF CONTENTS
PAGE PAGE Prospectus Summary .......................... 1 Legal Matters ............................. 126 Risk Factors ................................ 14 Experts ................................... 126 The Exchange Offer .......................... 20 Power Generation Projects Independent Engineer ............................... 126 Capitalization .............................. 30 Natural Gas Projects Independent Selected Financial Data ..................... 31 Engineer ............................... 126 Management's Discussion and Geothermal Projects Independent Analysis of Financial Condition Engineer ............................... 126 and Results of Operations .................. 33 Consultants' Reports ...................... 127 Our Business and the Business of the Where You Can Find More Information ....... 127 Designated Subsidiaries ................... 42 Index to Financial Statements ............. F-1 Our Management .............................. 50 Appendix A--Power Generation Ownership of Our Membership Projects Independent Engineer's Interests ................................. 52 Report ................................. A-1 Our Relationships and Related Appendix B--Natural Gas Projects Transactions ............................... 52 Independent Engineer's Report ........ B-1 Reports of Third Party Consultants .......... 53 Appendix C--Geothermal Projects Summary Description of Principal Independent Engineer's Report ......... C-1 Project Contracts .......................... 59 Appendix D--Power Market Description of the Securities ............... 90 Consultant's Report ................... D-1 Summary Description of the Principal Appendix E--Geothermal Resource Financing Documents ........................ 98 Consultant's Report ................... E-1 Plan of Distribution ........................ 123 United States Federal Income Tax Considerations ............................. 124
i PROSPECTUS SUMMARY The following summary highlights selected information from this prospectus and may not contain all of the information that is important to you. This prospectus includes specific terms of the securities we are offering, as well as information regarding our business and detailed financial data. We encourage you to read the prospectus in its entirety. You should pay special attention to the "Risk Factors" section beginning on page 14 of this prospectus. SUMMARY OF OUR EXCHANGE OFFER On March 2, 1999 we completed the offering of $400,000,000 aggregate principal amount of our 7.416% Senior Secured Bonds due 2018 in reliance on exemptions from the registration requirements of the Securities Act. As part of that offering, we entered into a registration rights agreement with the initial purchasers of those old Securities in which we agreed, among other things, to deliver this prospectus to you and to complete an exchange offer for the old Securities. Below is a summary of the exchange offer. The Exchange Offer.......... We are offering to exchange up to $400,000,000 principal amount of new Securities which have been registered under the Securities Act for up to $400,000,000 principal amount of old Securities. We will exchange old Securities only in integral multiples of $1,000. In order to be exchanged, an old Security must be properly tendered and accepted. We will exchange all old Securities that are validly tendered and not withdrawn. As of the date of this prospectus, there are $400,000,000 principal amount of old Securities outstanding. We will issue new Securities promptly after the expiration of the exchange offer. Resales Without Further Registration................ Based on interpretations by the staff of the Securities and Exchange Commission, we believe that the new Securities issued in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act, so long as: o you are acquiring the new Securities in the ordinary course of your business; o you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in a distribution of the new Securities; and o you are not an "affiliate" of ours. By tendering your old Securities as described below, you will be making representations to this effect. Transfer Restrictions on New Securities.............. If you are an affiliate of ours, are engaged in, or intend to engage in or have any arrangement or understanding with any person to participate in, the distribution of the new Securities: 1 (1) you cannot rely on the applicable interpretations of the staff of the Securities and Exchange Commission; and (2) you must comply with the registration requirements of the Securities Act in connection with any resale transaction. Each broker or dealer that receives new Securities for its own account in exchange for old Securities that were acquired as a result of market-making or other trading activities must acknowledge that it will deliver this prospectus in connection with any offer to resell, resale or other transfer of the new Securities issued in the exchange offer. Expiration Date............. 5:00 p.m., New York City time, on 1999, unless we extend the expiration date. Accrued Interest on the New Securities and Old Securities.............. The new Securities will bear interest from the most recent date to which interest has been paid on the old Securities. If your old Securities are accepted for exchange, then you will waive interest on the old Securities accrued to the date the new Securities are issued. Increase in Interest Rate... As the registration statement of which this prospectus is a part was not declared effective by November 27, 1999, the interest rate on the old Securities was increased by 0.50% per annum beginning November 28, 1999 until the registration statement is declared effective. Conditions to our Acceptance and Exchange of Old Securities... Our obligations to accept old Securities and exchange old Securities for new Securities are subject to the following conditions, which we may assert or waive in our sole discretion: o the exchange offer cannot violate applicable law; o there cannot exist any law or governmental proceeding which (1) seeks to restrain or prohibit the exchange offer, (2) seeks damages as a result of the exchange offer or (3) results in a material delay in our ability to exchange old Securities; o there cannot have occurred (1) a suspension of trading in securities on the New York Stock Exchange, (2) a declaration of a banking moratorium or (3) a commencement of a war involving the United States; and o there cannot have occurred a material adverse change in our business, financial or other condition, operations, stock ownership or prospects. 2 Procedures for Tendering Old Securities.................. If you wish to tender your old Securities, you must complete, sign and date the letter of transmittal, or a facsimile of it, in accordance with its instructions and transmit the letter of transmittal, together with your old Securities and any other required documentation, and Chase Manhattan Bank and Trust Company, National Association, who is the exchange agent, must receive the documentation at the address set forth in the letter of transmittal by 5:00 p.m. New York City time, on the expiration date. By executing the letter of transmittal, you will represent to us that you are acquiring the new Securities in the ordinary course of your business, that you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in the distribution of new Securities, and that you are not an "affiliate" of ours. Special Procedures for Beneficial Holders..................... If you are the beneficial holder of old Securities that are registered in the name of your broker, dealer, commercial bank, trust company or other nominee, and you wish to tender in the exchange offer, you should promptly contact the person in whose name your old Securities are registered and instruct them to tender on your behalf. Guaranteed Delivery Procedures.................. If you wish to tender your old Securities and you cannot deliver your notes, the letter of transmittal or any other required documents to the exchange agent before the expiration date, you may tender your old Securities according to the guaranteed delivery procedures. Withdrawal Rights........... Tenders may be withdrawn at any time before 5: 00 p.m., New York City time, on the expiration date. Acceptance of Old Securities and Delivery of New Securities... Subject to the conditions described above, we will accept for exchange any and all old Securities which are properly tendered in the exchange offer before 5:00 p.m., New York City time, on the expiration date. The new Securities will be delivered promptly after the expiration date. Exchange Agent.............. Chase Manhattan Bank and Trust Company, National Association, is serving as exchange agent in connection with the exchange offer. Federal Income Tax Considerations.............. We believe that your exchange of old Securities for new Securities in the exchange offer will not result in any gain or loss to you for United States federal income tax purposes. Use of Proceeds............. We will not receive any proceeds from the issuance of new Securities in the exchange offer. We will pay all expenses incident to the exchange offer. 3 SUMMARY OF THE TERMS OF THE SECURITIES The form and terms of the new Securities and the old Securities are identical in all material respects, except that transfer restrictions and registration rights applicable to the old Securities do not apply to the new Securities. The new Securities will evidence the same debt as the old Securities and will be governed by the same indenture. Where we refer to "Securities" in this prospectus, we are referring to both old Securities and new Securities. Securities Offered.......... $400,000,000 7.416% Senior Secured Bonds Due December 15, 2018. Interest Payment Dates...... June 15 and December 15. Scheduled Principal Payments.................... Principal of the Securities will be payable in semiannual installments on each June 15 and December 15, beginning June 15, 2000, as follows:
PERCENTAGE OF PRINCIPAL PAYMENT DATE AMOUNT PAYABLE ----------------------------- --------------- June 15, 1999 ............. 0.000% December 15, 1999 ......... 0.000% June 15, 2000 ............. 1.300% December 15, 2000 ......... 1.300% June 15, 2001 ............. 1.575% December 15, 2001 ......... 1.575% June 15, 2002 ............. 2.575% December 15, 2002 ......... 2.575% June 15, 2003 ............. 2.250% December 15, 2003 ......... 2.250% June 15, 2004 ............. 1.825% December 15, 2004 ......... 1.825% June 15, 2005 ............. 1.850% December 15, 2005 ......... 1.850% June 15, 2006 ............. 2.400% December 15, 2006 ......... 2.400% June 15, 2007 ............. 2.250% December 15, 2007 ......... 2.250% June 15, 2008 ............. 3.525% December 15, 2008 ......... 3.525% June 15, 2009 ............. 3.075% December 15, 2009 ......... 3.075% June 15, 2010 ............. 1.775% December 15, 2010 ......... 1.775% June 15, 2011 ............. 1.900% December 15, 2011 ......... 1.900% June 15, 2012 ............. 2.560% December 15, 2012 ......... 2.560% June 15, 2013 ............. 2.550% December 15, 2013 ......... 2.550% June 15, 2014 ............. 3.225%
4
PERCENTAGE OF PRINCIPAL PAYMENT DATE AMOUNT PAYABLE ----------------------------- --------------- December 15, 2014 ......... 3.225% June 15, 2015 ............. 3.380% December 15, 2015 ......... 3.380% June 15, 2016 ............. 3.660% December 15, 2016 ......... 3.660% June 15, 2017 ............. 3.780% December 15, 2017 ......... 3.780% June 15, 2018 ............. 4.545% December 15, 2018 ......... 4.545%
Average Number of Years that the Securities will be Outstanding The average number of years during which Securities will be outstanding is approximately 11.9 years. Denominations............... We issued the old Securities in minimum denominations of $100,000 or any integral multiple of $1,000 in excess of $100,000. We will issue the new Securities in minimum denominations of $1,000. Ratings..................... "Baa3" by Moody's Investor Services, Inc., "BBB-" by Standard & Poor's Ratings Group and "BBB" by Duff & Phelps Credit Rating Co. Optional Redemption......... We may redeem all or any portion of the Securities at a redemption price equal to: o 100% of the principal amount of the Securities being redeemed, plus o accrued and unpaid interest on the Securities being redeemed, plus o a yield maintenance premium which is based on the rates of comparable treasury securities plus 50 basis points. Mandatory Redemption With Yield Maintenance Premium... We will be obligated to redeem the Securities at par plus accrued interest to the date of redemption, plus a yield maintenance premium, in the following circumstances: o if one of our designated subsidiaries receives more than $15,000,000 of available cash flow in net proceeds from one or more financings of its project or refinancings of the project financing debt of its project company, we will be required to use all of these proceeds to redeem Securities; o if a designated subsidiary receives more than $15,000,000 of available cash flow in net proceeds from a sale of assets by its project company and the sale is not in the ordinary course of business, we will be required to use all of these proceeds to redeem Securities; 5 o if we receive more than $15,000,000 in proceeds from the sale of all or any portion of our interest in any designated subsidiary and the sale was not specifically permitted under the indenture for the Securities, we will be required to use all of these proceeds to redeem Securities; and o if a designated subsidiary receives more than $15,000,000 in proceeds from the sale of all or any portion of its interest in any project company and the sale was not specifically permitted under the indenture for the Securities, we will be required to use all of these proceeds to redeem Securities. In each of the above cases, we will be obligated to redeem only the amount of Securities to the extent which will cause each rating agency to confirm that, after giving effect to the redemption, the rating assigned to the Securities by the rating agency will be at least as good as the higher of (a) the then-current rating assigned to the Securities by the rating agency or (b) the initial rating assigned to the Securities by the rating agency as of the closing date for the old Securities. Mandatory Redemption Without Yield Maintenance Premium... We will be obligated to redeem the Securities at par plus accrued interest to the date of redemption in the following circumstances: o if a designated subsidiary receives more than $15,000,000 of available cash flow in net proceeds related to the damage or destruction of all or a portion of the designated subsidiary's project, we will be required to use all of these proceeds to redeem Securities; o if a designated subsidiary receives more than $15,000,000 of available cash flow in net proceeds related to a governmental authority's compulsory taking or transfer, or the threat of a governmental authority's compulsory taking or transfer, of the designated subsidiary's project, we will be required to use all of these proceeds to redeem Securities; o if a designated subsidiary receives more than $15,000,000 of available cash flow in net proceeds related to a defect in the title to the land on which the designated subsidiary's project is located, we will be required to use all of these proceeds to redeem Securities; and o if a designated subsidiary receives more than $15,000,000 of available cash flow in net proceeds related to the termination of a designated subsidiary's power purchase agreement or the amendment of a designated subsidiary's power purchase agreement which reduces the amount of capacity and energy sold under the agreement, we will be required to use all of these proceeds to redeem Securities. 6 However, in the case of a termination or an amendment of a power purchase agreement, we will be obligated to redeem only the amount of Securities to the extent which will cause each rating agency to confirm that, after giving effect to the redemption, the rating assigned to the Securities by the rating agency will be at least as good as the higher of (a) the then-current rating assigned to the Securities by the rating agency or (b) the initial rating assigned to the Securities by the rating agency as of the closing date for the old Securities. Ranking of the Securities... The Securities: o are senior secured debt owed by us; o rank equally in right of payment with our other senior secured debt permitted under the indenture for the Securities; the amount of other senior secured debt that we can incur is unlimited if we satisfy the additional debt tests under the indenture; o share equally in the collateral with our other senior secured debt permitted under the indenture; o rank senior to any of our subordinated debt permitted under the indenture; o are effectively subordinated to the existing project financing debt and all other debt of the designated subsidiaries, SECI Holdings, California Energy Yuma, the project companies and the holding companies associated with the projects; as of September 30, 1999, the aggregate amount of this debt was $677.7 million; and o are the only debt, other than the debt permitted under the indenture, which we owe. Collateral.................. The Securities are secured by the following collateral: o all available cash flow of the designated subsidiaries deposited with the depositary bank; o a pledge of 99% of the equity interests in Salton Sea Power Company and all of the equity interests in CE Texas Gas LLC, the designated subsidiaries, other than Magma Power Company, and California Energy Yuma Corporation; o upon the redemption of, or earlier release of security interests under, Magma's 9 7/8% promissory notes, a pledge of all of the capital stock of Magma; o a pledge of all of the capital stock of SECI Holdings Inc.; o a grant of a lien on and security interest in the depositary accounts; and o a grant of a lien on and security interest in all of our other tangible and intangible property, to the extent it is possible to grant a lien on the property. 7 Non-Recourse Obligations.... We are the only person obligated to pay principal of, premium, if any, and interest on the Securities. Our members, MidAmerican Energy Holdings Company and El Paso Power Holding Company, will not guarantee the Securities or have any obligation to make payments on the Securities. None of our or our members' officers, directors, employees or affiliates, other than the designated subsidiaries to the extent of their available cash flow, will guarantee the Securities or have any obligation to make payments on the Securities. Debt Service Reserve Account............. We are required to maintain an amount on deposit in the debt service reserve account equal on any date to the maximum semiannual principal and interest payment due on the Securities for the remaining term. We are permitted to satisfy this obligation by depositing cash into the debt service reserve account or by delivering to the depositary bank a letter of credit provided by a commercial bank or other financial institution whose long-term unsecured debt obligations are rated at least "A" by S&P and "A2" by Moody's. We initially funded the debt service reserve account by providing the depositary bank with a debt service reserve letter of credit in an amount of approximately $24 million. Covenants................... We have agreed in the indenture for the Securities to, among other things: o maintain our existence; o comply with applicable laws and governmental approvals; o perform our obligations under the financing documents; o maintain the liens on the collateral in favor of the collateral agent; o provide the trustee, the collateral agent and depositary bank with reasonable inspection rights; o pay our taxes and maintain our books and records; and o pledge all of Magma's capital stock within ten days after the stock is released from the liens securing Magma's 9 7/8% promissory notes. We have agreed not to, among other things: o incur debt other than as permitted under the indenture; o create liens on our property other than as permitted under the indenture; o engage in any activities other than those permitted by the financing documents; or o form subsidiaries, make investments, loans or advances or acquire the stock, obligations or securities of any other person, other than as permitted under the indenture. These affirmative and negative covenants are subject to a number of important qualifications and exceptions set forth in the indenture. 8 SUMMARY OF OUR BUSINESS We are a special purpose Delaware limited liability company formed for the sole purpose of issuing securities and holding the equity interests in our subsidiaries. Our designated subsidiaries are the following companies: o Magma Power Company o Salton Sea Power Company o Falcon Seaboard Resources, Inc. o Falcon Seaboard Power Corporation o Falcon Seaboard Oil Company o California Energy Development Corporation o CE Texas Energy LLC The designated subsidiaries own equity interests in project companies which own ten geothermal and four natural gas-fired electric generating facilities located in California, New York, Texas, Pennsylvania and Arizona. We own 100% of the interests in twelve of these projects. In addition, we manage, control and have substantial equity interests in the remaining two projects. Substantially all of the cash flow received by us is received indirectly from these projects. Below is a simplified chart which illustrates both our current ownership structure as well as the current ownership structure of each project. 9 [BLOCK CHART SHOWING THE OWNERSHIP STRUCTURE OF CE GENERATION AND THE PROJECTS] ---------- (1) The percentage of distributions from the Saranac project indirectly beneficially owned by us varies over time. (2) The percentage of distributions from the NorCon project indirectly beneficially owned by us varies over time. In October 1999, our indirect subsidiary, NorCon Power Partners, LP, reached an agreement with Niagara Mohawk Power Corporation, the NorCon power purchaser, General Electric Capital Corporation, the NorCon project lender, and Louis Dreyfus Natural Gas Corporation, the gas supplier for the NorCon project, to settle the outstanding litigation between NorCon and Niagara Mohawk, to terminate NorCon's power purchase agreement with Niagara Mohawk and gas purchase agreement with Louis Dreyfus, to transfer the NorCon project to General Electric Capital and to provide for General Electric Capital to assume responsibility for third party claims related to the NorCon project. Upon the closing of these terminations and transfers, NorCon expects that it will not have any further rights, interests, profits, costs or losses with respect to the NorCon project. Our subsidiaries operate all of the projects and sell substantially all of the power produced by the projects to utility purchasers under long-term contracts. The principal purchasers are Southern California Edison Company, New York State Electric and Gas Corporation and Texas Utilities Energy Company, whom we depend on for substantially all of our revenues. The operation of geothermal projects involves drilling and maintaining geothermal wells which produce steam that generates electricity when run through a geothermal power plant. Gas-fired power plants burn natural gas to produce steam and generate electricity. Following are tables describing the projects. The availability and capacity factor figures shown in the tables are averages for 1996, 1997 and 1998. 10
SALTON SEA SALTON SEA SALTON SEA PROJECT UNIT I UNIT II UNIT III ---------------------- --------------------- --------------------- --------------------- Project Company(ies) Salton Sea Salton Sea Salton Sea Power Power Power Generation L.P. Generation L.P. Generation L.P. Location Imperial Imperial Imperial Valley, CA Valley, CA Valley, CA Capacity(1) 10 megawatts 20 megawatts 49.8 megawatts Fuel Type Geothermal Geothermal Geothermal Ownership Interest 100% 100% 100% Commercial Operation July 1987 April 1990 February 1989 Availability 96.0% 96.7% 96.0% Capacity Factor 81.9% 119.1% 99.9% Power Purchaser Southern Southern Southern California California California Edison Edison Edison Company Company Company Power Contract Expiration June 2017 April 2020 February 2019 Thermal Energy Host N/A N/A N/A Fuel Supplier N/A N/A N/A Operator CalEnergy CalEnergy CalEnergy Operating Operating Operating Corporation Corporation Corporation Outstanding Debt (2) (2) (2) Debt Service Coverage Ratio Test(3) 1.4x prior to 1.4x prior to 1.4x prior to 2000/1.5x 2000/1.5x 2000/1.5x thereafter thereafter thereafter SALTON SEA SALTON SEA PROJECT UNIT IV UNIT V LEATHERS DEL RANCH ---------------------- --------------------- ------------------- -------------------- --------------------- Project Company(ies) Salton Sea Salton Sea Leathers, L.P. Del Ranch, L.P. Power Power L.L.C. Generation L.P. and Fish Lake Power LLC Location Imperial Imperial Imperial Imperial Valley, CA Valley, CA Valley, CA Valley, CA Capacity(1) 39.6 megawatts 49 megawatts 38 megawatts 38 megawatts Fuel Type Geothermal Geothermal Geothermal Geothermal Ownership Interest 100% 100% 100% 100% Commercial Operation May 1996 Mid-2000 January 1990 January 1989 Availability 94.5% N/A 97.2% 97.4% Capacity Factor 114.8% N/A 115.9% 118.2% Power Purchaser Southern Zinc facility/ Southern Southern California California California California Edison power exchange Edison Edison Company Company Company Power Contract Expiration May 2026 N/A December 2019 December 2018 Thermal Energy Host N/A N/A N/A N/A Fuel Supplier N/A N/A N/A N/A Operator CalEnergy CalEnergy CalEnergy CalEnergy Operating Operating Operating Operating Corporation Corporation Corporation Corporation Outstanding Debt (2) (2) (2) (2) Debt Service Coverage Ratio Test(3) 1.4x prior to 1.4x prior to 1.4x prior to 1.4x prior to 2000/1.5x 2000/1.5x 2000/1.5x 2000/1.5x thereafter thereafter thereafter thereafter
-------- (1) Capacity figures for Salton Sea Units I-IV and the Leathers, Del Ranch, Elmore and Vulcan projects represent the capacity levels utilized to calculate capacity payments under the current power purchase agreements for these projects. Capacity figures for Salton Sea Unit V and the CE Turbo project represent the expected capacity of each project to deliver electricity for sale to others upon completion of construction of these projects. Capacity figures for the Saranac, Power Resources, Norcon and Yuma projects represent the maximum quantities permitted to be sold by those projects under their current power purchase agreements. The actual capacity of a project at any time varies with ambient temperatures and, in the case of the geothermal projects, reservoir and wellfield conditions. (2) The total debt outstanding at September 30, 1999 for Salton Sea Units I-V and the Leathers, Del Ranch, Elmore, Vulcan and CE Turbo projects, and a zinc facility which was financed with these projects and is owned by our affiliates, is $597.9 million, of which $140.5 million is scheduled to be repaid by our affiliates that own the zinc facility. (3) Represents historical and projected debt service coverage level required to make equity distributions under the applicable project financing documents. 11
PROJECT ELMORE VULCAN CE TURBO ---------------------- ------------------ ------------------- ------------------- Project Company(ies) Elmore, L.P. Vulcan/BN CE Turbo LLC Geothermal Power Company Location Imperial Imperial Imperial Valley, CA Valley, CA Valley, CA Capacity(1) 38 megawatts 34 megawatts 10 megawatts Fuel Type Geothermal Geothermal Geothermal Ownership Interest 100% 100% 100% Commercial Operation January 1989 February 1986 Mid-2000 Availability 96.9% 95.4% N/A Capacity Factor 114.6% 113.5% N/A Power Purchaser Southern Southern California California California power exchange Edison Edison Company Company Power Contract Expiration December 2018 February 2016 N/A Thermal Energy Host N/A N/A N/A Fuel Supplier N/A N/A N/A Operator CalEnergy CalEnergy CalEnergy Operating Operating Operating Corporation Corporation Outstanding Debt (2) (2) (2) Debt Service Coverage Ratio Test(3) 1.4x prior to 1.4x prior to 1.4x prior to 2000/1.5x 2000/1.5x 2000/1.5x thereafter thereafter thereafter PROJECT SARANAC POWER RESOURCES NORCON YUMA ---------------------- ------------------ ------------------- ------------------ ---------------- Project Company(ies) Saranac Power Power NorCon Power Yuma Partners, L.P. Resources, Inc. Partners, LP Cogeneration Associates Location Plattsburgh, Big Spring, TX North East, PA Yuma, AZ NY Capacity(1) 240 megawatts 200 megawatts 80 megawatts 50 megawatts Fuel Type Natural Gas Natural Gas Natural Gas Natural Gas Ownership Interest Varies 100% Varies 100% Commercial Operation June 1994 June 1988 December 1992 May 1994 Availability 95.2% 91.2% 94.4% 96.4% Capacity Factor 92.5% 79.7% 94.5% 88.3% Power Purchaser New York State Texas Utilities Niagara San Diego Gas Electric and Energy Mohawk Power & Electric Gas Company Corporation Corporation Power Contract Expiration June 2009 September 2003 December 2017 May 2024 Thermal Energy Host Georgia-Pacific Fina Oil and Welch Foods, Queen Carpet, Corporation/ Chemical Inc. Inc. Tenneco Company Packaging, Inc. Fuel Supplier Coral Energy Fina/Louis Louis Dreyfus Southwest Gas Canada (Shell) Dreyfus Corporation Operator Falcon Power Falcon Power Falcon Power Falcon Power Operating Operating Operating Operating Company Company Company Company Outstanding Debt $183.1 million $79.8 million $98.4 million None Debt Service Coverage Ratio Test(3) 1.2x Varies(4) 1.15x N/A
-------- (1) Capacity figures for Salton Sea Units I-IV and the Leathers, Del Ranch, Elmore and Vulcan projects represent the capacity levels utilized to calculate capacity payments under the current power purchase agreements for these projects. Capacity figures for Salton Sea Unit V and the CE Turbo project represent the expected capacity of each project to deliver electricity for sale to others upon completion of construction of these projects. Capacity figures for the Saranac, Power Resources, Norcon and Yuma projects represent the maximum quantities permitted to be sold by those projects under their current power purchase agreements. The actual capacity of a project at any time varies with ambient temperatures and, in the case of the geothermal projects, reservoir and wellfield conditions. (2) The total debt outstanding at September 30, 1999 for Salton Sea Units I-V and the Leathers, Del Ranch, Elmore, Vulcan and CE Turbo projects, and a zinc facility which was financed with these projects and is owned by our affiliates, is $597.9 million, of which $140.5 million is scheduled to be paid by our affiliates that own the zinc facility. (3) Represents historical and projected debt service coverage levels required to make equity distributions under the applicable project financing documents. (4) To distribute 100% of available cash flow, the debt service coverage ratio must be at least 1.2x. If the debt service coverage ratio is 1.17x to 1.19x, 50% of available cash flow may be distributed. If the debt service coverage ratio is 1.15x to 1.17x, 40% of available cash flow may be distributed. If the debt service coverage ratio is 1.13x to 1.15x, 30% of available cash flow may be distributed. If the debt service coverage ratio is 1.1x to 1.13x, 20% of available cash flow may be distributed. If the debt service coverage ratio is less than 1.1x, 10% of available cash flow may be distributed. 12 We will make payments on the new Securities with the following available cash flow received by our designated subsidiaries: o with respect to any designated subsidiary, distributions received by the designated subsidiary from the project company(ies) that own its project(s), so long as these equity distributions are no longer subject to any liens imposed by any applicable project financing document and are delivered to the depositary bank; and o with respect to Magma, fees, royalties and other payments received by Magma to the extent not otherwise required to be used for Magma project costs or otherwise under any project financing document or project document. The structure of the transaction described in this prospectus has been designed to pool and cross-collateralize the available cash flow of the designated subsidiaries from the projects. A chart depicting the transaction structure is shown below. [BLOCK CHART SHOWING THE STRUCTURE OF THE TRANSACTION DESCRIBED IN THIS PROSPECTUS] There are a number of risks to the repayment of the new Securities which are described below starting on page 14 of this prospectus. 13 RISK FACTORS You should carefully consider the following factors before deciding to tender your old Securities in the exchange offer. YOUR FAILURE TO EXCHANGE YOUR OLD SECURITIES FOR NEW SECURITIES COULD RESULT IN YOUR HOLDING ILLIQUID SECURITIES WHICH CANNOT BE RESOLD UNLESS YOU REGISTER THEM UNDER THE SECURITIES ACT OR FIND AN EXEMPTION FROM REGISTRATION. The old Securities were not registered under the Securities Act or under the securities laws of any state and may not be resold, offered for resale or otherwise transferred unless they are subsequently registered or resold by use of an exemption from the registration requirements of the Securities Act and applicable state securities laws. If you do not exchange your unregistered old Securities for registered new Securities in the exchange offer, you will not be able to resell, offer to resell or otherwise transfer the old Securities unless they are registered under the Securities Act or unless you resell them, offer to resell them or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act. In addition, we will no longer be under an obligation to register the old Securities under the Securities Act except in the limited circumstances provided under the registration rights agreement between us and the initial purchasers of the old Securities. In addition, to the extent that old Securities are tendered for exchange and accepted in the exchange offer, the trading market for the untendered and tendered but unaccepted old Securities could be illiquid. YOU WILL NOT HAVE ANY RECOURSE TO THE ASSETS OF THE PROJECT COMPANIES OR THE ASSETS OF MIDAMERICAN OR EL PASO POWER. You will have recourse only to us and the collateral described in this prospectus. Other than the designated subsidiaries to the extent of their available cash flow, none of our shareholders or affiliates, including MidAmerican, El Paso Power and the project companies, or any of our shareholders' or affiliates' officers, directors or employees will guarantee our obligation to make payments on the Securities or be liable in any other way for the payment of the Securities. If we are unable to make payments on the Securities and you foreclose on the collateral which secures the Securities, the proceeds that you receive from the sale may not be sufficient to fully repay your Securities. OUR ABILITY TO MAKE PAYMENTS ON THE SECURITIES IS DEPENDENT ON THE DESIGNATED SUBSIDIARIES' RECEIPT OF EQUITY DISTRIBUTIONS FROM THE PROJECT COMPANIES, WHICH IS IN TURN DEPENDENT ON EVENTS WHICH ARE BEYOND OUR CONTROL. We were formed for the purpose of issuing the Securities and owning our subsidiaries. We do not have any operations. Accordingly, the sole source of repayment of the Securities is the available cash flow of the designated subsidiaries. The designated subsidiaries' sources of available cash flow are limited. Salton Sea Power, Falcon Seaboard Resources, Falcon Seaboard Power, Falcon Seaboard Oil, California Energy Development and CE Texas Energy conduct no business other than owning direct and indirect interests in their project companies. Magma conducts no material business other than owning its equity interests in the Imperial Valley project companies and providing administrative and operation services and real estate rights to the Imperial Valley project companies. Falcon Power Operating conducts no business other than providing operation and maintenance services for the Saranac, Power Resources, NorCon and Yuma projects. CE Texas Gas conducts no business other than procuring natural gas for the Power Resources Project. In addition, the project financing documents entered into by the project companies in connection with the development and construction of their projects place limitations on the ability of the project companies to make distributions to the designated subsidiaries. For example, if there is a default under a project financing document, the project company would not be permitted to make distributions to the relevant designated subsidiary. A default could result from the making of an untrue representation by the project company or the failure of the project company to satisfy a covenant. Finally, if a designated subsidiary were to be found to be bankrupt, the assignment of the designated subsidiary's cash flow to the secured parties would not be considered a lien that would continue if effect following the bankruptcy. 14 THE PROJECT LENDERS MUST MAKE PAYMENTS ON DEBT INCURRED BY THEM BEFORE MAKING EQUITY DISTRIBUTIONS TO THE DESIGNATED SUBSIDIARIES. The project companies other than Yuma paid for a portion of the costs of constructing their projects with loans from banks and proceeds from the sale of bonds. As of September 30, 1999, the aggregate amount of this debt was approximately $959.2 million. The project companies must make regular payments on this debt prior to making distributions to the designated subsidiaries. Any additional debt incurred by the project companies would also in all likelihood have to be paid before distributions could occur. Accordingly, the existence of debt at the project company level reduces the amount of distributions that can be made to the designated subsidiaries and, in turn, the amount of funds available to make payments on the Securities. In addition, if there was a default under the documents evidencing the project company level debt, the lenders of the debt could foreclose on the collateral securing the debt, which could include the project company's project. If this were to occur, we would lose an important source of funds to use to make payments on the Securities. WE CANNOT PREDICT THE REVENUES FROM THE SALE OF ELECTRICITY UNDER THE POWER PURCHASE AGREEMENTS OR IN THE COMPETITIVE POWER MARKETS AND THE AMOUNT OF THESE REVENUES MAY BE LOWER THAN AS SHOWN IN THE INDEPENDENT ENGINEER'S PROJECTIONS. Other than the Salton Sea Unit I power purchase agreements, the energy payments under the power purchase agreements for the operating Imperial Valley projects depend, or will in the future depend, at least in part, on the cost that Southern California Edison avoids by purchasing energy from the Imperial Valley projects instead of obtaining the energy from other sources. The energy payments under the Yuma power purchase agreement are dependent on the cost that San Diego Gas & Electric avoids by purchasing energy from the Yuma project instead of obtaining the energy from other sources. Estimates of Southern California Edison's and San Diego Gas & Electric's avoided costs vary substantially and we cannot predict the level of payments to be made in the future under these power purchase agreements. These future payments may be lower than as contemplated by the projections. Accordingly, there may be less funds available for repayment of the Securities than as shown in the projections. Although approximately one-third of the net electrical output of Salton Sea Unit V is expected to be sold under a contract for use by the zinc facility, neither Salton Sea Unit V nor the CE Turbo project currently has any material long-term power sales agreement for the rest of their capacity. The strategy for Salton Sea Unit V and the CE Turbo project is to sell output not needed by the zinc facility in short term transactions through the California power exchange or in other transactions from time to time as may be found to be more advantageous than those conducted through the California power exchange. The California power exchange was recently created to establish markets for the sale of power on a daily and an hourly basis. Thus, California power exchange prices are expected to have the characteristics of short term spot prices and to fluctuate from time to time in a manner that cannot be predicted with accuracy and is not within our control or the control of any other person. The projections use California power exchange prices. These estimates may turn out to be wrong and the California power exchange prices may actually be lower than as shown in the projections. If this is the case, there will be less funds available to make payments on the Securities than is shown in the projections. SOME OF THE POWER PURCHASE AGREEMENTS FOR THE PROJECTS WILL EXPIRE BEFORE THE MATURITY DATE FOR THE SECURITIES AND THE PRICES AT WHICH THE POWER FROM THE AFFECTED PROJECTS CAN BE SOLD AFTER EXPIRATION MAY BE LOWER THAN THE PRICES UNDER THE POWER PURCHASE AGREEMENTS. The initial terms of the power purchase agreements for Salton Sea Unit I and the Power Resources, Saranac and Vulcan projects end in 2017, 2003, 2009 and 2016, respectively, and we cannot assure you that the terms of these power purchase agreements will be extended beyond the initial terms. The revenues of PRI, Vulcan and Salton Sea Unit I represented 28%, 5% and 2% of total sales of electricity and steam, respectively, for the nine months ended September 30, 1999. Saranac is accounted for as an equity investment and our share of its earnings comprise 95% of the equity 15 earnings in subsidiaries for the nine months ended September 30, 1999. Upon termination or expiration of a power purchase agreements, the affected project company may make "spot" sales to the competitive market, enter into one or more replacement power purchase agreements or sell power through a combination of these approaches. In any of these cases, we cannot assure you that net revenues generated from market sales or replacement power purchase agreements will not be lower than the revenues contemplated by the projections. If the revenues are lower, there will be less funds available to make payments on the Securities than as shown in the projections. THE PROCEEDS RECEIVED UNDER THE PROJECT COMPANIES' INSURANCE POLICIES MAY NOT BE SUFFICIENT TO COVER ALL LOSSES AND THE INSURANCE COVERAGE FOR THE PROJECTS MAY NOT BE AVAILABLE IN THE FUTURE ON COMMERCIALLY REASONABLE TERMS. The operation of the projects involves many risks, including the breakdown or failure of power generating equipment, pipelines, transmission lines or other equipment or processes, fuel interruption, performance below expected levels of output or efficiency, operator error and catastrophic events including fires, earthquakes or explosions. The occurrence of any of these events could significantly reduce or eliminate revenues generated by a project or significantly increase the expenses of a project, thereby reducing the funds available to make distributions to the designated subsidiaries and, consequently, reducing the funds available to make payments on the Securities. The projects companies currently possess property, business interruption, catastrophic and general liability insurance. However, this comprehensive insurance coverage may not be available in the future at commercially reasonable costs or terms and the amounts for which the project companies are or will be insured may not cover all potential losses. THE PROJECT COMPANIES RELY ON A LIMITED NUMBER OF CUSTOMERS AND SUPPLIERS. Each project depends on a single or limited number of companies to purchase electricity or thermal energy, to supply water, to supply gas, to transport gas, to dispose of wastes or to deliver electricity. For example, each of the eight operating Imperial Valley projects relies on a power purchase agreement with Southern California Edison for all of its revenues. The failure of any power purchaser, thermal energy purchaser, water or gas supplier, gas transporter, transmitting utility or other project participant to fulfill its contractual obligations could increase the expenditures of or decrease the revenues earned by the affected project company. This would, in turn, decrease the amounts available for distribution to the designated subsidiaries and, as a result, decrease the funds available to make payments on the Securities. THE CONSTRUCTION OF THE NEW PROJECTS MAY BE DELAYED AND MAY COST MORE THAN WE EXPECTED. Although twelve of the projects have been operating for a number of years, Salton Sea Unit V and the CE Turbo project are under construction according to the terms of engineering, procurement and construction contracts. These new projects are subject to risks associated with the construction of power plants including risks of delays in completion, cost overruns and failures of the construction contractors to perform in accordance with contract terms. Any material unremedied delay in or unsatisfactory completion of the new projects could hurt the affected project companies' results of operations. This would, in turn, decrease the amounts available for distribution to the designated subsidiaries and, as a result decrease the funds available to make payments on the Securities. THE AVAILABLE GEOTHERMAL RESOURCES MAY NOT BE SUFFICIENT TO OPERATE THE GEOTHERMAL PROJECTS FOR THE ENTIRE TERM OF THE SECURITIES AND THE USE OF GEOTHERMAL FUEL IN THESE PROJECTS MAY RESULT IN SIGNIFICANT COSTS WHICH ARE NOT WITHIN OUR CONTROL. The Salton Sea Units I-V, Leathers, Del Ranch, Elmore, Vulcan and CE Turbo projects are geothermal power projects. The revenues of these geothermal projects represented 66% of our total sales of electricity and steam for the nine months ended September 30, 1999. Geothermal exploration, development and operations are subject to uncertainties which vary among different geothermal reservoirs and are similar to those typically associated with oil and gas exploration and development, 16 including dry holes and uncontrolled releases. Because of the geological complexities of geothermal reservoirs, the geographic area and sustainable output of the reservoirs can only be estimated and cannot be definitively established. There is, accordingly, a risk of an unexpected decline in the capacity of geothermal wells and a risk of geothermal reservoirs not being sufficient for sustained production of electricity by the Imperial Valley projects at the expected levels. In addition, both the cost of operations and the operating performance of the Imperial Valley projects may be hurt by a variety of operating factors. Production and injection wells can require frequent maintenance or replacement. Corrosion caused by high-temperature and high-salinity geothermal fluids may require the replacement or repair of equipment, vessels or pipelines. New production and injection wells may be required for the maintenance of current operating levels, thereby requiring substantial capital expenditures. THE PROJECT COMPANIES' BUSINESSES ARE SUBJECT TO A LARGE NUMBER OF REGULATIONS AND PERMITTING REQUIREMENTS AND MAY BE HURT BY CHANGES IN THESE REGULATIONS AND REQUIREMENTS. The project companies are subject to a number of environmental laws and regulations affecting many aspects of their present and future operations. These laws and regulations generally require the project companies to obtain and comply with a wide variety of licenses, permits and other approvals. The project companies are also subject to environmental and energy regulations that both public officials and private individuals may seek to enforce. We cannot assure you that existing regulations will not be revised or that new regulations will not be adopted or become applicable to the project companies which could have an adverse impact on their operations. The structure of federal and state energy regulations is currently undergoing change and has in the past, and may in the future, be the subject of various challenges, initiatives and restructuring proposals by utilities and other electric industry participants. The implementation of regulatory changes in response to these challenges, initiatives and restructuring proposals could result in the imposition of more comprehensive or stringent requirements on the project companies, electric utilities and other electric industry participants, which would result in increased compliance costs and could otherwise have an adverse effect on: o the results of the project companies' operations; o the project companies' ability to make distributions to the designated subsidiaries; or o the operations and financial condition of electric utilities (including the utilities which have entered into power purchase agreements with the project companies) and other industry participants. THERE IS A PENDING LAWSUIT RELATED TO THE SARANAC PROJECT, WHICH MAY HURT THE REVENUES OF SARANAC IF ADVERSELY DETERMINED. New York State Electric and Gas has filed a complaint in federal court challenging the implementation of the Public Utility Regulatory Policies Act of 1978 by the Federal Energy Regulatory Commission and the New York State Public Service Commission and claiming that the prices in the Saranac power purchase agreement exceed the prices mandated by the Public Utility Regulatory Policies Act. The Public Service Commission also filed a related cross-claim against FERC making similar assertions. We believe that New York State Electric and Gas's and the Public Service Commission's claims are without merit because, among other things, these claims were unanimously denied by FERC in earlier proceedings which found that (1) New York State Electric and Gas's challenge to the regulatory scheme was grossly untimely, (2) the Saranac power purchase agreement was exempt from further regulatory review and (3) the rates payable under the Saranac power purchase agreement were consistent with the Public Utility Regulatory Policies Act and FERC regulations. If, however, New York State Electric and Gas were successful in reducing the rates payable under the Saranac power purchase agreement or in obtaining any restitution, this rate reduction or restitution payment could reduce the revenues of Saranac. This reduction would result in decreased distributions made to Falcon Seaboard Resources, which would mean less funds available to make payments on the bonds. 17 IT IS POSSIBLE THAT THE DESIGNATED SUBSIDIARIES' ASSIGNMENT OF THEIR AVAILABLE CASH FLOW COULD BE SUBORDINATED OR DECLARED UNENFORCEABLE IN A BANKRUPTCY OR SIMILAR PROCEEDING. We distributed a substantial portion of the proceeds from the sale of the old Securities to MidAmerican. The portion of the proceeds from the sale which we contributed to each designated subsidiary was less than the amount of available cash flow assigned by each designated subsidiary to secure our obligations with respect to the Securities. It is possible that a creditor of a designated subsidiary could make a claim, under federal or state fraudulent conveyance laws, that the Security holders' claims under the designated subsidiary security agreement should be subordinated or not enforced or that payments thereunder (including payments to the Security holders) should be recovered. In order to prevail on this type of claim, a claimant would have to demonstrate that: o either: o the obligations incurred under the designated subsidiary security agreement were not incurred in good faith; or o that any designated subsidiary did not receive fair consideration for its assignment of available cash flow; and o that any designated subsidiary: o was insolvent at the time it entered into the designated subsidiary security agreement; or o at any time did not have and will not have sufficient capital for carrying on its business or was not and will not be able to pay its debts as they mature. WE HAVE RELIED ON PROJECTIONS OF THE FUTURE PERFORMANCE OF THE PROJECTS IN ASSESSING OUR ABILITY TO MAKE PAYMENTS ON THE SECURITIES. THESE PROJECTIONS, WHICH WERE NOT VERIFIED BY OUR ACCOUNTANTS, ARE BASED ON ASSUMPTIONS WHICH MAY PROVE TO BE INCORRECT. In order to assess our ability to make payments on the Securities, we engaged independent engineers to prepare reports containing, among other things, projections of the distributions to us from the projects. R.W. Beck, Inc. prepared a report which contains projections of distributions from the natural gas projects and Fluor Daniel, Inc. prepared a report which contains projections of distributions from the Imperial Valley geothermal projects. Fluor Daniel also prepared a report which contains projections of the consolidated distributions from all of the projects. A summary of these independent engineers' reports and other third-party reports appears later in this prospectus. The reports in their entirety are attached as appendices to this prospectus. All projections of future operations and the economic results of the projections included in the independent engineers' reports have been prepared or confirmed by Fluor Daniel and R.W. Beck. Deloitte & Touche LLP, our independent auditors, have neither examined nor compiled the projections and, accordingly, do not express an opinion or any other form of assurance with respect to the projections. The reports were prepared prior to our offering of the old Securities and have not been updated since that time. For purposes of preparing the projections, assumptions were made, of necessity, with respect to general business and economic conditions, the revenues the project companies will earn in their respective businesses, the amount of available cash flow the designated subsidiaries will receive and several other matters that are not within the control of the designated subsidiaries and the outcome of which cannot be predicted by us, the designated subsidiaries, Fluor Daniel, R.W. Beck or any other person with any certainty or accuracy. We believe that the assumptions were reasonable for purposes of preparing the projections. These assumptions and the other assumptions used in preparing the projections are, however, inherently subject to significant uncertainties and actual results may differ, perhaps materially, from those projected. If actual results are less favorable than those shown or if the assumptions used in formulating the projections prove to be incorrect, our ability to make payments on the Securities may be adversely affected. 18 THERE IS NO EXISTING MARKET FOR THE NEW SECURITIES AND WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP. We are offering the new Securities to the holders of the old Securities. There is no existing market for the new Securities and we cannot assure you that a market will develop. If a market for the new Securities were to develop, future trading prices would depend on many factors, including prevailing interest rates, the operating results of the project companies and the market for similar securities. We do not intend to apply for listing or quotation of the new Securities on any securities exchange or stock market. As a result, it may be difficult for you to find a buyer for your Securities at the time you want to sell them, and even if you found a buyer, you might not get the price you want. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE DEPENDENT ON CIRCUMSTANCES AND EVENTS WHICH MAY BE OUTSIDE OF OUR CONTROL. Some of the statements contained in this prospectus are forward-looking statements that are dependent on circumstances and events that may be outside of our control. We identify these statements by using words like "expect," "believe," "anticipate," "estimate" and "projected" and similar expressions. The forward-looking statements in this prospectus involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or the results, performance or achievements of our affiliates, or industry results, to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements. These risks, uncertainties and other important factors include: o general economic and business conditions in the United States; o governmental, statutory, regulatory or administrative initiatives affecting us, the designated subsidiaries, the project companies, the projects or the U.S. electricity industry; o weather effects on sales and revenues; o general industry trends; competition; o fuel and power costs and availability; o changes in business strategy, development plans or vendor relationships; o fuel transportation; availability, term and deployment of capital; o availability of qualified personnel; and o changes in, or the failure or inability to comply with, governmental regulation, including industry deregulation and restructuring, environmental and tax regulations and legislation. 19 THE EXCHANGE OFFER BACKGROUND INFORMATION REGARDING THE EXCHANGE OFFER We originally sold the outstanding 7.416% Senior Secured Bonds Due December 15, 2018 on March 2, 1999 in a transaction exempt from the registration requirements of the Securities Act. Credit Suisse First Boston Corporation and Goldman, Sachs & Co., as the initial purchasers, subsequently resold the notes to qualified institutional buyers in reliance on Rule 144A and under Regulation S under the Securities Act. As of the date of this prospectus, $400 million aggregate principal amount of unregistered bonds are outstanding. We entered into an exchange and registration rights agreement with Credit Suisse First Boston Corporation and Goldman, Sachs & Co. under which we agreed that we would, at our own cost, do the following: o use our reasonable best efforts to cause the registration statement, of which this prospectus is a part, relating to the exchange offer to be declared effective by the Securities and Exchange Commission by November 27, 1999; o keep the exchange offer open for a period of not less than the shorter of: (1) the period ending when the last of the remaining old Securities is tendered into the exchange offer, and (2) 30 days from the date notice is mailed to holders of the old Securities; and o maintain the registration statement continuously effective for a period of not less than the longer of: (1) the period ending upon consummation of the exchange offer, and (2) 120 days after effectiveness of the registration statement, subject to extension. However, in the event that all resales of new Securities covered by the registration statement have been made, the registration statement need not remain continuously effective. YOUR ABILITY TO RESELL THE NEW SECURITIES Based on no-action letters issued by the staff of the Securities and Exchange Commission to third parties, we believe that a holder of old Securities who exchanges old Securities for new Securities in the exchange offer generally may offer the new Securities for resale, sell the new Securities and otherwise transfer the new Securities without further registration under the Securities Act and without delivery of a prospectus that satisfies the requirements of Section 10 of the Securities Act. This does not apply, however, to a holder who is an affiliate of ours within the meaning of Rule 405 of the Securities Act. We also believe that a holder may offer, sell or transfer the new Securities only if the holder acquires the new Securities in the ordinary course of its business and is not participating, does not intend to participate and has no arrangement or understanding with any person to participate in a distribution of the new Securities. Any holder of old Securities using the exchange offer to participate in a distribution of new Securities cannot rely on the no-action letters referred to above. This category of holders includes a broker-dealer that acquired old Securities directly from us, but not as a result of market-making activities or other trading activities. Consequently, this type of holder must comply with the registration and prospectus delivery requirements of the Securities Act in the absence of an exemption from these requirements. Each broker-dealer that receives new Securities for its own account in exchange for old Securities, where the old Securities were acquired by the broker-dealer as a result of market-making activities or other trading activities, may be a statutory underwriter and must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with the resale of new 20 Securities received in exchange for old Securities. The letter of transmittal (which accompanies this prospectus) states that by so acknowledging and by delivering a prospectus, a participating broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. A participating broker-dealer may use this prospectus, as it may be amended from time to time, in connection with resales of new Securities it receives in exchange for old Securities in the exchange offer. We will make this prospectus available to any participating broker-dealer in connection with any resale of this kind for a period of 30 days after the expiration date of the exchange offer. REPRESENTATIONS AND ACKNOWLEDGEMENTS THAT YOU MUST MAKE IN ORDER TO EXCHANGE YOUR OLD SECURITIES FOR NEW SECURITIES Each holder of the old Securities who wishes to exchange old Securities for new Securities in the exchange offer will be required to represent and acknowledge, for the holder and for each beneficial owner of the old Securities, whether or not the beneficial owner is the holder, in the letter of transmittal that: o the new Securities to be acquired by the holder and each beneficial owner, if any, are being acquired in the ordinary course of business, o neither the holder nor any beneficial owner is an affiliate, as defined in Rule 405 of the Securities Act, of ours or any of our subsidiaries, o any person participating in the exchange offer with the intention or purpose of distributing new Securities received in exchange for old Securities, including a broker-dealer that acquired old Securities directly from us, but not as a result of market-making activities or other trading activities, cannot rely on the no-action letters referenced above and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale of the new Securities, o if the holder is not a broker-dealer, the holder and each beneficial owner, if any, are not participating, do not intend to participate and have no arrangement or understanding with any person to participate in any distribution of the new Securities received in exchange for old Securities, and o if the holder is a broker-dealer that will receive new Securities for the holder's own account in exchange for old Securities, the old Securities to be so exchanged were acquired by the holder as a result of market-making or other trading activities and the holder will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the new Securities received in the exchange offer. However, by so representing and acknowledging and by delivering a prospectus, the holder will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. SITUATIONS IN WHICH WE WILL BE REQUIRED TO FILE A SHELF REGISTRATION STATEMENT If applicable law or interpretations of the staff of the Securities and Exchange Commission are changed so that the new Securities received by holders who make all of the above representations in the letter of transmittal are not or would not be, upon receipt, transferable by each holder without restriction under the Securities Act, we will, at our cost: o file a shelf registration statement covering resales of the old Securities, o use our reasonable best efforts to cause the shelf registration statement to be declared effective under the Securities Act on or prior to November 27, 1999, and o use our reasonable best efforts to keep effective the shelf registration statement until the earlier of three years after March 2, 1998, subject to exceptions, or the time when all of the applicable old Securities are no longer outstanding. 21 We may postpone or suspend the filing or the effectiveness of any shelf registration statement if the postponement or suspension is taken by us in good faith and for valid business reasons. We will, if and when we file the shelf registration statement, provide to each holder of the old Securities copies of the prospectus which is a part of the shelf registration statement, notify each holder when the shelf registration statement has become effective and take other actions as are required to permit unrestricted resales of the old Securities. THE INTEREST RATE ON THE OLD SECURITIES IS INCREASED FROM AND AFTER NOVEMBER 28, 1999 BECAUSE A REGISTRATION STATEMENT WAS NOT DECLARED EFFECTIVE BY NOVEMBER 27, 1999 As neither the exchange offer registration statement nor a shelf registration statement was declared effective by November 27, 1999, the interest rate on the old Securities was increased by 0.50% per annum from and after November 28, 1999 until the exchange offer registration statement or the shelf registration statement is declared effective. Upon consummation of the exchange offer, holders of old Securities will not be entitled to any increase in the rate of interest on the old Securities, but the old Securities will still be governed by the indenture under which the old Securities were issued. GENERAL TERMS OF THE EXCHANGE OFFER We hereby offer, upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, to exchange new Securities for a like aggregate principal amount of old Securities properly tendered on or prior to the expiration date and not properly withdrawn in accordance with the procedures described below. We will issue, promptly after the expiration date, the new Securities in exchange for a like principal amount of outstanding old Securities tendered and accepted in connection with the exchange offer. You may tender your old Securities in whole or in part in a principal amount of $1,000 and integral multiples thereof, provided that if any old Securities are tendered for exchange in part, the untendered principal amount of the old Securities must be $100,000 or any integral multiple of $1,000 in excess of $100,000. The exchange offer is not conditioned upon any minimum number of old Securities being tendered. As of the date of this prospectus, $400,000,000 aggregate principal amount of the old Securities is outstanding. If any tendered old Securities are not accepted for exchange because of an invalid tender or any other reason, certificates for any unaccepted old Securities will be returned, without expense to the tendering holder promptly after the expiration date. You will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of old Securities. We will pay all charges and expenses, other than applicable taxes described below, in connection with the exchange offer. Neither we nor our board of directors makes any recommendation to you as to whether to tender or refrain from tendering all or any portion of your old Securities in the exchange offer. In addition, no one has been authorized to make this type of recommendation. You must make your own decision whether to tender in the exchange offer and, if you do tender, the aggregate amount of old Securities to tender. In making these decisions, you should read this prospectus and the letter of transmittal and consult with your advisers. You should make the decision whether to tender based on your own financial position and requirements. THE EXPIRATION DATE FOR THE EXCHANGE OFFER AND OUR ABILITY TO EXTEND THE EXPIRATION DATE The exchange offer expires on the expiration date. The term "expiration date" means 5:00 p.m., New York City time, on , 1999, unless we in our sole discretion extend the period during which the exchange offer is open. If we do so, the term "expiration date" will mean the latest time and date to which the exchange offer is extended. We may extend the exchange offer at any time and from time to time by giving oral or written notice to the exchange agent and by timely public announcement. Without limiting the manner in which we may choose to make any public 22 announcement and subject to applicable law, we will have no obligation to publish, advertise or otherwise communicate any public announcement other than by issuing a release to an appropriate news agency. During any extension of the exchange offer, all old Securities previously tendered in the exchange offer will remain subject to the exchange offer. WE CAN WAIVE CONDITIONS TO THE EXCHANGE OFFER AND AMEND THE EXCHANGE OFFER IN OTHER WAYS We reserve the right (1) to delay accepting any old Securities, to extend the exchange offer or to terminate the exchange offer and not accept old Securities not previously accepted for any reason, including if any of the conditions to the exchange offer described below are not satisfied and are not waived by us, or (2) to amend the terms of the exchange offer in any manner, whether prior to or after the tender of any of the old Securities. If any delay, extension, termination or amendment occurs, we will give oral or written notice to the exchange agent and will either cause a public announcement or give notice to the holders of the Securities as promptly as practicable. If the delay, extension, termination or amendment is material, we will be required to file a post-effective amendment to the registration statement of which this prospectus is a part. If (1) we waive any material condition to the exchange offer or amend the exchange offer in any other material respect and (2) the exchange offer is scheduled to expire at any time earlier than the expiration of a period ending on the fifth business day after the date that notice of the waiver or amendment is first published, sent or given, then the exchange offer will be extended until the expiration of the five business day period. THE PROCEDURES YOU MUST FOLLOW IN ORDER TO TENDER YOUR OLD SECURITIES THE ITEMS YOU MUST SUBMIT IN ORDER TO TENDER YOUR OLD SECURITIES To tender in the exchange offer, you must (1) complete, sign and date the letter of transmittal, or a facsimile of the letter, (2) have the signatures thereon guaranteed if required by the letter of transmittal and (3) mail or otherwise deliver the letter of transmittal, together with any other required documents or an agent's message in case of book-entry delivery as described below, to the exchange agent prior to the expiration date. In addition, either o certificates for the old Securities being tendered must be received by the exchange agent along with the letter of transmittal on or prior to the expiration date, o a timely confirmation of a book-entry transfer of the old Securities, if this procedure is available, into the exchange agent's account at The Depository Trust Company by the procedure for book-entry transfer described below, along with the letter of transmittal, must be received by the exchange agent on or prior to the expiration date, or o you must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND SOLE RISK. IF YOU DELIVER BY MAIL, WE RECOMMEND REGISTERED MAIL (RETURN RECEIPT REQUESTED AND PROPERLY INSURED) OR AN OVERNIGHT DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO US. SPECIAL CIRCUMSTANCES THAT MAY APPLY TO YOUR TENDER To be tendered effectively, the old Securities, letter of transmittal and all other required documents, or, in the case of a participant in The Depository Trust Company, an agent's message must be received by the exchange agent prior to 5:00 p.m., New York City time, on the expiration date. Except in the case of a participant in The Depository Trust Company who transfers Securities by an agent's message, delivery of all documents must be made to the exchange agent at its address set forth on the back of this prospectus. You may also request your respective broker, dealer, commercial bank, trust company or nominee to effect your tender for you. 23 Your tender of old Securities will constitute an agreement between you and us in accordance with the terms and subject to the conditions set forth in the prospectus and in the letter of transmittal. If you tender less than all of your old Securities, you should fill in the amount of old Securities being tendered in the appropriate box on the letter of transmittal. The entire amount of old Securities delivered to the exchange agent will be deemed to have been tendered unless you indicate otherwise. Only a holder of old Securities may tender the old Securities in the exchange offer. The term "holder" with respect to the exchange offer means any person in whose name old Securities are registered on our books or any other person who has obtained a properly completed bond power from the registered holder. Any beneficial owner whose old Securities are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on his behalf. If the beneficial owner wishes to tender on his own behalf, the beneficial owner must, prior to completing and executing the letter of transmittal and delivering his old Securities, either make appropriate arrangements to register ownership of the old Securities in the beneficial owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a firm (an "eligible institution") that is a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Exchange Act, unless the old Securities tendered with the letter are tendered (1) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal or (2) for the account of an eligible institution. In the event that signatures on a letter of transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, the guarantee must be by an eligible institution. If the letter of transmittal is signed by a person other than the registered holder of any old Securities listed in the letter, the old Securities must be endorsed or accompanied by bond powers and a proxy which authorizes that person to tender the old Securities on behalf of the registered holder, in each case as the name of the registered holder appears on the old Securities. If the letter of transmittal or any old Securities or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, the signer should so indicate when signing, and unless waived by us, evidence satisfactory to us of their authority to so act must be submitted with the letter of transmittal. OUR RIGHTS IN CONNECTION WITH THE TENDERING PROCEDURES All questions as to the validity, form, eligibility (including time of receipt) and withdrawal of the tendered old Securities will be determined by us in our sole discretion, which determination will be final and binding. We reserve the absolute right to reject any and all old Securities not properly tendered or any old Securities which, if accepted by us, would be unlawful. We also reserve the right to waive any irregularities or conditions of tender as to particular old Securities. Our interpretation of the terms and conditions of the exchange offer (including the instructions in the letter of transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old Securities must be cured within a time period determined by us. Neither we, the exchange agent or any other person will be under any duty to give notification of defects or irregularities with respect to tenders of old Securities, nor will we or any of them incur any liability for failure to give notification. Tenders of old Securities will not be deemed to have been made until any irregularities have been cured or waived. Any old Securities received by the exchange agent that are not properly tendered, and which have defects or irregularities which have not been timely cured or waived, will be returned without cost to the holder by the exchange agent as soon as practicable following the expiration date. 24 In addition, we reserve the right in our sole discretion (1) to purchase or make offers for any old Securities that remain outstanding subsequent to the expiration date or to terminate the exchange offer, and (2) to the extent permitted by applicable law, to purchase old Securities in the open market, in privately negotiated transactions or otherwise. We have no present plan to acquire any old Securities which are not tendered in the exchange offer. The terms of any purchases or offers could differ from the terms of the exchange offer. YOU MAY BE ABLE TO USE THE DEPOSITORY TRUST COMPANY IN CONNECTION WITH YOUR TENDER The exchange agent will make a request to establish an account with respect to the old Securities at The Depository Trust Company for purposes of the exchange offer within two business days after the date of this prospectus. Any financial institution that is a participant in The Depository Trust Company may book-entry deliver old Securities by causing The Depository Trust Company to transfer the old Securities into the exchange agent's account at The Depository Trust Company in accordance with The Depository Trust Company's procedures for transfer on or prior to the expiration date. If you are a participant in The Depository Trust Company and transfer your old Securities by an agent's message, you do not need to transmit the letter of transmittal to the exchange agent to consummate your exchange. The term "agent's message" means a message transmitted through electronic means by The Depository Trust Company to and received by the exchange agent and forming a part of a book-entry confirmation, which states that The Depository Trust Company has received an express acknowledgment from the participant in The Depository Trust Company tendering the Securities that the participant has received and agrees to be bound by the letter of transmittal and/or the notice of guaranteed delivery discussed below, where applicable. YOUR ABILITY TO TENDER BY PROVIDING A NOTICE OF GUARANTEED DELIVERY If you would like to tender your old Securities, and (1) your old Securities are not immediately available, (2) time will not permit your old Securities or other required documents to reach the exchange agent before the expiration date, or (3) the procedure for book-entry transfer cannot be completed on a timely basis, your tender may still be effected if: o the tender is made through an eligible institution; o on or prior to the expiration date, the exchange agent received from the eligible institution a properly completed and duly executed letter of transmittal (or in the case of a participant in The Depository Trust Company, an agent's message) and notice of guaranteed delivery, substantially in the form provided by us (or, in the case of a participant in The Depository Trust Company, by an agent's message), setting forth your name and address and the amount of old Securities tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered old Securities, in proper form for transfer, or a book-entry confirmation, as the case may be, and any other documents required by the letter of transmittal, will be deposited by the eligible institution with the exchange agent; and o the certificates for all physically tendered old Securities, in proper form for transfer, or a book-entry confirmation, as the case may be, and any other documents required by the letter of transmittal are received by the exchange agent within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery. A tender will be deemed to have been received as of the date when your properly completed and duly signed letter of transmittal accompanied by your old Securities is received by the exchange agent, or if you are a participant in The Depository Trust Company, as of the date when an agent's message has been received by the exchange agent. Issuances of new Securities in exchange for old Securities tendered by a notice of guaranteed delivery by an eligible institution will be made only against deposit of the letter of transmittal (and any other required documents) and the tendered old Securities. 25 TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL THAT YOU MAY BE REQUIRED TO SUBMIT WITH YOUR TENDERED SECURITIES The letter of transmittal contains the following terms and conditions, which are part of the exchange offer: o If you tender your old Securities for exchange, you exchange, assign and transfer the old Securities to us and irrevocably constitute and appoint the exchange agent as your agent and attorney-in-fact to cause the old Securities to be assigned, transferred and exchanged. o You represent and warrant that you have full power and authority to tender, exchange, assign and transfer the old Securities and to acquire new Securities issuable upon the exchange of the tendered old Securities, and that, when the same are accepted for exchange, we will acquire good and unencumbered title to the tendered old Securities, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. o You also warrant that you will, upon request, execute and deliver any additional documents deemed by us to be necessary or desirable to complete the exchange, assignment and transfer of tendered old Securities. o You agree that acceptance of any tendered old Securities by us and the issuance of new Securities in exchange therefor will constitute performance in full of our obligations under the registration rights agreement and that we will have no further obligations or liabilities thereunder. o All authority conferred by you will survive your death or incapacity and your obligations will be binding upon your heirs, legal representatives. successors, assigns, executors and administrators. By tendering old Securities, you certify that (1) you are not an "affiliate" of ours within the meaning of Rule 405 under the Securities Act, that you are not a broker-dealer that owns old Securities acquired directly from us, that you are acquiring the new Securities offered hereby in the ordinary course of your business and that you have no arrangement with any person to participate in the distribution of the new Securities or (2) you are an "affiliate" of ours or of an initial purchaser and that you will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable to you. Each broker-dealer that receives new Securities as a result of market-making activities or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of the new Securities. YOU MAY WITHDRAW YOUR TENDER Old Securities tendered in the exchange offer may be withdrawn at any time prior to 5:00 p.m. New York City time, on the expiration date. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the exchange agent at its address set forth on the back of this prospectus. Any notice of withdrawal must specify the name of the person having tendered the old Securities to be withdrawn, identify the old Securities to be withdrawn, specify the name in which the old Securities are registered if different from that of the withdrawing holder, accompanied by evidence satisfactory to us that the person withdrawing the tender has succeeded to the beneficial ownership of the old Securities being withdrawn. If certificates for old Securities have been delivered or otherwise identified to the exchange agent, then, prior to the release of the certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an eligible institution unless the holder is an eligible institution. If old Securities have been tendered by using the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at The Depository Trust Company to be credited with the withdrawn old Securities and otherwise comply with the Depository Trust Company's procedures. If any old Securities are tendered for exchange but are not exchanged for any reason, or if any old Securities are submitted for a greater principal amount than the holder desires to exchange, the 26 unaccepted or nonexchanged old Securities will be returned to the holder without cost to the holder as soon as practicable after withdrawal, rejection of tender, termination of the exchange offer or submission of nonexchanged old Securities. IF YOU WITHDRAW YOUR TENDER, YOU MAY RETENDER YOUR OLD SECURITIES PRIOR TO THE EXPIRATION DATE Withdrawals of tenders of old Securities may not be rescinded. Old Securities properly withdrawn will not be deemed validly tendered for purposes of the exchange offer, but may be retendered at any subsequent time on or prior to the expiration date by following any of the procedures described above. All questions as to the validity, form and eligibility (including time of receipt) of withdrawal notices will be determined by us in our sole discretion, and our determination will be final and binding on all parties. Neither we, any affiliates or assigns of ours, the exchange agent nor any other person will be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give any notification. ACCEPTANCE OF OLD SECURITIES AND DELIVERY OF NEW SECURITIES Upon the terms and subject to the conditions of the exchange offer, we will exchange, and will issue to the exchange agent, new Securities for old Securities validly tendered and not withdrawn promptly after the expiration date. For the purposes of the exchange offer, we will be deemed to have accepted for exchange validly tendered old Securities when and if we have given oral or written notice of acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders of old Securities for the purposes of receiving new Securities from us and causing the old Securities to be assigned, transferred and exchanged. Upon the terms and subject to the conditions of the exchange offer, delivery of new Securities to be issued in exchange for accepted old Securities will be made by the exchange agent only after timely receipt by the exchange agent of certificates for the old Securities or a timely book-entry confirmation of the old Securities into the exchange agent's account at The Depository Trust Company, a properly completed and duly executed letter of transmittal and all other required documents, or, in the case of a book-entry delivery, an agent's message. SITUATIONS IN WHICH WE WILL NOT BE REQUIRED TO EFFECT THE EXCHANGE OFFER Notwithstanding any other provisions of the exchange offer, or any extension of the exchange offer, we will not be required to accept for exchange, or to exchange, any old Securities for any new Securities, and, as described below, may terminate the exchange offer (whether or not any old Securities have already been accepted for exchange) or may waive any conditions to or amend the exchange offer, if any of the following conditions has occurred or exists or has not been satisfied: o the exchange offer, or the making of any exchange by a holder, violates any applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission; o in our reasonable judgment there is be threatened, instituted or pending any action or proceeding before, or any injunction, order or decree has been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission, (1) seeking to restrain or prohibit the making or consummation of the exchange offer or any other transaction contemplated by the exchange offer, (2) assessing or seeking any damages as a result of the exchange offer or any other transaction contemplated by the exchange offer, or (3) resulting in a material delay in our ability to accept for exchange or exchange some or all of the old Securities in the exchange offer; o any statute, rule, regulation, order or injunction is sought, proposed, introduced, enacted, promulgated or deemed applicable to the exchange offer or any of the transactions contemplated by the exchange offer by any government or governmental authority, domestic or foreign, or any action will have been taken, proposed or threatened by any government, governmental authority, agency or court, domestic or foreign, that in our reasonable judgment 27 might directly or indirectly result in any of the consequences referred to in clauses (1), (2) or (3) immediately above or, in our reasonable judgment, might result in the holders of new Securities having obligations with respect to resales and transfers of new Securities which are greater than those described in the interpretations of the staff of the Securities and Exchange Commission referred to in this prospectus, or would otherwise make it inadvisable to proceed with the exchange offer; o there will have occurred (1) any general suspension of trading in, or general limitation on prices for, securities on the New York Stock Exchange, (2) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation by any governmental agency or authority that adversely affects the extension of credit to us, or (3) a commencement of a war, armed hostilities or other similar international calamity directly or indirectly involving the United States, or, in the case any of the foregoing exists at the time of commencement of the exchange offer, a material acceleration or worsening of the event; or o a material adverse change will have occurred or be threatened in our business, condition (financial or otherwise), operations, stock ownership or prospects. The foregoing conditions are for our sole benefit and may be asserted by us with respect to all or any portion of the exchange offer regardless of the circumstances (including any action or inaction by us) giving rise to the condition or may be waived by us in whole or in part at any time or from time to time in our sole discretion. Our failure at any time to exercise any of the foregoing rights will not be deemed a waiver of these rights, and each right will be deemed an ongoing right which may be asserted at any time or from time to time. In addition, we have reserved the right, notwithstanding the satisfaction of each of the foregoing conditions, to amend the exchange offer. Any determination by us concerning the fulfillment or non-fulfillment of any conditions will be final and binding upon all parties. In addition, we will not accept for exchange any old Securities tendered and no new Securities will be issued in exchange for any old Securities, if at the time any stop order will be threatened or in effect with respect to (1) the registration statement of which this prospectus constitutes a part or (2) the qualification of the indenture under the Trust Indenture Act of 1939. THE PERSON ACTING AS EXCHANGE AGENT FOR THE EXCHANGE OFFER Chase Manhattan Bank and Trust Company, National Association, has been appointed as the exchange agent for the exchange offer. Chase Manhattan Bank and Trust Company, National Association, also acts as trustee under the indenture. Delivery of letters of transmittal and any other required documents and questions, requests for assistance and requests for additional copies of this prospectus or the letter of transmittal, should be directed to the exchange agent at its address and numbers set forth on the back of this prospectus. Except in the case of a participant in The Depository Trust Company who transfers Securities by an agent's message, delivery to an address other than as set forth in this prospectus, or transmissions of instructions via a facsimile or telex number other than to the exchange agent as set forth in this prospectus, will not constitute a valid delivery. THE FEES AND EXPENSES WE WILL PAY IN CONNECTION WITH THE EXCHANGE OFFER We have not retained any dealer-manager or similar agent in connection with the exchange offer and will not make any payments to brokers, dealers or others for soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse it for reasonable out-of-pocket expenses in connection therewith. We will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this prospectus and related documents to the beneficial owners of old Securities, and in handling tenders for their customers. The 28 expenses to be incurred in connection with the exchange offer, including the fees and expenses of the exchange agent and printing, accounting and legal fees, will be paid by us and are estimated at approximately $250,000. YOU MAY BE REQUIRED TO PAY TRANSFER TAXES IN CONNECTION WITH YOUR TENDER Holders who tender their old Securities for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, new Securities are to be delivered to, or are to be issued in the name of, any person other than a registered holder of the old Securities tendered, or if a transfer tax is imposed for any reason other than the exchange of old Securities in connection with the exchange offer, then the amount of transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of the taxes or exemption therefrom is not submitted with the letter of transmittal, the amount of transfer taxes will be billed directly to the tendering holder. NO ONE ELSE HAS BEEN AUTHORIZED TO PROVIDE YOU WITH INFORMATION REGARDING THE EXCHANGE OFFER No person has been authorized to give any information or to make any representations in connection with the exchange offer other than those contained in this prospectus. If so given or made, the information or representations should not be relied upon as having been authorized by us. Neither the delivery of this prospectus nor any exchange made under this prospectus will, under any circumstances, create any implication that there has been no change in our affairs since the respective dates as of which information is given in this prospectus. The exchange offer is not being made to (nor will tenders be accepted from or on behalf of) holders of old Securities in any jurisdiction in which the making or acceptance of the exchange offer would not be in compliance with the laws of the jurisdiction. However, we may, at our discretion, take any action as we may deem necessary to make the exchange offer in the affected jurisdiction and extend the exchange offer to holders of old Securities in the affected jurisdiction. In any jurisdiction that has securities laws or blue sky laws which require the exchange offer to be made by a licensed broker or dealer, the exchange offer is being made on behalf of us by one or more registered brokers or dealers which are licensed under the laws of the jurisdiction. YOU WILL NOT HAVE APPRAISAL RIGHTS Holders of old Securities will not have dissenters' rights or appraisal rights in connection with the exchange offer. THE FEDERAL INCOME TAX CONSEQUENCES OF YOUR EXCHANGE The exchange of old Securities for new Securities will not be a taxable exchange for federal income tax purposes, and holders will not recognize any taxable gain or loss or any interest income as a result of the exchange. 29 CAPITALIZATION (IN THOUSANDS) The following table sets forth our capitalization as of September 30, 1999. This table should be read in conjunction with our consolidated financial statements and the notes to the consolidated financial statements appearing elsewhere in this prospectus.
SEPTEMBER 30, 1999 ------------------- INDEBTEDNESS: Parent company debt: Old securities ......................... $ 400,000 Subsidiary and project debt(1): Project loan ........................... 79,828 Salton Sea notes and bonds(2) .......... 597,898 ---------- Total consolidated indebtedness ......... 1,077,726 ---------- Members' equity ........................... 379,467 ---------- Total capitalization .................... $1,457,193 ==========
---------- (1) Represents debt for which the repayment obligation is at the project or subsidiary level. (2) Subject to the terms and conditions of the guarantee, MidAmerican has guaranteed the payment by the zinc guarantors of a specified portion of the scheduled debt service, in an amount up to the current principal amount of $140,520 and associated interest. 30 SELECTED FINANCIAL DATA (IN THOUSANDS) The selected data presented below as of September 30, 1999 and for the nine months ended September 30, 1999 and 1998 are derived from our unaudited consolidated financial statements which reflect all adjustments necessary in the opinion of our management for a fair presentation of the data and which are included elsewhere in this prospectus. The selected data presented below as of December 31, 1998 and 1997 and for the years ended December 31, 1998, 1997 and 1996 are derived from our audited consolidated financial statements. The consolidated financial statements reflect the consolidated financial statements of Magma and subsidiaries (excluding wholly-owned subsidiaries retained by MidAmerican), Falcon Seaboard Resources and subsidiaries and Yuma Cogeneration, each a wholly-owned subsidiary of MidAmerican. The consolidated financial statements present our financial position, results of our operations and our cash flows as if we were a separate legal entity for all periods presented. These consolidated financial statements and auditors' report thereon are included elsewhere in this prospectus. The selected data presented below as of December 31, 1996 and 1995 and for the year ended December 31, 1995 are derived from our unaudited consolidated financial statements and reflect all adjustments necessary in the opinion of our management for a fair presentation of the data. The selected data presented below as of December 31, 1994 and for the year then ended are derived from the audited consolidated financial statements of Magma and its subsidiaries which were not under MidAmerican control prior to February 24, 1995 ("predecessor" to CE Generation).
YEAR ENDED DECEMBER 31, PREDECESSOR SUCCESSOR ------------- ------------------------------------------------------- 1994 1995 (1) 1996 (2) 1997 1998 ------------- ------------- ------------- ------------- ------------- STATEMENT OF OPERATIONS DATA: Sales of electricity and thermal energy ........... $ 158,374 $ 179,393 $ 281,307 $ 381,458 $ 395,560 Equity earnings in subsidiaries ................... -- -- 4,263 14,542 10,732 Interest and Other income ......................... 32,508 37,789 19,273 11,138 29,883 Total revenue ..................................... 190,882 217,182 304,843 407,138 436,175 Plant operations, general and administrative, royalty and other expenses ....... 96,047 70,458 97,748 124,353 119,055 Depreciation and amortization ..................... 23,985 47,044 72,533 88,504 96,818 Interest expense, net of capitalized interest ..... 12,469 60,201 72,864 80,907 74,306 Provision for income taxes ........................ 19,832 10,348 15,487 43,378 52,218 Income before minority interest and extraordinary item ............................... 38,549 29,131 46,211 69,996 93,778 Minority interest ................................. -- 4,091 -- -- -- Extraordinary item (3) ............................ -- -- -- -- -- Net income ........................................ 38,549 25,040 46,211 69,996 93,778 OTHER DATA: Capital expenditures .............................. 58,045 93,944 90,734 21,676 46,222 Cash flows from operating activities .............. 72,968 69,234 90,703 151,070 150,030 Cash flows from investing activities .............. (30,846) (763,971) (261,814) 13,346 (151,575) Cash flows from financing activities .............. (36,085) 732,879 153,715 (162,224) 3,635 EBITDA (4) ........................................ 94,835 146,724 207,095 282,785 317,120 Ratio of EBITDA to fixed charges (4)(5) ........... 7.20 2.22 2.67 3.50 4.25 Ratio of earnings to fixed charges (5) ............ 5.38 1.51 1.79 2.52 3.04 NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1998 1999 ----------- ----------- STATEMENT OF OPERATIONS DATA: Sales of electricity and thermal energy ........... $ 293,485 $ 231,613 Equity earnings in subsidiaries ................... 8,635 17,718 Interest and Other income ......................... 21,823 17,665 Total revenue ..................................... 323,943 266,996 Plant operations, general and administrative, royalty and other expenses ....... 87,914 88,181 Depreciation and amortization ..................... 71,901 43,400 Interest expense, net of capitalized interest ..... 54,784 55,729 Provision for income taxes ........................ 39,364 30,520 Income before minority interest and extraordinary item ............................... 69,980 49,166 Minority interest ................................. -- -- Extraordinary item (3) ............................ -- (17,478) Net income ........................................ 69,980 31,688 OTHER DATA: Capital expenditures .............................. 28,471 119,322 Cash flows from operating activities .............. 112,168 104,970 Cash flows from investing activities .............. (15,914) (21,430) Cash flows from financing activities .............. (49,738) (51,409) EBITDA (4) ........................................ 236,029 178,815 Ratio of EBITDA to fixed charges (4)(5) ........... 4.31 3.06 Ratio of earnings to fixed charges (5) ............ 3.09 2.41
(footnotes on following page) 31
AS OF DECEMBER 31, AS OF PREDECESSOR SUCCESSOR SEPTEMBER 30, ------------- --------------------------------------------------- -------------- 1994 1995 (1) 1996 (2) 1997 1998 1999 ------------- ------------ ------------ ------------ ------------ -------------- BALANCE SHEET DATA: Cash, restricted cash and investments .......... $113,428 $ 108,368 $ 43,422 $ 30,591 $ 154,327 $ 136,792 Properties, plants, contracts and equipment, net ........................................... 438,862 724,763 990,285 932,207 893,492 982,258 Note receivable from related party ............. -- -- -- -- 140,520 140,520 Total assets ................................... 623,486 1,149,858 1,611,087 1,527,976 1,750,632 1,772,853 Project loans .................................. 179,546 54,707 114,571 103,334 90,529 79,828 Salton Sea notes and bonds ..................... -- 452,088 538,982 448,754 626,816 597,898 Senior Secured Bonds ........................... -- -- -- -- -- 400,000 Notes payable to related party ................. -- 248,292 247,812 247,812 247,681 -- Total liabilities .............................. 233,670 916,433 1,156,184 1,063,836 1,213,685 1,393,386 Net investments and advances (members' equity at September 30, 1999) ................. 389,816 233,425 454,903 464,140 536,947 379,467
---------- (1) Reflects the acquisition of approximately 51% of Magma Power Company on January 10, 1995, and the remaining 49% on February 24, 1995. Includes the results of operations of Magma Power Company from January 10, 1995 through December 31, 1995 adjusted for the Company's percentage ownership during that time period. (2) Reflects the acquisition of the remaining 50% of the Elmore, Vulcan, Del Ranch and Leathers projects on April 17, 1996 and the acquisition of Falcon Seaboard Resources on August 7, 1996. (3) The extraordinary item recognized in the nine months ended September 30, 1999 reflects the early redemption of substantially all of the outstanding 9 7/8% Limited Recourse Senior Secured Notes Due 2003. (4) EBITDA means earnings before interest, taxes, depreciation and amortization. EBITDA does not represent cash flows as defined by generally accepted accounting principles (GAAP) and does not necessarily indicate that cash flows are sufficient to fund all of a company's cash needs. EBITDA is presented because the Company believes it is a widely accepted financial indicator of a company's ability to incur and service debt. EBITDA should not be construed as an alternative to either (1) operating income (determined in accordance with GAAP) or (2) cash flow from operating activities (determined in accordance with GAAP). EBITDA, as defined, may differ from EBITDA as defined in similar offerings and, as such, may not be comparable. (5) For purposes of computing historical ratios of earnings to fixed charges, earnings are divided by fixed charges. "Earnings" represent the aggregate of (a) our pre-tax income, and (b) fixed charges, less capitalized interest. "Fixed charges" represent interest (whether expensed or capitalized), amortization of deferred financing and bank fees, and the portion of rentals considered to be representative of the interest factor (one-third of lease payments) and preferred stock dividend requirements of majority subsidiaries. 32 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars and Shares in Thousands, Except Per Share Amounts) The following is management's discussion and analysis of significant factors which have affected our financial condition and results of operations during the periods included in the accompanying statements of operations. Our actual results in the future could differ significantly from the our historical results. BUSINESS MidAmerican Energy Holdings Company ("MEHC" and formerly CalEnergy Company, Inc.) completed a strategic restructuring in conjunction with its acquisition of MidAmerican Energy Holdings Company in which MEHC's common stock interests in Magma Power Company, Falcon Seaboard Resources, Inc. and California Energy Development Corporation, and their subsidiaries (which own the geothermal and natural gas-fired combined cycle cogeneration facilities described below), were contributed by MEHC to us. This restructuring was completed in February 1999. Our consolidated financial statements reflect the consolidated financial statements of Magma Power Company and subsidiaries (excluding wholly-owned subsidiaries retained by MEHC), Falcon Seaboard Resources, Inc. and subsidiaries and Yuma Cogeneration Associates, each a wholly-owned subsidiary. The consolidated financial statements present our financial position, results of operations and cash flows as if we were a separate legal entity for all periods presented. Our basis in assets and liabilities have been carried over from MEHC. All material intercompany transactions and balances have been eliminated in consolidation. We are engaged in the independent power business. The following table sets out information concerning our projects:
COMMERCIAL PROJECT FUEL OPERATION CAPACITY LOCATION ---------------- ------------ ----------- ---------- ------------- Vulcan Geothermal 1986 34 MW California Del Ranch Geothermal 1989 38 MW California Elmore Geothermal 1989 38 MW California Leathers Geothermal 1990 38 MW California Salton Sea I Geothermal 1987 10 MW California Salton Sea II Geothermal 1990 20 MW California Salton Sea III Geothermal 1989 49.8 MW California Salton Sea IV Geothermal 1996 39.6 MW California Salton Sea V Geothermal 2000 49 MW California CE Turbo Geothermal 2000 10 MW California PRI Gas 1988 200 MW Texas Yuma Gas 1994 50 MW Arizona Saranac Gas 1994 240 MW New York Norcon Gas 1992 80 MW Pennsylvania
Vulcan, Del Ranch, Elmore, Leathers and CE Turbo are referred to as the Partnership Projects. Salton Sea I, II, III, IV and V are referred to as the Salton Sea Projects. The Partnership Projects and the Salton Sea Projects are collectively referred to as the Imperial Valley Projects. PRI, Yuma, Saranac and Norcon are referred to as the Gas Projects. ACQUISITIONS In April 1996, one of the three predecessor businesses combined in our formation completed the buy-out of approximately $70,000 of its partner's interests in four electric generating plants in Southern California, resulting in sole ownership of the Imperial Valley projects. In August 1996, 33 another one of the predecessor businesses acquired Falcon Seaboard Resources, Inc. for approximately $226,000, thereby acquiring significant ownership in 520 megawatts of natural gas-fired electric production facilities located in New York, Texas and Pennsylvania and a related gas transmission pipeline. POWER GENERATION PROJECTS The capacity factor for a particular project is determined by dividing total quantity of electricity sold by the product of the project's capacity and the total hours in the year. The capacity factors for Vulcan, Hoch (Del Ranch), Elmore and Leathers plants are based on nominal capacity amounts of 34, 38, 38 and 38 net megawatts, respectively. The capacity factors for Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III and Salton Sea Unit IV are based on capacity amounts of 10, 20, 49.8 and 39.6 net megawatts, respectively. The capacity factors for the Saranac, Power Resources, NorCon and Yuma plants are based on capacity amounts of 240, 200, 80 and 50 net megawatts, respectively. Each plant, except NorCon, possesses an operating margin which allows for production in excess of the amount listed above. Utilization of this operating margin is based upon a variety of factors and can be expected to vary throughout the year under normal operating conditions. Imperial Valley Projects--The current partnership projects sell all electricity generated by the respective plants under four long-term standard offer no. 4 agreements between the partnership projects and Southern California Edison Company. These standard offer no. 4 agreements provide for capacity payments, capacity bonus payments and energy payments. Southern California Edison makes fixed annual capacity and capacity bonus payments to the partnership projects to the extent that capacity factors exceed benchmarks set forth in the agreements. The price for capacity and capacity bonus payments is fixed for the life of the standard offer no. 4 agreements. Energy is sold at increasing scheduled rates for the first ten years after firm operation and thereafter at rates based on the cost that Southern California Edison avoids by purchasing energy from the Imperial Valley projects instead of obtaining the energy from other sources. We explain how Southern California Edison's avoided cost of energy is expected to be determined under the heading "Description of Principal Project Contracts--Imperial Valley Projects--Sale and Transmission of Power--Standard Terms of SO4 Agreements--Fluctuating Energy Payments." The California power exchange is a nonprofit public benefit corporation formed under California law to provide a competitive marketplace where buyers and sellers of power, including utilities, end-use customers, independent power producers and power marketers, complete wholesale trades through an electronic auction. The California power exchange currently operates two markets: (1) a day ahead market which is comprised of twenty-four separate concurrent auctions for each hour of the following day; and (2) an hour ahead market for each hour of each day for which bids are due two hours before each hour. In each market, the California power exchange receives bids from buyers and sellers and, based on the bids, establishes the market clearing price for each hour and schedules deliveries from sellers whose bids did not exceed the market clearing price to buyers whose bids were not less than the market clearing price. All trades are executed at the market clearing price. The scheduled energy price periods of the partnership projects' long-term agreements extended until February 1996, December 1998 and December 1998 for each of the Vulcan, Del Ranch and Elmore projects, respectively, and extend until December 1999 for the Leathers project. The Del Ranch and Elmore projects' agreement provided for energy rates of 14.6 cents per kilowatt-hour in 1998. The Leathers project's standard offer no. 4 agreement provided for an energy rate of 14.6 cents per kilowatt-hour in 1998 and provides for an energy rate of 15.6 cents per kilowatt-hour in 1999. The weighted average energy rate for all of the partnership projects agreements was 11.7 cents per kilowatt-hour in 1998 and 6.4 cents per kilowatt-hour for the nine months ended September 30, 1999. Salton Sea Unit I sells electricity to Southern California Edison under a 30-year negotiated power purchase agreement, which provides for capacity and energy payments. The energy payment is calculated using a base price which is subject to quarterly adjustments based on a basket of indices. The time period weighted average energy payment for Salton Sea Unit I was 5.4 cents per kilowatt-hour during 1998 and 5.3 cents per kilowatt-hour for the nine months ended September 30, 34 1999. As the Salton Sea Unit I power purchase agreement is not a standard offer no. 4 agreement, the energy payments do not revert to payments based on the cost that Southern California Energy avoids by purchasing energy from Salton Sea Unit I instead of obtaining the energy from other sources. The capacity payment is approximately $1,100 per annum. Salton Sea Unit II and Salton Sea Unit III sell electricity to Southern California Edison under 30-year modified standard offer no. 4 agreements that provide for capacity payments, capacity bonus payments and energy payments. The price for contract capacity and contract capacity bonus payments is fixed for the life of the modified standard offer no. 4 agreements. The energy payments for each of the first ten year periods, which periods expire in April 2000 and February 1999, respectively, are levelized at a time period weighted average of 10.6 cents per kilowatt-hour and 9.8 cents per kilowatt-hour for Salton Sea Unit II and Salton Sea Unit III, respectively. Thereafter, the monthly energy payments will be based on the cost that Southern California Energy avoids by purchasing energy from Salton Sea Unit II or III instead of obtaining the energy from other sources. For Salton Sea Unit II only, Southern California Edison is entitled to receive, at no cost, 5% of all energy delivered in excess of 80% of contract capacity through September 30, 2004. The annual capacity and bonus payments for Salton Sea Unit II and Salton Sea Unit III are approximately $3,300 and $9,700, respectively. Salton Sea Unit IV sells electricity to Southern California Edison under a modified standard offer no. 4 agreement which provides for contract capacity payments on 34 megawatts of capacity at two different rates based on the respective contract capacities deemed attributable to the original Salton Sea Unit I power purchase agreement option (20 megawatts) and to the original Fish Lake power purchase agreement (14 megawatts). The capacity payment price for the 20 megawatts portion adjusts quarterly based upon specified indices and the capacity payment price for the 14 megawatts portion is a fixed levelized rate. The energy payment (for deliveries up to a rate of 39.6 megawatts) is at a fixed rate for 55.6% of the total energy delivered by Salton Sea Unit IV and is based on an energy payment schedule for 44.4% of the total energy delivered by Salton Sea Unit IV. The contract has a 30-year term but Southern California Edison is not required to purchase the 20 megawatts of capacity and energy originally attributable to the Salton Sea Unit I power purchase agreement option after September 30, 2017, the original termination date of the Salton Sea Unit I power purchase agreement. For the years ended December 31, 1998, 1997 and 1996, Southern California Edison's average price paid for energy was 3.0 cents, 3.3 cents and 2.5 cents per kilowatt-hour, respectively, which is substantially below the contract energy prices earned for the year ended December 31, 1998. We cannot predict the likely level of energy prices under the standard offer no. 4 agreements and the modified standard offer no. 4 agreements at the expiration of the scheduled payment periods. The revenues generated by each of the projects operating under standard offer no. 4 agreements will decline significantly after the expiration of the respective scheduled payment periods. Revenues for the Vulcan Project decreased from $41,335 in the year ended December 31, 1995 to $16,968 in the year ended December 31, 1996 after the end of the contract energy price period in February 1996. Revenues for the Del Ranch Project decreased from $43,717 in the nine months ended September 30, 1998 to $15,301 in the nine months ended September 30, 1999 after the end of the contract energy price period in December 1998. Revenues for the Elmore Project decreased from $40,886 in the nine months ended September 30, 1998 to $14,912 in the nine months ended September 30, 1999 after the end of the contract energy price period in December 1998. If the Leathers Project received avoided cost energy rates in 1999 rather than the contract energy prices, revenues would have decreased from $47,333 to $15,074 in the nine months ended September 30, 1999. Natural Gas Projects--The Saranac project sells electricity to New York State Electric and Gas Corporation under a 15-year negotiated power purchase agreement, which provides for capacity and energy payments. Capacity payments, which in 1998 total 2.3 cents per kilowatt-hour, are received for electricity produced during "peak hours" as defined in the Saranac power purchase agreement and escalate at approximately 4.1% annually for the remaining term of the contract. Energy payments, which averaged 6.7 cents per kilowatt-hour in 1998, escalate at approximately 4.4% annually for the remaining term of the Saranac power purchase agreement. The Saranac power purchase agreement expires in June of 2009. 35 The Power Resources project sells electricity to Texas Utilities Electric Company under a 15 year negotiated power purchase agreement, which provides for capacity and energy payments. Capacity payments and energy payments, which in 1998 are $3,138 per month and 3.0 cents per kilowatt-hour, respectively, and in 1999 are $3,248 per month and 3.1 cents per kilowatt-hour, respectively, escalate at 3.5% annually for the remaining term of the Power Resources power purchase agreement. The Power Resources power purchase agreement expires in September 2003. The NorCon project sells electricity to Niagara Mohawk Power Corporation under a 25-year negotiated power purchase agreement which provides for energy payments calculated using an adjusting formula based on Niagara Mohawk's ongoing tariff price and the cost that Niagara Mohawk avoids in the long-run by purchasing energy from the NorCon project instead of obtaining the energy from other sources. The NorCon power purchase agreement term extends through December 2017. The Yuma project sells electricity to San Diego Gas & Electric Company under a 30-year power purchase agreement. The energy is sold at a price based on the cost that San Diego Gas & Electric avoids by purchasing energy from the Yuma project instead of obtaining the energy from other sources and the capacity is sold to San Diego Gas & Electric at a fixed price for the life of the power purchase agreement. The power is delivered to San Diego Gas & Electric over transmission lines constructed and owned by Arizona Public Service Company. RESULTS OF OPERATIONS, NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 Sales of electricity and steam decreased to $231,613 for the nine months ended September 30, 1999 from $293,485 for the nine months ended September 30, 1998, a 21.1% decrease. This decrease was primarily a result of the expiration of the fixed price periods for the Elmore and Del Ranch projects and for Salton Sea Unit III. These periods ended in December 1998, December 1998 and February 1999, respectively. The following operating data represents the aggregate capacity and electricity production of the Imperial Valley projects:
NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 -------------------- ------------------- Overall capacity factor ........................ 97.3% 96.4% Kilowatt-hours produced (in thousands) ......... 1,704,500 1,689,600 Capacity (net megawatts) (average) ............. 267.4 267.4
The following operating data represents the aggregate capacity and electricity production of the natural gas projects:
NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 -------------------- ------------------- Overall capacity factor ........................ 86.5% 79.5% Kilowatt-hours produced (in thousands) ......... 3,260,600 2,969,840 Capacity (net megawatts) (average) ............. 570 570
The overall capacity factor of the natural gas projects reflects the effect of contractual curtailments. The capacity factors adjusted for these contractual curtailments are 96.64% and 91.60% for the nine months ended September 30, 1999 and 1998, respectively. The overall increased capacity factor of the natural gas projects reflects the impact of the January 1998 ice storm at Saranac. The plant was down for approximately two months in the first quarter of 1998. The increase in equity earnings of subsidiaries for the nine months ended September 30, 1999 to $17,718 from $8,635 for the nine months ended September 30, 1998 represents the negative impact of the January 1998 ice storm at Saranac. Interest and other income decreased to $17,665 for the nine months ended September 30, 1999 from $21,823 for the nine months ended September 30, 1998. This decrease was primarily due to reduced royalty income at the Imperial Valley projects. 36 Plant operating expenses increased marginally for the nine months ended September 30, 1999 to $84,848 from $84,100 for the nine months ended September 30, 1998. These costs include operating, maintenance, resource, fuel and other plant operating expenses and the stability of these costs from period to period reflect the maturity of plant operations. General and administrative expenses decreased for the nine months ended September 30, 1999 to $3,333 from $3,814 for the same period in 1998, a 12.6% decrease. These costs include administrative services provided to us, including executive, financial, legal, tax and other corporate functions. The decrease reflects reduced corporate allocations to us due to a reduction in services provided. Depreciation and amortization decreased to $43,400 for the nine months ended September 30, 1999 from $71,901 for the nine months ended September 30, 1998, a 39.6% decrease. The decrease was primarily due to reduced step up depreciation after the end of the fixed price periods for the Del Ranch, Elmore and Salton Sea Unit III projects as a result of greater value being assigned to the scheduled price periods for the contracts relating to these projects at the time of acquisition. The scheduled price periods for the contracts relating to Del Ranch and Elmore expired in December 1998, with the Salton Sea III scheduled price period terminating in February 1999. Interest expense, less amounts capitalized, increased for the nine months ended September 30, 1999 to $55,729 from $54,784 for the nine months ended September 30, 1998, an increase of 1.7%. The increase was primarily due to increased indebtedness from the issuances of the old Securities in 1999. The provision for income taxes decreased to $30,520 for the nine months ended September 30, 1999 from $39,364 for the nine months ended September 30, 1998. The effective tax rate was 38.3% and 36% for the nine months ended September 30, 1999 and 1998, respectively. The changes from year to year in the effective rate are due primarily to the generation of energy tax credits and depletion deductions. RESULTS OF OPERATIONS, THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 Sales of electricity and steam increased to $395,560 in the year ended December 31, 1998 from $381,458 in the year ended December 31, 1997, a 3.7% increase. This increase was primarily due to an increase in electricity production at the Imperial Valley projects. Sales of electricity and steam increased to $381,458 in the year ended December 31, 1997 from $281,307 in the year ended December 31, 1996, a 35.6% increase. This increase was due to the acquisition of Falcon Seaboard Resources and the partnership interest in the Imperial Valley projects, as well as the commencement of operations at Salton Sea Unit IV. The following operating data represents the aggregate capacity and electricity production of the Imperial Valley projects:
1998 1997 1996 ------------- ------------- ------------- Overall capacity factor ..................... 98.2% 99.2% 98.9% Kilowatt-hours produced (in thousands) 2,299,400 2,323,800 2,179,200 Capacity (net megawatts) (average) .......... 267.4 267.4 251.0*
---------- * Weighted average for the commencement of operations at Salton Sea Unit IV in 1996. The following operating data represents the aggregate capacity and electricity production of the natural gas projects:
1998 1997 1996 ------------- ------------- ------------- Overall capacity factor ..................... 81.6% 84.3% 84.2% Kilowatt-hours produced (in thousands) 4,072,620 4,211,030 4,216,800 Capacity (net megawatts) (average) .......... 570 570 570
37 The overall capacity factor of the natural gas projects reflects the effect of contractual curtailments. The capacity factors adjusted for these contractual curtailments are 92.2%, 95.7% and 93.2% for 1998, 1997 and 1996, respectively. The decrease in the overall capacity factor was due to lower electricity production at Saranac due to severe winter snow and ice storms which caused transmission curtailment, as well as a turbine overhaul at Power Resources. The decrease in equity earnings of subsidiaries in 1998 to $10,732 from $14,542 in 1997 was primarily due to lower electricity production at Saranac due to severe winter snow and ice storms which caused transmission curtailments. The increase in equity earnings of subsidiaries in 1997 to $14,542 from $4,263 in 1996 was primarily due to the acquisition of Falcon Seaboard Resources in August 1996. Interest and other income increased to $29,883 in the year ended December 31, 1998 from $11,138 in the year ended December 31, 1997. This increase was primarily due to interest earned on higher cash balances as a result of the issuance of Salton Sea Funding Corporation bonds in October 1998 and the amortization of deferred income of $6,920, related to a settlement with respect to our rights to receive payments in connection with our assignment to East Mesa of power purchase contracts, power project facilities and geothermal resource rights, which was received in 1998 and recognized as income through the remainder of East Mesa's contract energy price period in June 1999. Interest and other income decreased to $11,138 in the year ended December 31, 1997 from $19,273 in the year ended December 31, 1996, a 42.2% decrease. The decrease is primarily attributable to lower cash balances and the fact we are no longer recognizing management fee income as a result of the Imperial Valley partnership interest acquisition in April 1996. Magma management services income decreased by $5,311 as a result of this income being eliminated in consolidation. Plant operating expenses decreased in 1998 to $114,092 from $119,973 in 1997, a 4.9% decrease. The decrease was primarily due to operating efficiencies. Operating expenses increased in 1997 to $119,973 from $94,245 in 1996, a 27.3% increase. This increase is primarily a result of the acquisitions of Falcon Seaboard Resources and the Imperial Valley partnership interest as well as the commencement of operations at Salton Sea Unit IV. General and administrative expenses increased to $4,963 in the year ended December 31, 1998 from $4,380 in the year ended December 31, 1997. General and administrative expenses increased to $4,380 in the year ended December 31, 1997 from $3,503 in the year ended December 31, 1996. These costs include administrative services provided to us, including executive, financial, legal, tax and other corporate functions. The increases reflect increased bank service charges relating to increased indebtedness. Depreciation and amortization increased to $96,818 in 1998 from $88,504 in 1997, a 9.4% increase. This increase was due primarily to an increased step up depreciation resulting from a change in the estimated useful life related to the acquisition of the Imperial Valley projects. Depreciation and amortization increased to $88,504 in 1997 from $72,533 in 1996, a 22.0% increase. This increase is a result of the acquisitions of Falcon Seaboard Resources and the Imperial Valley partnership interest as well as the commencement of operations at Salton Sea Unit IV. Interest expense, less amounts capitalized, decreased in 1998 to $74,306 from $80,907 in 1997, a decrease of 8.2%. Lower interest expense resulted from the paydown of the Salton Sea Funding Corporation and Power Resources debt offset by Salton Sea Funding Corporation's Series F issuance in October 1998. Interest expense increased in 1997 to $80,907 from $72,864 in 1996, a 11.0% increase. Higher interest expense for 1996 is primarily due to higher interest expense on the Salton Sea Funding Corporation notes and bonds. The provision for income taxes increased to $52,218 in 1998 from $43,378 in 1997 and $15,487 in 1996. The effective tax rate was 35.8%, 38.3% and 25.1% in 1998, 1997 and 1996, respectively. The changes from year to year in the effective rate are due primarily to the generation of energy tax credits and depletion deductions. 38 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $83,981 at September 30, 1999 as compared to $25,774 at December 31, 1998. In addition, restricted cash was $52,811 and $128,553 at September 30, 1999 and December 31, 1998, respectively. The decrease in restricted cash was primarily due to the use of the proceeds from issuance of Salton Sea Funding Corporation bonds for the construction of Salton Sea Unit IV and the CE Turbo project and the construction of upgrades to the brine facilities at some of the Imperial Valley projects. We believe that existing cash and cash generated by operating activities will be sufficient to finance capital expenditures and make scheduled repayment of debt for the foreseeable future. On March 2, 1999, we closed the sale of $400,000 aggregate principal amount of old Securities. The proceeds were used to repay Magma's 9 7/8% note payable to MidAmerican of $200,000 and Yuma's note payable to MidAmerican of $47,681. The remaining amount represented a distribution to MEHC in return for MEHC's contribution of common stock and partnership interests in certain geothermal and natural gas-fired combined cycle cogeneration facilities to create the Company in MEHC's strategic restructuring which was completed in February, 1999. These payments to MEHC were accounted as repayments of notes payable to a related party and as an equity distribution to MEHC. These Securities are senior secured debt which rank equally in right of payment with the Company's other senior secured debt permitted under the indenture for the Securities, share equally in the collateral with the Company's other senior secured debt permitted under the indenture for the Securities, and rank senior to any of the Company's subordinated debt permitted under the indenture for the Securities. These Securities are effectively subordinated to the existing project financing debt and all other debt of the Company's consolidated subsidiaries. The Senior Secured Bonds are primarily secured by the following collateral: (1) all available cash flow of the designated subsidiaries; (2) a pledge of 99% of the equity interests in Salton Sea Power Company and all of the equity interests in CE Texas Gas LLC, the designated subsidiaries (other than Magma Power Company) and California Energy Yuma Corporation; (3) upon the redemption of, or earlier release of security interests under, Magma's 9 7/8% promissory notes, a pledge of all of the capital stock of Magma; (4) a pledge of all of the capital stock of SECI Holdings Inc.; (5) a grant of a lien on and security interest in the depositary accounts; and (6) a grant of a lien on and security interest in all of the Company's other tangible and intangible property. Scheduled principal payments on these securities commence on June 15, 2000, and are payable thereafter through December 15, 2018, in varying semi-annual payments ranging from approximately $5,000 to $18,000. The maximum annual principal payment obligation during the period is approximately $36,000 in 2018. Salton Sea Power L.L.C., one of our indirect wholly-owned subsidiaries, is constructing Salton Sea Unit V. Salton Sea Unit V will be a 49 net megawatt geothermal power plant which will sell approximately one-third of its net output to the zinc facility, which will be retained by MidAmerican. The remainder will be sold through the California power exchange. Salton Sea Unit V is being constructed under an engineering, procurement and construction contract by Stone & Webster Engineering Corporation. Salton Sea Unit V is scheduled to commence commercial operation in mid-2000. Total project costs of Salton Sea Unit V are expected to be approximately $119,067 which will be funded by $76,281 of debt from Salton Sea Funding Corporation and $42,786 from equity contributions. Salton Sea Power has incurred approximately $61,300 of these costs through September 30, 1999. CE Turbo LLC, one of our indirect wholly-owned subsidiaries, is constructing the CE Turbo project. The CE Turbo project will have a capacity of 10 net megawatts. The net output of the CE Turbo project will be sold to the zinc facility or sold through the California power exchange. The partnership projects are upgrading the geothermal brine processing facilities at the Vulcan and Del Ranch projects with the region 2 brine facilities construction. 39 The CE Turbo project and the region 2 brine facilities construction are being constructed by Stone & Webster under an engineering, procurement and construction contract. The obligations of Stone & Webster are guaranteed by Stone & Webster, Incorporated. The CE Turbo project is scheduled to commence initial operations in early-2000 and the region 2 brine facilities construction is scheduled to be completed in early-2000. Total project costs for both the CE Turbo project and the region 2 brine facilities construction are expected to be approximately $63,747 which will be funded by $55,602 of debt from Salton Sea Funding Corporation and $8,145 from equity contributions. CE Turbo has incurred approximately $29,700 of these costs through September 30, 1999. The net revenues, equity distributions and royalties from the partnership projects are used to pay principal and interest payments on outstanding senior secured bonds issued by the Salton Sea Funding Corporation, the final series of which is scheduled to mature in November 2018. The Salton Sea Funding Corporation debt is guaranteed by subsidiaries of Magma and secured by the capital stock of the Salton Sea Funding Corporation. The proceeds of the Salton Sea Funding Corporation debt were loaned by the Salton Sea Funding Corporation under loan agreements and notes to subsidiaries of Magma and used for construction of Salton Sea Unit V and the CE Turbo project, refinancing of indebtedness and other purposes. Debt service on the Imperial Valley loans is used to repay debt service on the Salton Sea Funding Corporation Debt. The Imperial Valley loans and the guarantees of the Salton Sea Funding Corporation debt are secured by substantially all of the assets of the guarantors, including the Imperial Valley projects, and by the equity interests in the guarantors. The proceeds of Series F of the Salton Sea Funding Corporation debt are being used in part to construct the zinc facility, and the direct and indirect owners of the zinc facility are among the guarantors of the Salton Sea Funding Corporation debt. MidAmerican has guaranteed the payment by the zinc guarantors of a specified portion of the scheduled debt service on the Imperial Valley loans described in the preceding paragraph, including the current principal amount of $140,520 and associated interest. YEAR 2000 ISSUES What is generally known as the year 2000 computer issue arose because many existing computer programs and embedded systems use only the last two digits to refer to a year. Therefore, those computer programs do not properly distinguish between a year that begins with "20" instead of "19". If not corrected, many computer applications could fail or create erroneous results. The failure to correct a material year 2000 item could result in an interruption in, or a failure of, normal business activities or operations including the generation of electricity. These failures could materially and adversely affect our results of operations, liquidity and financial condition. We have commenced, for all of our information systems, a year 2000 date conversion project to address all necessary code changes, testing and implementation in order to resolve the year 2000 issue. We created a year 2000 project team to identify, assess and correct all of our information technology and non-information technology systems, as well as identify and assess systems and equipment provided by other organizations. We have identified and assessed substantially all of our information technology and non-information technology systems as well as third party systems, and have substantially completed the process of repairing or replacing those systems which were not year 2000 compliant. Total year 2000 expenditures, for both repairing or replacing non-compliant systems, were $344. We are not aware of any additional material costs needed to be incurred to bring all of our systems into compliance, however, we cannot assure you that additional costs will not be incurred. In addition to our own information systems, the year 2000 issue also creates uncertainty for us from potential issues with third parties with whom we deal on transactions. As a result, year 2000 readiness of suppliers, vendors, service providers or customers could impact our operations. We are assessing the readiness of these constituent entities and the impacts on those entities that rely upon our services. We have identified the critical vendors and have currently completed the assessment of over 90% of these vendors. We expect to complete our assessment in December 1999. If we determine that these vendors put our business at risk because of a lack of preparation, alternate vendors are 40 secured or other measures are put into place to provide the necessary goods and services, however, we are unable to determine at this time whether the consequences of year 2000 failures of third parties will have a material impact on our results of operations, liquidity or financial condition. A contingency plan identifying credible worst-case scenarios has been developed. The contingency plan is comprised of both mitigation and recovery aspects. Mitigation entails planning to reduce the impact of unresolved year 2000 problems, and recovery entails planning to restore services in the event that year 2000 problems occur. The contingency plan contains various worst-case scenarios, which include loss of internal and external voice and data communications, loss of natural gas supply, transmission control, along with numerous other scenarios, none of which is expected to be reasonably likely to occur. Although the plan is substantially complete, it will be refined throughout the remainder of the year, based on results of contingency planning drills and changes in circumstances. Although management believes that the year 2000 project will be substantially complete before January 1, 2000, any unforeseen failures of our and/or third parties' computer systems could have a material impact on our ability to conduct its business. INFLATION Inflation has not had a significant impact on our cost structure. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which established accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. We have has not yet determined the impact of this accounting pronouncement. INTEREST RATE RISK The following discussion of our exposure to various market risks contains "forward-looking statements" that involve risks and uncertainties. These projected results have been prepared utilizing assumptions considered reasonable in the circumstances and in light of information currently available to us. Actual results could differ materially from those projected in the forward-looking information. At December 31, 1998, we had a fixed-rate long-term debt (excluding note payable to related party) of $626,816 in principal amount and having a fair value of $646,397. These instruments are fixed-rate and therefore do not expose us to the risk of earnings loss due to changes in market interest rates. However, the fair value of these instruments would decrease by approximately $35,000 if interest rates were to increase by 10% from their levels at December 31, 1998. In general, a decrease in fair value would impact earnings and cash flows only if we were to reacquire all or a portion of these instruments prior to their maturity. At December 31, 1998, we had floating-rate obligations of $90,529 which exposes us to the risk of increased interest expense in the event of increases in short-term interest rates. We have entered into interest rate swap agreements for the purpose of completely offsetting these interest rate fluctuations. The interest rate differential is reflected as an adjustment to interest expense over the life of the instruments. At December 31, 1998, these interest rate swaps had an aggregate notional amount of $90,529, which we could terminate at a cost of approximately $9,904. A decrease of 10% in the December 31, 1998 level of interest rates would increase the cost of terminating the swaps by approximately $1,528. These termination costs would impact our earnings and cash flows only if all or a portion of the swap instruments were terminated prior to their expiration. At September 30, 1999, the $400,000 of old Securities had a fair value of $363,419. However, the fair value would decrease by approximately $28,000 if interest rates were to increase by 10% from their levels at September 30, 1999. 41 OUR BUSINESS AND THE BUSINESS OF THE DESIGNATED SUBSIDIARIES OUR BUSINESS We were formed as a special purpose Delaware limited liability company on February 8, 1999. We were created to own our subsidiaries in order to facilitate the transfer of a 50% interest in those subsidiaries to El Paso Power Holding Company, a subsidiary of El Paso Energy Corporation. MidAmerican Energy Holdings Company determined to sell 50% of its interest in us and our subsidiaries in order to facilitate MidAmerican's acquisition of MHC Inc. In August 1998, MidAmerican, which was then known as CalEnergy Company, Inc., announced its intention to acquire MHC Inc. (then known as MidAmerican Energy Holdings Company). As MHC Inc. owned an electric utility, MidAmerican Energy Company, MidAmerican was required to divest a portion of its ownership interests in our power projects in order to permit those projects to maintain their status as qualifying facilities under the Public Utilities Regulatory Policies Act of 1978. This law requires that a non-electric utility own at least 50% of a qualifying facility. The sale to El Paso Power, which does not own an electric utility, was intended to permit our power projects to satisfy this ownership requirement. By maintaining qualifying facility status, our power projects are entitled to an exemption from federal and state utility regulation under the Public Utilities Regulatory Policies Act and are able to maintain compliance with the provisions of their current power purchase agreements which require that they be qualifying facilities during the term of those agreements. On March 3, 1999, El Paso Power acquired 50% of MidAmerican's ownership interests in us for approximately $245 million in cash plus $6.5 million in contingent payments and the assumption of $23.5 million in obligations to make equity contributions for the construction of Salton Sea Unit V and the CE Turbo project. Our limited liability company operating agreement provides that MidAmerican and El Paso Power each are entitled to appoint 50% of the directors and are entitled to 50% of the distributions that we make. MidAmerican agreed to provide administrative services, including accounting, legal, personnel and cash management services, to us under an administrative services agreement. MidAmerican is reimbursed for its actual costs and expenses of providing the services. El Paso Power agreed to provide power marketing and fuel management services to us in return for reimbursement of its actual costs and expenses of providing the services. These agreements each have an initial term of one year and then continue from year to year until terminated by either party. Our business activities will be limited to issuing the Securities and other debt as permitted under the indenture for the Securities, holding the equity interests in the designated subsidiaries and related activities, and any other activities which could not reasonably be expected to result in a material adverse effect and which the rating agencies confirm in writing will not result in a ratings downgrade. The only funds available to us to pay principal of, premium (if any) and interest on the Securities will be the available cash flow received by the designated subsidiaries and amounts on deposit in the debt service reserve account. OUR MEMBERS MidAmerican. MidAmerican is a fast-growing global energy company with an increasingly diversified portfolio of regulated and non-regulated assets. The focus of MidAmerican has evolved over time from development and acquisition activities in the domestic and international power generation markets to strategic electric and gas utility acquisitions, with a particular emphasis on investment-grade countries including the United States, the United Kingdom, Australia, Canada, New Zealand and the countries of Western Europe. This focus has provided MidAmerican with increased scale, skill, revenue diversity, credit quality, quality of cash flows and additional growth opportunities associated with each of the acquired businesses. MidAmerican's investments in related activities, including producing gas fields, gas reserves and advanced utility information systems, are primarily intended to support and augment the profitability of its existing core businesses. MidAmerican, headquartered in Des Moines, Iowa, has approximately 9,800 employees and is the largest publicly traded company in Iowa. Through its retail utility subsidiaries, MidAmerican Energy 42 Company in the United States and Northern Electric plc in the United Kingdom, MidAmerican provides electric service to 2.2 million customers and natural gas service to 1.2 million customers worldwide. Through CalEnergy Generation, MidAmerican's independent power production and non-regulated business subsidiary, and MidAmerican Energy's utility operations, MidAmerican manages and owns interests in approximately 8,300 net megawatts of diversified power generation facilities in operation, construction and development. MidAmerican is the successor of CalEnergy Company, Inc. On October 25, 1999, MidAmerican announced that an investor group comprised of Berkshire Hathaway Inc., Walter Scott, Jr. and David L. Sokol had reached agreement to acquire MidAmerican for $35.05 per share in cash. The purchase price together with the assumption of debt represents a total enterprise value of approximately $9 billion. Upon completion of the transaction, which is expected to occur by April 2000, MidAmerican would become a privately owned company with publicly traded fixed income securities. El Paso Power and El Paso Energy. El Paso Power is a wholly-owned subsidiary of El Paso Energy. With over $10 billion in assets, El Paso Energy provides energy solutions through its strategic business units: Tennessee Gas Pipeline Company, El Paso Natural Gas Company, El Paso Field Services Company, El Paso Power Services Company, El Paso Merchant Energy Company, and El Paso Energy International Company. El Paso Energy owns the nation's only integrated coast-to-coast natural gas pipeline system and has operations in natural gas transmission, gas gathering and processing, power generation, energy marketing and international energy infrastructure development. THE DESIGNATED SUBSIDIARIES AND THE PROJECTS The Designated Subsidiaries. Each designated subsidiary owns an interest in one or more project companies. Below is a list showing those project companies and other entities in which each designated subsidiary owns an interest. o MAGMA: Salton Sea Power Generation L.P., Fish Lake Power LLC, Salton Sea Power L.L.C., Vulcan Power Company, CalEnergy Operating Corporation, Vulcan/BN Geothermal Power Company, Leathers, L.P., Del Ranch, L.P., Elmore, L.P., CE Turbo LLC, Salton Sea Royalty LLC, Magma Land Company I and Imperial Magma LLC. o SALTON SEA POWER: Salton Sea Power Generation L.P. o FALCON SEABOARD RESOURCES: Saranac Power Partners, L.P., Power Resources, Inc., NorCon Power Partners, LP, Falcon Power Operating Company and CE Texas Gas LLC. o FALCON SEABOARD POWER: Saranac, NorCon and Falcon Power Operating. o FALCON SEABOARD OIL: Power Resources, Inc. o CALIFORNIA ENERGY DEVELOPMENT: Yuma Cogeneration Associates. o CE TEXAS ENERGY LLC: CE Texas Gas. Magma and some of its subsidiaries provide administrative and other services and the use of various real properties to the geothermal projects. Falcon Power Operating, a wholly-owned subsidiary of Falcon Seaboard Power, provides operation and maintenance services to the natural gas projects. CE Texas Gas, a wholly-owned subsidiary of CE Texas Energy, provides natural gas for some of the natural gas projects. The business of each of Salton Sea Power, Falcon Seaboard Resources, Falcon Seaboard Power, Falcon Seaboard Oil, California Energy Development and CE Texas Energy consists solely of holding its equity interest in the related project companies. Substantially all of the business of Magma consists of holding its equity interests in the geothermal projects and providing the services to the geothermal projects described above. The business of each of Falcon Power Operating and CE Texas Gas consists solely of providing the goods and services to the natural gas projects described above. The designated 43 subsidiaries' cash flow is derived solely from the activities described in this paragraph. Each project company's business consists solely of the ownership and operation of one or more projects or, in the case of Falcon Power Operating and CE Texas Gas, the provision of the goods and services described above, and its sole source of revenues consists of revenues derived from the operation of its project(s) or the provision of goods and services. The Projects. The following list describes each project and names the project company that owns the project. o SALTON SEA UNIT I: A 10 megawatt geothermal power plant owned by Salton Sea Power Generation. o SALTON SEA UNIT II: A 20 megawatt geothermal power plant owned by Salton Sea Power Generation. o SALTON SEA UNIT III: A 49.8 megawatt geothermal power plant owned by Salton Sea Power Generation. o SALTON SEA UNIT IV: A 39.6 megawatt geothermal power plant owned by Salton Sea Power Generation and Fish Lake Power. o SALTON SEA UNIT V: A 49 megawatt geothermal power plant under construction owned by Power LLC. o VULCAN PROJECT: A 34 megawatt geothermal power plant owned by Vulcan. o ELMORE PROJECT: A 38 megawatt geothermal power plant owned by Elmore. o LEATHERS PROJECT: A 38 megawatt geothermal power plant owned by Leathers. o DEL RANCH PROJECT: A 38 megawatt geothermal power plant owned by Del Ranch. o CE TURBO PROJECT: A 10 megawatt geothermal power plant under construction owned by CE Turbo. o SARANAC PROJECT: A 240 megawatt natural gas-fired combined cycle cogeneration power plant owned by Saranac. o POWER RESOURCES PROJECT: A 200 megawatt natural gas-fired combined cycle cogeneration power plant owned by Power Resources. o NORCON PROJECT: An 80 megawatt natural gas-fired combined cycle cogeneration power plant owned by NorCon. o YUMA PROJECT: A 50 megawatt natural gas-fired combined cycle cogeneration power plant owned by Yuma Cogeneration. Each project, other than Salton Sea Unit V and the CE Turbo project, meets the requirements promulgated under the Public Utility Regulatory Policies Act of 1978 to be a qualifying facility. Salton Sea Unit V and the CE Turbo project are expected to be qualifying facilities when they commence operation. The geothermal projects are designed to generate electricity and the natural gas projects are designed to generate both electric energy and thermal energy. The projects' actual outputs of electric energy and, where applicable, thermal energy vary based on their design and the requirements of the power purchase agreements and, where applicable, the thermal energy agreements of the projects. The geothermal projects generate (or, in the case of Salton Sea Unit V and the CE Turbo project, will generate) electricity from geothermal energy and the other projects use natural gas as their primary source of fuel. Below are tables illustrating annual availability and annual capacity factors for each of the projects other than Salton Sea Unit V and the CE Turbo project. The annual availability figures are determined by dividing the sum of the hours in which the project is operating (plus the hours the project is available to operate but did not, due to a request by the power purchaser that the project 44 not operate) by the total hours in the year. The capacity factor figures are determined by dividing total quantity of electricity sold (plus electricity that would have been sold but was not due to a request by the power purchaser not to operate where compensation is paid for the curtailment) by the product of the project's capacity and the total hours in the year. These factors provide information regarding the historical operating performance of the projects. The amount of revenues received by these projects is affected by the extent to which they are able to operate and generate electricity. Accordingly, the availability factors and capacity factors provide information on aspects of operating performance that have affected the revenues received by these projects. ANNUAL AVAILABILITY
PROJECT AVERAGE 1998 1997 1996 1995 1994 -------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- Salton Sea Unit I .............. 96.3% 97.3% 97.3% 93.5% 93.7% 99.8% Salton Sea Unit II ............. 97.0% 98.3% 98.4% 93.4% 95.2% 99.6% Salton Sea Unit III ............ 96.1% 95.4% 98.1% 94.6% 92.7% 99.5% Salton Sea Unit IV(1) .......... 94.5% 96.0% 95.9% 91.7% -- -- Vulcan ......................... 96.5% 96.1% 91.8% 98.3% 98.7% 97.6% Leathers ....................... 97.3% 96.0% 99.1% 96.5% 97.4% 97.7% Del Ranch ...................... 97.2% 98.4% 95.0% 98.8% 95.6% 98.4% Elmore ......................... 96.8% 95.8% 99.0% 96.0% 98.5% 94.8% Saranac ........................ 95.0% 92.8% 97.7% 95.2% 98.4% 90.7% Power Resources ................ 92.4% 93.7% 91.2% 88.7% 97.4% 91.0% NorCon ......................... 94.5% 92.3% 95.5% 95.3% 94.8% -- Yuma ........................... 96.8% 96.0% 96.2% 97.0% 97.8% --
ANNUAL CAPACITY FACTOR
PROJECT AVERAGE 1998 1997 1996 1995 1994 -------------------------------- --------- ---------- ---------- ---------- ---------- ---------- Salton Sea Unit I .............. 75.3% 90.2% 84.1% 71.3% 65.1% 65.8% Salton Sea Unit II ............. 117.0% 120.7% 122.3% 114.4% 112.7% 114.9% Salton Sea Unit III ............ 99.6% 99.8% 101.9% 98.1% 95.5% 102.6% Salton Sea Unit IV(1) .......... 114.8% 111.6% 114.3% 118.6% -- -- Vulcan ......................... 117.0% 109.6% 108.6% 122.3% 126.7% 117.8% Leathers ....................... 115.9% 114.9% 119.4% 113.5% 116.7% 114.9% Del Ranch ...................... 117.9% 119.8% 114.9% 120.0% 115.8% 119.2% Elmore ......................... 115.4% 111.5% 116.2% 116.1% 117.8% 115.6% Saranac ........................ 92.4% 85.4% 95.0% 97.0% 95.1% 89.4% Power Resources ................ 80.9% 82.3% 79.7% 77.0% 85.9% 79.5% NorCon ......................... 94.6% 92.7% 95.5% 95.3% 94.8% -- Yuma ........................... 89.0% 93.0% 85.3% 86.5% 91.0% --
---------- (1) Began operations in May 1996; figures are annualized based on seven months of operation. INSURANCE The project companies are required under the project financing documents and project documents to maintain insurance coverages relating to their interests in the projects. These coverages are consistent with those normally carried by companies engaged in similar businesses. The coverages are currently provided under a corporate umbrella program which includes liability insurance and all-risk insurance covering physical loss or damage to the projects. This all-risk insurance covers replacement value of all real and personal property including losses from boiler and machinery breakdowns and 45 the perils of earthquake and flood, subject to sublimits, and business interruption. The current program also covers the designated subsidiaries, California Energy Yuma and SECI Holdings to the extent applicable to their respective businesses. The project financing documents typically require that most insurance proceeds be paid to the applicable collateral agent for use in accordance with the terms of those documents. The lenders and trustees under the project financing documents also have the benefit of title insurance with respect to the applicable projects. EMPLOYEES CalEnergy Operating and Falcon Power Operating currently employ 166 and 75 people full-time, respectively. Neither we nor Magma, Salton Sea Power, Falcon Seaboard Resources, Falcon Seaboard Power, Falcon Seaboard Oil, California Energy Development, CE Texas Energy or CE Texas Gas currently has any employees. LITIGATION In addition to the proceedings described in the "Risk Factors" section of this prospectus, some of the projects are currently parties to various minor items of litigation, none of which, if determined adversely, would have a material adverse effect on those projects. REGULATORY MATTERS FEDERAL ENERGY REGULATIONS Qualifying Facility Status Under the Public Utility Regulatory Policies Act. Qualifying facility status under the Public Utility Regulatory Policies Act provides two primary benefits. First, regulations under the Public Utility Regulatory Policies Act exempt qualifying facilities from the Public Utility Holding Company Act of 1935, most provisions of the Federal Power Act and state laws concerning rates of electric utilities and the financial and organizational regulation of electric utilities. Second, regulations promulgated under the Public Utility Regulatory Policies Act require that electric utilities purchase electricity generated by qualifying facilities, construction of which commenced on or after November 9, 1978, at a price based on the cost that the purchasing utility avoids by purchasing energy from qualifying facilities instead of obtaining the energy from other sources. Order 888. In the Spring of 1996, FERC issued a landmark decision, known as Order No. 888, designed to bring competition to the wholesale power market. Order No. 888 required all public utilities that own, control or operate transmission facilities used in interstate commerce to file non-discriminatory, open access transmission tariffs (so-called "pro forma tariffs") with FERC. The directive was intended to preclude utilities from using their ownership of transmission facilities to favor their own generation in the marketplace. To prevent this result, Order No. 888 required these utilities to "functionally unbundle" all new wholesale generation and transmission service. Specifically, the utilities were required to: o separate the operations of their wholesale marketing arm and their transmission provider arm, and quote separate prices for wholesale generation and transmission service; o take wholesale (and unbundled retail) transmission under their own pro forma tariff; and o provide and rely upon same time access to transmission information via postings on so-called OASIS sites on the Internet. 46 STATE ENERGY REGULATIONS The structure of state energy regulation of independent power producers is now undergoing change and may change in the future. Below are some of the recent developments in the states in which the projects are located or sell power. Restructuring that promotes access to customers may provide opportunities for the projects to sell power when the terms of their power purchase agreements expire. California (Imperial Valley Projects; Yuma). In December 1995, the California Public Utilities Commission adopted a comprehensive plan for restructuring California's electric industry. In August 1996, the California Legislature approved, and on September 23, 1996 Governor Wilson signed into law, comprehensive electric industry restructuring legislation, referred to in this prospectus as AB 1890, which confirmed and enlarged upon the plan adopted by the California Public Utilities Commission. California electric industry restructuring includes, among other things, the creation of an independent system operator and the California power exchange, direct access and retail competition for all customers which became effective in 1998. AB 1890 outlines a methodology which establishes energy pricing for those generators who are paid rates based on the cost that the purchasing utility avoids by purchasing energy from a qualifying facility instead of obtaining the energy from other sources. Initially, the pricing is based on a 12-month average of recent, pre-1996, avoided-cost based energy prices paid by a utility to non-utility generators and is indexed to an appropriate gas price measure. In the future, pricing will be based on the clearing price paid by the California power exchange when the California Public Utilities Commission has issued an order determining that the California power exchange is functioning properly for purposes of determining the cost that utilities avoid by purchasing energy from qualifying facilities instead of obtaining the energy from other sources. In July 1999, the coordinating commissioner established a procedural schedule that contemplated the issuance of this order by June 2000. The California power exchange is a nonprofit public benefit corporation formed to provide a competitive marketplace where buyers and sellers of power, including utilities, end-use customers, independent power producers and power marketers, complete wholesale trades through an electronic auction. The California power exchange currently operates two markets: (1) a day ahead market which is comprised of twenty-four separate concurrent auctions for each hour of the following day; and (2) a market for each hour of each day for which bids are due two hours before each hour. In each market, the California power exchange receives bids from buyers and sellers and, based on the bids, establishes the market clearing price for each hour and schedules deliveries from sellers whose bids did not exceed the market clearing price to buyers whose bids were not less than the market clearing price. All trades are executed at the market clearing price. New York (Saranac Project and NorCon Project). In response to a mandate from the New York State Public Service Commission, on January 31, 1997 the eight members of the New York power pool, consisting of 7 public utilities and the New York Power Authority, made filings with FERC evidencing their plan to restructure the electric generation and distribution markets in New York State. Under the plan, the New York power pool will be replaced with an independent system operator, a New York State Reliability Council to establish reliability standards for the competitive retail market, and the New York Power Exchange, a coordinated bid-price market which will provide both a day-ahead market as well as a competitive real-time spot market. In addition to these systemic changes, the New York deregulation plan requires each of the New York independent public utilities to generate its own plan for lowering prices, increasing competition and introducing retail choice in their regions. Each of New York State Electric and Gas Corporation and Niagara Mohawk has obtained New York State Public Service Commission approval of its restructuring plan. In 1992 Niagara Mohawk filed a petition requesting the New York State Public Service Commission to authorize Niagara Mohawk to curtail purchases from, and thus to avoid payment obligations to, non-utility generators during certain periods. Niagara Mohawk claimed that curtailment would be consistent with the Public Utility Regulatory Policies Act and the other regulations of FERC promulgated under the Public Utility Regulatory Policies Act, including Section 292.304(f) of 47 the statute. Section 292.304(f) provides that a utility may have a right to curtail purchases from a qualifying facility during periods in which, due to "operational circumstances," purchases from qualifying facilities will result in costs greater than those that the utility would incur if it did not make the purchases, but instead generated an equivalent amount of energy itself. The New York State Public Service Commission initiated a proceeding to investigate whether conditions existed to justify the exercise of the Public Utility Regulatory Policies Act curtailment rights and, if so, the procedures for implementation. Niagara Mohawk's petition has not been ruled upon. In the meantime, Niagara Mohawk's claim that it is obligated to buy excessive generation has been significantly reduced by its buyout of a number of power purchase agreements. Texas (Power Resources Project). In June 1999, the Texas legislature approved a comprehensive plan for restructuring Texas' electric industry. The plan, known as SB 7, which became effective on September 1, 1999, calls for customer choice to be fully implemented in Texas by 2004. Currently, the Public Utility Regulatory Act of 1995 authorizes the Public Utility Commission to regulate the electricity market and ensure that only one electric energy provider serves each area of the state. Among other things, SB 7 amends Public Utility Regulatory Act by deregulating the electricity generation market and permitting certain providers to compete for customers who choose their electricity supplier in competitive areas. SB 7 also authorizes the Commission to develop and promulgate customer protection rules during and after a transition to a competitive market. The Commission has not yet issued its rules implementing SB 7. Arizona (Yuma Project). The Arizona legislature enacted House Bill 2663, under which retail competition in electric generation was to begin no later than December 31, 1998 for at least 20% of Arizona's 1995 retail load, with full retail competition expected prior to December 31, 2000. On January 5, 1999, however, the Arizona Corporation Commission voted to stay the implementation of its HB 2663's electric competition rules, pending additional public hearings. The Commission indicated that additional time was necessary to fine-tune the process and rules. In April, the Commission proposed new comprehensive retail competition and stranded cost rules to provide retail access to all customers by January 1, 2001. FINANCIAL INCENTIVES FOR IMPERIAL VALLEY PROJECTS Salton Sea Power L.L.C. and CE Turbo LLC also expect to receive incentive payments from the State of California's New Renewable Resources Account for energy sold by Salton Sea Unit V or the CE Turbo project through the Imperial Irrigation District's transmission system during the first five years of operation of each of these projects. The California Energy Commission has selected Salton Sea Unit V to receive incentive payments from the New Renewable Resources Account in an amount equal to $0.0124 per kilowatt-hour of energy produced, up to $25,548,364.80 altogether, for the first five years of operation. The Energy Commission has selected the CE Turbo project to receive incentive payments from the New Renewable Resources Account in an amount equal to $0.0134 per kilowatt-hour of energy produced, up to $5,751,816 altogether, for the first five years of operation. The amount of the incentive payments for the fourth and fifth years of operation of a project will be reduced by 25% if the actual generation from the project over the first three years of operation averages less than 85% of the estimated annual generation of the project (412,070,400 kilowatt-hours for Salton Sea Unit V and 85,848,000 kilowatt-hours for the CE Turbo project). In order for a project to remain eligible for incentive payments, the project must continue to satisfy specified eligibility criteria (including ownership and fuel use criteria) and the project must timely satisfy specified milestones, including completion of construction of the project by January 1, 2002. The State of California has also established financial incentives for existing renewable energy power projects which are available in the 1998-2001 time period. Projects must meet specified eligibility requirements, including date of initial operation, ownership and fuel use criteria. Each of the operating Imperial Valley projects other than Salton Sea Unit I and Salton Sea Unit IV will become eligible for this program upon expiration of the fixed price period in its power purchase agreement. The program provides geothermal plants with a monthly amount per kilowatt-hour of power sold equal to the lowest of (1) $0.01/kilowatt-hour, (2) $0.03/kilowatt-hour minus a calculated market 48 clearing price and (3) a specified amount of funds available for the month divided by eligible generation. The Imperial Valley projects have already begun receiving payments under this program. ENVIRONMENTAL MATTERS Each of the projects is subject to environmental laws and regulations at the federal, state and local levels in connection with the development, ownership and operation of the projects. These environmental laws and regulations generally require that a wide variety of permits and other approvals be obtained for the construction and operation of an energy-producing facility and that the facility then operate in compliance with these permits and approvals. Failure to operate the facility in compliance with applicable laws, permits and approvals could result in the levy of fines or curtailment of project operations by regulatory agencies. We believe that each of the project companies is in compliance in all material respects with all applicable environmental regulatory requirements and that maintaining compliance with current governmental requirements will not require a material increase in capital expenditures or materially affect any of the project company's financial condition or results of operations. It is possible, however, that future developments, including more stringent requirements of environmental laws and their enforcement policies, could affect the costs of compliance and the manner in which the project companies conduct their business. 49 OUR MANAGEMENT OUR DIRECTORS AND EXECUTIVE OFFICERS Below are our current executive directors and officers and their positions with us:
EXECUTIVE OFFICER POSITION --------------------------------- ------------------------------------------------ Robert S. Silberman .......... Director, President and Chief Operating Officer Brian K. Hankel .............. Vice President and Treasurer Douglas L. Anderson .......... Director, Vice President and General Counsel Richard P. Johnston .......... Vice President and Commercial Officer Patrick J. Goodman ........... Director Larry Kellerman .............. Director John L. Harrison ............. Director Steven M. Pike ............... Director
ROBERT S. SILBERMAN, 40, President and Chief Operating Officer of us and each designated subsidiary. Mr. Silberman joined MidAmerican in 1995. Prior to that, Mr. Silberman served as Executive Assistant to the Chairman and Chief Executive Officer of International Paper Company from 1993 to 1995, as Director of Project Finance and Implementation for the Ogden Corporation from 1986 to 1989 and as a Project Manager in Business Development for Allied-Signal, Inc. from 1984 to 1985. He has also served as the Assistant Secretary of the Army for the United States Department of Defense. BRIAN K. HANKEL, 36, Vice President and Treasurer of MidAmerican, us and each designated subsidiary. Mr. Hankel joined MidAmerican in February 1992 as Treasury Analyst and served in that position to December 1995. Mr. Hankel was appointed Assistant Treasurer in January 1996 and was appointed Treasurer in January 1997. Prior to joining MidAmerican, Mr. Hankel was a Money Position Analyst at FirsTier Bank of Lincoln from 1988 to 1992 and Senior Credit Analyst at FirsTier from 1987 to 1988. DOUGLAS L. ANDERSON, 40, Vice President and General Counsel of CalEnergy Generation, us and each designated subsidiary. Mr. Anderson joined MidAmerican in February 1993. From 1990 to 1993, Mr. Anderson was a business attorney with Fraser, Stryker, Vaughn, Meusey, Olson, Boyer & Cloch, P.C. in Omaha. From 1987 through 1989, Mr. Anderson was a principal in the firm Anderson & Anderson. Prior to that, from 1985 to 1987, he was an attorney with Foster, Swift, Collins & Coey, P.C. in Lansing, Michigan. RICHARD P. JOHNSTON, 43, Vice President and Commercial Officer of us and Director of Operations for El Paso Energy International. Mr. Johnston joined El Paso Energy in 1997 and was assigned to our management team at our founding in March of 1999. In his 21 years of experience in power generation engineering and management, Mr. Johnston has held positions directing Plant Operations and Maintenance, Asset Management and Project Development in both the Domestic and International Markets for ESI Energy, a Florida Power & Light subsidiary, The AES Corp., based in Arlington, VA, and Westinghouse, based in Orlando, FL from 1993 to 1997. Mr. Johnston has extensive experience in hands-on management of the operations and maintenance of oil and gas-fired combustion turbines, coal, biomass, geothermal and solar independent power, including all aspects of construction management, mobilization and start-up. PATRICK J. GOODMAN, 33, Senior Vice President and Chief Financial Officer of MidAmerican and a director of us and each designated subsidiary. Mr. Goodman joined MidAmerican in June 1995 and served as Manager of Consolidation Accounting until September 1996 when he was promoted to Controller. Prior to joining MidAmerican, Mr. Goodman was a financial manager for National Indemnity Co. from 1993 to 1995 and a certified public accountant at Coopers & Lybrand from 1989 to 1993. 50 LARRY KELLERMAN, 44, President of El Paso Power Services Company and a director of us. Mr. Kellerman joined El Paso Energy in February 1998. Prior to joining El Paso Energy, he was President of Citizens Power, where he initiated Citizens' activities in the power marketing field in 1988, when Citizens was the initial power marketer granted FERC authorization. From 1982 through 1988, Mr. Kellerman was General Manager of Power Marketing and Power Supply for Portland General Electric. From 1979 through 1982, Mr. Kellerman was Financial Analyst and Power Contract Negotiator with Southern California Edison, where he negotiated some of the first Public Utility Regulatory Policies Act qualifying facility contracts in the nation. JOHN L. HARRISON, 40, Senior Managing Director and Chief Financial Officer of El Paso Merchant Energy and a director of us. Mr. Harrison joined El Paso Energy in June 1996. Prior to joining El Paso Energy, Mr. Harrison was a partner with Coopers & Lybrand LLP for five years. STEVEN M. PIKE, 38, Vice President Structured Transactions of El Paso Power Services Company and a director of us. Mr. Pike joined El Paso Energy in April of 1998. Prior to joining El Paso Energy, Mr. Pike was Vice President Risk Management for Enerz, a wholly-owned trading subsidiary of Zeigler Coal Holding Company, and Director of Strategic Planning for Zeigler Coal Holding Company from 1995 to 1998, and Director of Energy Development for Kennecott Corporation from 1995 to 1996. Mr. Pike began his career with Niagara Mohawk Power Corporation and held a number of positions in power system transmission operations and generation dispatch planning, power contracting, fuel supply, fossil and hydro generation planning, and strategic planning from 1983 to 1995. Our directors and executive officers do not receive any compensation for serving in these positions. 51 OWNERSHIP OF OUR MEMBERSHIP INTERESTS Fifty percent of our membership interests are owned by MidAmerican and the other 50% are owned by El Paso Power. If the two owners of our membership interests are unable to reach agreement on budgeting or other material operational matters, the prior year's budget (adjusted for inflation) and operational practices will be continued until agreement is reached. As of September 30, 1999, our total capitalization was $1,457 million. There is no public trading market for our membership interests. None of our directors or executive officers beneficially own any of our equity interests. MidAmerican's common stock is publicly traded on the New York, Pacific and London Stock Exchanges. El Paso Power is owned indirectly by El Paso Energy. El Paso Energy's common stock is publicly traded on the New York Stock Exchange. OUR RELATIONSHIPS AND RELATED TRANSACTIONS OUR RELATIONSHIPS WITH SUPPLIERS AND SERVICE PROVIDERS The Imperial Valley projects' geothermal power plants are indirectly wholly-owned and operated by Magma or subsidiaries of Magma. Land surface rights for, and geothermal fluid supplying, these facilities is provided from Magma's (or a subsidiary's) geothermal resource holdings in the Salton Sea Known Geothermal Resource Area. The Saranac project, the Power Resources project and the NorCon project are indirectly partially- or wholly-owned by Falcon Seaboard Resources and are operated and maintained by Falcon Power Operating, a wholly-owned subsidiary of Falcon Seaboard Resources. Falcon Power Operating is entitled to reimbursements and fees in exchange for providing operation and maintenance services. In addition CE Texas Gas, a wholly-owned indirect subsidiary of Falcon Seaboard Resources, procures natural gas for the Power Resources project. OUR RELATIONSHIP WITH MIDAMERICAN AND EL PASO ENERGY CORPORATION We are 50% owned by MidAmerican and 50% owned by El Paso Power. Our activities are restricted by the terms of the indenture for the Securities to (1) ownership of our subsidiaries and related activities, (2) acting as issuer of Securities and other indebtedness as permitted under the indenture and related activities and (3) other activities which could not reasonably be expected to result in a material adverse effect so long as the rating agencies confirm that these activities will not result in a downgrade of their ratings of the Securities. We and each of the designated subsidiaries have been organized and are operated as legal entities separate and apart from MidAmerican, El Paso Energy and their other affiliates, and, accordingly, our assets and the assets of the designated subsidiaries will not be generally available to satisfy the obligations of MidAmerican, El Paso Energy or any of their other affiliates. However, our and the designated subsidiaries' unrestricted cash and other assets which are available for distribution may, subject to applicable law and the terms of our and the designated subsidiaries' financing arrangements, be advanced, loaned, paid as dividends or otherwise distributed or contributed to MidAmerican, El Paso Energy or their affiliates. The Securities are non-recourse to MidAmerican and El Paso Energy. In connection with El Paso Power's acquisition of 50% of our interests, MidAmerican entered into an administrative services agreement with us and El Paso Power entered into a power marketing services agreement and a fuel management services agreement with us. We reimburse MidAmerican and El Paso Power for the actual costs and expenses of performing their obligations under these agreements. These agreements each have an initial term of one year and then continue from year to year until terminated by either party. 52 REPORTS OF THIRD PARTY CONSULTANTS OVERVIEW OF THE THIRD PARTY CONSULTANTS' REPORTS We have included as appendices to this prospectus reports of third party consultants in order to provide investors with important information regarding the projects which is not included elsewhere in this prospectus. These reports include the following: o A report by Fluor Daniel, attached as Appendix C to this prospectus, which reviews the geothermal projects and includes, among other things: (1) an assessment of the historical and current operating performance of Salton Sea Units I-IV and the Elmore, Del Ranch, Vulcan and Leathers projects; (2) a review of the design and technology for Salton Sea Unit V and the CE Turbo project; (3) an assessment of the capability of the participants in the geothermal projects, including the construction contractor for Salton Sea Unit V and the CE Turbo project; (4) a determination of the reasonableness of the budgeted construction costs for Salton Sea Unit V and the CE Turbo project; (5) a discussion of the environmental permits required for the geothermal projects and the compliance by the projects with these permits; and (6) projections of the distributions to us from the geothermal projects (which utilize the price projections prepared by Henwood Energy Services, Inc. in the report attached as Appendix D to this prospectus). o A report by R.W. Beck, attached as Appendix B to this prospectus, which reviews the natural gas projects and includes, among other things: (1) an assessment of the historical and current operating performance of Saranac, Power Resources, NorCon and Yuma projects; (2) a review of the technology used in the natural gas projects; (3) an assessment of the available supply of natural gas for the natural gas projects; (4) a discussion of the operation and maintenance procedures used at the natural gas projects; (5) an estimate of the useful lives of the natural gas projects; (6) a discussion of the environmental permits required for the natural gas projects and the compliance by the projects with these permits; and (7) projections of the distributions from the natural gas projects. o Another report by Fluor Daniel, attached as Appendix A to this prospectus, which contains projections of the consolidated distributions from all of the projects based on the reports found in Appendices B and C. o A report by Henwood Energy Services, Inc., attached as Appendix D to this prospectus, which reviews the California electricity market and contains, among other things: (1) an overview of the California wholesale electricity market; (2) a forecast of the average prices for electricity in the California market; and (3) an assessment of the geothermal projects' ability to compete in the California market. o A report by GeothermEx, Inc., attached as Appendix E to this prospectus, which assesses the sufficiency of the geothermal resources available to be used for the production of electricity in the geothermal projects. 53 CONCLUSIONS REACHED BY THE THIRD PARTY CONSULTANTS The third party consultants present the conclusions of their findings in their reports. This section summarizes the principal conclusions reached by the consultants. Additional conclusions, and the detailed discussions of how the conclusions were reached, are contained in the reports. Fluor Daniel reached the following conclusions, among others, in its report regarding the geothermal projects: o Salton Sea Units I-IV and the Vulcan, Del Ranch, Elmore and Leathers projects use commercially proven technology and are operated in accordance with recognized electric utility industry practices. o The principal participants in the geothermal projects possess the necessary experience to successfully fulfill their project obligations. o The technology upon which Salton Sea Unit V and the CE Turbo project are based is proven and reliable. o Based upon a review of the construction contracts for Salton Sea Unit V and the CE Turbo project, the capital cost budgets appear adequate for the facilities provided under the contracts. o The reviewed records show that no environmental notices of violation for air emissions, wastewater or solid/hazardous waste have been filed against the operating geothermal projects in the last two years. o All discretionary environmental permit approvals have been received for the proposed new construction. o The assumptions underlying the economic/financial model appear to be reasonable, and the projected operating results reasonably represent CE Generation's future financial profile. o Projected operating and maintenance costs and capital expenditures for major maintenance projects appear to be reasonable and representative of the planned operations of the geothermal projects. o The financial projections, based on the base case assumptions recommended by CE Generation, appear to be reasonable and indicate that revenues should be adequate to pay operation and maintenance expenses and provide cash flow for debt service and distributions. R.W. Beck reached the following conclusions, among others, in its report regarding the natural gas projects: o The natural gas projects utilize sound technology and proven methods of electric and thermal generation and have been designed and constructed in accordance with generally accepted industry practices. o Each of the Power Resources, Saranac and Yuma projects possesses sufficient contracted natural gas commodity supply to meet the requirements of its power purchase agreement and the contracted natural gas transportation capacity for each of these projects is adequate to reliably deliver the natural gas supply requirements. o If the operators operate the Power Resources, Saranac and Yuma projects in accordance with generally accepted industry practices, these projects should have useful lives extending through the final maturity date of the Securities. o All of the major permits and approvals required to operate the natural gas projects have been or are currently in the process of being obtained. o Based on the historical performance, operation and maintenance practices and observed conditions of the Power Resources, Saranac and Yuma projects, these projects should be capable of achieving the average annual availabilities, net electrical capabilities, capacity factors, steam supply requirements and heat rates assumed in the natural gas projections. 54 Fluor Daniel reached the following conclusions, among others, in its report regarding the consolidated distributions from the projects: o The consolidated financial model accurately represents the results of the four project-specific models contained in Fluor Daniel's report on the geothermal projects and R.W. Beck's report on the natural gas projects. o The consolidated financial model that is based on the base case assumptions recommended by CE Generation and R.W. Beck indicates that revenues appear to be adequate to provide sufficient cash flow for debt service, with base case debt service coverage ratios calculated from 1999 through 2018 of 2.59x minimum and 3.08x average. o The financial projections remain stable across a defined range of sensitivities and avoided cost assumptions. Henwood reached the following conclusions, among others, in its report regarding the California electricity market: o All of the geothermal projects and the Yuma project will be low cost producers in all years of the study. o The annual average operating cost of the geothermal projects in 2005 is $17.5 per megawatt-hour. o The annual average operating costs of the geothermal projects and the Yuma project, in dollars per megawatt-hour, are below the annual average California power exchange prices. o The California power exchange price will be greater than or equal to $20.3 per megawatt-hour in 96 percent of all hours in 2005. This means that the geothermal projects and the Yuma project, with an average operating cost of $17.5 per megawatt-hour, will be below the California power exchange price. o The base case forecast indicates that the California power exchange clearing price will increase from $28.3 per megawatt-hour in 1999 to $50.3 per megawatt-hour by 2018 in nominal dollars, which translates into an average annual rate of increase of 3.1 percent over that period. GeothermEx reached the following conclusions, among others, in its report regarding the geothermal resources for the geothermal projects: o The Salton Sea Known Geothermal Resource Area of Imperial Valley, California is highly productive and wells have historically behaved favorably with minimal flow rate or pressure declines. o The additional production fluid needed for Salton Sea Unit V will be supplied from existing wellhead capacity and the nominal additional production fluid needed for the CE Turbo project can be supplied by spare capacity at existing wells. o Numerical simulation studies undertaken to date forecast acceptable well behavior for the existing and planned level of power generation. Well behavior has historically been consistent with results predicted by earlier simulation models; therefore, future well behavior is expected to be adequate to support the geothermal projects. o The recoverable geothermal energy reserves from the reservoir are more than sufficient to support existing projects and the planned additional increments of capacity resulting in a total capacity of 326.4 megawatts. GeothermEx estimates that 1,200 megawatts of reserves are available within the portion of the Salton Sea Known Geothermal Resource Area of Imperial Valley dedicated to the geothermal projects. o The budget for wellfield costs is reasonable and should allow the geothermal projects to achieve the forecasted levels of electrical generation. 55 ASSUMPTIONS MADE BY THE CONSULTANTS IN PREPARING THEIR REPORTS The third party reports contain a number of assumptions and qualifications made by the consultants. This section describes the primary assumptions and qualifications. Additional assumptions and qualifications are described in the reports. The following assumptions and qualifications, among others, are contained in Fluor Daniel's report regarding the geothermal projects: o Fluor Daniel's inspection of the existing geothermal operations were limited to visits of personnel on July 24, 1998 and February 9, 1999. o Fluor Daniel did not undertake an independent review with all regulatory agencies which could under any circumstances have jurisdiction over, or interests pertaining to, the geothermal projects. The following assumptions and qualifications, among others, are contained in R.W. Beck's report regarding the natural gas projects: o R.W. Beck made no determination as to the validity and enforceability of any contract, agreement, rule or regulation applicable to the natural gas projects and their operations. R.W. Beck assumed that all such contracts, agreements, rules and regulations will be fully enforceable in accordance with their terms and that all parties will comply with the provisions of their respective agreements. o R.W. Beck's review of the design of the natural gas projects was based on information provided by CE Generation and our visual observations during our site visits. o R.W. Beck assumed that the operators will maintain the natural gas projects in accordance with good engineering practice, will perform all required major maintenance in a timely manner, and will not operate the equipment to cause it to exceed the equipment manufacturers' recommended maximum ratings. o R.W. Beck assumed that the operators will employ qualified and competent personnel and will generally operate the natural gas projects in a sound and businesslike manner. o R.W. Beck assumed that the natural gas projects will identify and implement solutions to the year 2000 problem in a manner which will not impact the projected net revenues of the natural gas projects. o R.W. Beck assumed that inspections, overhauls, repairs and modifications are planned for and conducted in accordance with manufacturers' recommendations, and with special regard for the need to monitor certain operating parameters to identify early signs of potential problems. o R.W. Beck assumed that proposed restructuring of the electric utility industry will not significantly impact the projected electricity revenues of the Power Resources, Saranac and Yuma projects. o R.W. Beck assumed that all licenses, permits and approvals and permit modifications necessary to operate the natural gas projects have been, or will be, obtained on a timely basis and any changes in required licenses, permits and approvals will not require reduced operation of, or increased costs to, the natural gas projects. o R.W. Beck assumed that the consumer price index and general inflation, used variously to escalate various revenues and expenses, will increase at an average annual rate of 2.7 percent. o R.W. Beck assumed that the Yuma natural gas contracts will be extended at pricing provisions equal to the current agreements through the term of the Securities. o R.W. Beck assumed that the non-fuel operating and maintenance expenses, including the cost of major maintenance, will be consistent with the information provided by CE Generation, and will increase thereafter at the assumed change in the general inflation rate, except as noted otherwise in R.W. Beck's report. 56 o R.W. Beck assumed that there will be no additional capital improvements to the Power Resources, Saranac and Yuma projects other than those assumed in the projections. o R.W. Beck assumed that there will be no distributions made to CE Generation from the natural gas projects after the expiration of the respective power purchase agreement. o R.W. Beck assumed that there will be no distributions made to CE Generation from the NorCon Project. o R.W. Beck assumed that a full year of revenues from the Yuma project will be available to pay the debt service on the Securities in 2018, as estimated by CE Generation. Fluor Daniel stated in its report regarding the consolidated distributions from all of the projects that it did not undertake an independent review with all regulatory agencies which could under any circumstances have jurisdiction over, or interests pertaining to, the projects. The following assumptions and qualifications, among others, are contained in Henwood's report regarding the California electricity market: o Henwood assumed that the California electricity market would be fully competitive by 2005. o Henwood included only announced retirements in its estimate of the number of generating units to be retired. o Henwood assumed that gas-fired combined cycle units and gas-fired combustion turbines will be added as needed to meet the projected increase in customer demand over the forecast period. o Henwood assumed that inflation would be 2.5%. o Henwood assumed that peak demand and energy requirements would increase at less than 2% per year. o Henwood assumed that fixed and variable operation and maintenance costs would escalate with inflation. o Henwood's gas price forecast was developed based on the price of gas futures contracts for the 1999 period and estimates of gas transportation costs associated with moving gas from the relevant gas basin to the power plant. o Henwood used spot coal prices to simulate the economic operation of coal plants. GeothermEx does not list any specific assumptions in its report regarding the geothermal resources for the geothermal projects. INFORMATION OBTAINED FROM OUTSIDE SOURCES AND RELATIONSHIPS TO OTHER CONSULTANTS. Fluor Daniel obtained the following information from outside sources and other reports included in this prospectus in preparing its report regarding the geothermal projects: o GeothermEx assessed the adequacy, reliability, and costs of geothermal resources and wells. o The projected interest rates on the Securities, reinvestment rates, cost of arranging the financing and the amortization schedule of the Securities used in the debt service coverage analysis were provided to Fluor Daniel by investment banks. o CE Generation provided 1998 financial statements for the CE Generation and other cost accounting information as well as future projections of cost, expenses, prices and other key assumptions. o GeothermEx provided brine quantities and depletion rates. o Henwood provided the electricity pricing forecast. 57 R.W. Beck obtained the following information from outside sources and other reports included in this prospectus in preparing its report regarding the natural gas projects: o The price of electricity and natural gas for the Yuma project was estimated by Henwood. o The cost of natural gas to the Power Resources and Saranac projects and the cost of natural gas transportation to the Yuma project was estimated by C.C. Pace Consulting, L.L.C. o CE Generation provided the senior debt service requirements and interest income for the Power Resources and Saranac project. Fluor Daniel obtained the following information from outside sources and other reports included in this prospectus in preparing its report regarding the consolidated distributions from all of the projects: o R.W. Beck provided projections for the natural gas projects as contained in Appendix B to this prospectus. o The projected interest rates on the Securities, reinvestment rates, cost of arranging the financing and the amortization schedule of the Securities used in the debt service coverage analysis were provided to Fluor Daniel by investment banks. o CE Generation provided 1998 financial statements for the CE Generation and other cost accounting information as well as future projections of cost, expenses, prices and other key assumptions. o GeothermEx provided brine quantities and depletion rates. o Henwood provided the electricity pricing forecast as contained in Appendix D to this prospectus. Henwood did not list any specific information obtained from outside sources and other reports included in this prospectus in its report regarding the California electricity markets. GeothermEx obtained the following information from outside sources in preparing its report regarding the geothermal resources for the geothermal projects: o CE Generation provided projection and injection histories from the California Division of Oil, Gas and Geothermal Resources. o CE Generation provided chemical analysis and information on the drilling and logging of recent wells. o CE Generation provided budget information for future wellfield expenditures. 58 SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS The following is a summary of the contracts related to the projects and the business of the designated subsidiaries and the project companies, and is not considered to be a full statement of the terms of the agreements. We have filed the material agreements as exhibits to the registration statement of which this prospectus is a part. Unless otherwise stated, any reference in this prospectus to any agreement will mean the agreement and all schedules, exhibits and attachments to the agreement as amended, supplemented or otherwise modified and in effect as of the date of this prospectus. IMPERIAL VALLEY PROJECTS Each of the Imperial Valley projects is (or, in the case of Salton Sea Unit V and the CE Turbo project, is proposed to be) a geothermal power plant located at the Salton Sea Known Geothermal Resource Area in Imperial Valley, California. Below is a chart illustrating the commercial structure of the Imperial Valley projects. [BLOCK CHART SHOWING THE COMMERCIAL STRUCTURE OF THE IMPERIAL VALLEY PROJECTS] SALE AND TRANSMISSION OF POWER STANDARD TERMS OF SO4 AGREEMENTS All of the power purchase agreements for the operating Imperial Valley projects are standard offer no. 4 (or SO4) agreements, except the Salton Sea Unit I power purchase agreement and the Salton Sea Unit IV power purchase agreement. Although these SO4 agreements differ in some respects from the standard SO4 agreement, many of the provisions are the same as those found in the SO4 agreement. Below is a summary of the material terms and provisions contained in each SO4 agreement. Term and Termination. Each of the SO4 agreements has a contract term of 30 years from the firm operation date of the project. Upon expiration of the contract term, the SO4 agreement remains in effect until either party terminates the agreement upon 90 days prior written notice. 59 The fixed price period is the first 10 years of the contract term. The fluctuating price period begins upon expiration of the fixed price period and continues for the remainder of the contract term. Power Purchase Provisions. The SO4 agreement provides for (1) capacity payments as described below and (2) energy payments either at an annually escalating rate or at a levelized rate for the fixed price period and energy payments based on the cost that the purchasing utility avoids by purchasing energy from the project instead of obtaining the energy from other sources for the fluctuating price period. Capacity Payments. A project will qualify for a fixed annual capacity payment by meeting specified performance requirements during the months of June through September of each year. The project must deliver an average kilowatt-hour output during specified on-peak hours of each month in the on-peak period at a rate corresponding to at least an 80% contract capacity factor to meet its performance requirement. The contract capacity factor equals (1) a plant's actual electricity output divided by (2) the product of the project's contract capacity and the number of hours in the measurement period (less applicable maintenance and curtailment hours). If a project maintains the required 80% contract capacity factor, then Southern California Edison must pay a fixed annual capacity payment equal to the product of the contract capacity price set forth in the agreement and the project's contract capacity. The fixed annual capacity payment is paid in monthly installments, and the monthly installment may be reduced if the contract capacity factor is less than 80% for the month. Capacity payments are weighted toward the on-peak months. The project company is required to annually demonstrate its contract capacity by satisfying the performance requirement. If the project company does not do so, it may be placed on probation for up to 15 months, and, if the project company cannot satisfy the performance requirement during the probationary period, the contract capacity will be reduced to the greater of (1) what has been delivered during the probationary period or (2) what can reasonably be delivered. Additionally, failure to satisfy the performance requirement will subject the project company to the penalties described below. However, if the project company's failure to meet the performance requirement is due to a forced outage or a request by Southern California Edison to reduce delivery, Southern California Edison must continue to pay the full firm capacity payment. If the project company is unable to provide contract capacity due to uncontrollable forces (such as a flood or an earthquake), Southern California Edison must continue to pay the full firm capacity payments for 90 days from the occurrence of the uncontrollable force. Capacity Bonus Payments. Under the SO4 agreements, the project companies are entitled to receive capacity bonus payments in an on-peak month if the relevant project operates at least at an 85% contract capacity factor during the on-peak hours of the on-peak month, and qualifies in respect of non-peak months if the contract capacity factors for all on-peak months have been at least 85% and the project operates at a contract capacity factor of at least 85% during on-peak hours of the relevant non-peak month. Capacity bonus payments for each month increase with the level of kilowatt-hours delivered between the 85% and 100% contract capacity factor levels during the month. The capacity bonus payment for each month is equal to a percentage of the firm capacity payment based on the project's on-peak contract capacity factor (which percentage may not exceed 18% of one-twelfth of the firm capacity payment). Changes in Contract Capacity. The project company may reduce contract capacity by notice to Southern California Edison. The project company must refund Southern California Edison an amount of money equal to the difference between the accumulated monthly capacity payments paid by Southern California Edison prior to the receipt of the reduction notice and the total monthly capacity payments Southern California Edison would have paid based on the adjusted capacity price, as well as interest at the prime rate. If the project company fails to give notice, it can reduce contract capacity if it refunds said amount plus a penalty equal to the product of (1) the contract capacity being reduced, (2) the difference between the contract capacity price and the adjusted capacity price and (3) the number of years and fractions (not less than one year) by which the project company has been deficient in giving the prescribed notice. If, however, the adjusted capacity price is less than the contract capacity price, then no penalty is due. 60 Energy Payments. In addition to capacity payments, each SO4 agreement provides that Southern California Edison must make monthly energy payments based on the number of kilowatt-hours of energy delivered by the relevant project during the month. Energy payments are weighted toward on-peak months and on-peak hours. Annual Forecast Energy Payments. The Leathers SO4 agreement is an annual forecast energy payment SO4 agreement. During the fixed price period the project company is paid a monthly energy payment based on a schedule of the forecast of the annual marginal cost of energy, which lists a price per kilowatt-hour of 15.6 cents for 1999. Levelized Energy Payments. Under the Salton Sea Unit II SO4 agreement, during the fixed price period the energy payments are levelized to yield an annual average of 10.6 cents per kilowatt-hour, weighted based on the relative amounts of time to which each different price applies during the summer and winter periods of a year. The project must deliver to Southern California Edison at least 70% of the average annual kilowatt-hour delivered to Southern California Edison during periods when the levelized energy payment price was greater than the energy price in the forecast of the annual marginal cost of energy schedule. If the project fails to satisfy this performance obligation or fails to perform any other contract obligations during the fixed price period, and, at that time, the net present value of the cumulative energy payments received exceeds the net present value of what the project company would have been paid under the annual forecast energy payment SO4 agreement, the project company must refund the difference. The project company must post a performance bond, guarantee, letter of credit or other security to insure payment to Southern California Edison of any refund. Fluctuating Energy Payments. During the fluctuating price period, all of the project companies are paid a monthly energy payment at a rate which is based on the cost that Southern California Edison avoids by purchasing energy from the project instead of obtaining the energy from other sources. Southern California Edison's avoided cost is currently determined by an approved interim formula which adjusts historic costs by an inflation/deflation factor representing monthly changes in the cost of natural gas at the California border and adjustment factors based on the time of day, week and year in which the energy is delivered. Consequently, under this methodology, energy payments under the SO4 agreements will fluctuate based on the time of generation and monthly changes in average fuel costs in the California energy market. Legislation recently adopted in California establishes that the price qualifying facilities receive as energy payments would be modified from the current short-run avoided cost basis to the clearing price established by the California power exchange once specified conditions are met. As the main condition, the legislation requires that the California Public Utilities Commission must first issue an order determining that the California power exchange is functioning properly for the purposes of determining the short-run avoided cost energy payments to be made to non-utility power generators. Additionally, the project company may, upon appropriate notice to Southern California Edison, exercise a one-time option to elect to thereafter receive energy payments based upon the clearing price from the California power exchange. 61 In April 1995, Southern California Edison forecast its future costs avoided by purchasing energy from qualifying power facilities instead of obtaining it from other sources as follows:
YEAR LOW MEDIAN HIGH -------- --------- -------- --------- 1999 2.91 2.99 3.28 2000 3.11 3.22 3.60 2001 3.30 3.46 3.91 2002 3.42 3.59 4.13 2003 3.52 3.72 4.36 2004 3.62 3.88 4.61 2005 3.72 4.11 4.86 2006 3.83 4.31 5.16 2007 3.95 4.44 5.48 2008 4.06 4.59 5.82 2009 4.18 4.74 6.19 2010 4.31 4.89 6.59 2011 4.43 5.06 7.07 2012 4.57 5.22 7.60 2013 4.70 5.40 8.16 2014 4.84 5.58 8.76 2015 4.99 5.76 9.41
The power market consultant's report (included as Appendix C to this prospectus) also contains projections of future market prices of electricity. Neither we nor any Imperial Valley designated subsidiary has prepared or relied upon any these forecasts. We and the Imperial Valley designated subsidiaries believe that all forecasts of energy prices are speculative in nature and that there can be no assurance that the price paid by Southern California Edison for energy in the future will be equal to any of the above forecasts. Southern California Edison's actual energy price will be dependent upon, among other factors, Southern California Edison's future fuel costs, system operation characteristics, market prices for electricity (including California power exchange prices) and regulatory action. Curtailment. Southern California Edison is not required to accept or purchase energy for a maximum of 300 hours per year during off-peak hours (1) if the purchase would cost more than the costs Southern California Edison would incur if it utilized energy from another source or (2) if the Southern California Edison electric system demand would require that Southern California Edison hydro-project water resources be spilled to reduce generation. IMPERIAL VALLEY POWER PURCHASE AGREEMENTS Salton Sea Unit I Power Purchase Agreement. The Salton Sea Unit I power purchase agreement is not an SO4 agreement, although as described below it contains many of the provisions customarily found in an SO4 agreement. Term and Contract Capacity. The contract term is for 30 years from the firm operation date of July 1, 1987. The contract capacity is 10 megawatts. Capacity Payments. The capacity payment is based on a firm capacity price which adjusts quarterly based on inflation-related indices. If Salton Sea Unit I is able to deliver 100% of the contract capacity set forth in the agreement, Salton Sea Unit I receives a monthly performance payment based on the then current firm capacity price multiplied by the contract capacity and the energy delivered from Salton Sea Unit I up to the contract capacity. Based on the current capacity price of $127.80 per kilowatt-year, the annual maximum capacity payment is $1,278,000. The Salton Sea Unit I power purchase agreement does not provide for bonus capacity payments. 62 If Salton Sea Unit I does not meet the performance requirement, Southern California Edison may place the project on probation for a period not to exceed 15 months. If the performance requirement is not met during the probationary period, Southern California Edison may derate the contract capacity. Energy Payments. Salton Sea Unit I receives a monthly energy payment calculated using a base price, which is subject to quarterly adjustments based on inflation-related indices. The time period weighted average energy payment was 5.4 cents per kilowatt-hour for the year ended December 31, 1998. As the Salton Sea Unit I power purchase agreement is not an SO4 agreement, the energy payments never revert to payments based on the cost that Southern California Edison avoids by purchasing energy from Salton Sea Unit I instead of obtaining the energy from other sources. Salton Sea Unit II Power Purchase Agreement. Salton Sea Unit II sells electricity to Southern California Edison under a modified SO4 agreement. Term and Contract Capacity. The contract term is for 30 years from the firm operation date of April 5, 1990. The contract capacity is 16.5 megawatts during on-peak periods and 15 megawatts during mid-and off-peak periods. Capacity Payments. Salton Sea Unit II has a contract capacity price of $187 per kilowatt-year and, based on the contract capacity of 15 megawatts, the annual maximum capacity payment is $2,805,000. Energy Payments. The fixed price period for Salton Sea Unit II expires on April 4, 2000. During the fixed price period, the energy payment is levelized at a time weighted average of 10.6 cents per kilowatt-hour. After the fixed price period, energy payments will be based on the cost that Southern California Edison avoids by purchasing energy from Salton Sea Unit II instead of obtaining the energy from other sources. For the period from April 1, 1994 through March 31, 2004, Southern California Edison is entitled to receive, at no cost, 5% of all energy delivered in excess of contract capacity. Salton Sea Unit III Power Purchase Agreement. Salton Sea Unit III sells electricity to Southern California Edison under a modified SO4 agreement. Term and Contract Capacity. The contract term is for 30 years from the firm operation date of February 14, 1989. The contract capacity is 47.5 megawatts. Capacity Payments. Salton Sea Unit III has a contract capacity price of $175 per kilowatt-year and, based on the contract capacity of 47.5 megawatts, the annual maximum capacity payment is $8,312,500. Energy Payments. The fixed price period for Salton Sea Unit III expired on February 13, 1999 and thus energy payments are now based on the cost that Southern California Edison avoids by purchasing energy from Salton Sea Unit III instead of obtaining the energy from other sources. Salton Sea Unit IV Power Purchase Agreements. The Salton Sea Unit IV power purchase agreement is not an SO4 agreement, although as described below it contains many of the provisions customarily found in an SO4 agreement. Term and Contract Capacity. The contract term is for 30 years from the firm operation date of May 24, 1996. The contract capacity is 34 megawatts. Capacity Payments. Through June 30, 2017, the capacity price is $121.72 per kilowatt-year plus quarterly inflation-related adjustments for 58.8% of the contract capacity delivered by Salton Sea Unit IV. After June 30, 2017, Southern California Edison will not be obligated to purchase this 58.8% of capacity. Until the end of the contract term, Salton Sea Unit IV will be paid $158 per kilowatt-year for 41.2% of the contract capacity delivered. The 1998 capacity payment was $5,010,000. Capacity bonus payments may be earned based on the same criteria found in an SO4 agreement. Energy Payments. Through June 30, 2017, the energy payments for 55.6% of the total energy delivered by Salton Sea Unit IV (up to 110% of capacity) will be calculated based on a base price of 63 4.701 cents per kilowatt-hour, adjusted in accordance with inflation-related indices. Until the end of the contract term, the energy payments for 44.4% of the total energy delivered will be calculated according to a fixed price, based on an energy payment schedule, for the first 10 years, Southern California Edison's avoided cost plus a predetermined spread per kilowatt-hour for years 11 through 15 and Southern California Edison's avoided cost thereafter. After June 30, 2017, all energy payments will be calculated as provided in the chart below. However, Southern California Edison will not be obliged to purchase any energy attributable to 55.6% of Salton Sea Unit IV's capacity. The energy payments for the 44% portion of the agreement and, after June 30, 2017, all energy delivered under the agreement, will be as follows:
ENERGY PAYMENT YEAR (CENTS/KILOWATT-HOUR) YEAR ENERGY PAYMENT (CENTS/KILOWATT-HOUR) -------- ----------------------- ------------ ---------------------------------------------- 1999 10.7 2006 3.5+Southern California Edison's avoided cost 2000 10.9 2007 2.9+Southern California Edison's avoided cost 2001 11.2 2008 2.2+Southern California Edison's avoided cost 2002 11.7 2009 1.2+Southern California Edison's avoided cost 2003 12.1 2010 1.0+Southern California Edison's avoided cost 2004 12.2 2011--2025 Southern California Edison's avoided cost 2005 12.4
Salton Sea Unit V Power Purchase Agreement. Salton Sea Power LLC and CalEnergy Minerals LLC, the owners of the zinc facility, have entered into a power sales agreement whereby Power LLC has agreed to supply electricity to Minerals LLC and Minerals LLC has agreed to purchase its electricity requirements from Power LLC up to 49 megawatts. Conditions Precedent. Power LLC's and Minerals LLC's obligations under the Salton Sea Unit V power purchase agreement are subject to the prior condition that both Salton Sea Unit V and the zinc facility are ready to commence initial operation. If, by a specified date, the zinc facility is ready to commence initial operation, but Salton Sea Unit V is not, Power LLC will be liable to Minerals LLC for any resulting damages or losses. If Salton Sea Unit V is ready to commence operations before the zinc facility, Salton Sea Unit V will be entitled to sell its output to other customers until the zinc facility is ready. We expect that, under these circumstances, Salton Sea Unit V would seek to make additional short term sales of electricity through the California power exchange or in other short term transactions. Term. The contract term is for 25 years from the date of initial deliveries. Energy Payments. Power LLC will be paid a monthly energy payment equal to the product of (1) the total quantity in kilowatt-hour of electrical energy purchased and received by Minerals LLC during the month multiplied by (2) the product of the California power exchange price multiplied by a percentage to adjust for transmission losses, minus an adjustment factor based on transmission service charges. Elmore Power Purchase Agreement. Elmore sells electricity to Southern California Edison under an SO4 agreement. Term and Contract Capacity. The contract term is for 30 years from the firm operation date of January 1, 1989. The contract capacity is 34 megawatts. Capacity Payments. Elmore has a contract capacity price of $198 per kilowatt-year and, based on the contract capacity of 34 megawatts, the annual maximum capacity payment is $6,732,000. Energy Payments. The fixed price period expired on December 31, 1998 and thus energy payments are now based on the cost that Southern California Edison avoids by purchasing energy from the Elmore project instead of obtaining the energy from other sources. Leathers Power Purchase Agreement. Leathers sells electricity to Southern California Edison under an SO4 agreement which is identical in all material respects to the Elmore power purchase agreement. 64 Term and Contract Capacity. The contract term is for 30 years from the firm operation date of January 1, 1990. The contract capacity is 34 megawatts. Capacity Payments. Leathers has a contract capacity price of $187 per kilowatt-year and, based on the contract capacity of 34 megawatts, the annual maximum capacity payment is $6,358,000. Energy Payments. The Leathers power purchase agreement is an annual forecast energy payment SO4 agreement. The fixed price period expired on December 31, 1999, and thus energy payments are based on the cost that Southern California Edison avoids by purchasing energy from the Leathers project instead of obtaining the energy from other sources. Del Ranch Power Purchase Agreement. Del Ranch sells electricity to Southern California Edison under an SO4 agreement which is identical in all material respects to the Elmore power purchase agreement. Term and Contract Capacity. The contract term is for 30 years from the firm operation date of January 2, 1989. The contract capacity is 34 megawatts. Capacity Payments. Del Ranch has a contract capacity price of $198 per kilowatt-year and, based on the contract capacity of 34 megawatts, the annual maximum capacity payment is $6,732,000. Energy Payments. The fixed price period expired on December 31, 1998 and thus energy payments are now based on the cost that Southern California Edison avoids by purchasing energy from the Del Ranch project instead of obtaining the energy from other sources. Vulcan Power Purchase Agreement. Vulcan sells electricity to Southern California Edison under an SO4 agreement. Term and Contract Capacity. The contract term is for 30 years from the firm operation date of February 10, 1986. The contract capacity is 29.5 megawatts. Capacity Payments. Vulcan has a contract capacity price of $158 per kilowatt-year and, based on the contract capacity of 29.5 megawatts, the annual maximum capacity payment is $4,661,000. Energy Payments. The fixed price period expired on February 9, 1996. As a result, energy payments for the balance of the contract term will be based on the cost that Southern California Edison avoids by purchasing energy from the Vulcan project instead of obtaining the energy from other sources. TRANSMISSION SERVICE AGREEMENTS Salton Sea Unit I delivers electricity to Southern California Edison at the Salton Sea Unit I site. Each of the other operating Imperial Valley projects delivers electricity to Southern California Edison on transmission lines owned by the Imperial Irrigation District. These transmission lines interconnect the operating plants with Southern California Edison's transmission system. Transmission service charges are paid monthly to the Imperial Irrigation District under transmission service agreements. The transmission service agreement for Salton Sea Unit II expires in 2020; for Salton Sea Unit III in 2019; and for Salton Sea Unit IV in 2026. The transmission service agreements for the Leathers project, the Elmore project, the Del Ranch project and the Vulcan project expire in 2015. Salton Sea Power LLC has entered into a transmission service agreement with the Imperial Irrigation District for Salton Sea Unit V and CE Turbo LLC has entered into a transmission service agreement with the Imperial Irrigation District for the CE Turbo project. These new agreements are similar to the transmission service agreements for the operating Imperial Valley projects and their terms are 30 years from the date of initial service. Power LLC has also entered into a construction agreement with the Imperial Irrigation District which obligates the Imperial Irrigation District to construct the necessary transmission facilities to provide the transmission and distribution services for Salton Sea Unit V and the CE Turbo project described above. OPERATION AND MAINTENANCE SERVICES CalEnergy Operating Corporation provides day-to-day operation and maintenance services for the Imperial Valley projects under long-term operation and maintenance agreements with the Imperial 65 Valley project companies. The services provided by CalEnergy Operating under the operation and maintenance agreements include, among other services, plant operations, development and implementation of preventive maintenance plans, maintenance of inventory, procurement of spare parts and disposal of spent geothermal brine. CalEnergy Operating is reimbursed by the Imperial Valley project companies for its actual costs and expenses incurred in the provision of services under the operation and maintenance agreements. ADMINISTRATIVE SERVICES Magma provides administrative, management and technical services for Salton Sea Units I-V and the CE Turbo project under long-term administrative services agreements with the relevant Imperial Valley project companies. CalEnergy Operating provides administrative, management and technical services for the Vulcan, Elmore, Del Ranch and Leathers projects under long-term administrative services agreements with the relevant Imperial Valley project companies. The services provided by Magma and CalEnergy Operating under the administrative services agreements include, among other services, (1) ordinary services such as general bookkeeping and financial accounting services, general legal services, personnel administration and payroll services, energy marketing services and assistance in obtaining necessary franchises and permits, and (2) technical services such as environmental compliance services, industrial hygiene and structural engineering. Magma and CalEnergy Operating receive an administrative fee equal to their actual costs plus a reasonable profit and a technical fee equal to an amount specified in the agreements. The fees received by Magma under the administrative services agreements will be included in Magma's available cash flow. Magma and CalEnergy Operating used to provide services to the Imperial Valley project companies under the administrative services agreements using CalEnergy Operating personnel, supplemented by personnel from MidAmerican. In connection with the divestiture of 50% of our interests to El Paso Energy, we entered into an administrative services agreement with MidAmerican in order to provide administrative services that have customarily been provided by MidAmerican for the Imperial Valley projects. This agreement will provide that MidAmerican will be paid (1) for its actual out-of-pocket costs to third parties and (2) a separate fee for services provided by MidAmerican employees and use of MidAmerican assets. The fee described in clause (2) will be subordinate to payment of debt service on the Securities. SURFACE LAND USE IMPERIAL IRRIGATION DISTRICT Salton Sea Brine Processing and Salton Sea Power Generation entered into a ground lease with the Imperial Irrigation District. The Imperial Irrigation District has leased the real property on which Salton Sea Units I and II are located, consisting of approximately 117 acres, to Salton Sea Brine Processing and Salton Sea Power Generation for a period of 33 years. The Salton Sea Units I and II ground lease is triple net with original base rental payments of $400 per acre per annum. Every 5 years this per acre price may be adjusted based on changes in the consumer price index as specified in the lease. The Salton Sea Units I and II ground lease permits improvements and construction on the leased property to increase capacity. MAGMA Magma and its affiliates Imperial Magma LLC and Magma Land Company I control the land on which the Imperial Valley projects (other than Salton Sea Units I and II) are located through a combination of fee, leasehold and royalty interests. The Imperial Valley project companies have entered into long-term agreements with Magma, Imperial Magma and Magma Land to obtain the surface rights necessary to operate their projects. The payments received by Magma, Imperial Magma and Magma Land under the surface land use agreements will be included in Magma's available cash flow. 66 GEOTHERMAL RIGHTS Magma and Magma Land hold rights to use underground geothermal resources in the Imperial Valley through a combination of fee and leasehold interests. Magma and Magma Land have granted the Imperial Valley project companies the rights to use these resources for power production purposes at their respective projects under long-term easement agreements. We believe that the Imperial Valley project companies have sufficient rights to geothermal resources to operate their projects at capacity until the final maturity date of the Securities. CONSTRUCTION CONTRACTS SALTON SEA UNIT V Stone & Webster agreed to design, engineer, procure, construct, commission and test Salton Sea Unit V for an aggregate fixed price of $91,787,000. If Salton Sea Unit V fails to satisfy performance guarantees regarding energy production, thermal energy production and brine temperature, Stone & Webster must pay performance liquidated damages in accordance with the terms of the Salton Sea Unit V construction contract. Stone & Webster will also be obligated to pay delay liquidated damages if Salton Sea Unit V is not completed on schedule. If Stone & Webster completes construction ahead of schedule, Salton Sea Power LLC must pay a bonus to Stone & Webster. Stone & Webster's liability for liquidated damages under the contract is limited to 20% of the contract price and its aggregate liability thereunder is limited to the full contract price. Stone & Webster's payment and performance obligations under the Salton Sea Unit V construction contract are guaranteed by its parent, Stone & Webster, Incorporated. Salton Sea Unit V is expected to commence commercial operation in mid-2000. CE TURBO PROJECT Stone & Webster agreed to design, engineer, procure, construct, commission and test the CE Turbo project, as well as make capital improvements to the brine facilities at the Imperial Valley projects, for an aggregate fixed price of $49,800,000. If the CE Turbo project fails to satisfy performance guarantees regarding energy production, Stone & Webster must pay performance liquidated damages in accordance with the terms of the CE Turbo construction contract. Stone & Webster will also be obligated to pay delay liquidated damages if the CE Turbo project is not completed on schedule and is entitled to a bonus if construction is completed ahead of schedule. Stone & Webster's liability for liquidated damages under the contract is limited to 20% of the contract price and its aggregate liability thereunder is limited to the full contract price. Stone & Webster's payment and performance obligations under the CE Turbo construction contract are guaranteed by its parent, Stone & Webster. The CE Turbo project is expected to commence commercial operation in mid-2000. PROJECT COMPANY OWNERSHIP SALTON SEA PROJECTS Salton Sea Units I, II and III are owned by Salton Sea Power Generation, Salton Sea Unit IV is owned by Salton Sea Power Generation and Fish Lake Power LLC and Salton Sea Unit V is owned by Salton Sea Power LLC. Salton Sea Power Generation is 99% owned by Salton Sea Brine Processing and 1% owned by Salton Sea Power, which in turn is 99% owned by Magma and 1% owned by Salton Sea Funding Corporation. Salton Sea Power also owns a 1% general partnership interest in Salton Sea Brine Processing and Magma owns a 99% limited partnership interest Salton Sea Brine Processing. Ninety-nine percent of the capital stock of Fish Lake is owned by Magma, with Salton Sea Funding Corporation owning the remaining 1%. CE Salton Sea Inc. owns 100% of the membership interests in Power LLC. Magma owns 99% of the capital stock of CE Salton Sea and Salton Sea Funding Corporation owns the remaining 1%. Magma owns 100% of the capital stock of Salton Sea Funding Corporation, and we own 100% of the capital stock of Magma. Below is a chart illustrating the ownership structure for Salton Sea Units I-V. 67 [BLOCK CHART SHOWING THE OWNERSHIP STRUCTURE OF SALTON SEA UNITS I-V] PARTNERSHIP PROJECTS The Leathers Project is owned by Leathers, the Del Ranch project is owned by Del Ranch, the Elmore project is owned by Elmore, the Vulcan project is owned by Vulcan and the CE Turbo project is owned by Turbo LLC. Each of Leathers, Del Ranch and Elmore are 40% owned by CalEnergy Operating and 10% owned by Magma. The remaining 50% of the interests in Leathers, Del Ranch and Elmore are owned by San Felipe Energy Company, Conejo Energy Company and Niguel Energy Company, respectively. San Felipe, Conejo and Niguel are each wholly-owned by CalEnergy Operating. Each of Vulcan Power Company and VPC Geothermal LLC own a 50% interest in Vulcan. VPC Geothermal is wholly owned by Vulcan Power. CalEnergy Operating and Vulcan Power are 99% owned by Magma and 1% owned by Salton Sea Funding Corporation. CE Salton Sea owns 100% of Turbo LLC. Below is a chart illustrating the ownership structure for the Vulcan, Del Ranch, Elmore, Leathers and CE Turbo projects. [BLOCK CHART SHOWING THE OWNERSHIP STRUCTURE OF THE ELMORE, DEL RANCH, VULCAN, LEATHERS AND CE TURBO PROJECTS] 68 PROJECT FINANCING DEBT The revenues received by the Imperial Valley project companies from the geothermal projects and the zinc facility are used to make payments on outstanding senior secured bonds issued by Salton Sea Funding Corporation in multiple series. As of September 30, 1999, outstanding Imperial Valley project financing debt totaled $597.9 million and consisted of the following: o $33,482,000 of 6.69% Series A Senior Secured Notes due 2000; o $104,378,000 of 7.37% Series B Senior Secured Bonds due 2005; o $109,250,000 of 7.84% Series C Senior Secured Bonds due 2010; o $6,825,000 of 7.02% Series D Senior Secured Bonds due 2000; o $58,961,000 of 8.30% Series E Senior Secured Bonds due 2011; and o $285,000,000 of 7.475% Series F Senior Secured Bonds due 2018. Collateral; Guarantees. The proceeds of the Imperial Valley project financing debt were loaned by Salton Sea Funding Corporation to subsidiaries of Magma. The Imperial Valley project financing debt is secured by a pledge of the capital stock of Salton Sea Funding Corporation and guaranteed by the Magma subsidiaries. These loans and guarantees are secured by the following collateral: o an assignment of the revenues, equity distributions and royalties received by the Magma subsidiaries; o a lien on substantially all of the assets of the Magma subsidiaries, including the geothermal projects and related material contracts; and o a pledge of the equity interests in the Magma subsidiaries. In connection with the divestiture of 50% of our interests to El Paso Power, MidAmerican provided a guarantee to Salton Sea Funding Corporation of the payment by the owners of the zinc facility of a portion of the principal of and interest on the loans made to the Magma subsidiaries. Additional Project Debt. The Imperial Valley project financing documents permit the incurrence of the following additional project-level debt, subject to the satisfaction of debt service coverage tests, ratings confirmations and other conditions described in the Imperial Valley project financing documents: o debt incurred to finance additional permitted power facilities in the Imperial Valley region; o debt incurred to finance capital improvements to the Imperial Valley projects required to comply with applicable laws; o debt incurred to finance discretionary capital improvements to the Imperial Valley projects; o up to $15 million of working capital debt; o debt incurred in connection with a debt service reserve letter of credit; o debt incurred in connection with permitted interest rate protection agreements; o up to $30 million of debt incurred in connection with the development, construction, ownership, operation, maintenance or acquisition of permitted power facilities; and o up to $200 million of subordinated debt from affiliates for purposes specified in the Imperial Valley project financing documents. Distributions. Distributions are permitted under the Imperial Valley project financing documents upon the satisfaction of the following conditions: o the project accounts are fully funded; o no default or event of default has occurred and is continuing; 69 o the debt service coverage ratio for the prior four fiscal quarters is at least 1.4 to 1.0, if the distribution occurs prior to 2000, or 1.5 to 1.0, if the distribution occurs during or after 2000; o there are sufficient geothermal resources to operate the Imperial Valley projects at their required levels; and o each Imperial Valley project under construction will not have failed to be completed by its guaranteed substantial completion date (or, in the alternative, buy-down or ratings confirmation requirements will have been satisfied). SELECTED FINANCIAL INFORMATION The Imperial Valley project companies made distributions to the designated subsidiaries in 1996, 1997 and 1998 in the amounts of approximately $75.3 million, $146.4 million and $134.0 million, respectively. 70 SARANAC PROJECT The Saranac project is a 240 megawatt natural gas-fired combined cycle cogeneration facility located in Plattsburgh, New York. The Saranac project is owned by Saranac Power Partners, L.P. and commenced commercial operation in June 1994. Below is a chart illustrating the commercial structure of the Saranac project. [BLOCK CHART SHOWING THE COMMERCIAL STRUCTURE OF THE SARANAC PROJECT] SALE AND TRANSMISSION OF POWER SARANAC POWER PURCHASE AGREEMENT Saranac sells capacity and energy from the Saranac project to New York State Electric and Gas under the Saranac power purchase agreement. The initial term of the Saranac power purchase agreement expires in June 2009. The contract capacity under the Saranac power purchase agreement is 240 megawatts. New York State Electric and Gas's long-term debt obligations were rated "Baa1" by Moody's and "BBB" by S&P as of January 1999. Payments for Actual Generation. The Saranac power purchase agreement provides for payments by New York Electric and Gas for electricity produced by the Saranac project at fixed prices specified in a schedule set forth in the Saranac power purchase agreement, which include both a capacity component and an energy component. Peak-hour pricing, which applies from 7:00 a.m. to 10:00 p.m., weekdays, excluding holidays, ranges from 10.34 cents per kilowatt-hour in 1999 to 15.82 cents per kilowatt-hour in 2009. Off-peak hour pricing ranges from 6.09 cents per kilowatt-hour in 1999 to 9.39 cents per kilowatt-hour in 2009. New York State Electric and Gas has sought to reduce these rates on the alleged grounds that they exceed the levels permitted under the Public Utility Regulatory Policies Act. Dispatch and Curtailment. By an amendment to the Saranac power purchase agreement, New York State Electric and Gas obtained limited rights to dispatch the Saranac project at less than full capacity, agreed to make payments in connection with any dispatch below full capacity based on the amounts Saranac would have received if it had delivered electricity less amounts saved as a result of its lower level of operation, and waived curtailment rights under FERC regulations that might otherwise be claimed to apply. Regulatory and Other Termination Rights. New York State Electric and Gas may terminate the Saranac power purchase agreement without liability to Saranac if the Saranac project ceases to be a 71 qualifying facility under the Public Utility Regulatory Policies Act. In the event New York State Electric and Gas terminates the Saranac power purchase agreement as a result of a default by Saranac, Saranac is obligated to pay New York State Electric and Gas an amount equal to the difference between the total amount paid by New York State Electric and Gas for electricity under the Saranac power purchase agreement prior to the termination and the amount New York State Electric and Gas would have paid for the electricity during the term of the Saranac power purchase agreement at a price based on the cost that New York State Gas and Electric avoids by purchasing energy from the Saranac project instead of obtaining the energy from other sources, plus interest. Saranac has secured this obligation by a mortgage on and security interest in the Saranac project which is subordinated to the liens of the Project lenders under the Saranac project financing documents. Other Rights of New York State Electric and Gas. If: o Saranac fails to operate the plant for a sufficient period of time as to create a reasonable expectation that Saranac does not intend to resume operation; o a bankruptcy or foreclosure proceeding against Saranac commences; o deficiencies in project maintenance as determined by the lenders' independent engineer are not remedied by Saranac within the time specified by this engineer; or o a default occurs under Saranac's agreements with its lenders, then New York State Electric and Gas has the right to step in and operate the Saranac project until the circumstance giving rise to this right has been remedied, subject to the rights of the project lenders under the Saranac project financing documents. None of these circumstances currently exist. INTERCONNECTION The facilities necessary to interconnect the Saranac project to the New York State Electric and Gas system were constructed at Saranac's expense and are owned and maintained by New York State Electric and Gas. Under the Saranac power purchase agreement, New York State Electric and Gas is required to arrange for the transmission of electricity generated by the Saranac project to the extent necessary for the operation of the New York State Electric and Gas system. For this transmission, Saranac made payments to New York State Electric and Gas which were approximately $5,050,000 in 1998, and which increase by 5% each year. SALE OF THERMAL ENERGY Saranac sells steam to Georgia-Pacific and Tenneco Packaging under long-term steam sales agreements. We believe these agreements will enable Saranac to sell the minimum annual quantity of thermal energy necessary for the Saranac project to maintain its qualifying facility status under the Public Utility Regulatory Policies Act for the term of the Saranac power purchase agreement. FUEL PROCUREMENT NATURAL GAS SUPPLY Saranac entered into a gas sale and purchase agreement with Shell Canada Limited which provides for the delivery of a maximum daily volume of 51,000 MMBtu of gas on a firm basis for 15 years, expiring in May 2007. The agreement has been assigned to Coral Energy Canada, an affiliate of Shell Canada, and guaranteed by Shell Canada. The gas supply agreement provides for an initial gas price of $2.97 per MMBtu (1994 dollars), which escalates at 4% annually, and Saranac must pay the unutilized firm transportation costs incurred by Coral Energy if Saranac does not take the maximum daily volume of gas. In each year during the term of the gas supply agreement, Saranac is obligated to take or pay for an amount of gas equal to at least 80% of the aggregate of the maximum daily volumes of gas for each day in the year. 72 NATURAL GAS TRANSPORTATION Saranac entered into an agreement for firm gas transportation service with TransCanada Pipelines Limited, which expires on the later of October 2008 or another date determined by Saranac, but in no case later than March 2010. The TransCanada gas transportation agreement provides for transportation of a maximum daily volume of gas not to exceed 53,000 MMBtu from the Alberta/Saskatchewan border to the United States/Canada border. Saranac assigned the TransCanada gas transportation agreement to Shell Canada, which pays TransCanada a portion of the payments it receives from Saranac for gas supply under the gas supply agreement described above. North Country Gas Pipeline Corporation, a wholly-owned subsidiary of Saranac, transports the gas required for operation of the Saranac project from the United States/Canada border approximately 22 miles to the Saranac project. North Country has entered into a gas transportation agreement with Saranac which expires in June 2024, but which can be terminated by Saranac upon one year's notice after June 2009. The North Country gas transportation agreement provides for daily deliveries of gas up to a maximum of 51,000 MMBtu on a firm basis and 5,000 MMBtu on an interruptible basis. The payments made by Saranac under the North Country gas transportation agreement provide for a recovery of North Country's costs of acquiring, financing and maintaining its pipeline facilities. OPERATION AND MAINTENANCE SERVICES Saranac entered into a 16-year agreement with Falcon Power Operating which expires in July 2010 for the operation and maintenance of the Saranac project. The duties of Falcon Power Operating under this agreement include coordinating day-to-day operations with New York State Electric and Gas and the purchasers of thermal energy from the Saranac project, performing routine on-line maintenance and scheduled off-line maintenance, taking corrective action with respect to any unscheduled outages and providing reports to Saranac regarding the amount of electricity and thermal energy generated, the volume of fuel consumed and the level of usage of other utilities. Falcon Power Operating is paid a fixed monthly management fee of $125,000, adjusted annually for cost of living increases, and is reimbursed for the direct costs of its services. Falcon Power Operating is entitled to a bonus or is required to pay a penalty based on the annual availability and heat rate of the Saranac project, provided that the total bonus or penalty in any year may not exceed 50% of the aggregate management fees for the year. Saranac may terminate the Saranac operation and maintenance agreement if, due to Falcon Power Operating's operation of the Saranac project, the annual availability of the Saranac project is less than 86% of its potential availability or the average annual heat rate exceeds the maximum rate specified in the agreement. The liability of each of Falcon Power Operating and Saranac (other than for penalties and bonuses) under the operation and maintenance agreement is limited to an aggregate amount not to exceed $1.5 million in excess of any available insurance proceeds. OWNERSHIP OF PROJECT SITE Title to the Saranac project and the interests in the land on which it was constructed are held by the County of Clinton Industrial Development Agency. Saranac occupies the Saranac project site under an installment sale agreement with the Clinton IDA. The Clinton IDA has agreed to sell the property to Saranac for payments equal to the amounts due from the Clinton IDA with respect to the Saranac project financing documents and other expenses incurred by the Clinton IDA relating to the Saranac project. The installment sale agreement will terminate and the property will be conveyed to Saranac in 2024. The Clinton IDA has entered into a similar installment sale agreement with North Country with respect to the pipeline facilities used by North Country to transport gas to the Saranac project, which terminates in 2009. PROJECT COMPANY OWNERSHIP Saranac Energy Company, Inc., an indirect wholly-owned subsidiary of Falcon Seaboard Resources, is the sole general partner of Saranac and also owns a limited partnership interest in 73 Saranac. The other limited partners in Saranac are TPC Saranac Partner One, Inc. and TPC Saranac Partner Two, Inc., each a wholly-owned indirect subsidiary of Tomen Corporation, and GE Capital. Below is a chart illustrating the ownership structure for the Saranac project. [BLOCK CHART SHOWING THE OWNERSHIP STRUCTURE OF THE SARANAC PROJECT] ---------- (1) The respective percentages of distributions allocated to Saranac Energy Company, the TPC Saranac partners and GE Capital are set forth in the Saranac partnership agreement and described below. PROJECT FINANCING DEBT Saranac and the Clinton IDA financed the construction of the Saranac project with commercial term loans made under the Saranac credit agreement. GE Capital, which holds the largest percentage of the debt outstanding under the Saranac credit agreement, is also a limited partner in Saranac. As of September 30, 1999, the aggregate principal amount outstanding under the Saranac credit agreement was $183.1 million. Through swap arrangements, the interest rate on all of the term loans outstanding under the Saranac credit agreement has been fixed at a current annual rate of 8.185%, which will increase to 8.31% in October 2001 and 8.56% in October 2005. In addition to the outstanding term loans, the Saranac credit agreement provides for the issuance of up to $20.5 million in letters of credit for Coral Energy and up to $6.6 million for a letter of credit to secure a debt service reserve fund to support the Saranac project financing debt. The term loans outstanding under the Saranac credit agreement mature on March 31, 2008 and are payable in 54 quarterly principal installments which increase in annual aggregate amount from $6.14 million in 1998 to $34.38 million in 2007. Collateral. Saranac is jointly and severally liable with the Clinton IDA on the loans outstanding under the Saranac credit agreement, and the liability of the Clinton IDA is limited to recourse to the Saranac project. Saranac's obligations under the Saranac project financing documents are secured by liens on substantially all of the real and personal property of Saranac. Limitation on Distributions. Distributions to the Saranac partners may be made monthly with excess cash flow from the Saranac project, to the extent permitted by the Saranac partnership agreement, upon satisfaction of the following conditions: (1) no default or event of default has occurred under the Saranac project financing documents; 74 (2) all project accounts are fully funded to their required levels; and (3) the debt service coverage ratio for the preceding three-month period is at least 1.20 to 1.0. If the debt service coverage ratio test described in clause (3) immediately above is not satisfied for six consecutive quarters, all amounts otherwise distributable to the Saranac partners for the next three months will be retained for application to mandatory prepayment of amounts owing under the Saranac project financing documents. Additional Debt. Saranac is prohibited from incurring debt other than under the Saranac project financing documents, except for: (1) customary trade debt; (2) debt not to exceed $750,000 incurred in accordance with the approved Saranac operating budget; (3) debt incurred to redeem the Saranac limited partnership interest of GE Capital upon specified regulatory events; this debt must be repaid only from amounts which would otherwise have been distributed to GE Capital in respect of its Saranac limited partnership interest; (4) intercompany debt between Saranac and North Country; and (5) debt secured by (a) liens securing the purchase of property in an aggregate principal amount not to exceed $250,000 and (b) liens in favor of New York State Electric and Gas, Georgia-Pacific and the Clinton County Development Corp. permitted under the Saranac project financing documents. PARTNERSHIP DISTRIBUTIONS Each of the Saranac partners has an interest in cash distributions by Saranac which changes when after-tax rates of return specified in the Saranac partnership agreement are achieved by GE Capital and the TPC Saranac partners on their contributions to Saranac. The cash distributions of Saranac are divided into three levels: o Level 1: distributions in fixed amounts payable during the first 15 years of operation of the Saranac project, which are applied first to pay debt service and other amounts due under the Saranac project financing documents and any refinancing loans, with the remainder paid to GE Capital to enable it to achieve a base rate of return; o Level 2: distributions of the Saranac available cash remaining after payment of the level 1 distributions during the first 15 years of operation of the Saranac project. During the first 15 years of operation of the Saranac project, Saranac Energy will receive 63.51% of the level 2 distributions until TPC Saranac partners achieve an 8.35% rate of return and, after this return is achieved, which we expect to occur in 2000, Saranac Energy will receive 81.18% of the level 2 distributions. o Level 3: distributions after the first 15 years of operation of the Saranac project. After the first 15 years of operation of the Saranac project, Saranac Energy will receive 68% of the level 3 distributions until GE Capital achieves a supplemental rate of return specified in the Saranac partnership agreement and, thereafter, Saranac Energy will receive 76% of the level 3 distributions. Distributions which would otherwise be payable to Saranac Energy and the TPC Saranac partners on a quarterly basis may be required to be retained in a reserve account established under the Saranac project financing documents. If the ratio of available cash from the Saranac project to the scheduled level 1 distributions is less than 1.40 to 1.0 for any quarter, all level 2 distributions payable to Saranac Energy will be retained in the reserve account. If this situation continues for three consecutive quarters, the amount on deposit in the reserve account will be distributed to GE Capital as an early level 1 distribution. When the level 1 distribution ratio has been maintained at 1.40 to 1.0 75 or greater for three consecutive quarters, the amount on deposit in the reserve account will be released to Saranac Energy. Amounts otherwise distributable to Saranac Energy may also be retained in a reserve account if an event has occurred which if not cured would give GE Capital the right to replace Saranac Energy as the general partner of Saranac. These amounts will be paid to GE Capital if the event is not cured. SELECTED FINANCIAL INFORMATION Saranac made distributions to Saranac Energy in 1995, 1996, 1997 and 1998 in the amounts of approximately $13.3 million, $21.7 million, $22.8 million and $16.2 million, respectively. 76 POWER RESOURCES PROJECT The Power Resources project is a 200 megawatt natural gas-fired combined cycle cogeneration facility located near Big Spring, Texas. The Power Resources project is owned by Power Resources, Inc. and commenced commercial operation in June 1988. Below is a chart illustrating the commercial structure of the Power Resources project. [BLOCK CHART SHOWING THE COMMERCIAL STRUCTURE OF THE POWER RESOURCES PROJECT] SALE AND TRANSMISSION OF POWER POWER RESOURCES POWER PURCHASE AGREEMENT Power Resources sells capacity and energy to Texas Utilities under the Power Resources power purchase agreement. The initial term of the Power Resources power purchase agreement expires in September 2003. The contract capacity under the Power Resources power purchase agreements is 200 megawatts. Texas Utilities' long-term unsecured debt obligations were rated "Baa1" by Moody's, "BBB" by S&P and BBB+ by Duff & Phelps as of January 1999. Payments. The Power Resources power purchase agreement provides for payments by Texas Utilities for capacity and energy produced by the Power Resources project according to a fixed schedule set forth in the contract. The capacity and energy rates for the remaining term of the Power Resources power purchase agreement are as follows:
CAPACITY ENERGY YEAR ($/KILOWATT/MONTH) (CENTS/KILOWATT-HOUR) ---------------- -------------------- ---------------------- 1999 ......... 16.24 3.17 2000 ......... 16.81 3.28 2001 ......... 17.40 3.40 2002 ......... 18.00 3.52 2003 ......... 18.63 3.64
However, for any month in which the rolling 12-month average capacity factor exceeds 72.5%, Power Resources is paid an energy payment for the billing kilowatt-hour for the months which are in excess of the 72.5% annual capacity factor at a rate based on 99% of Texas Utilities' average cost of gas and a specified heat rate. There is no change in the capacity payment in this circumstance. 77 Backdown. Texas Utilities has the right to request Power Resources to backdown generation by up to 200,000 megawatt-hour per year. In addition. subject to limitations specified in the Power Resources power purchase agreement, Texas Utilities may request additional backdown. Over the last five years, Texas Utilities has taken 300,000 megawatt-hour of backdown each year. We believe that 300,000 megawatt-hour represents the upper limit on annual backdown. Texas Utilities Purchase Option. Texas Utilities has the option to purchase the Power Resources project at the end of the term of the Power Resources power purchase agreement. In addition, during the term of the Power Resources power purchase agreement and for a period of one year following the expiration of the agreement, Texas Utilities has a right of first refusal to purchase the Power Resources project if Power Resources determines to lease, sell or otherwise dispose of the Power Resources project. The purchase price will be the agreed-upon appraised fair market value for the Power Resources project. Arbitration. Disputes regarding replacement of integral components of the Power Resources project (including the generator stator, generator rotor, main power transformer or steam turbine) and disputes concerning sales of the Power Resources project assets in connection with Texas Utilities' option to purchase or right of first refusal are subject to arbitration under the Texas General Arbitration Act. INTERCONNECTION At Power Resources' expense, Texas Utilities modified an existing switching station and existing transmission facilities and constructed new transmission facilities in order to facilitate the signing of the Power Resources power purchase agreement. Power Resources constructed an auxiliary switchyard and substation to complete the interconnection. The Power Resources-constructed facilities are required to interconnect with Texas Utilities' facilities. The interconnection facilities are operated and maintained by Texas Utilities for a minimal fee payable by Power Resources. SALE OF THERMAL ENERGY Power Resources has entered into a 15-year thermal energy purchase agreement with Fina Oil and Chemical under which Power Resources agrees to supply Fina with up to 150,000 pounds per hour of process thermal energy for use in Fina's oil refinery, which is adjacent to the Power Resources project. Fina returns any resulting thermal energy condensate to the Power Resources project for re-use. The initial term of the agreement expires in September of 2003, but the agreement is subject to extension upon mutual consent by the parties. As long as Power Resources meets its supply obligations under the thermal energy purchase agreement, Fina is required to purchase at least the minimum amount of thermal energy per year required to allow the Power Resources project to maintain its qualifying facility status, even if the oil refinery is closed or if Fina builds its own cogeneration facility. The thermal energy purchase price is $2.48 per thousand pounds based on a base rate of $2.00 escalating at 2% annually from the commencement of delivery. If Fina closes the refinery, the purchase price would be 60% of the contractual rate. We believe that the refinery is critical to Fina's operations and is likely to continue production through at least the end of the Power Resources power purchase agreement term in 2003. FUEL PROCUREMENT NATURAL GAS SUPPLY Under a fuel purchase agreement between Fina and Power Resources, Power Resources is obligated to purchase, at $2.79 per MMbtu for 1999 escalating by 2% per year thereafter, an average of 3,600 million MMBtu per day of refinery gas for use in the Power Resources project's combustion turbines. To meet its additional gas requirements, Power Resources has entered into a gas purchase agreement with CE Texas Gas, which expires on December 30, 2003. The contractual rates under this gas purchase agreement are fixed at $2.98 per MMBtu for 1998 and escalate by 3.0% per year thereafter, plus an annual reservation fee of $580,842 which also escalates by 3.0% per year. Power 78 Resources pays a fuel transportation charge to CE Texas Gas of $0.075 per MMBtu for each MMBtu delivered by CE Texas Gas up to an average of 25,000 MMBtu per day, and $0.06 per MMBtu delivered which exceeds an average of 25,000 MMBtu per day, calculated on a monthly basis. In order to meet its supply requirements to Power Resources, CE Texas Gas entered into a gas purchase agreement with Louis Dreyfus Natural Gas Corporation which expires on October 1, 2003. Under this agreement, Dreyfus will make available, sell and deliver to CE Texas Gas on a firm basis, and CE Texas Gas will purchase and receive from Dreyfus on a firm basis, contracted amounts of gas, allocated among four pricing tiers, sufficient to meet the operating requirements of the Power Resources project. If Dreyfus fails to perform under the contract, Dreyfus must reimburse CE Texas Gas for any additional costs which CE Texas Gas incurs in obtaining the required natural gas. If CE Texas Gas fails to purchase the agreed amount of natural gas, it must reimburse Dreyfus for any amount of natural gas that Dreyfus is unable to resell in the spot market. The first tier of gas deliveries are made according to a fixed price which is $2.23 per MMBtu in 1999 and which incrementally increases to $2.51 per MMBtu in 2003 for up to 31,200 MMBtu per day. The second tier quantities are set at the West Texas spot price plus 5 cents per MMBtu for up to an additional 3,000 MMBtu per day. The third tier of purchases is for up to an additional 15,000 MMBtu per day, and prices for the third and fourth tiers are negotiated between Dreyfus and Power Resources. NATURAL GAS TRANSPORTATION Under the terms of the Dreyfus gas purchase agreement, Dreyfus will deliver gas into various interconnection points of the Westar Transmission System. CE Texas Gas has entered into long-term transmission agreements with Westar for the delivery of gas to the Power Resources project. Under these gas transportation agreements, CE Texas Gas pays been $0.06 and $0.12 per MMBtu to transport the gas, depending on the point of entry into the Westar pipeline system. These agreements are effective until September 30, 2003. WATER SUPPLY In addition to the thermal energy condensate returned to the Power Resources project by Fina under the thermal energy purchase agreement, the Power Resources project receives up to 155 gallons of water per minute from the Colorado Municipal Water District under an agreement which expires in September 2003 and up to 65 gallons of water per minute from Sid Richardson Carbon Limited under an agreement which expires in April 2007. The rate paid by Power Resources under the Colorado Municipal Water District agreement is the same rate as that charged to the City of Big Spring, Texas for water supply, subject to a minimum of $0.60 per thousand gallons. Power Resources pays a rate of $1.08 (escalated at 3% annually) per thousand gallons under the Sid Richardson Carbon Limited agreement, so long as the water provided satisfies agreed-upon conductivity standards. OPERATION AND MAINTENANCE SERVICES Operation and maintenance services for the Power Resources project are provided by Falcon Power Operating under an operation and maintenance agreement which expires in January 2004. Falcon Power Operating is obligated to provide all services, personnel, insurance and materials necessary to operate and maintain the Power Resources project in accordance with prudent operating practices and contractual requirements. Power Resources is obligated to reimburse Falcon Power Operating on a monthly basis for operating costs and pay Falcon Power Operating an operator fee. The fee is subject to adjustment for operating bonuses or liquidated damages based on the Power Resources project's capacity factor. The operator fee is $1.14 million annually as of 1998, which fee is comprised of a management fee of $0.24 million per year (with no escalation) and an operating fee of $0.9 million in 1998, escalating at 3.5% per year. USE OF PROJECT SITE Power Resources leases the real property on which the Power Resources project is located from Fina for a nominal rent under a lease agreement which expires on November 21, 2004. The term of 79 the lease may be extended for an additional 15-year period at Power Resources' option and will be automatically extended for an additional period if Power Resources and Fina elect to extend the term of the thermal energy purchase agreement. Power Resources has a right of first refusal under the lease agreement if Fina receives an offer to purchase all or any portion of the leased property. Except in limited circumstances, either party may terminate the lease agreement upon an event of default by the other party under the thermal energy purchase agreement. In addition, Power Resources owns the fee title to a number of parcels of land adjacent to the property leased from Fina on which are located related support facilities. Power Resources has the benefit of non-exclusive easements over property adjacent to the Power Resources project under an easement agreement with Fina. These easements include the right of pedestrian access, railway access, storm water drainage, waterline services and wastewater connection to the existing salt water disposal well. Power Resources also pays an annual fee of $39,753 to the City of Big Spring, Texas in lieu of property taxes because of an agreement under which the Power Resources project and the Fina refinery are deemed to be located outside of the City's jurisdiction. This agreement expires in December 2003. PROJECT COMPANY OWNERSHIP Falcon Seaboard Oil owns all of the capital stock of Power Resources and is wholly owned by Falcon Seaboard Resources. Falcon Seaboard Resources is a wholly-owned subsidiary of ours. Below is a chart illustrating the ownership structure for the Power Resources project. [BLOCK CHART SHOWING THE OWNERSHIP STRUCTURE OF THE POWER RESOURCES PROJECT] PROJECT FINANCING DEBT Power Resources financed the construction of the Power Resources project with commercial loans made by a consortium of banks under the Power Resources credit agreement. As of September 30, 1999, the aggregate principal amount of debt outstanding under the Power Resources credit agreement was $79.8 million. Through swap arrangements, the interest rate on two-thirds of the loans has been fixed at a current annual rate of 10.625% and the interest rate on the remaining one-third of the loans has been fixed at 10.385%. After 2001, all of the loans will bear interest at a fixed rate of 10.635%. 80 Collateral. Power Resources' obligations under its project financing documents are secured by the following collateral: o an assignment of all revenues received by Power Resources from the operation of the Power Resources project; o a lien on substantially all of the real and personal property of Power Resources; and o a pledge of the capital stock of Power Resources. Limitation on Distributions. Power Resources may make distributions to Falcon Seaboard Oil with excess cash flow from the Power Resources project upon satisfaction of the following conditions: (1) all project accounts are fully funded to their required levels; (2) no default or event of default has occurred and is continuing under the Power Resources project financing documents; and (3) the historical quarterly debt service coverage ratio is at least 1.20 to 1.0. However, even if the historical quarterly debt service coverage ratio is less than 1.20 to 1.0: o if the historical debt service coverage ratio is at least 1.17 to 1.0 but less than 1.20 to 1.0, distributions may be made with 50% of the excess cash flow from the Power Resources project; o if the historical debt service coverage ratio is at least 1.15 to 1.0 but less than 1.17 to 1.0, distributions may be made with 40% of the excess cash flow from the Power Resources project; o if the historical debt service coverage ratio is at least 1.13 to 1.0 but less than 1.15 to 1.0, distributions may be made with 30% of the excess cash flow from the Power Resources project; o if the historical debt service coverage ratio is at least 1.1 to 1.0 but less than 1.13 to 1.0, distributions may be made with 20% of the excess cash flow from the Power Resources project; and o if the historical debt service coverage ratio is at least 1.1 to 1.0, distributions may be made with 10% of the excess cash flow from the Power Resources project. SELECTED FINANCIAL INFORMATION Power Resources made distributions to Falcon Seaboard Oil in 1995 in the amount of approximately $5.6 million, in 1996 in the amount of approximately $300,000 and in 1997 in the amount of approximately $1.5 million. 81 NORCON PROJECT The NorCon project is an 80 megawatt natural gas-fired combined cycle cogeneration facility located in North East, Pennsylvania. The NorCon project is owned by NorCon Power Partners, LP and commenced commercial operation in December 1992. However, in October, 1999, NorCon reached agreement with Niagara Mohawk, General Electric Capital and Louis Dreyfus Natural Gas Corporation to settle the outstanding litigation between NorCon and Niagara Mohawk, to terminate NorCon's power purchase agreement with Niagara Mohawk and gas purchase agreement with Louis Dreyfus, to transfer the NorCon project to General Electric Capital and to provide for General Electric Capital to assume responsibility for third party claims related to the NorCon project. Upon the closing of these terminations and transfers, Norcon expects that it will not have any further rights, interests, profits, costs or losses with respect to the NorCon project. Below is a chart illustrating the commercial structure of the NorCon project. [BLOCK CHART SHOWING THE COMMERCIAL STRUCTURE OF THE NORCON PROJECT] SALE AND TRANSMISSION OF POWER NORCON POWER PURCHASE AGREEMENT NorCon sells capacity and energy to Niagara Mohawk under the NorCon power purchase agreement. The NorCon power purchase agreement expires in December 2017. The contract capacity under the NorCon power purchase agreement is 80 megawatts. Niagara Mohawk's long-term unsecured debt obligations were rated "Ba2" by Moody's and "BB+" by S&P as of January 1999. Payments. The payments to be made by Niagara Mohawk under the NorCon power purchase agreement are determined according to which of three time periods is currently in effect. First Period. During the first period, which ended in July 1996, Niagara Mohawk paid 6 cents per kilowatt-hour until the balance in the cumulative avoided cost account decreased to zero. The cumulative avoided cost account tracks the theoretical difference in actual payments under the NorCon power purchase agreement and the payments NorCon would have received if it were compensated at rates based on the cost, as calculated in 1988, that Niagara Mohawk avoids by purchasing energy from the NorCon project instead of obtaining the energy from other sources. Second Period. During the second period, which will end on the fifteenth anniversary of the initial delivery of electricity under the NorCon power purchase agreement (December 2007), Niagara Mohawk will pay a rate equivalent to 95% of Niagara Mohawk's tariff price, subject to a floor of 90% of a contractual price based on Niagara Mohawk's long-run avoided cost and a ceiling of 110% of this contractual price. During the second period, the variance between 95% of Niagara Mohawk's tariff 82 price and the actual rate paid will be credited or debited to the adjustment account. Balances in the cumulative avoided cost account and the adjustment account will accrue interest at a rate of 11% per annum. Third Period. The third period begins immediately after the end of the second period and ends on the twenty-fifth anniversary of the initial delivery of electricity under the NorCon power purchase agreement. During the third period, Niagara Mohawk will pay a rate equivalent to 90% of its tariff price. If, during the third period there exists a balance in the adjustment account, then the rate paid to NorCon will be adjusted according to a formula contained in the NorCon power purchase agreement designed to reduce the balance in the adjustment account through the end of the contract term. The party owing a balance at the end of the term of the NorCon power purchase agreement is required to make a payment to the other party. Dispatch. Niagara Mohawk has limited dispatch rights under the NorCon power purchase agreement and, if Niagara Mohawk exercises these rights, Niagara Mohawk is required to make payments to NorCon. Security. In order to secure the operation of the NorCon project and the balance in the adjustment account during the second period, NorCon has granted a second security interest in the NorCon project to Niagara Mohawk to the extent of any positive balance in the adjustment account. INTERCONNECTION NorCon owns and maintains the 7.3 miles of 115 kilovolt transmission line from the NorCon project to Niagara Mohawk's South Ripley substation. SALE OF THERMAL ENERGY NorCon and Welch have entered into a thermal energy purchase agreement under which Welch purchases from NorCon thermal energy for use in its grape processing plant, which is adjacent to the NorCon project. The base term of the agreement ends in December 2012. In conjunction with the execution of the NorCon thermal energy purchase agreement, NorCon constructed an ammonia refrigeration plant to provide refrigeration as well as thermal energy to Welch. Welch is required to purchase at least the minimum amount of thermal energy per year required to maintain the NorCon project's qualifying facility status. If NorCon fails to deliver thermal energy, it will be liable for liquidated damages, limited to $10,000 per occurrence. NorCon's aggregate liability over the term of the NorCon thermal energy purchase agreement is subject to an escalating cap, which starts at $2.0 million and increases to $3.2 million by the twentieth year of the contract. Welch also has the right to suspend purchases of thermal energy if NorCon does not meet specified thermal energy reliability requirements. NorCon has constructed an auxiliary boiler to provide a backup thermal energy supply. Welch must provide at least two years notice to NorCon if it considers closing its grape processing facility and at least 18 months notice of its actual intent to close or cease the facility's operations. If Welch provides notice, it is obligated to provide land to NorCon for construction of an alternate thermal energy purchaser. We believe that the Welch facility is likely to continue production for the full term of the NorCon thermal energy purchase agreement. FUEL PROCUREMENT NATURAL GAS SUPPLY NorCon and Dreyfus have entered into a gas sale and purchase agreement whereby Dreyfus is required to sell and deliver to NorCon a daily contract quantity of natural gas on a firm basis up to 16,820 MMBtu per day for a period of 15 years. The term of the agreement ends in December 2007. The daily contract quantity is expected to fulfill 100% of the NorCon project's fuel requirements. The purchase price for gas was $3.84/MMBtu (in 1998), which escalates at 7% per year and includes transportation charges. NorCon is obligated to purchase at least 90% of the daily contract quantity on an annual basis. 83 NATURAL GAS TRANSPORTATION NorCon has entered into a 20-year gas transportation agreement with National Fuel Gas Supply Corporation to provide transportation of gas to the NorCon project. Dreyfus is responsible for delivering gas to National Fuel Gas and is obligated to reimburse NorCon for transportation charges under the gas sale and purchase agreement described above. OPERATION AND MAINTENANCE SERVICES NorCon has entered into an operation and maintenance agreement with Falcon Power Operating which provides for the operation and maintenance by Falcon Power Operating of the NorCon project for a term which expires in December 2008. Falcon Power Operating is obligated to provide all services, personnel and materials necessary to operate and maintain the NorCon project in accordance with prudent operating practices and contractual requirements. NorCon is obligated to reimburse Falcon Power Operating on a monthly basis for operating costs, and also pays Falcon Power Operating a monthly fee, which totaled $828,000 in 1998, and which escalates in accordance with an inflation-based index each year. OWNERSHIP OF PROJECT SITE NorCon owns the site of the NorCon project in fee. In addition, the adjacent site of the NorCon refrigeration plant is leased to NorCon from Welch. Non-exclusive easements over adjoining properties were granted by Welch in order to allow the NorCon refrigeration plant to be interconnected with the Welch grape processing plant. The lease has an initial term of 20 years, but may be extended for a period coterminous with any extension of the NorCon thermal energy purchase agreement upon terms to be agreed between NorCon and Welch. PROJECT COMPANY OWNERSHIP Northern Consolidated, an indirect wholly-owned subsidiary of Falcon Seaboard Power, is the sole general partner of NorCon and owns a limited partnership interest in NorCon. The other limited partner in NorCon is TPC NorCon, Inc., a wholly-owned subsidiary of Tomen Power Corporation. Below is a chart illustrating the ownership structure for the NorCon project. [BLOCK CHART SHOWING THE OWNERSHIP STRUCTURE OF THE NORCON PROJECT] ---------- (1) The respective percentages of distributions allocated to Northern Consolidated and TPC NorCon are set forth in the NorCon partnership agreement. 84 PROJECT FINANCING DEBT NorCon financed the construction of the NorCon project with senior and subordinated terms loans made by GE Capital under the NorCon credit agreement. As of September 30, 1999, the aggregate principal amount of debt outstanding under the NorCon credit agreement was $98.4 million. Through swap arrangements, the interest rate on the senior debt has been fixed at a rate of 8.90% through December 31, 2002 and 9.15% thereafter. The interest rate on the subordinated debt has been fixed at 13.967%. The NorCon credit agreement also provides for a letter of credit facility of $3 million for use by NorCon to satisfy its obligation to provide credit support under the National Fuel Gas transportation agreement. Mandatory Prepayment; Priority Payment to GE Capital. In the event that on a payment date during the second period under the NorCon power purchase agreement either the scheduled debt service coverage ratio or the forecasted debt service coverage ratio is less than 1.15 to 1.0, then 100% of cash flow after total debt service will be used to prepay the junior debt. Commencing in February 1999, GE Capital may apply 100% of excess cash flow to the prepayment of the loans under circumstances set forth in the NorCon credit agreement. In addition, GE Capital will receive a special payment equal to 20% of the sum of the available cash flow after total debt service plus operation and maintenance fees for the duration of the term loans prior to the making of distributions to the NorCon partners. Collateral. NorCon's obligations under the NorCon project financing documents are secured by the following collateral: o an assignment of all revenues received by NorCon from the operation of the NorCon project; o a lien on substantially all of the real and personal property of NorCon; and o a pledge of the partnership interests in NorCon and the stock of Northern Consolidated. Limitation on Distributions. Subject to the provisions described above for mandatory prepayment, NorCon may make distributions to the NorCon partners with excess cash flow from the NorCon project upon satisfaction of the following conditions: o all project accounts are fully funded to their required levels; o no default or event of default has occurred and is continuing under the NorCon project financing documents; o the historical debt service coverage ratio is at least 1.15 to 1.0; and o the projected debt service coverage ratio is at least 1.15 to 1.0. PARTNERSHIP DISTRIBUTIONS The NorCon partners' rights to allocations of pretax cash flows from NorCon vary over the life of the NorCon project. The nominal ownership of NorCon is currently divided into a 1% general partnership interest held by Northern Consolidated and 99% limited partnership interests divided between TPC NorCon and Northern Consolidated. Allocations prior to the date on which TPC NorCon achieves a pre-tax return of 16.5% on equity are 80% to TPC NorCon and 20% to Northern Consolidated. After this date, the allocations are 20% to TPC NorCon and 80% to Northern Consolidated. SELECTED FINANCIAL INFORMATION NorCon made distributions to Northern Consolidated in 1995, 1996, 1997 and 1998 in the amounts of approximately $84,000, $26,000, $1.2 million and $732,000, respectively. 85 YUMA PROJECT The Yuma project is a 50 megawatt natural gas-fired combined cycle cogeneration facility located in Yuma, Arizona. The Yuma project is owned by Yuma Cogeneration and commenced commercial operation in May 1994. Below is a chart illustrating the commercial structure of the Yuma project. [BLOCK CHART SHOWING THE COMMERCIAL STRUCTURE OF THE YUMA PROJECT] SALE AND TRANSMISSION OF POWER YUMA POWER PURCHASE AGREEMENT Yuma Cogeneration sells capacity and energy to San Diego Gas & Electric under the Yuma power purchase agreement. The Yuma power purchase agreement is a standard offer no. 2 contract and expires in May 2024. The contract capacity under the Yuma power purchase agreement is 50 megawatts. San Diego Gas & Electric's long-term unsecured debt obligations were rated "A2" by Moody's, "A+" by S&P and "A+" by Duff & Phelps as of January 1999. Payments. Under the Yuma power purchase agreement, Yuma Cogeneration sells power to San Diego Gas & Electric at a price based on the cost that San Diego Gas & Electric avoids by purchasing energy from the Yuma project instead of obtaining the energy from other sources. Yuma Cogeneration may deliver up to 56.5 megawatts of energy to San Diego Gas & Electric at these rates. The average price of energy under the Yuma power purchase agreement was 3.0 cents per kilowatt-hour in 1998. Payments for capacity are fixed at $140 per kilowatt-year from 1999 to the end of the Yuma power purchase agreement term. Yuma Cogeneration is eligible for capacity bonus payments of up to approximately 18% of the contract capacity if it maintains availability in excess of 85% during the on-peak hours of the peak months (excluding curtailment). We expect bonus capacity payments to be $22 per kilowatt-year. Curtailment. San Diego Gas & Electric is not required to accept or purchase energy from the Yuma project for a maximum of 900 flexible hours and 400 block hours (in one 400 hour block or two 200 hour blocks) through year nine, 1,400 flexible hours and 400 block hours through year 15, and 2,200 flexible hours and 400 block hours through year 30. During curtailments, Yuma Cogeneration is free to sell power into the open market. TRANSMISSION AND INTERCONNECTION Power from the Yuma project is delivered over transmission lines constructed and owned by Arizona Public Service Company to the Southwest Power Link, a high voltage 500 kilovolt bulk 86 transmission line in which San Diego Gas & Electric owns a majority interest. An agreement for interconnection, a firm transmission service agreement and an interruptible transmission agreement have been executed between Arizona Public Service Company and Yuma Cogeneration. Delivery fees are $1.52 per kilowatt-month (no escalation) plus $50,000 per year through the term of the contracts. Yuma Cogeneration pays a transmission services charge of $0.002082 per kilowatt-hour (no escalation) under the interruptible transmission agreement. Arizona Public Service Company reserves 50.85 megawatts of its transmission capacity for power from the Yuma project. Both the firm and interruptible transmission agreements expire on December 31, 2024. SALE OF THERMAL ENERGY Yuma Cogeneration has entered into a thermal energy sales agreement with Queen Carpet, Inc. Queen Carpet was recently acquired by Shaw Industries, Inc. of Dalton, Georgia, the largest tufted carpet manufacturer in the world. Queen Carpet has the right to terminate the agreement upon one year's notice if a change in its technology eliminates its need for thermal energy, and in any case to terminate the agreement at any time upon three years notice. Otherwise, the agreement expires on May 1, 2024. Queen Carpet is obligated to take a minimum annual amount of 126,900 MMBtu per year, which is sufficient to permit the Yuma project to meet its thermal energy requirements for qualifying facility status. Yuma Cogeneration delivers thermal energy for use in Queen Carpet's manufacturing process as well as for absorption chillers. The price of thermal energy delivered for use in air conditioning is equal to 75% of Queen Carpet's net avoided energy cost of producing chilled water. The price of thermal energy used for textile manufacturing is 75% of the price of natural gas purchased from the nearest available gas utility by a comparable industrial customer. For 1998, the total thermal energy revenues were approximately $718,000. FUEL PROCUREMENT Under the terms of the gas purchase agreement between Yuma Cogeneration and Southwest Gas Corporation, Yuma Cogeneration may direct Southwest Gas to purchase gas on its behalf and transport it to the Yuma project under the CG-30 tariff. This agreement allows Yuma Cogeneration to nominate gas from any one of several surrounding supply basins and to receive the gas at the price of the relevant index without a basis spread. The CG-30 tariff agreement can be terminated by either party after June 26, 2002. If terminated, Yuma Cogeneration will return to the CT-I transportation-only tariff, under which Yuma Cogeneration purchases gas in the open market on its own behalf and Southwest Gas arranges transportation. Under the CG-30 arrangement, Yuma Cogeneration pays a $15,000 per month service charge to Southwest Gas. The monthly service charge under the CT-I arrangement is $5,725. OPERATION AND MAINTENANCE SERVICES In connection with the offering of the old Securities, Yuma Cogeneration operating personnel who had previously been employed by MidAmerican were assigned to Falcon Power Operating, which entered into a long-term operation and maintenance agreement with Yuma Cogeneration to provide operation and maintenance services for the Yuma project on a cost of service basis. OWNERSHIP OF PROJECT SITE Yuma Cogeneration owns the fee title to the land on which the Yuma project is located and has the benefit of associated easement rights for irrigation purposes over adjacent land. PROJECT COMPANY OWNERSHIP Yuma Cogeneration is 50% owned by each of California Energy Development and California Energy Yuma Corporation. We own all of the outstanding capital stock of California Energy Development and California Energy Development owns all of the capital stock of California Energy Yuma. Below is a chart illustrating the ownership structure for the Yuma project. 87 [BLOCK CHART SHOWING THE OWNERSHIP STRUCTURE OF THE YUMA PROJECT] YUMA INDEBTEDNESS The Yuma project was financed in part by a loan from MidAmerican, which received a note from Yuma Cogeneration. A portion of the net proceeds of the initial offering were used to repay MidAmerican for the outstanding principal and accrued interest on the Yuma Cogeneration note of approximately $47.7 million and $1.3 million. Yuma Cogeneration does not now have any outstanding indebtedness for borrowed money. 88 OTHER SOURCES OF AVAILABLE CASH FLOW GAS SUPPLY ARRANGEMENTS CE Texas Gas sells natural gas to Power Resources under its natural gas purchase agreement with Power Resources and obtains the necessary gas supply from Dreyfus under its gas purchase agreement with Dreyfus. The term of each of these contracts expires in 2003. Dividends paid by CE Texas Gas to its sole owner, CE Texas Energy, as a result of profits earned in connection with these gas supply arrangements are included in CE Texas Energy's available cash flow. In 1996 CE Texas Gas made distributions to CE Texas Energy of approximately $4.2 million. In 1997 CE Texas Gas made distributions to CE Texas Energy of approximately $4.5 million. In 1998 CE Texas Gas made distributions to CE Texas Energy of approximately $8.8 million. MAMMOTH ROYALTY In addition to its ownership interests in the Imperial Valley projects, Magma has rights to royalties from the 10 megawatt and 12 megawatt geothermal power generating facilities owned by Mammoth-Pacific, L.P. and located in Mono County, California. The amounts of the royalties are 12.5% and 12% of gross proceeds, respectively. In 1996 Magma received total royalties from these projects of approximately $1,939,000. In 1997 Magma received total royalties from these projects of approximately $2,153,000. In 1998 Magma received total royalties from these projects of approximately $2,284,000. 89 DESCRIPTION OF THE SECURITIES The following is a description of important provisions of the Securities. The following information does not purport to be a complete description of the Securities and is subject to, and qualified in its entirety by, reference to the Securities and the indenture. Unless otherwise specified, the following description applies to all of the Securities. GENERAL The old Securities were, and the new Securities will be, direct senior obligations of ours, issued under the indenture for the Securities and secured by the collateral. The old Securities were issued in fully registered form and in denominations of $100,000 and any integral multiple of $1,000 in excess of $100,000. The indenture provides for the issuance of the Securities and other series of senior notes or Securities as from time to time may be authorized by us, subject to the limitations set forth in the indenture. PRINCIPAL AMOUNT, INTEREST RATE AND FINAL MATURITY DATE The old Securities were and the new Securities will be issued in a single series in the aggregate principal amount of $400 million, bearing interest from their date of issuance at 7.416% per annum and finally maturing on December 15, 2018. PAYMENT OF INTEREST AND PRINCIPAL INTEREST Interest on the Securities is payable semiannually in arrears on each June 15 and December 15 to the registered holders at the close of business on the preceding June 1 or December 1. Interest will be calculated on the basis of a 360-day year, consisting of twelve 30-day months. PRINCIPAL The principal of the Securities will be payable in semiannual installments, commencing June 15, 2000, as follows:
PERCENTAGE OF PRINCIPAL AMOUNT PAYMENT DATE PAYABLE --------------------------------- ----------------- December 15, 1999 ......... 0.000% June 15, 2000 ............. 1.300% December 15, 2000 ......... 1.300% June 15, 2001 ............. 1.575% December 15, 2001 ......... 1.575% June 15, 2002 ............. 2.575% December 15, 2002 ......... 2.575% June 15, 2003 ............. 2.250% December 15, 2003 ......... 2.250% June 15, 2004 ............. 1.825% December 15, 2004 ......... 1.825% June 15, 2005 ............. 1.850% December 15, 2005 ......... 1.850% June 15, 2006 ............. 2.400% December 15, 2006 ......... 2.400%
90
PERCENTAGE OF PRINCIPAL AMOUNT PAYMENT DATE PAYABLE --------------------------------- ----------------- June 15, 2007 ............. 2.250% December 15, 2007 ......... 2.250% June 15, 2008 ............. 3.525% December 15, 2008 ......... 3.525% June 15, 2009 ............. 3.075% December 15, 2009 ......... 3.075% June 15, 2010 ............. 1.775% December 15, 2010 ......... 1.775% June 15, 2011 ............. 1.900% December 15, 2011 ......... 1.900% June 15, 2012 ............. 2.560% December 15, 2012 ......... 2.560% June 15, 2013 ............. 2.550% December 15, 2013 ......... 2.550% June 15, 2014 ............. 3.225% December 15, 2014 ......... 3.225% June 15, 2015 ............. 3.380% December 15, 2015 ......... 3.380% June 15, 2016 ............. 3.660% December 15, 2016 ......... 3.660% June 15, 2017 ............. 3.780% December 15, 2017 ......... 3.780% June 15, 2018 ............. 4.545% December 15, 2018 ......... 4.545%
REDEMPTION OF THE SECURITIES REDEMPTION GENERALLY We are permitted to redeem the Securities prior to the maturity date therefor upon terms and subject to conditions contained in the indenture. We are obligated to redeem all or a portion of the Securities prior to their maturity date, in accordance with terms and subject to conditions contained in the indenture. NOTICE TO TRUSTEE Our election or requirement to redeem any Securities will be evidenced by our written request. If we elect to redeem all or a portion of the Securities in accordance with terms set forth in the indenture, we will deliver to the trustee, at least 30 days prior to the date by which notice of redemption is required to be given to the holders of the Securities, or a shorter period as may be agreed by the trustee, a written request specifying the date on which the redemption will occur and the principal amount of Securities to be redeemed. If we are required to redeem all or a portion of the Securities in accordance with the terms of the indenture, we will deliver to the trustee, immediately upon the occurrence of the event resulting in the obligation to redeem, a written request specifying the principal amount of Securities to be redeemed, the price at which the Securities will be redeemed, the applicable yield maintenance premium, if any, the paragraph of the indenture under which the Securities are being redeemed and the redemption date, which redemption date will be within 90 days of the occurrence of the event resulting in the obligation to redeem. 91 NOTICE TO HOLDERS OF THE SECURITIES Notice of any optional or mandatory redemption must be given to the holders of Securities at least 30 but not more than 60 days prior to the applicable redemption date. Each notice of redemption is required to set forth, among other information: o the redemption date; o the redemption price and any applicable yield maintenance premium; o if less than all outstanding Securities are to be redeemed, the identification of the particular Securities to be redeemed and the aggregate principal amount of Securities to be redeemed; o in the case of Securities to be redeemed in part, the principal amount of those Securities to be redeemed and a statement to the effect that after the redemption date, upon surrender of those Securities, new Securities in the aggregate principal amount equal to the unredeemed portion will be issued; o the place where Securities subject to redemption are to be surrendered for payment of the redemption price; and o a statement to the effect that the availability in a special purpose trust fund established under the indenture for redemption of the Securities on the redemption date of an amount of immediately available funds sufficient to pay the redemption price and any applicable yield maintenance premium in full is a condition precedent to the redemption described in the notice. SECURITIES PAYABLE ON REDEMPTION DATE The Securities, or portions of the Securities, to be redeemed will become due and payable on the redemption date, and from and after the redemption date those Securities or the portions will cease to bear interest. Upon surrender of any Security for redemption, we will pay and redeem that Security or the portion being redeemed at the redemption price plus any applicable yield maintenance premium. However, any payment of interest on any Security the payment date of which is on or prior to the redemption date will be payable to the holder of the Securities registered as such at the close of business on the relevant record date according to the terms of the indenture and the Security. If less than all the Securities are to be redeemed, the trustee will redeem the Securities on a pro rata basis among the outstanding Securities not previously called for redemption in whole. OPTIONAL REDEMPTION The Securities will be subject to our optional redemption, in whole or in part, at any time on any business day, at a price equal to the redemption price plus the yield maintenance premium. The yield maintenance premium is calculated as follows: o The yield maintenance premium for a Security is equal to the discounted present value calculated for the Security less the unpaid principal amount of the Security. o The discounted present value of a Security is equal to the discounted present value of all principal and interest payments scheduled to become due on the Security after the date of redemption, calculated using a discount rate equal to the sum of: (1) the yield to maturity on the United States Treasury security having an average life equal to the remaining average life of the Security and trading in the secondary market at the price closest to par; plus (2) 50 basis points. 92 o If there is no United States treasury security having an average life equal to the remaining average life of the Security, the discount rate will be calculated using a yield to maturity interpolated or extrapolated on a straight-line basis, rounding to the nearest month, if necessary, from the yields to maturity for two United States treasury securities having average lives most closely corresponding to the remaining average life of the Security and trading in the secondary market at the price closest to par. o The yield maintenance premium will never be less than zero. MANDATORY REDEMPTION--AT PAR EVENT OF LOSS If (a) any designated subsidiary receives available cash flow in excess of $15 million from one or more distributions of insurance proceeds by a project company in connection with the damage or destruction of all or a portion of its project, then (b) the available cash flow will be used to redeem Securities at a price equal to the principal amount of the Securities being redeemed plus accrued interest. EXPROPRIATION EVENT If (a) any designated subsidiary receives available cash flow in excess of $15 million from one or more distributions of expropriation proceeds by a project company in connection with a governmental authority's compulsory taking or transfer or the threat of a governmental authority's compulsory taking or transfer of its project, then (b) the available cash flow will be used to redeem Securities at a price equal to the principal amount of the Securities being redeemed plus accrued interest. TITLE EVENT If (a) any designated subsidiary receives available cash flow in excess of $15 million from one or more distributions of title insurance proceeds by a project company in connection with a defect in the title to the land on which the designated subsidiary's project is located, then (b) the available cash flow will be used to redeem Securities at a price equal to the principal amount of the Securities being redeemed plus accrued interest. PERMITTED POWER CONTRACT BUY-OUT If (a) any designated subsidiary receives available cash flow in excess of $15 million from one or more distributions of buy-out proceeds by a project company in connection with one or more permitted power contract buy-outs permitted under the project financing documents, then (b) the available cash flow will be used to redeem the Securities. The redemption price will be equal to the lesser of: (1) 100% of the available cash flow; and (2) the amount which will cause each rating agency to confirm that, after giving effect to the redemption, the rating assigned to the Securities by the rating agency will be equal to or better than the higher of: o the existing rating assigned to the Securities by the rating agency; and o the initial rating assigned to the Securities by the rating agency. MANDATORY REDEMPTION--WITH YIELD MAINTENANCE PREMIUM PROJECT FINANCING OR PROJECT DEBT REFINANCING If (a) any designated subsidiary receives available cash flow in excess of $15 million from one or more distributions of refinancing proceeds by a project company in connection with one or more 93 project financings or project debt refinancings with respect to the designated subsidiary's project company, then (b) the available cash flow will be used to redeem the Securities. The redemption price will be equal to the lesser of the following plus the yield maintenance premium: (1) 100% of the available cash flow; and (2) the amount which will cause each rating agency to confirm that, after giving effect to the redemption, the rating assigned to the Securities by the rating agency will be equal to or better than the higher of: o the existing rating assigned to the Securities by the rating agency; and o the initial rating assigned to the Securities by the rating agency. ASSET SALE If (a) any designated subsidiary receives available cash flow in excess of $15 million from one or more distributions of asset sale proceeds by a project company in connection with one or more asset sales with respect to its project, then (b) available cash flow will be used to redeem the Securities. The redemption price will be equal to the lesser of the following plus the yield maintenance premium: (1) 100% of the available cash flow; and (2) the amount which will cause each rating agency to confirm that, after giving effect to the redemption, the rating assigned to the Securities by the rating agency will be equal to or better than the higher of: o the existing rating assigned to the Securities by the rating agency; and o the initial rating assigned to the Securities by the rating agency. SALE OF EQUITY INTERESTS If: o we sell all or any portion of our interest in any designated subsidiary, other than a transfer permitted under the financing documents, and receive proceeds in excess of $15 million in connection with the sale; or o any designated subsidiary sells all or any portion of its interest in any project company, other than a transfer permitted under the financing documents, and receives proceeds in excess of $15 million in connection with the sale, then the proceeds of the sale will be used to redeem the Securities. The redemption price will be equal to the lesser of the following plus the yield maintenance premium o 100% of the proceeds; and o the amount which will cause each rating agency to confirm that, after giving effect to the redemption, the rating assigned to the Securities by the rating agency will be equal to or better than the higher of: (1) the existing rating assigned to the Securities by the rating agency; or (2) the initial rating assigned to the Securities by the rating agency. REDEMPTION DATE The redemption date for any redemption will be any date we select during the 90-day period following the date on which the event requiring the redemption occurred. RATINGS Moody's, S&P and Duff & Phelps have assigned the Securities ratings of "Baa3", "BBB-" and "BBB", respectively. Each rating reflects only the view of the applicable rating agency at the time the 94 rating was issued, and any explanation of the significance of a rating may be obtained only from the rating agency. There is no assurance that any rating will remain in effect for any given period of time or that any rating will not be lowered, suspended or withdrawn entirely by the applicable rating agency, if, in the rating agency's judgment, circumstances so warrant. Any lowering, suspension or withdrawal by any rating agency may have an adverse effect on the market price or marketability of the Securities. FORM; TRANSFER AND EXCHANGE; BOOK-ENTRY SYSTEM FORM OF SECURITIES We will issue the new Securities (except for those sold to institutional accredited investors) initially in the form of a single global bond or, if required, multiple global bonds. We refer to this single global bond or multiple global bonds as the global Security. We will issue the new Securities in registered form. We will issue the global Security initially to The Depository Trust Company, referred to in this section as DTC. The global Security will be registered in the name of Cede & Co., which is the nominee of DTC. The trustee will act as custodian of the global Security for DTC or appoint a sub-custodian. Because Cede & Co. will be the holder of record of the global Security, each person owning a beneficial interest in the global Security must rely upon the procedures of the institutions having accounts with DTC to exercise or be entitled to any of the rights of holder. New Securities issued to institutional accredited investors will be issued in definitive form. Upon the transfer of a Security in definitive form, the Security will, unless the global Security has previously been exchanged for Securities in definitive form, be exchanged for an interest in the global Security representing the principal amount of Securities being transferred. PAYMENTS OF PRINCIPAL AND INTEREST We will make payments of principal of and interest on the Securities represented by the global Security through the Trustee to DTC or its nominee. None of us, the trustee, any paying agents or the registrar will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Securities held by Cede & Co., as nominee for DTC, or Euroclear, or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests. Because of time zone differences, the securities account of a Euroclear participant purchasing an interest in the global Security from a DTC participant will be credited during the securities settlement processing day (which must be a business day for Euroclear) immediately following the DTC settlement date. Credit in interests in the global Security settled during the processing day will be reported to the relevant Euroclear participant on that day. Cash received in Euroclear as a result of sales of interests in the global Security by or through a Euroclear participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Euroclear cash account only as of the business day following settlement in DTC. EXCHANGING INTERESTS IN THE GLOBAL SECURITY FOR DEFINITIVE SECURITIES Any person having a beneficial interest in the Securities evidenced by the global Security may, upon request, exchange its interest in the global Security for a definitive Security. Upon receipt by the trustee of written or electronic instructions from DTC or its nominee on behalf of any person having a beneficial interest in the Securities evidenced by the global Security and upon receipt by the trustee of a written order of that person containing registration instructions: (1) the trustee will cause, in accordance with the standing instructions and procedures existing between it and DTC, the aggregate principal amount of the global Security to be reduced; and (2) following the reduction, we will execute and the trustee will authenticate and deliver to the beneficial owner or the transferee, as the case may be, a definitive Security. 95 In addition, the Securities will be issued as definitive Securities to holders or their nominees, rather than to Cede & Co. as nominee for DTC, if: o We advise the Trustee in writing that DTC is no longer willing or able to discharge properly its responsibilities as depositary with respect to the Securities and we are unable to locate a qualified successor; o We, at our option, elect to terminate the book-entry system through DTC with respect to the Securities; or o after the occurrence of an event of default under the indenture, beneficial owners holding interests representing an aggregate principal amount of Securities of not less than 51% of the Securities represented by the global Security advise the trustee through DTC in writing that the continuation of a book-entry system through DTC (or a successor) with respect to the Securities is no longer in the beneficial owners' best interest. Upon the occurrence of any event described in the immediately preceding paragraph, the trustee will, upon written notice and receipt of a list of all persons who hold a beneficial interest in the global Security from DTC, be required to notify, at our expense, all persons who hold a beneficial interest in the global Security through DTC participants or indirect participants through DTC participants of the issuance of definitive Securities. Upon surrender by the trustee of the global Security and receipt from DTC of instructions for re-registration, we will execute and the Trustee will authenticate and deliver the definitive Securities. TRANSFER AND EXCHANGE OF SECURITIES Subject to the terms of the Indenture, the Securities may be surrendered for registration of transfer or exchange for Securities of the same series, of authorized denomination, and of like tenor, maturity and principal amount at the corporate trust office of the Trustee. The Security registrar is not required to do the following: o issue or register the transfer of or exchange any Securities of any series during a period: o beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of the Securities of that series selected for redemption and ending at the close of business on the day of the mailing, or o beginning on the record date for the stated maturity of any installment of principal of or payment of interest on the Securities of that series and ending on the stated maturity of the installment; or o issue or register the transfer or exchange of any Securities selected for redemption in whole or in part, except the unredeemed portion of any Securities selected for redemption in part. No service charge will be required of any holder participating in any transfer or exchange of the Securities. However, payment may be required of any tax or other governmental charges imposed in connection with the transfer or exchange. DTC'S BOOK-ENTRY SYSTEM Securities represented by the global Security will be held in book-entry form in DTC. DTC has advised us that it is: o a limited purpose trust company organized under the laws of the State of New York; o a member of the United States Federal Reserve System; o a clearing corporation within the meaning of the New York Uniform Commercial Code; and o a clearing agency registered under Section 17A of the Exchange Act. DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between DTC participants through electronic book-entries, 96 thereby eliminating the need for physical movement of certificates. DTC participants include securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to the DTC system also is available to others, such as banks, brokers and dealers and trust companies that clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly. Under the rules, regulations and procedures creating and affecting DTC and its operations, DTC is required to make book-entry transfers of Securities held by it among DTC participants on whose behalf it acts and to receive and transmit distributions of principal, premium and interest on the Securities. DTC participants and indirect participants with which beneficial owners of Securities held with DTC have accounts similarly are required to make book-entry transfers and receive and transmit payments of principal and interest on behalf of the beneficial owners. Accordingly, although beneficial owners who hold Securities through DTC participants or indirect participants will not possess the Securities, DTC's rules, by virtue of the requirements described above, provide a mechanism by which DTC participants will receive payments and will be able to transfer their interests in the Securities. Because DTC may act only on behalf of DTC participants, who in turn act on behalf of indirect participants, any holder of Securities through DTC desiring to pledge its Securities to persons or entities that do not participate in DTC, or otherwise take actions with respect to its Securities, will be required to withdraw its Securities from DTC as described above. DTC has advised us as follows: o that it will take any action permitted to be taken by a holder only at the direction of one or more DTC participants to whose accounts with DTC the holder's Securities are credited; o that it will take these actions with respect to any percentage of the beneficial interests of holders who hold Securities through DTC participants or indirect participants only at the direction of and on behalf of DTC participants whose account holders include undivided interests that satisfy the percentage; and o that it may take conflicting actions with respect to other undivided interests to the extent that these actions are taken on behalf of DTC participants whose account holders include the undivided interests. NATURE OF RECOURSE ON THE SECURITIES Our obligation to make payments of principal of, premium (if any) and interest on the Securities will be an obligation solely of ours, secured by the collateral. Neither MidAmerican nor El Paso Energy, nor any affiliate, shareholder, member, officer, director or employee of ours or of MidAmerican or El Paso Energy will guarantee the payment of the Securities or has any obligation with respect to the Securities (other than the obligations of the designated subsidiaries under the financing documents to which they are parties). 97 SUMMARY DESCRIPTION OF THE PRINCIPAL FINANCING DOCUMENTS The following descriptions of the material provisions of the depositary agreement, the indenture, the debt service reserve letter of credit reimbursement agreement and the security documents are summaries and do not describe all of the terms of the agreements. The material financing documents have been filed as exhibits to the registration statement of which this prospectus is a part. OVERVIEW OF THE PRINCIPAL FINANCING DOCUMENTS The principal financing documents that we entered into in connection with the issuance and sale of the old Securities, and the primary purposes of these documents, are as follows: o Indenture: We entered into the indenture with the trustee, as representative of the holders of the Securities. The indenture includes, among other things: (1) procedures for the issuance of the Securities and additional securities and their authentication by the trustee; (2) provisions which permit, or require, us to redeem Securities before their maturity date; (3) affirmative covenants which require us to take actions while any Securities are outstanding; (4) negative covenants which restrict our activities while any Securities are outstanding; and (5) events of default which permit the holders of the Securities to exercise remedies against us and the collateral. o Depository Agreement: We entered into the depositary agreement with the designated subsidiaries, the collateral agent and the depositary bank. The depositary agreement sets forth requirements for the deposit of available cash flow into depositary accounts established by us and the withdrawal of monies from these accounts to pay operating and administrative costs and debt service. The depositary agreement also includes the conditions that we must satisfy in order to receive distributions from the depositary accounts. o Debt Service Reserve Letter of Credit and Reimbursement Agreement: The depositary agreement requires us to fund the debt service reserve account up to the required balance. We can fulfill this requirement by depositing cash in the debt service reserve account and/or providing a letter of credit for the account. The debt service reserve letter of credit and reimbursement agreement provides for the issuance of a letter of credit for the debt service reserve account and sets forth the circumstances in which the beneficiary of the letter of credit may make drawings on the letter of credit. o Security Documents: The security documents provide for the collateral agent's security interest in the collateral. We granted a security interest in all of our personal property under the CE Generation security agreement. The designated portfolio companies granted a security interest in their available cash flow under the subsidiary security agreement. We, Magma and intermediate holding companies pledged the equity interests in some of our subsidiaries under the pledge agreements. o Intercreditor Agreement: We entered into the intercreditor agreement with the designated subsidiaries, the trustee, the collateral agent and the depositary bank. The collateral agent obtains its authority to act on behalf of the secured parties under the intercreditor agreement. The intercreditor agreement also provides for the sharing of collateral among the secured parties and the procedures for voting by the secured parties on the exercise of remedies. DEPOSITARY AGREEMENT GENERAL The collateral agent, acting on behalf of the trustee, the holders of the Securities and the other secured parties, has entered into a depositary agreement with us and the designated subsidiaries, and 98 has appointed the depositary bank. Under the depositary agreement, we have established accounts with the depositary bank and granted a security interest in these accounts to the collateral agent for the benefit of the secured parties. The depositary agreement sets forth, among other things: o the terms upon which available cash flow in the depositary accounts is disbursed to pay operating and administrative costs and payments of principal of, premium (if any), interest on and other amounts due on the Securities, o the conditions which must be satisfied prior to making distributions to us, o the mechanism for receipt and disbursement of available cash flow representing loss proceeds, expropriation proceeds, title proceeds, buy-out proceeds, refinancing proceeds or asset sale proceeds and proceeds from the sale of our interest in a designated subsidiary or the sale by a designated subsidiary of its interest in a project company, and o the terms upon which monies on deposit in the accounts may be invested in permitted investments. When used in this prospectus, the term permitted investments means investments in securities that are: o direct obligations of the United States or any agency of the United States; o obligations fully guaranteed by the United States or any agency of the United States; o certificates of deposit or bankers acceptances issued by commercial banks organized under the laws of the United States or of any political subdivision of the United States or under the laws of Canada, Japan, Switzerland or any country that is a member of the European Economic Community having a combined capital and surplus of at least $250 million and having long-term unsecured debt securities then rated "A" or better by S&P or "A2" or better by Moody's. However, at the time of investment not more than $25 million may be invested in certificates of deposit from any one bank; o repurchase obligations with a term of not more than seven days for underlying securities of the types described in the preceding paragraph; o open market commercial paper of any corporation incorporated or doing business under the laws of the United States or of any political subdivision, other than MidAmerican or any of its affiliates, of the United States having a rating of at least "A-1" from S&P and "P-1" from Moody's. However, at the time of investment not more than $25 million may be invested in commercial paper from any one company; o auction rate securities or money market preferred stock, other than securities issued by MidAmerican or any of its affiliates, having one or the two highest ratings obtainable from either S&P or Moody's; or o investments in money market funds or money market mutual funds sponsored by any securities broker dealer of recognized national standing having an investment policy that requires substantially all the invested assets of the fund to be invested in investments descried in any one or more of the foregoing clauses having a rating of "A" or better by S&P or "A2" or better by Moody's. ESTABLISHMENT OF ACCOUNTS We have established the following depositary accounts with the depositary bank: o revenue account; o debt payment account; o debt service reserve account; o distribution suspense account; 99 o redemption account; and o 9 7/8% notes account. We have granted a security interest in the depositary accounts to the collateral agent for the benefit of the secured parties. The depositary accounts will at all times be in the name of the collateral agent and in the exclusive possession of, and under the exclusive dominion and control of, the depositary bank acting at the direction of the collateral agent. Neither we nor any of the designated subsidiaries have any right to withdraw monies from the depositary accounts or any other rights with respect to the depositary accounts other than as described in the depositary agreement. DEPOSIT AND DISBURSEMENT OF FUNDS REVENUE ACCOUNT We have and will continue to deposit or cause to be deposited into the revenue account the following funds: o all available cash flow, other than available cash flow required to be deposited in the redemption account as described below, o to the extent the debt service reserve account is fully funded, interest and other investment income earned on funds on deposit in any of the depositary accounts, and o any other amounts required to be transferred to the revenue account under the depositary agreement or the intercreditor agreement. We are required to submit to the collateral agent, on or prior to each date on which funds are to be transferred from the revenue account to the other depositary accounts, a funds transfer certificate indicating the amounts which should be transferred from the revenue account to the other depositary accounts on that date. PRIORITY OF PAYMENTS On one business day of each month selected by us the depositary bank transfers monies on deposit in the revenue account in accordance with the following order of priority in the amounts specified by us in our funds transfer certificate: (1) First, to the persons entitled to the payments described in this clause, an amount equal to the sum of (a) all of our operating and administrative costs as well as those of the designated subsidiaries and California Energy Yuma and SECI Holdings incurred on or before the funding date or reasonably expected to be incurred within the next 30 days, plus (b) any taxes, assessments or other governmental charges or levies then due. However, operating and administrative costs payable to our affiliates or the affiliates of the designated subsidiaries, California Energy Yuma or SECI Holdings will not be paid under this first priority; (2) Second, to the depositary bank, the collateral agent, the trustee and the debt service reserve letter of credit provider, an amount equal to all administrative expenses due and payable to those parties on the next payment date; (3) Third, to the debt payment account, an amount which, together with the funds then on deposit in or credited to that account, is equal to the sum of: (a) all principal of and interest on the Securities and all other amounts payable under indenture, to the extent due and payable on the next payment date; (b) all principal of and interest on any debt service reserve bonds as described below under the caption "Debt Service Reserve Letter of Credit Reimbursement Agreement," to the extent due and payable on the next payment date; 100 (c) all commitment, letter of credit and fronting fees payable under any debt service reserve letter of credit reimbursement agreement, to the extent due and payable on the next payment date; and (d) all interest on any debt service reserve letter of credit loans as described below under the caption "Debt Service Reserve Letter of Credit Reimbursement Agreement," to the extent due and payable on the next payment date; (4) Fourth, to a sub-account of the debt payment account, an amount which, together with the funds then on deposit in or credited to that sub-account, is equal to the sum of (a) all principal of any debt service reserve letter of credit loans and (b) all related fees and charges for tax gross-ups, capital adequacy costs and breakage costs, in each case to the extent due or becoming due on the next payment date; (5) Fifth, to the debt service reserve account, an amount which, together with the sum of (a) the funds then on deposit in or credited to that account and (b) the amount available for drawing under any debt service reserve letter of credit, is equal to the then current debt service reserve required balance; (6) Sixth, (a) to the debt service reserve letter of credit provider or any other financial institution providing a debt service reserve letter of credit loan, other breakage costs which are due and payable in connection with debt service reserve letter of credit loans, and (b) to the secured parties, any indemnification expenses or other amounts which are not otherwise paid and which are required to be paid to the secured parties; (7) Seventh, to the persons entitled to the payments described in this clause, an amount equal to the operating and administrative costs that were not paid under the first priority above; and (8) Eighth, to the distribution suspense account, any amounts remaining in the revenue account after the making of the transfers described above in clauses (1) through (7) above. However, in the event the Securities are accelerated and no foreclosure occurs within 180 days afterwards, then principal of the debt service reserve letter of credit loans will be paid in the third priority instead of the fourth priority until the time that foreclosure has occurred or the acceleration has been rescinded or otherwise remedied. 101 The priority of transfers and payments from the revenue account as shown above is illustrated in the following flow chart. [FLOW CHART SHOWING THE PRIORITY OF THE PAYMENTS FROM THE REVENUE ACCOUNT] 102 DEBT PAYMENT ACCOUNT Funds on deposit in or credited to the debt payment account on any funding date according to the third priority above will be used to pay the following: o all principal of and interest on the Securities and all other amounts payable under the indenture, o all principal of and interest on any debt service reserve bonds, o all commitment, letter of credit and fronting fees due and payable under the debt service reserve letter of credit reimbursement agreement, and o all interest on any debt service reserve letter of credit loans. Funds on deposit in or credited to the sub-account of the debt payment account on any funding date according to the fourth priority above will be used to pay all principal of any debt service reserve letter of credit loans and related fees and charges in connection with tax gross-ups, capital adequacy costs and breakage costs on the payment date. On any payment date that any of the amounts described in this paragraph are due and payable (or if that day is not a business day, then on the next business day), the depositary bank will remit funds on deposit in or credited to the debt payment account or its sub-account to the persons entitled to the payment of those amounts. If on any payment date, there are more funds on deposit in or credited to the debt payment account than are required after making the payments described in the immediately preceding sentence, the depositary bank will transfer the excess funds from the debt payment account to the revenue account on the payment date. If on any payment date, there are more funds on deposit in or credited to the debt payment account's sub-account than are required after making the payments described above, the depositary bank will transfer the excess funds from the sub-account to the debt payment account on the payment date. DEBT SERVICE RESERVE ACCOUNT We initially funded the debt service reserve account by providing the depositary bank with a debt service reserve letter of credit in the amount of approximately $24 million. We will at all times be required to maintain funds in the debt service reserve account in an amount which, together with the amount available for drawing under any debt service reserve letter of credit, is equal to the then current debt service reserve required balance. The debt service reserve required balance on any date equals the maximum semiannual principal and interest payment due on the Securities for the remaining term. The funds on deposit in the debt service reserve account and the amounts available for drawing under any debt service reserve letter of credit will be used to make the following amounts, if amounts on deposit in the debt payment account are insufficient to make these payments: o payments of principal of, premium (if any) and interest on the Securities; o any other amounts payable under the indenture for the Securities; and o to a limited extent as described below, interest on debt service reserve letter of credit loans. Any funds on deposit in or credited to the debt service reserve account which, when aggregated with the amount available for drawing under any debt service reserve letter of credit, exceed the then current debt service reserve required balance, will be transferred to the revenue account. Any debt service reserve letter of credit will be issued by a bank or other financial institution with a long-term unsecured debt rating of at least "A2" by Moody's and at least "A" by S&P. Each debt service reserve letter of credit will permit the depositary bank to make drawings upon the occurrence of the following events: (1) there being insufficient funds in the debt payment account on any payment date to pay interest or principal then due on the Securities after application of funds from the debt service reserve account; 103 (2) upon our failure to provide a substitute letter of credit from another letter of credit provider within at least 45 days after receipt of a notice from the current letter of credit provider that its long-term debt is rated less than "A2" as determined by Moody's or "A" as determined by S&P; (3) upon receipt of a notice from the debt service reserve letter of credit provider that the debt service reserve letter of credit will be terminated before the stated expiration date; (4) upon our failure to obtain an extension or provide a replacement debt service reserve letter of credit at least 45 days before the expiration of the existing debt service reserve letter of credit; and (5) upon receipt of a notice from the letter of credit provider that interest is due and payable, but unpaid, on outstanding debt service reserve letter of credit loans. However, any drawing made according to this clause (5), together with all other drawings made in the same fiscal year, cannot exceed $5,000,000. The depositary bank will apply the proceeds of each drawing described in clauses (1) and (5) above to payment of the relevant obligation. The depositary bank will apply the proceeds of each drawing described in clauses (2), (3) and (4) above to the debt service reserve account until the amount of the debt service reserve required balance is met. DISTRIBUTION SUSPENSE ACCOUNT The distribution suspense account will be funded with monies remaining in the revenue account after all other required transfers and payments have been made. On any funding date on which the distribution conditions described below are satisfied, monies on deposit in the distribution suspense account may be distributed to or as directed by us: o the debt payment account and the debt service reserve account are funded to their then current required levels and all payments described in first, second, sixth and seventh priorities above are satisfied in full; o no default or event of default has occurred and is continuing or will result from the distribution; o the debt service coverage ratio for the preceding four fiscal quarters ending on or prior to the funding date, measured as one period, is greater than or equal to 1.5 to 1.0; o the projected debt service coverage ratio for the succeeding four fiscal quarters, including the quarter in which the distribution is to be made, measured as one period, is greater than or equal to 1.5 to 1.0; and o if a material default or an event of default has occurred and is continuing under any project financing document for the Saranac project, the Power Resources project, the Yuma project or the geothermal projects, the loan life coverage ratio is greater than or equal to 1.7 to 1.0. For purposes of this description of the distribution conditions: (1) "debt service coverage ratio" means, for any period, the ratio of clause (1) below to clause (2) below: (1) the sum of: o all available cash flow for the period; plus o all interest and other investment income earned on monies on deposit in or credited to the depositary accounts during the period; plus o all other cash flow received and deposited in the revenue account during the period. 104 (2) the sum of: o all operating and administrative costs, other than operating and administrative costs that are subordinate to debt service on the Securities and our other senior debt, if any, and other expenses due and payable during the period; plus o the aggregate of principal and interest payments, and any other amounts due, on the Securities and all other permitted debt, excluding subordinated debt, for the period; and (2) "loan life coverage ratio" means, at any measurement date, the ratio of clause (1) below to clause (2) below: (1) the sum of: o the net present value, at a discount rate equal to the interest rate for the Securities, of the projected available cash flow from the date of measurement to the final maturity date for the Securities, other than the available cash flow of a designated subsidiary for which there has occurred a default or an event of default under the project financing documents for the designated subsidiary's project company; plus o the then remaining balance in the debt service reserve account; plus o all interest and other investment income then on deposit in or credited to the revenue account and the debt service reserve account. (2) the sum of: o the aggregate principal amount of the Securities and all other permitted debt which is repayable during the period from the measurement date up to and including the final maturity date of the Securities; plus o all administrative costs and other expenses due and payable during the period from the measurement date up to and including the final maturity date of the Securities. If on any funding date amounts on deposit in the revenue account are insufficient to make the transfers described in the first through seventh priorities above, then amounts on deposit in the distribution suspense account will be transferred to the revenue account. REDEMPTION ACCOUNT The following funds will be deposited in the redemption account: o all available cash flow representing insurance proceeds for damage to or destruction of all or a portion of a project; o all available cash flow representing expropriation proceeds for a governmental authority's compulsory taking or transfer of a project or threat of a compulsory taking or transfer of a project; o all available cash flow representing title insurance proceeds for a defect in the title to the land on which a project is located; o all available cash flow representing proceeds from a power contract buy-out; o all available cash flow representing proceeds from a sale of assets; o all available cash flow representing proceeds from the refinancing of project-level debt; o all proceeds from our sale of all or a portion of our interests in any designated subsidiary; and 105 o all proceeds from a designated subsidiary's sale of all or a portion of its interests in its project company. Funds on deposit in the redemption account will be used to redeem the Securities and to pay our other secured obligations. 9 7/8% NOTES ACCOUNT MidAmerican intends to redeem all of Magma's remaining 9 7/8% promissory notes on June 30, 2000, the first day upon which redemption is permitted under the indenture for the 9 7/8% promissory notes (if not previously repurchased). As of the date of this prospectus, the outstanding principal amount of the 9 7/8% notes is approximately $4.2 million. PERMITTED INVESTMENTS All funds held by the depositary bank in the depositary accounts will be invested in permitted investments at our expense and risk o if no default or event of default has occurred and is continuing, at election and as directed in writing by one of our authorized officers; and o if a default or an event of default has occurred and is continuing, at the election of and as directed by the collateral agent. These permitted investments must mature, or be subject to redemption or be capable of being sold or otherwise liquidated at the option of their holder, in amounts and not later than as may be necessary to provide funds when needed to make payments from the depositary accounts. In no event will any of the permitted investments in the depositary accounts mature more than one year after the date acquired. Absent written instructions from us or the collateral agent, as applicable, the depositary bank will invest funds held in the depositary accounts in direct obligations of the United States or any United States agency with a maturity of 30 days or less. Net interest and other investment income earned on any permitted investments credited to any depositary account will be transferred (1) first to the debt service reserve account until the amount of funds deposited in or credited to that account, together with the amount available for drawing under any debt service reserve letter of credit, is equal to the then current debt service reserve required balance, and (2) then to the revenue account. INDENTURE GENERAL The old Securities were, and the new Securities will be, issued under an indenture entered into between us and the trustee acting on behalf of the holders of Securities. The indenture describes the terms of the Securities. We are permitted to issue additional securities under the indenture, subject to the satisfaction of conditions described below. All additional securities will rank evenly in priority with the Securities, will be secured by the collateral and will have terms, be in a form and be issued at prices as approved by us in writing. No additional Securities may be issued at any time if a default or an event of default has occurred and is continuing or if the proposed issuance would cause a default or an event of default. All net proceeds of any additional securities must be used for one or more of the purposes specified in the indenture and described below. COVENANTS Following is a description of some of our affirmative and negative covenants. 106 AFFIRMATIVE COVENANTS INFORMATION REQUIREMENTS We will furnish or cause to be furnished the following financial statements and compliance certificates to the trustee and the rating agencies, as well as any holder of Securities or beneficial owner of a Security at their request: o our unaudited consolidated financial statements for the first, second and third quarters within 45 days after the end of the quarter; o our annual audited consolidated financial statements within 90 days after the end of each fiscal year; and o an officer's certificate stating whether a default or an event of default has occurred each time we provide the financial statements described above. We will also furnish notices of defaults and events of default to the trustee and the rating agencies. MAINTENANCE OF EXISTENCE, QUALIFICATION AND RIGHTS Other than as provided below under the caption "Business Activities; Fundamental Changes; Sales of Assets," we will at all times preserve and maintain in full force and effect (1) our existence as a limited liability company in good standing under the laws of the State of Delaware and (2) our qualification to do business in each other jurisdiction where qualification is necessary, except in each case as permitted under the financing documents. We will maintain and renew all of the powers, rights, privileges and franchises necessary to transact our business as it is actually conducted or as it is proposed to be conducted, unless the failure to do so would not reasonably be expected to result in a material adverse effect. As used above and as used throughout the remainder of this summary, the term "material adverse effect" means a material adverse effect on any of the following: o the financial condition of results of operation of us or the designated subsidiaries taken as a whole; o the validity or priority of the liens on the collateral; o our ability to perform our material obligations under the indenture, the securities or any of the other financing documents; or o the ability of the designated subsidiaries to perform any of their material obligations under the financing documents. COMPLIANCE WITH LAWS AND GOVERNMENTAL APPROVALS We will comply with all applicable laws and obtain all necessary governmental approvals relating to our issuance of the Securities and the performance of our obligations under the indenture, if our failure to do so would reasonably be expected to result in a material adverse effect. PERFORMANCE OF FINANCING DOCUMENTS We will perform all of our material covenants and agreements contained in any of the financing documents to which we are a party and will take all reasonable and necessary actions to prevent the termination or cancellation of any those financing document as against us, any designated subsidiary or any affiliate of ours or any designated subsidiary, unless our failure to do so would not reasonably be expected to result in a material adverse effect. 107 MAINTENANCE OF PROPERTY; PRESERVATION OF COLLATERAL We will preserve and maintain good and valid title to all of our properties and assets subject to no liens other than those permitted liens described below, unless our failure to do so would not reasonably be expected to result in a material adverse effect. We will preserve and maintain the liens on the collateral and will defend our title to the collateral against the claims of all persons, unless our failure to do so could not reasonably be expected to result in a material adverse effect. OTHER AFFIRMATIVE COVENANTS The indenture also contains other affirmative covenants, including our obligations to: o make payments on the Securities, o maintain an office for payment, exchange and transfer of the Securities, o pay all taxes and charges required to be paid by us, o keep proper books and records in accordance with generally accepted accounting principals, o provide the trustee, the collateral agent and the depositary bank with reasonable inspection rights, o use the proceeds of the issuance and sale of the Securities and any additional securities in accordance with the indenture, o retain a nationally recognized independent accounting firm and permit the trustee, the collateral agent and the depositary bank to discuss our affairs, finances and accounts with that accounting firm upon reasonable notice and at reasonable times following and during the continuance of a default or an event of default, o pledge all of the capital stock of Magma within 10 days after the date on which the stock is released from the liens securing Magma's 9 7/8% promissory notes, and o make an election to be treated as an association taxable as a corporation for United States tax purposes. NEGATIVE COVENANTS RESTRICTIONS ON THE INCURRENCE OF DEBT AND THE CREATION OF LIENS We will not incur any debt except the following permitted debt: o debt incurred under the indenture and the Securities; o debt incurred under an agreement providing for the issuance of a debt service reserve letter of credit; o debt in an aggregate principal amount not to exceed $10 million, so long as, after giving effect to the incurrence of the debt, no default or event of default will have occurred and be continuing; o subordinated debt loaned to us by our affiliates which are not our direct or indirect majority-owned subsidiaries, in an aggregate principal amount not to exceed $200 million, so long as this subordinated debt is used to finance capital expenditures, expansions or operation and maintenance costs for the existing projects or the construction of new projects; and o debt incurred in excess of the $10 million of debt described above, so long as (1) after giving effect to the incurrence of the debt, no default or event of default will have occurred and be continuing, and (2) after giving effect to the incurrence of the debt, the rating assigned to the Securities by each rating agency will be equivalent to or better than an investment grade rating. 108 We will not create any lien upon or with respect to any of our properties except the following permitted liens: o liens specifically permitted or required by, or created by, any security document; o liens to secure permitted debt, so long as the holder of the permitted debt, or a representative of the holder, will have entered into the intercreditor agreement; o liens for taxes, assessments or governmental charges which are either not yet due or which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves are established in accordance with generally accepted accounting principles; o other liens incidental to the conduct of our business which were not incurred in connection with the borrowing of money or the obtaining of advances or credit, other than vendor's liens for accounts payable in the ordinary course of business, and which do not in the aggregate materially impair the use of the encumbered assets in the operation of our business; and o liens which existed on the closing date for the old Securities and are set forth on a schedule to the indenture. BUSINESS ACTIVITIES; FUNDAMENTAL CHANGES; SALES OF ASSETS We will not at any time engage in any activities other than: o owning our subsidiaries and related activities; o the activities contemplated by the indenture and the other financing documents and related activities; and o any other activity which could not reasonably be expected to result in a material adverse effect and which the rating agencies confirm in writing will not result in a lowering of the existing ratings for the Securities. We will not enter into any transaction of merger or consolidation, change our form of organization or our business, liquidate, wind-up or dissolve ourselves or discontinue our business, unless (1) we are the surviving company or the surviving company is a domestic or Canadian company and assumes our obligations under the Securities and the other financing documents, (2) immediately before and after the transaction, no event of default will have occurred and be continuing, and (3) the rating agencies confirm that the transaction will not result in a lowering of the existing ratings for the Securities. We will not dispose of or encumber any of our assets, except as permitted under the financing documents. INVESTMENTS; TRANSACTIONS WITH AFFILIATES We will not form or have any subsidiaries, make investments, loans or advances or acquire the stock, obligations or securities of any person, other than the following: o those that existed on the closing date for the old Securities, o permitted investments, o investments, loans or advances made with funds which do not constitute collateral, and o investments in subsidiaries if the rating agencies confirm that their formation will not result in a lowering of the existing ratings for the Securities. We will not enter into any transaction, whether or not in the ordinary course of business, with any of our affiliates which is not on an arm's-length basis. We may, however, perform our obligations under, and engage in the transactions permitted by, the financing documents. 109 RESTRICTED PAYMENTS The following are restricted payments and will be made only from the distribution suspense account if the distribution conditions described above are satisfied: o any declaration and payment of distributions, dividends or any other similar payment made on account of our equity interests; o any payment of the principal of or interest on any of our subordinated debt; or o any loans or advances to any of our affiliates. OTHER NEGATIVE COVENANTS The indenture also contains other negative covenants, including, without limitation, our obligation not to do any of the following: o amend our certificate of formation or any other organizational document if this action could reasonably be expected to result in a material adverse effect, o assign any of our rights or obligations under any financing document or enter into any additional agreements, contracts or other undertakings if this action could reasonably be expected to result in a material adverse effect, o take any action which will cause us to be in violation of the Investment Company Act of 1940, as amended, or o contingently or otherwise become liable in connection with any guarantee obligation other than guarantees of permitted debt which is incurred by (a) a person that is not one of our affiliates or (b) one of our wholly-owned subsidiaries. EVENTS OF DEFAULT AND REMEDIES EVENTS OF DEFAULT The following events constitute events of default under the indenture: (1) if we fail to pay any principal of, premium (if any) or interest on any Security when it becomes due and payable; (2) if we make a false representation in a financing document and the circumstances underlying the misrepresentation have resulted in, or could reasonably be expected to result in, a material adverse effect. We will have 30 days to cure this default, or up to 90 days if we are diligently pursuing the cure; (3) if we fail to perform any covenant under the indenture relating to maintenance of existence, payment of taxes, incurrence of debt, creation of liens, business activities, fundamental changes, sales of assets, restricted payments or issuance of guarantee obligations. We will have 30 days to cure this default; (4) if we fail to perform any of our covenants contained in the indenture other than those referred to above. We will have 60 days to cure this default, or up to 90 days if we are diligently pursuing the cure; (5) if we are the subject of a bankruptcy proceeding or another similar proceeding; (6) if any security document ceases in any material respect to be in full force and effect or any material lien purported to be granted in any security document ceases to be a valid and perfected lien in favor of the collateral agent with the priority purported to be created in the security document. We will have 10 days to cure this default; (7) if payment of our debt in excess of $5 million, other than debt incurred under the indenture or a debt service reserve letter of credit and reimbursement agreement, is accelerated following an event of default under the instrument evidencing the debt; 110 (8) if one or more final and non-appealable judgment or judgments for the payment of money in excess of $5 million is entered against us and remains unpaid or unstayed for a period of 90 or more consecutive days, other than a judgment which we are diligently contesting in good faith by appropriate proceedings and for which we have established adequate cash reserves; (9) if any party to any financing document, other than a secured party, fails to perform covenant contained in the financing document, subject to any applicable grace periods, and the failure could reasonably be expected to result in a material adverse effect; and (10) if MidAmerican fails to call for redemption all of Magma's outstanding 9 7/8% promissory notes within 10 days of the first day on which redemption is permitted under the indenture for the 9 7/8% notes. EXERCISE OF REMEDIES CONTROL BY HOLDERS OF SECURITIES Holders of Securities holding more than 50% of the aggregate principal amount of the outstanding Securities have the right to direct the time, place and method of conducting any proceeding for any right or remedy available to the trustee or exercising any trust or power conferred on the trustee. However, (1) their direction may not be in conflict with any rule of law or with the indenture or the intercreditor agreement, (2) the trustee may take any other action deemed proper by the trustee which is not inconsistent with the direction of the holders, and (3) the trustee need not follow any direction of the holders if doing so would in its reasonable discretion either involve it in personal liability or be unduly prejudicial to holders of Securities not joining in the direction. REMEDIES AVAILABLE If any event of default occurs and continues: (1) in the case of an event of default described in clause (1) above under the caption "Events of Default," holders of Securities holding more than 331/3% in aggregate principal amount of the outstanding Securities may, by written notice to us and the trustee, declare the entire principal amount of the outstanding Securities, all accrued and unpaid interest and all other amounts payable in connection with the outstanding Securities, to be immediately due and payable; (2) in the case of an event of default described in clause (5) above under the caption "Events of Default," the entire principal amount of the outstanding Securities, all accrued and unpaid interest and all other amounts payable in connection with the outstanding securities will automatically become due and payable; and (3) in the case of all other events of default described above under the caption "Events of Default," a majority of the holders may, by written notice to us and the trustee, declare the entire principal amount of the outstanding Securities, all accrued and unpaid interest and all other amounts payable in connection with the outstanding Securities, to be immediately due and payable. Subject to the intercreditor agreement, if at any time after the principal of the Securities becomes due and payable upon a declared acceleration, and before any judgment or decree for the payment of the money due, or any portion of the money due, is entered, a majority of the holders, by written notice to us and the trustee, may rescind and annul a declaration and its consequences if: (1) there is paid to or deposited with the trustee a sum sufficient to pay: (a) all overdue installments of interest on the Securities; (b) the principal of and premium, if any, on the Securities that have become due other than by the declaration of acceleration, and interest on the Securities at the rates provided in the Securities for late payments of principal; (c) to the extent that payment is lawful, interest upon overdue interest at the rates provided in the Securities for late payments of interest; and 111 (d) all sums paid or advanced by the trustee under the indenture and the reasonable compensation, expenses, disbursements and advances of the trustee and its agents and counsel; and (2) all events of default, other than the nonpayment of principal of the Securities that has become due solely by the declared acceleration, have been cured or waived in accordance with the indenture. APPLICATIONS OF FUNDS Following the application of funds as provided in the intercreditor agreement, any money to be applied by the trustee after an event of default will be applied in the following order: (1) first, to the payment of all amounts due to the trustee or any predecessor trustee under the indenture; (2) second, if the unpaid principal amount of the outstanding Securities has not become due, to the payment of any overdue interest , together with interest, to the extent legally enforceable, on the payments of overdue interest; (3) third, if the unpaid principal amount of a portion of the outstanding Securities has become due, (1) first to the payment of premium (if any) and accrued interest on all outstanding Securities, together with interest, to the extent legally enforceable, on the payments of premium (if any) and overdue interest, and (2) next to the payment of the unpaid principal amount of all Securities then due; (4) fourth, if the unpaid principal amount of all of the outstanding Securities has become due, to the payment of the whole amount then due and unpaid upon the outstanding Securities for principal, premium (if any) and interest, together with interest to the extent legally enforceable, on the overdue principal, premium (if any) and interest; and (5) fifth, if the unpaid principal amount of all of the outstanding Securities has become due, and all of the outstanding Securities have been indefeasibly paid in full in cash or cash equivalents, any surplus then remaining will be paid to us or to whoever may be lawfully entitled to receive the surplus, or as a court of competent jurisdiction may direct. 112 The priority of payments described in clauses (1) through (5) above is illustrated in the following flow chart. [FLOW CHART SHOWING THE PRIORITY OF PAYMENTS ON THE BONDS WITH COLLATERAL PROCEEDS] 113 AMENDMENTS AND SUPPLEMENTS We and the trustee may amend or supplement the indenture without the consent of the holders of Securities for the following purposes: o to add additional covenants against us, to surrender rights or powers conferred upon us or to confer additional rights, remedies, benefits, powers or authorities upon the holders of Securities, o to increase the assets securing our obligations under the indenture, o to provide for the issuance of additional securities on the conditions described in the indenture, or o for any purpose not inconsistent with the terms of the indenture to cure any ambiguity, defect or inconsistency. The indenture may be otherwise amended or supplemented by us and the trustee with the consent of the majority holders. However, no amendment or supplement may, without the consent of each holder of Securities, modify the following: o the principal, premium (if any) or interest payable upon any of the Securities, o the dates on which interest on or principal of any of the Securities is paid, o the dates of maturity of any of the Securities, or o the procedures for amendment of the indenture by a supplemental indenture. SATISFACTION AND DISCHARGE We may terminate the indenture by delivering all outstanding Securities to the trustee for cancellation and by paying all other sums payable under the indenture. Legal and covenant defeasance will be permitted upon terms and conditions customary for transactions of this nature. TRUSTEE There will at all times be a trustee under the indenture which will: o be a corporation organized and doing business under the laws of the United States, any state or territory of the United States or the District of Columbia; o be authorized under those laws to exercise corporate trust powers; o be subject to supervision or examination by federal, state, territorial or District of Columbia authority; o either (1) have a combined capital and surplus of at least $50 million or (2) have a combined capital and surplus of at least $10 million and be a wholly-owned subsidiary of a corporation having a combined capital and surplus of at least $50 million; and o have a corporate trust office in New York City. We agree to indemnify and hold harmless the trustee in connection with the performance of its duties under the indenture, except for liability which results from the gross negligence or bad faith of the trustee. 114 The trustee may resign at any time by giving written notice to us. The trustee may be removed at any time by act of the majority holders, delivered to the trustee and us. We will give notice of each resignation and removal of the trustee and each appointment of a successor trustee to all holders of Securities and to the rating agencies. The trustee also serves as trustee for the holders of the Imperial Valley project financing debt. In the event a conflict of interest were to arise between those holders and the holders of Securities, the trustee may determine, or be required, to resign as trustee under the indenture. DEBT SERVICE RESERVE LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT GENERAL On the closing date for the old Securities, Credit Suisse First Boston issued a debt service reserve letter of credit for our account in the amount of approximately $24 million in favor of the depositary bank. The debt service reserve letter of credit was issued under the debt service reserve letter of credit and reimbursement agreement. The depositary bank may make drawings under any debt service reserve letter of credit upon the occurrence of the following events: (1) there being insufficient funds in the debt payment account on any payment date to pay interest or principal then due on the Securities after application of funds from the debt service reserve account; (2) upon our failure to provide a substitute letter of credit from another letter of credit provider within not more than 45 days after receipt of a notice from the current letter of credit provider that its long-term debt is rated less than "A" as determined by S&P or "A2" as determined by Moody's; (3) upon receipt of a notice from the letter of credit provider that the debt service reserve letter of credit will be terminated before its stated expiration date; (4) upon our failure to obtain an extension or provide a replacement debt service reserve letter of credit at least 45 days before the expiration of the current debt service reserve letter of credit; and (5) upon receipt of a notice from the letter of credit provider that interest is due and payable, but unpaid, with respect to outstanding debt service reserve letter of credit loans, so long as any drawing under this clause, together with all other drawings under the debt service reserve letter of credit in the same calendar year, does not exceed $5,000,000. The depositary bank will apply the proceeds of each drawing described in clauses (1) and (5) to payment of the relevant obligation. The depositary bank will apply the proceeds of each drawing described in clauses (2), (3) and (4) to the debt service reserve account until the debt service reserve required balance is met. The amount available for drawing under the debt service reserve letter of credit will be reduced upon (1) the making of draws, (2) a reduction of the debt service reserve required balance and (3) the deposit of cash in the debt service reserve account. DEBT SERVICE RESERVE LETTER OF CREDIT LOANS Each drawing on the debt service reserve letter of credit submitted by the depositary bank will be converted into a loan to us. Each debt service reserve letter of credit loan will be evidenced by a note and will mature on the later of (1) ten years from the closing date for the old Securities or (2) five years from the drawing giving rise to the loan. We will repay the principal amount of each debt service reserve letter of credit loan as, when and to the extent funds are made available from the revenue account for these repayments. 115 CONVERSION TO DEBT SERVICE RESERVE BOND If: (1) 50% or more of the principal amount of any debt service reserve letter of credit loan remains outstanding on or after 5 years from the drawing giving rise to the loan; or (2) the principal amount of any debt service reserve letter of credit loan remains outstanding on or after l0 years from the closing date for the old Securities; then the letter of credit provider may, upon 30 days' prior written notice to us and the trustee, convert the debt service reserve letter of credit loan into a debt service reserve bond. Each debt service reserve bond will amortize on a basis which results in levelized payment of the principal of and interest on the debt service reserve bond to and including its maturity date, which will be the final maturity date of the Securities. Each debt service reserve bond will bear interest at a fixed rate equal to the higher of: (a) the interest rate last applicable to the converted debt service reserve letter of credit loan; and (b) the rate of interest, at the time of conversion, on United States Treasury notes with an average life most comparable to the average life of the Securities plus the higher of (1) 2.50% and (2) the spread over United States Treasury notes applicable to the Securities on the closing date for the old Securities. We will pay principal of and interest on each debt service reserve bond with the same payment priority as payments of principal of and interest on the Securities. EVENTS OF DEFAULT The following events constitute events of default under the debt service reserve letter of credit and reimbursement agreement: o We fail to pay any principal, interest or other amounts due under the debt service reserve letter of credit and reimbursement agreement or any debt service reserve letter of credit bond within 15 days after its due date in the case of principal and interest, and within 15 days after delivery of notice to us in the case of fees, costs and expenses; o if we make a false and the representation in the debt service reserve letter of credit and reimbursement agreement circumstances that gave rise to the misrepresentation have resulted in or could reasonably be expected to have a material adverse effect. We have 30 days to cure this default, or up to 90 days if we are diligently pursuing the cure; o if any provision of the indenture, the depositary agreement or any security document is terminated, amended or otherwise modified without the prior written approval of banks which hold at least 662/3% of the obligations and/or commitments under the debt service reserve letter of credit and reimbursement agreement, if the termination, amendment or other modification would do any of the following: o affect the priority of payments from the revenue account under the depositary agreement in a manner adverse to the agent under the debt service reserve letter of credit and reimbursement agreement or any bank party to the debt service reserve letter of credit reimbursement agreement; o increase the interest rate on the Securities other than in accordance with the indenture; o amend the payment dates for the Securities in a manner adverse to the letter of credit agent or any letter of credit bank; or o change the voting requirements under the intercreditor agreement in a manner adverse to the letter of credit agent or any letter of credit bank. We have 60 days to cure this default, or up to 90 days if we are diligently pursuing the cure; 116 o if we fail to perform covenants under the indenture which are incorporated by reference in the debt service reserve letter of credit and reimbursement agreement and all outstanding Securities have paid in full and the indenture is no longer in effect. We will have 30 days to cure this default; o if we fail to perform our covenants contained in any other provision of the debt service reserve letter of credit and reimbursement agreement. We will have 60 days to cure this default, or up to 90 days if we are diligently pursuing the cure; and o if an event of default as described under any of clauses (2) through (10) of the summary of indenture events of default occurs and continues until the earlier of the expiration of 30 days or an acceleration of the Securities. REMEDIES Upon the occurrence of an event of default under the debt service reserve letter of credit and reimbursement agreement, the debt service reserve letter of credit provider may (1) terminate the debt service reserve letter of credit, (2) accelerate any outstanding debt service reserve letter of credit loans or debt service reserve bonds and (3) terminate its commitment. SECURITY ARRANGEMENTS Our payment of the principal of, premium (if any), interest on and other amounts due under or in connection with the Securities or the other secured obligations will be secured by the collateral under the terms of the security documents. The preservation and administration of the collateral by the collateral agent and the disposition of the collateral among the secured parties upon acceleration and foreclosure will be governed by the intercreditor agreement. SECURITY DOCUMENTS SUBSIDIARY SECURITY AGREEMENT Under the subsidiary security agreement executed by the designated subsidiaries in favor of the collateral agent, Magma, Salton Sea Power, Falcon Seaboard Resources, Falcon Seaboard Power, Falcon Seaboard Oil, California Energy Development and CE Texas Energy have (1) assigned to the collateral agent all of the designated subsidiaries' rights to receive available cash flow and (2) granted to the collateral agent, acting on behalf of the secured parties, a lien on all of the designated subsidiaries' available cash flow which is deposited with the depositary bank. The subsidiary security agreement also contains affirmative and negative covenants of the designated subsidiaries. Affirmative covenants of the designated subsidiaries include the obligation of each designated subsidiary to, subject to exceptions set forth in the subsidiary security agreement: o provide notices and information to the trustee and the rating agencies; o maintain its existence, qualification to do business and rights and privileges, except, with respect to qualification to do business and rights and privileges, where the failure to do so could not reasonably be expected to result in a material adverse effect; o comply with all applicable laws, except where the failure to do so could not reasonably be expected to result in a material adverse effect; o obtain and comply with all necessary governmental approvals, except where the failure to do so could not reasonably be expected to result in a material adverse effect; o perform its obligations under the financing documents, except where the failure to do so could not reasonably be expected to result in a material adverse effect; o cause its project company: 117 (1) to perform its covenants under its project documents and project financing documents, except where the failure to do so could not reasonably be expected to result in a material adverse effect; (2) not to amend, terminate or otherwise modify any of its project documents or project financing documents, except a power contract buy-out which would not result in a ratings down-grade or where doing so could not reasonably be expected to result in a material adverse effect; (3) to maintain the qualifying facility status of its project, except where the failure to do so could not reasonably be expected to result in a material adverse effect; (4) not to enter into any additional project documents or project financing documents, except where doing so could not reasonably be expected to result in a material adverse effect; (5) not to incur any additional debt except: o if the rating agencies confirm in writing that the incurrence will not result in a ratings downgrade; and o other than with respect to Magma and Falcon Seaboard Resources, in other limited circumstances; and (6) not to create any liens other than liens permitted under the financing documents; o maintain title to its assets, except where the failure to do so could not reasonably be expected to result in a material adverse effect; o maintain the liens on its collateral in favor of the collateral agent, except where the failure to do so could not reasonably be expected to result in a material adverse effect; o pay its taxes; o keep books and records in accordance with generally accepted accounting principals; o cause all available cash flow to which it has a right to receipt to be deposited into the revenue account; o use its reasonable best efforts to cause its project company, and each of its subsidiaries which owns an interest in its project company, to declare and pay distributions to it with all available cash flow then available for distribution; and o hold all available cash flow received by it in trust for the secured parties and immediately deliver all of its available cash flow to the depositary bank. Negative covenants of the designated subsidiaries include the following obligation of each designated subsidiary not to, subject to exceptions set forth in the subsidiary security agreement: o incur any debt other than the secured obligations, debt existing on the closing date for the old Securities and other permitted debt or; o create any lien on its properties other than permitted liens; o become liable for any guarantee obligation, except guarantees of permitted debt which is incurred by (1) a person that is not an affiliate of the designated subsidiary or (2) other than a wholly-owned subsidiary of the designated subsidiary; o engage in any activities other than (1) the ownership of an interest in its project company, (2) with respect to Magma, the performance of its obligations under the project documents, (3) the activities contemplated by the indenture and the other financing documents and related activities and (4) other activities which could not reasonably be expected to result in a material adverse effect and which the rating agencies confirm will not result in a lowering of the existing ratings for the Securities; 118 o merge, consolidate, change its form of organization or business, liquidate, wind-up or dissolve itself, unless: (1) the designated subsidiary is the surviving company or the surviving company is a domestic company that assumes the designated subsidiary's obligations under the financing documents; (2) no event of default under the indenture exists or results from the transaction; and (3) the rating agencies confirm that the transaction will not result in a lowering of the existing ratings for the Securities; o sell, transfer or convey any portion of its interest in its project company other than, so long as no event of default has occurred and is continuing, (1) any sale for fair market value the proceeds of which are in the form of cash or cash equivalents and are used to redeem Securities in accordance with the indenture, if required, or (2) a transfer permitted under the financing documents; o form subsidiaries, make investments, loans or advances or acquire the stock, obligations or securities of any person other than (1) permitted investments, (2) investments, loans or advances made with funds which do not constitute collateral and (3) subsidiaries the formation of which the rating agencies confirm will not result in a lowering of the existing ratings for the Securities; o enter into non-arm's-length transactions with affiliates except as permitted by the financing documents; o make restricted payments other than the payment of available cash flow into the revenue account; o assign its rights or obligations under the financing documents or enter into additional contracts or agreements if those assignments or additional contracts or agreements could reasonably be expected to result in a material adverse effect; or o amend its organizational documents or any other material contract if the amendment could reasonably be expected to result in a material adverse effect. CE GENERATION SECURITY AGREEMENT Under to the CE Generation security agreement executed by us in favor of the collateral agent, we have granted to the collateral agent, acting on behalf of the secured parties, a lien on the following, whether currently owned or later acquired by us: o all of our rights under the contracts, agreements or undertakings to which we are a party; o the depositary accounts and all cash, investments and other assets on deposit in or credited to those accounts; o all of our other tangible personal and intangible property, to the extent it is possible to grant a lien on this property, other than the capital stock of Magma, which will be pledged upon the redemption of, or earlier release of security interests under, Magma's 9 7/8% promissory notes; and o all proceeds received or receivable in connection with any of the above, to the extent it is possible to grant a lien on these proceeds. PLEDGE AGREEMENTS Under the pledge agreements executed by us, Magma and some of the intermediate holding companies in favor of the collateral agent, those parties pledged the following to the collateral agent, acting on behalf of the secured parties: (1) all of the equity interests in CE Texas Gas and the designated subsidiaries, other than the capital stock of Magma and the 1% of the shares of capital stock of Salton Sea Power which is owned by Salton Sea Funding Corporation; (2) upon the redemption of, or other release of security interests under, Magma's 9 7/8% promissory notes, all of the capital stock of Magma; 119 (3) all of the capital stock of SECI Holdings; and (4) all dividends, distributions, cash, instruments and other property and proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for the equity interests described in clauses (1), (2) and (3). MidAmerican's obligation to make payments on Magma's 9 7/8% promissory notes is secured by a pledge of the capital stock of Magma and a lien on dividends and distributions in respect of the Magma stock. On March 3, 1999, MidAmerican repurchased $195.8 million in aggregate principal amount of its 9 7/8% Notes in connection with a tender offer for a repurchase price, including premium, of $215.4 million. In connection with the corresponding reduction of $195.8 million of the principal outstanding under Magma's 9 7/8% promissory notes, $215.4 million of the proceeds of the old Securities were paid to MidAmerican. As a result of the 9 7/8% note repurchase offer, the outstanding principal amount of Magma's 9 7/8% promissory notes was reduced from $200 million to approximately $4.2 million. MidAmerican intends to redeem the remaining outstanding Magma 9 7/8% promissory notes on June 30, 2000, which is the first day upon which an optional redemption is permitted under the trust indenture for Magma's 9 7/8% promissory notes. A portion of the net proceeds of the old Securities, in the amount of approximately $4.2 million, has been paid to MidAmerican and placed into a restricted account held by the depositary bank which is maintained solely for the purpose of paying the remaining amounts due to the secured parties. These proceeds are being used to pay interest on, and effect the redemption or earlier repurchase of the remaining outstanding principal of, Magma's 9 7/8% promissory notes. At the time of this redemption, the collateral agent is expected to obtain a pledge of all of Magma's capital stock. INTERCREDITOR AGREEMENT The collateral will be shared among the secured parties as provided in the intercreditor agreement entered into among us, the designated subsidiaries and the secured parties. The intercreditor agreement will govern: (1) the appointment of the collateral agent as agent for each of the secured parties; (2) the preservation and administration of the collateral by the collateral agent; (3) the disposition of the collateral among the secured parties upon acceleration and foreclosure; and (4) the application of: o available cash flow representing loss proceeds, expropriation proceeds, title proceeds, buy-out proceeds, refinancing proceeds or asset sale proceeds; and o proceeds from our sale of all or a portion of our interests in any designated subsidiary or the sale by a designated subsidiary of all or a portion of its interest in any project company. Each person replacing any of the secured parties and each person, or a trustee therefor or agent thereof, holding secured obligations will be required to become a party to the intercreditor agreement, which will be amended to the extent necessary to accommodate the replacement or addition of those persons. VOTING The exercise of remedies following the occurrence of a trigger event, as described below, will be governed by the provisions of the intercreditor agreement. The affirmative vote of secured parties holding at least the following percentages of the combined exposure of all of the secured parties will be sufficient to direct the collateral agent to exercise remedies or take other actions: o with respect to a trigger event resulting from an event of default relating to payment, 331/3% of the combined exposure; or 120 o with respect to any other trigger event or any other event or circumstance requiring a vote of the secured parties, 50% of the combined exposure. TRIGGER EVENTS; EXERCISE OF REMEDIES Each of the following events will be deemed a trigger event under the intercreditor agreement if the collateral agent, upon direction from the required percentage of secured parties, declares the event to be a trigger event: o the occurrence of an event of default under the indenture and the acceleration of all or a portion of the principal amount of the outstanding Securities; and o the occurrence of an event of default under any other instrument evidencing secured obligations and the acceleration of the secured obligations in an aggregate principal amount in excess of $5 million; If a trigger event occurs and continues, the collateral agent, upon the written instructions of the required percentage of secured parties, will be authorized to take any and all actions and to exercise any and all rights, remedies and options available to it under the security documents. APPLICATION OF PROCEEDS FOLLOWING A TRIGGER EVENT Upon a foreclosure or other exercise of remedies following a trigger event, the proceeds of any sale, disposition or other realization upon the collateral will be distributed in the following order of priority: (1) first, to the trustee, the letter of credit provider, the collateral agent and the depositary bank, an amount sufficient to pay all administrative costs due and payable to those parties under the intercreditor agreement and the other financing documents; (2) second, to the secured parties, an amount equal to the unpaid amount of all secured obligations constituting principal, interest, premium (if any) and fees due and payable to the secured parties; (3) third, to the secured parties, an amount equal to the unpaid amount of all other secured obligations due and payable to the secured parties as of the date of the distribution; and (4) fourth, to us, the designated subsidiaries or our or their successors and assigns or to whomever may be lawfully entitled, or as a court of competent jurisdiction may direct, any surplus remaining after giving effect to clauses (1) through (3) immediately above. At the time the collateral agent is to make a distribution under clause (2) above, and with the same priority as the distribution, the collateral agent will deposit into a separate interest-bearing trust account funds up to the amount available for drawing on the debt service reserve letter of credit, calculated after giving effect to the redemption of Securities with proceeds of the distribution. The collateral agent will hold the funds in the account until receipt of a written notice from the debt service reserve letter of credit provider that either (a) the depositary bank has made a drawing on the debt service reserve letter of credit, or (b) the debt service reserve letter of credit has expired or terminated. Upon receipt of a notice specified in (a) above, the collateral agent will distribute to the letter of credit provider funds equal to the drawing's proportionate share of the funds in by the account. Upon receipt of a notice specified in (b) above, the collateral agent will distribute the balance of the funds on deposit in the account in accordance with clauses (2), (3) and (4) above. The proceeds of any sale, disposition or other realization with respect to collateral held for the benefit of some but not all of the secured parties will be applied to the payment of obligations owed to the secured parties for whose benefit the collateral was held. APPLICATION OF PROCEEDS All (a) available cash flow representing loss proceeds, expropriation proceeds, title insurance proceeds, buy-out proceeds, refinancing proceeds or asset sale proceeds and (b) proceeds from our 121 sale of all or a portion of our interests in any designated subsidiary or the sale by a designated subsidiary of all or a portion of its interests in any project company, in each case which are required to be applied to the redemption of Securities, will be distributed in the following order of priority: (1) first, to the trustee, the letter of credit provider, the collateral agent and the depositary bank, an amount sufficient to pay all administrative costs due and payable to these parties as of the date of the distribution; (2) second, to the secured parties, an amount equal to the unpaid amount of all secured obligations constituting principal, interest, premium (if any) and fees due and payable to the secured parties as of the date of the distribution; (3) third, to the secured parties, an amount equal to the unpaid amount of all other secured obligations due and payable to the secured parties as of the date of the distribution; and (4) fourth, to us, the designated subsidiaries or our or their successors and assigns or to whomever may be lawfully entitled or as a court of competent jurisdiction may direct, any surplus remaining after giving effect to clauses (1) through (3) immediately above. At the time a distribution is to be made under clause (2) above, and with the same priority as the distribution, the collateral agent will set aside available funds in a separate interest-bearing trust account in an amount up to the amount available for drawing on the debt service reserve letter of credit, calculated after giving effect to the redemption of Securities with proceeds of the distribution. Upon a subsequent draw on the debt service reserve letter of credit, the collateral agent will transfer funds from the separate account to the letter of credit provider up to the amount drawn. Upon an expiration or termination of the debt service reserve letter of credit, funds in the separate account collateralizing the debt service reserve letter of credit will be released and applied as set forth in clauses (2), (3) and (4) above. 122 PLAN OF DISTRIBUTION Each broker-dealer that receives new Securities for its own account as a result of market-making activities or other trading activities in connection with the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the new Securities. This prospectus, as it may be amended or supplemented from time to time, may be used by participating broker-dealers during the period referred to below in connection with resales of new Securities received in exchange for old Securities if the old Securities were acquired by the participating broker-dealers for their own accounts as a result of the market-making or other trading activities. We have agreed that this prospectus, as it may be amended or supplemented from time to time, may be used by a participating broker-dealer in connection with resales of new Securities for a period ending 120 days after the registration statement of which this prospectus is a part has been declared effective (subject to extension) or, if earlier, when all new Securities have been disposed of by the participating broker-dealer. We will not receive any proceeds from the issuance of the new Securities offered by this prospectus. New Securities received by broker-dealers for their own accounts in connection with the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new Securities or a combination of these methods of resale, at market prices prevailing at the time of resale, at prices related to prevailing market prices or at negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers and/or the purchasers of any new Securities. Any broker-dealer that resells new Securities that were received by it for its own account in connection with the exchange offer and any broker-dealer the participates in a distribution of new Securities may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any resale of new Securities and any commissions or concessions received by any of those persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver, and by delivering, a prospectus, a broker-dealer will not be deemed to admit that it is a "underwriter" within the meaning of the Securities Act. 123 UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS QUALIFICATIONS AND DEFINED TERMS The following summary describes material United States federal income tax considerations related to the acquisition, ownership and disposition of the Securities. The summary is subject to the following qualifications: o The summary is based on the Internal Revenue Code of 1986, as amended, and regulations, rulings and judicial decisions as of the date hereof, all of which may be repealed, revoked or modified with possible retroactive effect; o This discussion does not deal with holders that may be subject to special tax rules, including: o insurance companies, o tax-exempt organizations, o financial institutions, o dealers in securities or currencies, o holders whose functional currency is not the U.S. dollar, and o holders who will hold the Securities as a hedge against currency risks or as part of a straddle, synthetic security, conversion transaction or other integrated investment comprised of the Securities and one or more other investments; o The summary is applicable only to purchasers that acquire the Securities at the initial offering price and who will hold the Securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code; o The summary is for general information only and does not address all aspects of United States federal income taxation that may be relevant to holders of the Securities in light of their particular circumstances; and o The summary does not address any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. Accordingly prospective holders should consult their own tax advisors as to the particular tax consequences to them of acquiring, holding or disposing of the Securities. As used in this discussion, the term "United States holder" means a beneficial owner of a Security that is (1) a citizen or resident of the United States for U.S. federal income tax purposes, (2) a corporation created or organized under the laws of the United States, any State or the District of Columbia, (3) an estate the income of which is subject to United States federal income tax without regard to its source or (4) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. A "non-United States holder" is any beneficial holder of a Security that is not a United States holder. INCOME TAX CONSIDERATIONS FOR UNITED STATES HOLDERS TAX CONSEQUENCES OF THE EXCHANGE OFFER The exchange of an old Security for a new Security in the exchange offer will not constitute a "significant modification" of the old Security for United States federal income tax purposes and, accordingly, the new Security will be treated as a continuation of the old Security in the hands of the holder. As a result, there will be no United States federal income tax consequences to a United States holder who exchanges an old Security for the new Security in the exchange offer and the holder will have the same adjusted tax basis and holding period in the new Security as it had in the old Security immediately before the exchange. 124 ORIGINAL ISSUE DISCOUNT AND PAYMENTS OF INTEREST The old Securities were not, and the new Securities will not be, issued with more than a de minimis amount of original issue discount. Accordingly, interest on a Security generally will be taxable to a United States holder as ordinary income at the time it accrues or is received in accordance with the United States holder's method of accounting for U.S. federal income tax purposes. DISPOSITION OF SECURITIES Upon the sale, exchange, redemption, retirement or other disposition of a Security, a United States holder generally will recognize gain or loss equal to the difference between (1) the amount realized upon the sale, exchange, redemption, retirement or other disposition (not including amounts attributable to accrued but unpaid interest, which will be taxable as such) and (2) the holder's adjusted tax basis in the Security. A United States holder's tax basis in a Security will, in general, be the United States holder's cost for the Security. The gain or loss will be capital gain or loss. Capital gain recognized by an individual investor upon a disposition of a Security that has been held for more than 12 months will generally be subject to a maximum tax rate of 20% or, in the case of a Security that has been held for 12 months or less, will be subject to tax at ordinary income tax rates. INCOME TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS PAYMENTS OF PRINCIPAL AND INTEREST Under present U.S. federal income tax law, subject to the discussion of backup withholding and information reporting below, payments of principal of and interest on the Securities to any non-United States holder will not be subject to U.S. federal income or withholding tax so long as the following conditions are satisfied: o the non-United States holder does not actually or constructively own 10% or more of the total combined voting power of all classes of our membership interests entitled to vote; o the non-United States holder is not a bank receiving interest under a loan agreement entered into in the ordinary course of its trade or business; o the non-United States holder is not a controlled foreign corporation that is related to us (directly or indirectly) through equity ownership; o the interest payments are not effectively connected with a United States trade or business; and o the following certification requirements are met: o the beneficial owner of the Security certifies on IRS Form W-8 or a substantially similar substitute form, under penalties of perjury, that it is not a United States person and provides its name and address, and o (a) the beneficial owner files the form with the withholding agent or (b) in the case of a Security held by a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business and holds the Security, the financial institution certifies to us or our agent under penalties of perjury that the statement has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes the withholding agent with a copy of the certification. DISPOSITION OF SECURITIES Under present U.S. federal income tax law, subject to the discussion of backup withholding and information reporting below, a non-United States holder will not be subject to U.S. federal income tax on gain realized on the sale, exchange, redemption, retirement or other disposition of a Security, unless (1) the gain is effectively connected with a trade or business carried on by the holder within the United States or, if a treaty applies, is generally attributable to a United States permanent 125 establishment maintained by the holder, or (2) the holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition and other requirements are met. BACKUP WITHHOLDING AND INFORMATION REPORTING In general, payments of interest and the proceeds of the sale, exchange, redemption, retirement or other disposition of the Securities payable by a U.S. paying agent or other U.S. intermediary will be subject to information reporting. In addition, backup withholding at a rate of 31% will apply to these payments if the holder fails to provide an accurate taxpayer identification number in the case of a United States holder or the certification described above (in the case of a non-United States holder) or other evidence of exempt status or fails to report all interest and dividends required to be shown on its U.S. federal income tax returns. Some categories of United States Holders (including, among others, corporations) and non-United States holders that comply with certification requirements are not subject to backup withholding. Any amount paid as backup withholding will be creditable against the holder's U.S. federal income tax liability, so long as the required information is timely furnished to the Internal Revenue Service. Holders of Securities should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption. On October 6, 1997, new Treasury Regulations were issued that generally modify the information reporting and backup withholding rules applicable to certain payments made after December 31, 1999. In general, the new regulations would not significantly alter the present rules discussed above. LEGAL MATTERS The validity of the new Securities will be passed upon for us by Latham & Watkins, 885 Third Avenue, Suite 1000, New York, New York 10022. EXPERTS Our consolidated financial statements as of December 31, 1998 and 1997, and the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 1998, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing in this prospectus, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. POWER GENERATION PROJECTS INDEPENDENT ENGINEER Fluor Daniel, Inc. prepared the power generation projects independent engineer's report dated February 24, 1999, which is included as Appendix A to this prospectus. Fluor Daniel's report has been included in this prospectus in reliance upon the conclusions of Fluor Daniel and upon the firm's experience in preparing independent engineer's reports for power projects. NATURAL GAS PROJECTS INDEPENDENT ENGINEER R.W. Beck, Inc. prepared the natural gas projects independent engineer's report dated February 24, 1999, which is included as Appendix B to this prospectus. R.W. Beck's report has been included in this prospectus in reliance upon the conclusions of R.W. Beck and upon the firm's experience in preparing independent engineer's reports for natural gas-fired power projects. GEOTHERMAL PROJECTS INDEPENDENT ENGINEER Fluor Daniel also prepared the geothermal projects independent engineer's report dated February 17, 1999, which is included as Appendix C to this prospectus. Fluor Daniel's report has been included in this prospectus in reliance upon the conclusions of Fluor Daniel and upon the firm's experience in preparing independent engineer's reports for geothermal power projects. 126 CONSULTANTS' REPORTS Henwood Energy Services has prepared the power market consultant's report dated February 11, 1999 included as Appendix D to this prospectus. You should read this report in its entirety for information with respect to industry and regulatory matters affecting the sales of electricity by some of the projects and the related subjects discussed in the report. Henwood's report has been included in this prospectus in reliance upon the conclusions of Henwood and upon the firm's experience in providing business advisory and other services and market forecasts in electricity and gas to international firms and public authorities. GeothermEx, Inc. prepared the geothermal resource consultant's report dated February 1999 included as Appendix E to this prospectus. You should read this report in its entirety for information on the sufficiency of the geothermal resources available for use and for conversion to electrical power by the Imperial Valley projects and the related subjects discussed in the report. GeothermEx's report has been included in this prospectus in reliance upon the conclusions of GeothermEx and upon the firm's experience in preparing consultant's reports for geothermal projects. WHERE YOU CAN FIND MORE INFORMATION We have filed a registration statement on Form S-4 with the Securities and Exchange Commission under the Securities Act with respect to our offering of the new Securities. This prospectus does not contain all of the information in the registration statement. You will find additional information about us and the new Securities in the registration statement. Any statement made in this prospectus concerning the provisions of legal documents are not necessarily complete and you should read the documents that are filed as exhibits to the registration statement. We are subject to the informational requirements of the Exchange Act and file periodic reports, registration statements, proxy statements and other information with the Securities and Exchange Commission. You may inspect and copy the registration statement, including exhibits, and our periodic reports, registration statements, proxy statements and other information we file with the Securities and Exchange Commission at the Public Reference Section of the Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Securities and Exchange Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of this material can be obtained from the Public Reference Section of the Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Securities and Exchange Commission maintains a web site that contains reports, proxy and information statements and other materials that are filed through the Securities and Exchange Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. This Web site can be accessed at http://www.sec.gov. 127 INDEX TO FINANCIAL STATEMENTS
PAGE ----------- Consolidated Financial Statements: Independent Auditors' Report .......................................... F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997 ......... F-3 Consolidated Statements of Operations for the Three Years Ended December 31, 1998, 1997 and 1996 ................................... F-4 Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1998, 1997 and 1996 ................................... F-5 Notes to Consolidated Financial Statements ........................... F-6 - F-25
Interim Consolidated Financial Statements: Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998 ........................................ F-26 Consolidated Statements of Operations for the Nine Months Ended September 30, 1999 and 1998 ..................... F-27 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 ..................... F-28 Notes to Consolidated Financial Statements ..................... F-29 - F-31
F-1 INDEPENDENT AUDITORS' REPORT Board of Directors CE Generation, LLC We have audited the accompanying consolidated balance sheets of CE Generation, LLC as of December 31, 1998 and 1997, and the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CE Generation, LLC as of December 31, 1998 and 1997 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Omaha, Nebraska January 28, 1999 (February 22, 1999 as to the first paragraph in Note 1 and March 3, 1999 as to Note 15) * * * * * F-2 CE GENERATION, LLC CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (AMOUNTS IN THOUSANDS)
1998 1997 ------------- ------------- ASSETS Cash and cash equivalents .......................................... $ 25,774 $ 23,684 Restricted cash .................................................... 128,553 6,907 Accounts receivable ................................................ 67,629 53,072 Properties, plants, contracts and equipment, net ................... 893,492 932,207 Equity investments ................................................. 125,036 131,207 Excess of cost over fair value of net assets acquired, net ......... 310,700 322,581 Note receivable from related party (Note 7) ........................ 140,520 -- Deferred financing charges and other assets ........................ 58,928 58,318 ---------- ---------- Total assets .................................................... $1,750,632 $1,527,976 ========== ========== LIABILITIES AND EQUITY LIABILITIES: Accounts payable and other accrued liabilities ..................... $ 39,810 $ 48,943 Project loan ....................................................... 90,529 103,334 Salton Sea notes and bonds ......................................... 626,816 448,754 Notes payable to related party ..................................... 247,681 247,812 Deferred income taxes .............................................. 208,849 214,993 ---------- ---------- Total liabilities ............................................... 1,213,685 1,063,836 Commitments and contingencies (Notes 9 and 12) Net investment and advances ........................................ 536,947 464,140 ---------- ---------- Total liabilities and equity ....................................... $1,750,632 $1,527,976 ========== ==========
The accompanying notes are an integral part of these financial statements. F-3 CE GENERATION, LLC CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (AMOUNTS IN THOUSANDS)
1998 1997 1996 ----------- ----------- ----------- REVENUE: Sales of electricity and steam .................. $395,560 $381,458 $281,307 Equity earnings in subsidiaries ................. 10,732 14,542 4,263 Interest and other income ....................... 29,883 11,138 19,273 -------- -------- -------- Total revenues ................................ 436,175 407,138 304,843 -------- -------- -------- COST AND EXPENSES: Plant operations ................................ 114,092 119,973 94,245 General and admininstration ..................... 4,963 4,380 3,503 Depreciation and amortization ................... 96,818 88,504 72,533 Interest expense ................................ 74,653 80,907 77,669 Less interest capitalized ....................... (347) -- (4,805) -------- -------- -------- Total expenses ................................ 290,179 293,764 243,145 -------- -------- -------- Income before provision for income taxes ......... 145,996 113,374 61,698 Provision for income taxes ....................... 52,218 43,378 15,487 -------- -------- -------- Net income ....................................... $ 93,778 $ 69,996 $ 46,211 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-4 CE GENERATION, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (AMOUNTS IN THOUSANDS)
1998 1997 1996 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................................. $ 93,778 $ 69,996 $ 46,211 ADJUSTMENTS TO RECONCILE CASH FLOWS FROM OPERATING ACTIVITIES: Depreciation and amortization ............................... 96,818 88,504 72,533 Provision for deferred income taxes ......................... (6,144) 4,280 3,874 Equity earnings in subsidiaries ............................. (10,732) (14,542) (4,263) CHANGES IN OTHER ITEMS: Accounts receivable ....................................... (14,557) (2,005) (1,112) Accounts payable and other accrued liabilities ............ (9,133) 4,837 (26,540) ---------- ---------- ---------- Net cash flows from operating activities ............... 150,030 151,070 90,703 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ........................................ (46,222) (21,676) (90,734) Purchase of Falcon Seaboard and Partnership Interest, net of cash acquired ............................ -- -- (264,324) Distributions from equity investments ....................... 16,903 23,960 8,295 Decrease (increase) in other assets ......................... (610) (3,961) 16,248 Decrease (increase) in restricted cash ...................... (121,646) 15,023 68,701 ---------- ---------- ---------- Net cash flows from investing activities ............... (151,575) 13,346 (261,814) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of Salton Sea notes and bonds ..................... (106,938) (90,228) (48,106) Proceeds from Salton Sea notes and bonds .................... 285,000 -- 135,000 Note receivable from related party .......................... (140,520) -- -- Repayment of note payable to related party .................. (131) -- (480) Repayment of project loans .................................. (12,805) (11,237) (107,906) Advances (to) from MEHC, net ................................ (20,971) (60,759) 175,267 ---------- ---------- ---------- Net cash flows from financing activities ............... 3,635 (162,224) 153,775 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents ......... 2,090 2,192 (17,336) Cash and cash equivalents at beginning of year ............... 23,684 21,492 38,828 ---------- ---------- ---------- Cash and cash equivalents at end of year ..................... $ 25,774 $ 23,684 $ 21,492 ========== ========== ========== SUPPLEMENTAL DISCLOSURE: Interest paid ............................................... $ 73,283 $ 72,846 $ 64,244 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-5 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (AMOUNTS IN THOUSANDS) 1. BUSINESS MidAmerican Energy Holdings Company ("MEHC" and formerly CalEnergy Company, Inc.) completed a strategic restructuring in conjunction with its acquisition of MidAmerican Energy Holdings Company in which MEHC's common stock interests in Magma Power Company, Falcon Seaboard Resources, Inc. and California Energy Development Corporation, and their subsidiaries (which own the geothermal and natural gas-fired combined cycle cogeneration facilities described below), were contributed by MEHC to the newly created CE Generation, LLC (the Company). This restructuring was completed in February 1999. BASIS OF PRESENTATION--These consolidated financial statements of CE Generation, LLC reflect the consolidated financial statements of Magma Power Company and subsidiaries (excluding wholly-owned subsidiaries retained by MEHC), Falcon Seaboard Resources, Inc. and subsidiaries and Yuma Cogeneration Associates, each a wholly-owned subsidiary. The consolidated financial statements present the financial position, results of operations and cash flows of the Company as if the Company was a separate legal entity for all periods presented. The Company's basis in assets and liabilities have been carried over from MEHC. All material intercompany transactions and balances have been eliminated in consolidation. GENERAL--The Company is engaged in the independent power business. The following table sets out information concerning Company's projects:
COMMERCIAL PROJECT FUEL OPERATION CAPACITY LOCATION ------------------ ------------ ----------- ---------- ------------- Vulcan Geothermal 1986 34 MW California Del Ranch Geothermal 1989 38 MW California Elmore Geothermal 1989 38 MW California Leathers Geothermal 1990 38 MW California Salton Sea I Geothermal 1987 10 MW California Salton Sea II Geothermal 1990 20 MW California Salton Sea III Geothermal 1989 49.8 MW California Salton Sea IV Geothermal 1996 39.6 MW California Salton Sea V Geothermal 2000 49 MW California CE Turbo Geothermal 2000 10 MW California PRI Gas 1988 200 MW Texas Yuma Gas 1994 50 MW Arizona Saranac Gas 1994 240 MW New York Norcon Gas 1992 80 MW Pennsylvania
Vulcan, Del Ranch, Elmore, Leathers and CE Turbo are referred to as the Partnership Projects. Salton Sea I, II, III, IV and V are referred as the Salton Sea Projects. The Partnership Projects and the Salton Sea Projects are collectively referred to as the Imperial Valley Projects. PRI, Yuma, Saranac and Norcon are referred to as the Gas Projects. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH EQUIVALENTS--The Company considers all investment instruments purchased with an original maturity of three months or less to be cash equivalents. Restricted cash is not considered a cash equivalent. F-6 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) RESTRICTED CASH--The restricted cash balance is composed of restricted accounts for debt service, capital expenditures and major maintenance expenditures. The debt service funds are legally restricted as to their use and require the maintenance of specific minimum balances equal to the next debt service payment. The capital expenditure funds are restricted for use in the construction of Salton Sea V, the CE Turbo Project and the construction of new brine facilities at the Imperial Valley Projects, which resulted from the sale on October 13, 1998 by Salton Sea Funding Corporation of $285,000 aggregate amount of 7.475% Senior Secured Series F Bonds due November 30, 2018 (see Note 7). WELL, RESOURCE DEVELOPMENT AND EXPLORATION COSTS--The Company follows the full cost method of accounting for costs incurred in connection with the exploration and development of geothermal resources. All such costs, which include dry hole costs and the cost of drilling and equipping production wells and other direct costs, are capitalized and amortized on a straight-line basis over their estimated useful lives when production commences. The estimated useful lives of production wells are twenty years. DEFERRED WELL AND REWORK COSTS--Geothermal well rework costs are deferred and amortized over the estimated period between reworks ranging from 18 months to 24 months. These deferred costs, net of accumulated amortization, are $6,709 and $4,811 at December 31, 1998 and 1997, respectively, and are included in other assets. PROPERTIES, PLANTS, CONTRACTS, EQUIPMENT AND DEPRECIATION--The cost of major additions and betterments are capitalized, while replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets are expensed. Depreciation of the operating power plant costs, net of salvage value if applicable, is computed on the straight line method over the estimated useful life of 30 years. Depreciation of furniture, fixtures and equipment is computed on the straight line method over the estimated useful lives of the related assets, which range from 3 to 10 years. The acquisitions of Magma Power Company, Falcon Seaboard Resources, Inc. and Edison Mission Energy's partnership interests by the Company have been accounted for as purchase business combinations. All identifiable assets acquired and liabilities assumed were assigned a portion of the cost of acquiring the respective companies equal to their values at the date of the acquisition and includes power sales agreements which are amortized separately on a straight-line basis over (1) for the Edison Partnership interests and Magma acquisitions, the remaining portion of the scheduled price periods of the power sales agreements which range from 1 to 5 years, (2) for the Edison Partnership interests and Magma acquisitions, the 20 year avoided cost periods of the power sales agreements and (3) over the remaining contract periods which range from 7 to 30 years. EQUITY INVESTMENTS--The Company's investments in Saranac and Norcon are accounted for using the equity method of accounting since the Company has the ability to exercise significant influence over the investees' operating and financial policies through its managing general partnership interests. At December 31, 1998 and 1997, the carrying amount of the Company's investment in Saranac differs from its underlying equity in net assets of Saranac by $108,788 (net of accumulated amortization of $24,824) and $119,060 (net of accumulated amortization of $14,552), respectively. This difference, which represents the adjustment to record the fair value of the investment at the date of acquisition, is being amortized on a straight-line basis over approximately 13 years, the remaining portion of the power sales agreement at the date of acquisition. EXCESS OF COST OVER FAIR VALUE--Total acquisition costs in excess of the fair values assigned to the net assets acquired are amortized over a 40 year period for the Magma acquisition and a 25 year period for the Falcon Seaboard acquisition, both using the straight line method. Accumulated amortization was $32,857 and $22,985 at December 31, 1998 and 1997, respectively. F-7 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) MAINTENANCE AND REPAIR RESERVES--Major maintenance and repair reserves are recorded monthly based on the Company's long-term scheduled major maintenance plans for the Gas Projects and included in accrued liabilities. Other maintenance and repairs are charged to expense as incurred. CAPITALIZATION OF INTEREST AND DEFERRED FINANCING COSTS--Prior to the commencement of operations, interest is capitalized on the costs of the plants and geothermal resource development to the extent incurred. Capitalized interest and other deferred charges are amortized over the lives of the related assets. Deferred financing costs are amortized over the term of the related financing using the effective interest method. REVENUE RECOGNITION--Revenues are recorded based upon electricity and steam delivered to the end of the month. See Note 5 for contractual terms of power sales agreements. Royalties earned from providing geothermal resources to power plants operated by other geothermal power producers are recorded when delivered. INCOME TAXES--The Company has historically been included in the consolidated income tax returns of MEHC. The Company's provision for income taxes is computed on a separate return basis. The Company recognizes deferred tax assets and liabilities based on the difference between the financial statement and tax bases of assets and liabilities using estimated tax rates in effect for the year in which the differences are expected to reverse. FINANCIAL INSTRUMENTS--The Company utilizes swap agreements to manage market risks and reduce its exposure resulting from fluctuation in interest rates. For interest rate swap agreements, the net cash amounts paid or received on the agreements are accrued and recognized as an adjustment to interest expense. The Company's practice is not to hold or issue financial instruments for trading purposes. These instruments are either exchange traded or with counterparties of high credit quality; therefore, the risk of nonperformance by the counterparties is considered to be negligible. Fair values of financial instruments are estimated based on quoted market prices for debt issues actively traded or on market prices of similar instruments and/or valuation techniques using market assumptions. IMPAIRMENT OF LONG-LIVED ASSETS--The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized whenever evidence exists that the carrying value is not recoverable. START-UP COSTS--In 1998, the Company adopted SOP No. 98-5, Reporting on the Costs of Start-Up Activities, which requires costs of start-up activities and organization costs be expensed as incurred. Such adoption had no significant effect on the Company. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ACCOUNTING PRONOUNCEMENTS--In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which established accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company has not yet determined the impact of this accounting pronouncement. F-8 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) 3. ACQUISITIONS On August 7, 1996, MEHC completed the acquisition of Falcon Seaboard Resources, Inc. (FSRI) for approximately $226,000. The transaction was accounted for as a purchase business combination. All identifiable assets acquired and liabilities assumed were assigned a portion of the cost of acquiring FSRI, equal to the fair values at the date of acquisition. On April 17, 1996, MEHC completed the acquisition of Edison Mission Energy's partnership interests (the "Partnership Interest Acquisition") in four geothermal operating facilities in California for approximately $70,000. The four projects, Vulcan, Del Ranch, Leathers and Elmore are located in the Imperial Valley of California. Prior to this transaction, the Company was a 50% owner of these facilities and consolidated these entities using the proportional consolidation method. The Partnership Interest Acquisition has been accounted for as a purchase business combination. All identifiable assets acquired and liabilities assumed were assigned a portion of the cost of acquiring the Partnership Interest, equal to their fair values at the date of the acquisition. On a pro forma basis for the year ended December 31, 1996, assuming these transactions were effected January 1, 1996, the Company's revenue and net income would have been $374,973 and $52,586, respectively. 4. EQUITY INVESTMENTS The Company indirectly holds noncontrolling general and limited partnership interests in two partnerships, Saranac Power Partners, L.P. (Saranac) and Norcon Power Partners, L.P. (Norcon) which were formed to build, own and operate natural gas fired combined cycle cogeneration facilities. The lenders to these partnerships have recourse only against these facilities and the income and revenues therefrom. The Company has a current approximate 45% economic interest in Saranac and a current 20% economic interest in Norcon. The Company will have an approximate 80% economic interest in each of these partnerships after outside limited partners' returns, as defined in the Partnership Agreements, are achieved. The Saranac outside limited partners, TPC Saranac and General Electric Capital Company, must achieve after tax returns of approximately 8.35% and 7.252%, respectively. Norcon's partner, TPC Norcon, must achieve a pre-tax return of approximately 16.5%. The following is a summary of aggregated financial information for all investments owned by the Company which are accounted for under the equity method at December 31, 1998 and 1997:
1998 1997 ------------ ------------ Assets ............... $ 414,592 $ 434,028 Liabilities .......... 307,047 326,230 Net income ........... 44,438 47,478
Saranac's total revenue for the years ended December 31, 1998, 1997 and 1996 were $141,876, $146,954 and $140,396, respectively. Norcon's total revenues for the years ended December 31, 1998, 1997 and 1996 were $52,268, $50,908 and $44,893, respectively. Saranac has project financing through a 14 year note payable agreement with a lender with a principal amount outstanding of $189,282 at December 31, 1998. The note agreement is collateralized by all of the assets of Saranac. Saranac is restricted by the terms of the payable agreement from making distributions or withdrawing any capital amounts without the consent of the lender. Under terms of the note payable agreement, distributions may be made to the partners in accordance with the terms of the Saranac partnership agreement. Distributions are made monthly and quarterly to the extent of the partnership's excess cash balances. F-9 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) Each of the Saranac partners has an interest in cash distributions by Saranac which changes when certain after-tax rates of return are achieved by GE Capital and the TPC Saranac partners on their contributions to Saranac. The cash distributions of Saranac are divided into three levels: (1) distributions in fixed amounts payable during the first 15 years of operation of the Saranac project, which are applied first to pay debt service and other amounts due under the Saranac project financing documents and any refinancing loans, with the remainder paid to GE Capital to enable it to achieve a certain base rate of return; (2) distributions of the Saranac available cash remaining after payment of the level 1 distributions during the first 15 years of operation of the Saranac project: (3) distributions after the first 15 years of operation of the Saranac project. During the first 15 years of operation of the Saranac project, Saranac Energy will receive 63.51% of the level 2 distributions until TPC Saranac partners achieve an 8.35% rate of return and, after such return is achieved (which we expect to occur in 2000), Saranac Energy will receive 81.18% of the level 2 distributions. After the first 15 years of operation of the Saranac project, Saranac Energy will receive 68% of the level 3 distributions until GE Capital achieves a certain supplemental rate of return and, thereafter, Saranac Energy will receive 76% of the level 3 distributions. Norcon has project financing under a note payable comprised of senior and junior debt with a total principal amount outstanding at December 31, 1998 of $104,524. The note payable is collateralized by all of Norcon's assets. Under the terms of the note payable agreement, Norcon is allowed to make distributions after certain funds have been established; principally, a minimum of $500 must be maintained in the Project's revenue account. Distributions are made monthly and quarterly to the extent of the partnership's excess cash balances. There were no undistributed earnings in equity investments at December 31, 1998. 5. PROPERTIES, PLANTS, CONTRACTS AND EQUIPMENT Properties, plants, contracts and equipment comprise the following at December 31:
1998 1997 ------------ ------------ Power plants ............................................ $ 678,710 $ 659,369 Wells and resource development .......................... 137,399 124,500 Power sales agreements .................................. 287,653 287,653 Licenses and equipment .................................. 41,671 41,471 --------- --------- Total operating facilities ........................... 1,145,433 1,112,993 Less accumulated depreciation and amortization .......... (270,244) (184,788) --------- --------- Net operating facilities ................................ 875,189 928,205 --------- --------- Construction in progress: Other development ...................................... 18,303 4,002 --------- --------- Total ................................................ $ 893,492 $ 932,207 ========= =========
SIGNIFICANT CUSTOMERS AND CONTRACTS--All of the Company's current sales of electricity from the Imperial Valley Projects, which comprise approximately 74% both of 1998 and 1997 electricity and steam revenues, are to Southern California Edison Company (Edison) and are under long-term power purchase contracts. Accounts receivable are comprised of uncollateralized receivables from long-term power purchase contracts described below. GEOTHERMAL PROJECTS--The current Partnership Projects sell all electricity generated by the respective plants pursuant to four long-term standard offer no. 4, or SO4, agreements between the Projects and Edison that are based on this standard form. These SO4 agreements provide for capacity payments, capacity bonus payments and energy payments. Edison makes fixed annual capacity and F-10 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) capacity bonus payments to the Projects to the extent that capacity factors exceed certain benchmarks. The price for capacity and capacity bonus payments is fixed for the life of the SO4 Agreements. Energy is sold at increasing scheduled rates for the first ten years after firm operation and thereafter at a rate which is based on the cost that Southern California Edison avoids by purchasing energy from the project instead of obtaining the energy from other sources. Southern California Edison's avoided cost is currently determined by an approved interim formula which adjusts historic costs by an inflation/deflation factor representing monthly changes in the cost of natural gas at the California border and adjustment factors based on the time the day, week and year in which the energy is delivered. Consequently, under this methodology, energy payments under the SO4 agreements will fluctuate based on the time of generation and monthly changes in average fuel costs in the California energy market. Legislation recently adopted in California establishes that the price qualifying facilities receive as energy payments would be modified from the current short-run avoided cost basis to the clearing price established by the PX once specified conditions are met. As the main condition, the legislation requires that the California Public Utilities Commission must first issue an order determining that the PX is functioning properly for the purposes of determining the short-run avoided cost energy payments to be made to non-utility power generators. Additionally, a project company may, upon appropriate notice to Southern California Edison, exercise a one-time option to elect to thereafter receive energy payments based upon the clearing price from the PX. The PX is a nonprofit public benefit corporation formed under California law to provide a competitive marketplace where buyers and sellers of power, including utilities, end-use customers, independent power producers and power marketers, complete wholesale trades through an electronic auction. The PX currently operates two markets: (1) a day ahead market which is comprised of twenty-four separate concurrent auctions for each hour of the following day and (2) an hour ahead market for each hour of each day for which bids are due two hours before each hour. In each market, the PX receives bids from buyers and sellers and, based on the bids, establishes the market clearing price for each hour and schedules deliveries from sellers whose bids did not exceed the market clearing price to buyers whose bids were not less than the market clearing price. All trades are executed at the market clearing price. The scheduled energy price periods of the Partnership Projects SO4 agreements extended until February 1996, December 1998 and December 1998 for each of the Vulcan, Del Ranch and Elmore Partnerships, respectively, and extend until December 1999 for the Leathers Partnership. Del Ranch and Elmore Partnerships' SO4 agreements provided for energy rates of 14.6 cents per kWh in 1998. Leathers Partnership SO4 agreement provides for an energy rate of 14.6 cents per kWh in 1998 and 15.6 cents per kWh in 1999. The weighted average energy rate for all of the Partnership Projects' SO4 Agreements was 11.7 cents per kWh in 1998. Salton Sea I sells electricity to Edison pursuant to a 30-year negotiated power purchase agreement, as amended (the Salton Sea I PPA), which provides for capacity and energy payments. The energy payment is calculated using a Base Price which is subject to quarterly adjustments based on a basket of indices. The time period weighted average energy payment for Salton Sea I was 5.4 cents per kWh during 1998. As the Salton Sea I PPA is not an SO4 Agreement, the energy payments do not revert to Edison's Avoided Cost of Energy. The capacity payment is approximately $1,100 per annum. Salton Sea II and Salton Sea III sell electricity to Edison pursuant to 30-year modified SO4 agreements that provide for capacity payments, capacity bonus payments and energy payments. The price for contract capacity and contract capacity bonus payments is fixed for the life of the modified SO4 agreements. The energy payments for each of the first ten year periods, which periods expire in F-11 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) April 2000 and February 1999, respectively, are levelized at a time period weighted average of 10.6 cents per kWh and 9.8 cents per kWh for Salton Sea II and Salton Sea III, respectively. Thereafter, the monthly energy payments will be Edison's Avoided Cost of Energy. For Salton Sea II only, Edison is entitled to receive, at no cost, 5% of all energy delivered in excess of 80% of contract capacity through September 30, 2004. The annual capacity and bonus payments for Salton Sea II and Salton Sea III are approximately $3,300 and $9,700, respectively. Salton Sea IV sells electricity to Edison pursuant to a modified SO4 agreement which provides for contract capacity payments on 34 MW of capacity at two different rates based on the respective contract capacities deemed attributable to the original Salton Sea PPA option (20 MW) and to the original Fish Lake PPA (14 MW). The capacity payment price for the 20 MW portion adjusts quarterly based upon specified indices and the capacity payment price for the 14 MW portion is a fixed levelized rate. The energy payment (for deliveries up to a rate of 39.6 MW) is at a fixed rate for 55.6% of the total energy delivered by Salton Sea IV and is based on an energy payment schedule for 44.4% of the total energy delivered by Salton Sea IV. The contract has a 30-year term but Edison is not required to purchase the 20 MW of capacity and energy originally attributable to the Salton Sea I PPA option after September 30, 2017, the original termination date of the Salton Sea I PPA. For the years ended December 31, 1998, 1997 and 1996, Edison's average Avoided Cost of Energy was 3.0 cents, 3.3 cents and 2.5 cents per kWH, respectively, which is substantially below the contract energy prices earned for the year ended December 31, 1998. The Company cannot predict the likely level of Avoided Cost of Energy or PX prices under the SO4 agreements and the modified SO4 agreements at the expiration of the scheduled payment periods. The revenues generated by each of the projects operating under SO4 agreements will decline significantly after the expiration of the respective scheduled payment periods. The Partnership Project pays royalties based on both energy revenues and total electricity revenues. Del Ranch and Leathers pay royalties of 5% of energy revenues and 1% of total electricity revenue. Elmore pays royalties of 5% of energy revenues. Vulcan pays royalties of 4.167% of energy revenues. The Salton Sea Project's weighted average royalty expense in 1998, 1997, and 1996 was approximately 4.8%, 6.1% and 5.2%, respectively. The royalties are paid to numerous recipients based on varying percentages of electrical revenue or steam production multiplied by published indices. GAS PROJECTS--The Saranac Project sells electricity to New York State Electric & Gas pursuant to a 15 year negotiated power purchase agreement (the Saranac PPA), which provides for capacity and energy payments. Capacity payments, which in 1998 total 2.3 cents per kWh, are received for electricity produced during "peak hours" as defined in the Saranac PPA and escalate at approximately 4.1% annually for the remaining term of the contract. Energy payments, which averaged 6.7 cents per kWh in 1998, escalate at approximately 4.4% annually for the remaining term of the Saranac PPA. The Saranac PPA expires in June of 2009. Saranac sells steam to Georgia-Pacific and Tenneco Packaging under long-term steam sales agreements. CE Generation believes that these agreements will enable Saranac to sell the minimum annual quantity of steam necessary for the Saranac Project to maintain its qualifying facility status under PURPA for the term of the Saranac PPA. The PRI Project sells electricity to Texas Utilities Electric Company (TUEC) pursuant to a 15 year negotiated power purchase agreement (the Power Resources PPA), which provides for capacity and energy payments. Capacity payments and energy payments, which in 1998 are $3,138 per month and 3.0 cents per kWh, respectively, escalate at 3.5% annually for the remaining term of the Power Resources PPA. The Power Resources PPA expires in September 2003. PRI sells steam to Fina Oil F-12 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) and Chemical under a 15-year agreement. PRI has agreed to supply Fina with up to 150,000 pounds per hour of steam. As long as PRI meets its supply obligations, Fina is required to purchase at least the minimum amount of steam per year required to allow the PRI Project to maintain its qualifying facility status under PURPA. The NorCon Project sells electricity to Niagara Mohawk Power Corporation (Niagara) pursuant to a 25 year negotiated power purchase agreement (the Norcon PPA) which provides for energy payments calculated pursuant to an adjusting formula based on Niagara's ongoing Tariff Avoided Cost and the contractual Long-Run Avoided Cost. The NorCon PPA term extends through December 2017. NorCon sells steam to Welch Foods, Inc. under an agreement that expires in December 2012. Welch is required to purchase at least the minimum amount of steam per year required to maintain the NorCon Project's qualifying facility status under the Public Utility Regulatory Policies Act of 1978. If NorCon fails to deliver steam, it will be liable for liquidated damages, limited to $10,000 per occurrence. NorCon's aggregate liability over the term of the steam purchase agreement is subject to an escalating cap, which starts at $2.0 million and increases to $3.2 million by the 20th year of the contract. Yuma sells electricity to San Diego Gas & Electric Company (SDG&E) under an existing 30-year power purchase contract. The energy is sold at SDG&E's Avoided Cost of Energy and the capacity is sold to SDG&E at a fixed price for the life of the power purchase contract. The power is wheeled to SDG&E over transmission lines constructed and owned by Arizona Public Service Company (APS). Yuma sells steam to Queen Carpet, Inc. pursuant to an agreement that expires on May 1, 2024. Queen Carpet is required to take a minimum of 126,900 MMBtus of steam per year, which is sufficient to permit the Yuma Project to maintain its qualifying facility status under the Public Utility Regulatory Policies Act. ROYALTIES--Royalty expense for the years ended December 31, 1998, 1997 and 1996, which is included in plant operations in the consolidated statements of operations, comprise the following:
1998 1997 1996 ----------- ----------- ----------- Vulcan ..................... $ 363 $ 326 $ 361 Leathers ................... 2,811 2,694 2,203 Elmore ..................... 2,192 2,213 1,883 Del Ranch .................. 2,870 2,650 2,255 Salton Sea I & II .......... 810 1,206 634 Salton Sea III ............. 1,637 2,439 1,334 Salton Sea IV .............. 2,645 2,815 1,558 -------- -------- -------- Total ..................... $ 13,328 $ 14,343 $ 10,228 ======== ======== ========
The Partnership Project pays royalties based on both energy revenues and total electricity revenues. Del Ranch and Leathers pay royalties of approximately 5% of energy revenues and 1% of total electricity revenue. Elmore pays royalties of approximately 5% of energy revenues. Vulcan pays royalties of approximately 4.167% of energy revenues. The Salton Sea Project's weighted average royalty expense in 1998 and 1997 was approximately 4.8% and 6.1%, respectively. The royalties are paid to numerous recipients based on varying percentages of electrical or steam production multiplied by published indices. 6. PROJECT LOAN Each of the Company's direct or indirect subsidiaries is organized as a legal entity separate and apart from the Company and its other subsidiaries and MEHC. Pursuant to separate project financing F-13 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) agreements, the assets of each subsidiary (excluding Yuma) are pledged or encumbered to support or otherwise provide the security for their own project or subsidiary debt. It should not be assumed that any asset of any such subsidiary will be available to satisfy the obligations of the Company or any of its other such subsidiaries; provided, however, that unrestricted cash or other assets which are available for distribution may, subject to applicable law and the terms of financing arrangements for such parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to the Company or affiliates thereof. "Subsidiaries" means all of the Company's direct or indirect subsidiaries (1) owning interests in the Imperial Valley projects (including the Salton Sea projects and the Partnership projects), the Saranac project, NorCon project or PRI project or (2) owning interests in the subsidiaries that own interests in the foregoing projects. PRI has project financing debt with a consortium of banks with interest and principal due quarterly over a 15-year period, beginning March 31, 1989. The original principal carried a variable interest rate based on the London Interbank Offer Rate ("LIBOR") with a .85% interest margin through the 5th anniversary of the loan, a 1.00% interest margin from the 5th anniversary through the 12th anniversary of the loan and a 1.25% interest margin from the 12th anniversary through the end of the loan. The loan is collateralized by an assignment of all revenues received by PRI, a lien on substantially all of its real and personal property and a pledge of its capital stock. Effective June 5, 1989, PRI entered into an interest rate swap agreement with the lender as a means of hedging floating interest rate exposure related to its 15-year term loan. The swap agreement was for initial notional amounts of $55,000 and $110,000, declining in correspondence with the principal balances, and effectively fixed the interest rates at 9.385% and 9.625%, respectively, excluding the interest margin. PRI would be exposed to credit loss in the event of nonperformance by the lender under the interest rate swap agreement. However, PRI does not anticipate nonperformance by the lender. The estimated cost to terminate the interest rate swap agreement, based on termination values obtained from the lender, was $9,904 and $10,550 at December 31, 1998 and 1997, respectively. The interest rate can be increased by payments under a Compensation Agreement included in PRI's term loan. The Compensation Agreement, which entitles two of the term lenders to receive quarterly payments equivalent to a percentage of PRI's discretionary cash flow (DCF) as separately defined in the agreement, become effective initially for a 13-year period ending December 31, 2003. Under certain conditions relating to the amount of PRI's cash flow and the restrictions on cash distributions, PRI has the option to replace the payment obligation in a quarter with a payment to be calculated in a future quarter and added to the end of the initial term of the agreement. The Compensation Agreement entitles the lenders to payments totaling 10% of DCF for the first ten years, 7.5% of DCF for the next three years and 10% of DCF for each quarter added to the initial term of the agreement. PRI recorded additional interest expense of $1,176 and $1,091 for the years ended December 31, 1998 and 1997, respectively, and $319 and $585 for the periods from August 7, 1996 through December 31, 1996 related to amounts owed under the Compensation Agreement. Scheduled maturities of project financing debt for the year ending December 31 are as follows: 1999 .......... $ 14,268 2000 .......... 16,087 2001 .......... 18,119 2002 .......... 20,312 2003 .......... 21,743 -------- Total ......... $ 90,529 ========
F-14 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) Under PRI's term loan agreement, certain covenants and conditions must be met before cash distributions can be made, the most significant of which is the maintenance of a historical quarterly debt service coverage ratio of at least 1.20:1.00 in order to permit all available cash to be distributed. PRI was in compliance with these requirements at December 31, 1998. 7. SALTON SEA NOTES AND BONDS The Salton Sea Funding Corporation (the "Funding Corporation"), a wholly-owned indirect subsidiary of the Company, debt securities are as follows:
SENIOR FINAL DECEMBER 31, SECURED MATURITY ------------------------- ISSUED DATE SERIES DATE RATE 1998 1997 -------------------------- --------- ------------------- ---------- ----------- ----------- July 21, 1995 ............ A Notes May 30, 2000 6.69% $ 48,436 $ 97,354 July 21, 1995 ............ B Bonds May 30, 2005 7.37% 106,980 133,000 July 21, 1995 ............ C Bonds May 30, 2010 7.84% 109,250 109,250 June 20, 1996 ............ D Notes May 30, 2000 7.02% 12,150 44,150 June 20, 1996 ............ E Bonds May 30, 2011 8.30% 65,000 65,000 October 13, 1998 ......... F Bonds November 30, 2018 7.48% 285,000 -- --------- --------- $ 626,816 $ 448,754 ========= =========
Principal and interest payments are made in semi-annual installments. The Salton Sea Notes and Bonds are non-recourse to the Company. On October 13, 1998 the Funding Corporation completed a sale to institutional investors of $285,000 aggregate amount of 7.475% Senior Secured Series F Bonds due November 30, 2018. The proceeds of $144,480 from the offering are being used to partially fund construction of two new geothermal projects at the Salton Sea and other capital improvements at the existing Salton Sea projects. The remaining amount of $140,520 is being used to fund the cost of construction of, and was advanced to, the Zinc Recovery Project, which is indirectly 100% owned by Salton Sea Minerals Corp., a MEHC affiliate not owned by the Company. The net revenues, equity distributions and royalties from the Partnership Projects are used to pay principal and interest payments on outstanding senior secured bonds issued by the Funding Corporation, the final series of which is scheduled to mature in November 2018. The Funding Corporation Debt is guaranteed by certain subsidiaries of Magma and secured by the capital stock of the Funding Corporation. The proceeds of the Funding Corporation Debt were loaned by the Funding Corporation pursuant to loan agreements and notes (the "Imperial Valley Project Loans") to certain subsidiaries of Magma and used for construction of certain Imperial Valley Projects, refinancing of certain indebtedness and other purposes. Debt service on the Imperial Valley Project Loans is used to repay debt service on the Funding Corporation Debt. The Imperial Valley Project Loans and the guarantees of the Funding Corporation Debt are secured by substantially all of the assets of the guarantors, including the Imperial Valley Projects, and by the equity interests in the guarantors. The proceeds of Series F of the Funding Corporation debt are being used in part to construct the Zinc Facility, and the direct and indirect owners of the Zinc Facility (the "Zinc Guarantors", which will include Salton Sea Minerals Corp. and Minerals LLC), are among the guarantors of the Funding Corporation debt. In connection with the Divestiture, MEHC will guarantee the payment by the Zinc Guarantors of a specified portion of the scheduled debt service on the Imperial Valley Project Loans, including the current principal amount of $140,520 and associated interest. F-15 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) Pursuant to a depository agreement, Funding Corporation established a debt service reserve fund in the form of a letter of credit in the amount of $42,457 from which scheduled interest and principal payments can be made. Annual repayments of the Salton Sea Notes and Bonds for the years beginning January 1, 1999 and thereafter are as follows: 1999 ............... $ 57,836 2000 ............... 25,072 2001 ............... 24,514 2002 ............... 27,148 2003 ............... 28,086 Thereafter ......... 464,160 --------- $ 626,816 =========
The Company's ability to obtain distributions from its investment in the Salton Sea Projects and Partnership Projects is subject to the following conditions: o the depositary accounts for the Salton Sea Notes and Bonds must be fully funded; o there cannot have occurred any default or event of default under the Salton Sea Notes and Bonds; o the historical debt service coverage ratio of Salton Sea Funding Corporation for the prior four fiscal quarters must be at least 1.4 to 1.0, if the distribution occurs prior to 2000, or 1.5 to 1.0, if the distribution occurs during or after 2000; o there must be sufficient geothermal reources to operate the Salton Sea projects at their required levels; and o each Salton Sea project under construction cannot have failed to be complete by its guaranteed substantial completion date, unless a sufficient portion of the Salton Sea Notes and Bonds have been redeemed or a ratings confirmation has been obtained. 8. NOTES PAYABLE TO RELATED PARTY On July 21, 1995, MEHC issued $200,000 of 9.875% Limited Recourse Senior Secured Notes Due 2003 (the "Notes"). The Notes are secured by an assignment and pledge of 100% of the outstanding capital stock of Magma and are recourse only to such Magma capital stock. The proceeds of Notes Offering were provided by MEHC to Magma and Magma issued an intercompany note to MEHC in the amount of $200,000. Interest on the intercompany note is at 9.875%. See Note 15. Yuma Cogeneration Associates has outstanding a note payable to MEHC with a principal balance at December 31, 1998 and 1997 of $47,681 and $47,812, respectively, and bearing interest at a fixed rate of 10.25%. The terms of the note require semiannual principal and interest payments. Annual repayment of the note for each year beginning January 1, 1999 through 2003 is $4,755 with $23,906 due thereafter. 9. COMMITMENTS AND CONTINGENCIES PRI has contracted to purchase natural gas for its cogeneration facility under two separate agreements, an 8-year agreement for up to 40,000 MMBTU per day which expires in December 2003 F-16 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) and a 15-year agreement for 3,600 MMBTU per day which expires in June 2003. These agreements include annual price adjustments, and the 15-year agreement includes a provision which allows the seller to terminate the agreement with a two-year written notice. As of December 31, 1998, the seller had not elected to terminate this agreement; therefore, the minimum volumes under the 15-year and 8-year agreements for the years ending December 31, are included in the future minimum payments under these contracts as follows: 1999 ........... $ 22,611 2000 ........... 23,308 2001 ........... 23,608 2002 ........... 24,285 2003 ........... 24,854 --------- Total ......... $ 118,666 =========
The Company's geothermal and cogeneration facilities are qualifying facilities under the Public Utility Regulatory Policies Act of 1978 (PURPA) and their contracts for the sale of electricity are subject to regulations under PURPA. In order to promote open competition in the industry, legislation has been proposed in the U.S. Congress that calls for either a repeal of PURPA on a prospective basis or the significant restructuring of the regulations governing the electric industry, including sections of the Public Utility Regulatory Policies Act. Current federal legislative proposals would not abrogate, amend, or modify existing contracts with electric utilities. The ultimate outcome of any proposed legislation is unknown at this time. Saranac has contracted to purchase natural gas from a third party, for its cogeneration facility for a period of 15 years for an amount up to 51,000 MMBTU's per day. The price for such deliveries is a stated rate, escalated annually at a rate of 4%. Salton Sea Unit V is obligated to supply the electricity demands of the Zinc Recovery Project at the price available to Salton Sea Unit V from the PX less the wheeling costs to the PX. Salton Sea Power, L.L.C., one of our indirect wholly-owned subsidiaries, is constructing Salton Sea Unit V. Salton Sea Unit V will be a 49 net megawatt geothermal power plant which will sell approximately one-third of its net output to the zinc facility, which will be retained by MidAmerican. The remainder will be sold through the California power exchange. Salton Sea Unit V is being constructed pursuant to a date certain, fixed price, turnkey engineering, procurement and construction contract by Stone & Webster Engineering Corporation. Salton Sea Unit V is scheduled to commence commercial operation in mid-2000. Total project costs of Salton Sea Unit V are expected to be approximately $119,067 which will be funded by $76,281 of debt from Salton Sea Funding Corporation and $42,786 from equity contributions. CE Turbo LLC, one of our indirect wholly-owned subsidiaries, is constructing the CE Turbo project. The CE Turbo project will have a capacity of 10 net megawatts. The net output of the CE Turbo project will be sold to the zinc facility or sold through the California power exchange. The partnership projects are upgrading the geothermal brine processing facilities at the Vulcan and Del Ranch projects with the region 2 brine facilities construction. The CE Turbo project and the region 2 brine facilities construction are being constructed by Stone & Webster pursuant to a date certain, fixed price, turnkey engineering, procurement and construction contract. The obligations of Stone & Webster are guaranteed by Stone & Webster, F-17 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) Incorporated. The CE Turbo project is scheduled to commence initial operations in early-2000 and the region 2 brine facilities construction is scheduled to be completed in early-2000. Total project costs for both the CE Turbo project and the region 2 brine facilities construction are expected to be approximately $63,747 which will be funded by $55,602 of debt from Salton Sea Funding Corporation and $8,145 from equity contributions. 10. INCOME TAXES Provision for income tax is comprised of the following at December 31:
1998 1997 1996 ----------- ---------- ---------- Currently payable: State ........... $ 11,099 $ 8,451 $ 3,586 Federal ......... 47,263 30,647 8,027 -------- -------- -------- 58,362 39,098 11,613 -------- -------- -------- Deferred: State ........... (836) 1,057 1,280 Federal ......... (5,308) 3,223 2,594 -------- -------- -------- (6,144) 4,280 3,874 -------- -------- -------- Total ......... $ 52,218 $ 43,378 $ 15,487 ======== ======== ========
A reconciliation of the federal statutory tax rate to the effective tax rate applicable to income before provision for income taxes follows:
1998 1997 1996 ----------- ----------- ------------- Federal statutory rate .................................... 35.00% 35.00% 35.00% Percentage depletion in excess of cost depletion .......... (4.36)% (4.59)% ( 7.31)% Investment and energy tax credits ......................... (2.52)% (0.90)% (17.45)% Goodwill amortization ..................................... 3.06% 3.58% 5.29% State taxes, net of federal benefit ....................... 4.59% 5.18% 5.44% Other ..................................................... -- (0.01)% 4.13% ----- ----- ------ Effective tax rate ........................................ 35.77% 38.26% 25.10% ===== ===== ======
F-18 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) Deferred tax liabilities (assets) are comprised of the following at December 31:
1998 1997 ------------- ------------- Depreciation and amortization, net .......................... $ 240,602 $ 247,891 --------- --------- Accruals not currently deductible for tax purposes .......... (3,218) (3,628) General business tax credits ................................ (8,891) (12,094) Alternative minimum tax credits ............................. (16,333) (16,333) Other ....................................................... (3,311) (843) --------- --------- (31,753) (32,898) --------- --------- Net deferred taxes .......................................... $ 208,849 $ 214,993 ========= =========
The Company has unused general business tax credit carryforwards of approximately $8,891 expiring between 2004 and 2018. The Company also has approximately $16,333 of alternative minimum tax credit carryforwards which have no expiration date. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Although management uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique. Therefore, the fair value estimates presented herein are not necessarily indicative of the amounts which the Company could realize in a current transaction. The fair value of all debt issues listed on exchanges, including the note payable to related party which is based on a debt issue listed on an exchange, has been estimated based on the quoted market prices. The remaining note payable to related party, which is not based on market prices, and the project loan are estimated to have a fair value equal to the carrying value. The carrying amounts in the table below are included in the consolidated balance sheets under the indicated captions:
1998 ESTIMATED 1997 ESTIMATED CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ---------- ----------- ------------ ------------ Project loan ........................... $ 90,529 $ 90,529 $ 103,334 $ 103,334 Salton Sea notes and bonds ............. 626,816 646,397 448,754 463,720 Notes payable to related party ......... 247,681 265,581 247,812 265,641
12. LITIGATION NYSEG--On February 14, 1995, NYSEG filed with the FERC a Petition for a Declaratory Order, Complaint, and Request for Modification of Rates in Power Purchase Agreements Imposed Pursuant to the Public Utility Regulatory Policies Act of 1978 (Petition) seeking FERC (i) to declare that the rates NYSEG pays under the Saranac PPA, which was approved by the New York Public Service Commission (the PSC) were in excess of the level permitted under PURPA and (ii) to authorize the PSC to reform the Saranac PPA. F-19 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) On March 14, 1995, Saranac intervened in opposition to the Petition asserting, inter alia, that the Saranac PPA fully complied with PURPA, that NYSEG's action was untimely and that the FERC lacked authority to modify the Saranac PPA. On March 15, 1995, the Company intervened also in opposition to the Petition and asserted similar arguments. On April 12, 1995, the FERC by a unanimous (5-0) decision issued an order denying the various forms of relief requested by NYSEG and finding that the rates rquired under the Saranac PPA were consistent with PURPA and the FERC's regulations. On May 11, 1995, NYSEG requested rehearing of the order and, by order issued July 19, 1995, the FERC unanimously (5-0) denied NYSEG's request. On June 14, 1995, NYSEG petitioned the United States Court of Appeals for the District of Columbia Circuit (the Court of Appeals) for review of FERC's April 12, 1995 order. FERC moved to dismiss NYSEG's petition for review of July 28, 1995. On July 11, 1997, the Court of Appeals dismissed NYSEG's appeal from FERC's denial of the petition on jurisdictional grounds. On August 7, 1997, NYSEG filed a complaint in the U.S. District Court for the Northern District of New York against the FERC, the PSC (and the Chairman, Deputy Chairman and the Commissioners of the PSC as individuals in their official capacity), Saranac and Lockport Energy Associations, L.P. (Lockport) concerning the power purchase agreements that NYSEG entered into with Saranac and Lockport. NYSEG's suit asserts that the PSC and the FERC improperly implemented PURPA in authorizing the pricing terms that NYSEG, Saranac and Lockport agreed to in those contracts. The action raises similar legal arguments to those rejected by the FERC in its April and July 1995 orders. NYSEG in addition asks for retroactive reformation of the contracts as of the date of commercial operation and seeks a refund of $281 million from Saranac. Saranac and other parties have filed motions to dismiss and oral arguments on those motions were heard on March 2, 1998. The case was recently reassigned to a new judge and new oral arguments have been scheduled for March 3, 1999. Saranac believes that NYSEG's claims are without merit for, among other reasons, the same reasons described in the FERC's orders. NIAGARA--In March 1994, NorCon Power commenced an action against Niagara in the Southern District of New York. In its complaint, NorCon requested a declaratory judgment that Niagara has no right to demand additional security or "adequate assurances" from Niagara of NorCon's future performance under a power purchase agreement (the "Agreement") between the parties on the basis of a demand letter dated February 4, 1994 from Niagara (the "Demand Letter") and a permanent injunction enjoining Niagara from terminating or attempting to terminate the Agreement for the reasons set forth in the Demand Letter. Niagara filed a counterclaim for a declaratory judgment that Niagara had a right to demand adequate assurances of NorCon's future performance under the Agreement, Niagara properly exercised its right to demand "adequate assurances," and NorCon's failure to provide "adequate assurances" constituted a repudiation of the Agreement, and by reason of NorCon's repudiation, Niagara was relieved of its obligations under the Agreement. On or about November 7, 1994, NorCon moved for summary judgment. In a decision dated February 7, 1996, the Court granted summary judgement in NorCon's favor, granting NorCon its requested declaratory and injunctive relief and dismissing Niagara's counterclaim. On March 6, 1996, Niagara filed a Notice of Appeal of the Court's decision (the "Appeal"). Judgment was entered in NorCon's favor on March 21, 1996. The Federal appellate court certified a state law question of law to the New York Court of Appeals on March 26, 1997. The state court has since issued its ruling that in appropriate circumstances adequate assurance may be requested. On December 31, 1998, the case was remanded to the trial court for further proceedings. The Company believes that NorCon will not be required to provide additional security beyond that currently provided under the Agreement and intends to vigorously defend this action against Niagara. F-20 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) EDISON--In February 1998, Del Ranch and Elmore ("plaintiffs") filed an action for breach of contract, fraud and unlawful discrimination relating to the long-term contracts between plaintiffs and Edison for purchase and sale of geothermal power. Among other claims, plaintiffs contend that Edison failed to pay the correct "forecast" price for energy purchased from plaintiffs during 1998. Plantiffs seek compensatory damages of about $6 million and additional punitive damages. Edison's demurrer to the frauds claim was recently overruled by the Superior Court. Both sides are engaged in early discovery proceedings and no trial date has yet been set. Plantiff's intend to pursue this action vigorously. Plantiffs further believe there are good grounds to support their claims, and that they should ultimately prevail on the merits at trial. 13. TRANSACTIONS WITH MEHC MEHC provides certain administrative services to the Company, and MEHC's executive, financial, legal, tax and other corporate staff departments perform certain services for the Company. Expenses incurred by MEHC and allocated to the Company are estimated based on the individual services and expense items provided. Management believes that such estimate of expense allocations are reasonable. It is not practicable to estimate the expenses that would have been incurred by the Company if it had been operated on a stand-alone basis. Allocated expenses totaled approximately $3,000 for each of 1998, 1997, and 1996, and are included in General and Administration expenses. An analysis of the Company's net investment and advances is as follows:
1998 1997 1996 ------------ ------------- ----------- Balance, beginning of year .................................. $ 464,140 $ 454,903 $ 233,425 Net income ................................................. 93,778 69,996 46,211 Purchase and contribution of FSRI stock from MEHC .......... -- -- 232,500 Distribution to MEHC, net of advances ...................... (20,971) (60,759) (57,233) --------- --------- --------- Balance, end of year ........................................ $ 536,947 $ 464,140 $ 454,903 ========= ========= =========
14. ADDITIONAL CASH FLOW INFORMATION In conjunction with the acquisition of FSRI and Partnership Interest Acquisition, liabilities were assumed as follows: Fair value of assets .................... $ 546,377 Cash paid, net of cash acquired ......... (264,324) ---------- Liabilities assumed ..................... $ 282,053 ==========
Approximately $207,000 of the cash paid represents MEHC's acquisition of FSRI, net of cash acquired, which was simultaneously pushed down to the Company. For cash flow purposes, the acquisition is reflected as an acquisition by the Company and as advances from MEHC. 15. SUBSEQUENT EVENTS On March 2, 1999, the Company issued $400,000 of 7.416% Senior Secured Bonds due 2018. The net proceeds from this financing were used for the following purposes: o to repay Magma's 9 7/8% Secured Note Due 2003 payable to MEHC in the aggregate principal amount of $200 million, at a repayment price (including its premium) equal to approximately $220 million; F-21 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) o to make payments to MEHC aggregating approximately $122 million in return for MEHC's transfer of certain assets to the Company. MEHC will use these funds to prefund future equity contributions for various construction projects; o to repay approximately $49 million outstanding principal and interest on a promissory note to MEHC; o to make payments to MEHC aggregating up to approximately $4 million in return for MEHC's transfers of certain assets to us which related to MEHC's development costs for Salton Sea Unit V, the CE Turbo project and the zinc facility; and o to pay transaction costs and fees associated with the offer and sale of the old Securities. These Securities are senior secured debt which rank equally in right of payment with the Company's other senior secured debt permitted under the indenture for the Securities, share equally in the collateral with the Company's other senior secured debt permitted under the indenture for the Securities, and rank senior to any of the Company's subordinated debt permitted under the indenture for the Securities. These Securities are effectively subordinated to the existing project financing debt and all other debt of the Company's consolidated subsidiaries. The Senior Secured Bonds are primarily secured by the following collateral: o all available cash flow (as defined); o a pledge of 99% of the equity interests in Salton Sea Power and all of the Company's equity interests in its other consolidated subsidiaries, with the exception of Magma Power Company (Magma) and subsidiaries; o upon the redemption of, or earlier release of security interests under, Magma's 9 7/8% promissory notes, a pledge of all of the capital stock of Magma; o a pledge of all of the capital stock of SECI Holding Inc.; o a grant of a lien on and security interest in the depository accounts; and o a grant of a lien on and security interest in all of our other tangible and intangible property, to the extent assignable (other than the capital stock of Magma, which will be pledged upon the redemption of, or earlier release of security interests under, Magma's 9 7/8% promissory notes). o to the extent assignable, a grant of a lien on and security interest in all of the Company's other tangible and intangible property (other than the capital stock of Magma which will be pledged upon the redemption of, or earlier release of security interests under, Magma's 9 7/8% promissory notes). MEHC's obligation to make payments on Magma's 9 7/8% promissory notes is secured by a pledge of the capital stock of Magma and a lien on dividends and distributions in respect of such Magma stock. On March 3, 1999, MEHC repurchased $195.8 million in aggregate principal amount of its 9 7/8% Notes in connection with a tender offer for a repurchase price (including premium) of $215.4 million. In connection with the corresponding reduction of $195.8 million of the principal outstanding under Magma's 9 7/8% promissory notes, $215.4 million of the proceeds of the old Securities were paid to MEHC. As a result of the 9 7/8% note repurchase offer, the outstanding principal amount of Magma's 9 7/8% promissory notes was reduced from $200 million to approximately $4.2 million. MEHC intends to redeem the remaining outstanding Magma 9 7/8% promissory notes on June 30, 2000, which is the first day upon which an optional redemption is permitted under the trust indenture for Magma's 9 7/8% promissory notes. A portion of the net proceeds of these securities, in the amount of approximately F-22 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) $4.2 million, has been paid to MidAmerican and placed into a restricted account held by the depository bank which is maintained solely for the purpose of paying the remaining amounts due to the secured parties. These proceeds are being used to pay interest on, and effect the redemption (or the earlier repurchase) of the remaining outstanding principal of, Magma's 9 7/8% promissory notes. At the time of this redemption, the collateral agent is expected to obtain a pledge of all of Magma's capital stock. Condensed consolidating financial statements for Magma and the Company's other consolidated subsidiaries as of December 31, 1998 and 1997 and the three years ended December 31, 1998 are presented below: CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1998 --------------------------------------------------------------------------------
CE GENERATION FALCON AND CE PARENT MAGMA YUMA ELIMINATIONS GENERATION --------------- ------------- ------------ -------------- ------------- ASSETS Cash and cash equivalents .............. $ -- $ 13,930 $ 11,844 $ -- $ 25,774 Restricted cash ........................ -- 121,329 7,224 -- 128,553 Accounts receivable .................... -- 56,182 11,447 -- 67,629 Properties, plants, contracts and equipment, net ........................ -- 702,700 190,972 -- 893,492 Equity investments ..................... 536,947 -- 125,036 (536,947) 125,036 Excess of cost over fair value of net assets acquired, net .................. -- 218,181 92,519 -- 310,700 Note receivable from related party ..... -- 140,520 -- -- 140,520 Deferred financing charges and other assets ................................ -- 51,689 7,239 -- 58,928 -------- ---------- -------- ---------- ---------- Total assets ......................... $536,947 $1,304,531 $446,101 $ (536,947) $1,750,632 ======== ========== ======== ========== ========== LIABILITIES AND EQUITY Accounts payable and other accrued liabilities ........................... $ -- $ 28,440 $ 11,370 $ -- $ 39,810 Project loan ........................... -- -- 90,529 -- 90,529 Salton Sea notes and bonds ............. -- 626,816 -- -- 626,816 Notes payable to related party ......... -- 200,000 47,681 -- 247,681 Deferred income taxes .................. -- 122,416 86,433 -- 208,849 -------- ---------- -------- ---------- ---------- Total liabilities .................... -- 977,672 236,013 -- 1,213,685 Equity, net investment and advances..... 536,947 326,859 210,088 (536,947) 536,947 -------- ---------- -------- ---------- ---------- Total liabilities and equity ......... $536,947 $1,304,531 $446,101 $ (536,947) $1,750,632 ======== ========== ======== ========== ==========
F-23 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 --------------------------------------------------------------------------------
CE GENERATION FALCON AND PARENT MAGMA YUMA ELIMINATIONS CE GENERATION --------------- ----------- ----------- -------------- ------------- REVENUES: Sales of electricity and steam .......... $ -- $293,778 $101,782 $ -- $395,560 Equity earnings in subsidiaries ......... 106,404 -- 10,732 (106,404) 10,732 Interest and other income ............... -- 26,171 3,712 -- 29,883 -------- -------- -------- --------- -------- Total revenue .......................... 106,404 319,949 116,226 (106,404) 436,175 COST AND EXPENSES: Plant operations ........................ -- 63,371 50,721 -- 114,092 General and administration .............. 3,000 1,963 -- -- 4,963 Depreciation and amortization ........... -- 78,217 18,601 -- 96,818 Interest expense ........................ -- 57,513 17,140 -- 74,653 Less interest capitalized ............... -- (347) -- -- (347) -------- -------- -------- --------- -------- Total expenses ......................... 3,000 200,717 86,462 -- 290,179 -------- -------- --------- -------- Income before provision for income taxes ................................... 103,404 119,232 29,764 (106,404) 145,996 Provision for income taxes ............... 9,626 30,872 11,720 -- 52,218 -------- -------- -------- --------- -------- Net income ............................... $ 93,778 $ 88,360 $ 18,044 $(106,404) $ 93,778 ======== ======== ======== ========= ========
CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1997 --------------------------------------------------------------------------------
CE GENERATION FALCON AND PARENT MAGMA YUMA ELIMINATIONS CE GENERATION --------------- ------------- ----------- -------------- -------------- ASSETS Cash and cash equivalents ............... $ -- $ 13,744 $ 9,940 $ -- $ 23,684 Restricted cash ......................... -- -- 6,907 -- 6,907 Accounts receivable ..................... -- 42,759 10,313 -- 53,072 Properties, plants, contracts and equipment, net ......................... -- 729,271 202,936 -- 932,207 Equity investments ...................... 464,140 -- 131,207 (464,140) 131,207 Excess of cost over fair value of net assets acquired, net ................... -- 228,329 94,252 -- 322,581 Deferred financing charges and other assets ................................. -- 47,495 10,823 -- 58,318 -------- ---------- -------- ---------- ---------- Total assets .......................... $464,140 $1,061,598 $466,378 $ (464,140) $1,527,976 ======== ========== ======== ========== ========== LIABILITIES AND EQUITY Accounts payable and other accrued liabilities ............................ $ -- $ 29,430 $ 19,513 $ -- $ 48,943 Project loan ............................ -- -- 103,334 -- 103,334 Salton Sea notes and bonds .............. -- 448,754 -- -- 448,754 Notes payable to related party .......... -- 200,000 47,812 -- 247,812 Deferred income taxes ................... -- 125,531 89,462 -- 214,993 -------- ---------- -------- ---------- ---------- Total liabilities ..................... -- 803,715 260,121 -- 1,063,836 Equity, net investment and advances...... 464,140 257,883 206,257 (464,140) 464,140 -------- ---------- -------- ---------- ---------- Total liabilities and equity .......... $464,140 $1,061,598 $466,378 $ (464,140) $1,527,976 ======== ========== ======== ========== ==========
F-24 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) (AMOUNTS IN THOUSANDS) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 --------------------------------------------------------------------------------
CE GENERATION FALCON AND PARENT MAGMA YUMA ELIMINATIONS CE GENERATION --------------- ----------- ----------- -------------- ------------- REVENUES: Sales of electricity and steam .......... $ -- $282,623 $ 98,835 $ -- $381,458 Equity earnings in subsidiaries ......... 77,981 -- 14,542 (77,981) 14,542 Interest and other income ............... -- 6,804 4,334 -- 11,138 -------- -------- -------- -------- -------- Total revenue .......................... 77,981 289,427 117,711 (77,981) 407,138 COST AND EXPENSES: Plant operations ........................ -- 66,661 53,312 -- 119,973 General and administration .............. 3,000 1,380 -- -- 4,380 Depreciation and amortization ........... -- 71,081 17,423 -- 88,504 Interest expense ........................ -- 62,447 18,460 -- 80,907 Less interest capitalized ............... -- -- -- -- -- -------- -------- -------- -------- -------- Total expenses ......................... 3,000 201,569 89,195 -- 293,764 -------- -------- -------- -------- -------- Income before provision for income taxes ................................... 74,981 87,858 28,516 (77,981) 113,374 Provision for income taxes ............... 4,985 26,401 11,992 -- 43,378 -------- -------- -------- -------- -------- Net income ............................... $ 69,996 $ 61,457 $ 16,524 $(77,981) $ 69,996 ======== ======== ======== ======== ========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 --------------------------------------------------------------------------------
CE GENERATION FALCON AND PARENT MAGMA YUMA ELIMINATIONS CE GENERATION --------------- ----------- ----------- -------------- ------------- REVENUES: Sales of electricity and steam .......... $ -- $235,659 $45,648 $ -- $281,307 Equity earnings in subsidiaries ......... 48,321 -- 4,263 (48,321) 4,263 Interest and other income ............... -- 16,555 2,718 -- 19,273 -------- -------- ------- -------- -------- Total revenue .......................... 48,321 252,214 52,629 (48,321) 304,843 COST AND EXPENSES: Plant operations ........................ -- 66,166 28,079 -- 94,245 General and administration .............. 3,000 503 -- -- 3,503 Depreciation and amortization ........... -- 64,377 8,156 -- 72,533 Interest expense ........................ -- 66,576 11,093 -- 77,669 Less interest capitalized ............... -- (4,805) -- -- (4,805) -------- -------- ------- -------- -------- Total expenses ......................... 3,000 192,817 47,328 -- 243,145 -------- -------- ------- -------- -------- Income before provision for income taxes ................................... 45,321 59,397 5,301 (48,321) 61,698 Provision for income taxes ............... (890) 13,558 2,819 -- 15,487 -------- -------- ------- -------- -------- Net income ............................... 46,211 45,839 $ 2,482 $(48,321) $ 46,211 ======== ======== ======= ======== ========
F-25 CE GENERATION, LLC CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ---------------- ------------- (UNAUDITED) ASSETS Cash and cash equivalents .......................................... $ 83,981 $ 25,774 Restricted cash .................................................... 52,811 128,553 Accounts receivable ................................................ 61,971 67,629 Properties, plants, contracts and equipment, net ................... 982,258 893,492 Equity investments ................................................. 119,913 125,036 Excess of cost over fair value of net assets acquired, net ......... 288,286 310,700 Note receivable from related party ................................. 140,520 140,520 Deferred financing charges and other assets ........................ 43,113 58,928 ---------- ---------- Total assets .................................................... $1,772,853 $1,750,632 ========== ========== LIABILITIES AND EQUITY LIABILITIES: Accounts payable and other accrued liabilities ..................... $ 60,357 $ 39,810 Project loan ....................................................... 79,828 90,529 Salton Sea notes and bonds ......................................... 597,898 626,816 Senior secured bonds ............................................... 400,000 -- Notes payable to related party ..................................... -- 247,681 Deferred income taxes .............................................. 255,303 208,849 ---------- ---------- Total liabilities ............................................... 1,393,386 1,213,685 Member's Equity .................................................... 379,467 -- Net Investment and advances ........................................ -- 536,947 ---------- ---------- 379,467 536,947 ---------- ---------- Total liabilities and equity ....................................... $1,772,853 $1,750,632 ========== ==========
The accompanying notes are an integral part of these financial statements. F-26 CE GENERATION, LLC CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (AMOUNTS IN THOUSANDS) (UNAUDITED)
1999 1998 ----------- ----------- REVENUE: Sales of electricity and steam .................. $ 231,613 $293,485 Equity earnings in subsidiaries ................. 17,718 8,635 Interest and other income ....................... 17,665 21,823 --------- -------- Total revenues ............................... 266,996 323,943 --------- -------- COST AND EXPENSES: Plant operations ................................ 84,848 84,100 General and administration ...................... 3,333 3,814 Depreciation and amortization ................... 43,400 71,901 Interest expense ................................ 58,343 54,784 Less interest capitalized ....................... (2,614) -- --------- -------- Total expenses ............................... 187,310 214,599 --------- -------- Income before provision for income taxes ......... 79,686 109,344 Provision for income taxes ....................... 30,520 39,364 --------- -------- Net income before extraordinary item ............. 49,166 69,980 Extraordinary item, net of tax ................... (17,478) -- --------- -------- Net income ....................................... $ 31,688 $ 69,980 ========= ========
The accompanying notes are an integral part of these financial statements. F-27 CE GENERATION, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (AMOUNTS IN THOUSANDS) (UNAUDITED)
1999 1998 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income ................................................... $ 31,688 $ 69,980 ADJUSTMENTS TO RECONCILE CASH FLOWS FROM OPERATING ACTIVITIES: Depreciation and amortization ................................ 43,400 71,901 Provision for deferred income taxes .......................... 21,395 (4,609) Equity earnings in subsidiaries .............................. (17,718) (8,635) CHANGES IN OTHER ITEMS: Accounts receivable ........................................ 5,658 (28,096) Accounts payable and other accrued liabilities ............. 20,547 11,627 ---------- --------- Net cash flows from operating activities ................. 104,970 112,168 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ....................................... (119,322) (28,471) Distributions from equity investments ...................... 22,841 13,455 Decrease (increase) in other assets ........................ 25,385 126 Decrease (increase) in restricted cash ..................... 49,666 (1,024) ---------- --------- Net cash flows from investing activities ................. (21,430) (15,914) ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of Salton Sea notes and bonds .................... (28,918) (53,469) Proceeds from Senior Secured Notes ......................... 400,000 -- Repayment of project loans ................................. (10,701) (9,603) Repayment of note payable to related party ................. (247,681) (131) Advances (to) from MidAmerican Energy Holdings Company, net ....................................................... (164,109) 13,465 ---------- --------- Net cash flows from financing activities ................. (51,409) (49,738) ---------- --------- Net increase (decrease) in cash and cash equivalents ......... 32,131 46,516 Cash and cash equivalents at beginning of year ............... 25,774 23,684 ---------- --------- Cash and cash equivalents at end of year ..................... $ 57,905 $ 70,200 ========== ========= SUPPLEMENTAL DISCLOSURE: Interest paid .............................................. $ 37,620 $ 45,186 ========== ========= Income taxes paid .......................................... $ 9,125 $ 1,001 ========== =========
The accompanying notes are an integral part of these financial statements. F-28 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. FORMATION On February 8, 1999, MidAmerican Energy Holdings Company (formerly CalEnergy Company, Inc.) ("MEHC") created a new subsidiary, CE Generation, LLC (the "Company"), and subsequently transferred its interest in MEHC's power generation assets of the Imperial Valley Projects and the Gas Projects to the Company. On March 3, 1999, MEHC closed the sale of 50% of its ownership interests in the Company to an affiliate of El Paso Energy Corporation. B. GENERAL The September 30, 1999 and 1998 consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company, all adjustments (consisting only of normal recurring accruals) have been made to present fairly the financial position, the results of operations and the changes in cash flows for the periods presented. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these financial statements be read in conjunction with the December 31, 1998 consolidated financial statements and the notes thereto included elsewhere herein. C. EXTRAORDINARY ITEM On January 29, 1999, MEHC commenced a cash offer for all of its outstanding 9-7/8% Limited Recourse Senior Secured Notes Due 2003. MEHC received tenders from holders of an aggregate of approximately $195.8 million principal which were paid on March 3, 1999, at a redemption price of 110.025% plus accrued interest. The intercompany note to MidAmerican Energy Holdings Company, including the redemption premium, was repaid by the Company, resulting in an extraordinary loss of approximately $17.5 million, net of tax. D. SENIOR SECURED BONDS On March 2, 1999, the Company closed the sale of $400 million aggregate principal amount of its 7.416% Senior Secured Bonds due 2018 and distributed the proceeds to MEHC. Annual repayments of the bonds are $0, $10.4 million, $12.6 million, $20.6 million, and $18 million for 1999 through 2003, respectively, and $338.4 million thereafter. The estimated fair value of the Senior Secured Bonds is $363.4 million at September 30, 1999. The Senior Secured Bonds are secured by the following collateral: o all available cash flow of the Subsidiaries deposited with the depositary bank; o a pledge of 99% of the equity interests in Salton Sea Power Company and all of the equity interests in CE Texas Gas LLC, the Subsidiaries (other than Magma Power Company) and California Energy Yuma Corporation; o upon the redemption of, or earlier release of security interests under, Magma's 9 7/8% promissory notes, a pledge of all of the capital stock of Magma; o a pledge of all of the capital stock of SECI Holdings Inc.; o a grant of a lien on and security interest in the depositary accounts; and o a grant of a lien on and security interest in all of the Company's other tangible and intangible property. F-29 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company is required to maintain a balance in the debt service reserve account equal to the maximum semiannual principal and interest payment on the Senior Secured Bonds. The Company can fulfill this requirement by depositing cash into the debt service reserve account and/or posting a letter of credit for the debt service reserve account. On March 2, 1999, the Company posted a letter of credit issued by Credit Suisse First Boston in the amount of approximately $24 million to satisfy its debt service reserve obligations. Monies on deposit in the debt service reserve account and drawings on debt service reserve letters of credit will be used to make principal and interest payments on the Senior Secured Bonds and debt service reserve bonds and interest payments on debt service reserve letter of credit loans. The Company is permitted to redeem all or any portion of the Senior Secured Bonds at any time prior to maturity at a redemption price equal to: o 100% of the principal amount of the Senior Secured Bonds being redeemed; plus o accrued and unpaid interest on the Senior Secured Bonds being redeemed; plus o a yield maintenance premium which is based on the rates of comparable treasury securities plus 50 basis points. The Company is obligated to redeem Senior Secured Bonds at par plus accrued interest plus a yield maintenance premium in the following circumstances: o if any Subsidiary receives more than $15,000,000 of available cash flow representing refinancing proceeds or asset sale proceeds; o if the Company receives more than $15,000,000 of proceeds from the sale of its interest in a Subsidiary and the sale was not specifically permitted under the indenture for the Senior Secured Bonds; or o if any Subsidiary receives more than $15,000,000 of proceeds from the sale of its interest in a project company and the sale was not specifically permitted under the indenture. However, the Company may not have to use all of the proceeds to redeem Senior Secured Bonds in the foregoing circumstances if the rating agencies confirm the ratings for the Senior Secured Bonds. The Company is obligated to redeem Senior Secured Bonds at par plus accrued interest if any Subsidiary receives more than $15,000,000 of available cash flow representing insurance proceeds, eminent domain proceeds, title insurance proceeds or proceeds from the buy-out of a power purchase agreement. However, the Company may not have to use all available cash flow representing buy-out proceeds to redeem Senior Secured Bonds if the rating agencies confirm the ratings for the Senior Secured Bonds. E. INCOME TAXES The Company has elected to be taxed as a "C" Corporation for federal income tax reporting purposes. F. MEMBERS' EQUITY At February 8, 1999, the Company was created by MEHC and the balance of net investments and advances and earnings through February 8, 1999, were contributed to the Company in exchange for full ownership. Prior to MEHC's sale of 50% of the Company's membership, the Company disbursed, net of additional contributions, approximately $182.6 million to MEHC. F-30 CE GENERATION, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Members' equity comprised the following at September 30, 1999 (in thousands): Net investment and advances, beginning of year ........................ $536,947 Distribution to MEHC, net of advances ................................. (6,575) Net income through February 8, 1999 ................................... 6,526 -------- Capital contribution by MEHC at February 8, 1999 .................... 536,898 Distribution to MEHC, net of contributions ............................ 182,593 Members' net income from February 9, 1999 to September 30, 1999 ....... 25,162 -------- Members' equity, September 30, 1999 ................................. $379,467 ========
G. SUBSEQUENT EVENT In October 1999, the Company's indirect subsidiary, NorCon Power Partners, L.P. reached an agreement with Niagara Mohawk Power Corporation, the Norcon power purchaser, General Electric Capital Corporation, the NorCon project lender, and Louis Dreyfus Natural Gas Corporation, the gas supplier for the NorCon project, to settle the outstanding litigation between NorCon and Niagara Mohawk, to terminate NorCon's power purchase agreement with Niagara Mohawk and gas purchase agreement with Louis Dreyfus, to transfer the NorCon project to General Electric Capital and to provide for General Electric Capital to assume responsibility for third party claims related to the NorCon project. Upon the closing of these terminations and transfers, NorCon expects that it will not have any further rights, interests, profits, costs or losses with respect to the NorCon project. F-31 APPENDIX A POWER GENERATION PROJECTS INDEPENDENT ENGINEER'S REPORT CE GENERATION CONSOLIDATED PROFORMA ANALYSIS PREPARED FOR CE GENERATION, LLC FEBRUARY 24, 1999 FLUOR DANIEL, INC. IRVINE, CALIFORNIA A-1 SECTION 1.0 OVERVIEW Fluor Daniel, Inc. (Fluor Daniel) has reviewed information related to the CE Generation (CEG) Projects and has prepared a summary of resulting debt coverage ratios for both a Base Case and selected sensitivity cases as hereinafter defined. The CEG projects for which financial results are presented consist of the following: o The Imperial Valley Projects: Salton Sea Unit I, Unit II, Unit III, Unit IV, Vulcan, Del Ranch, Elmore, and Leathers which are presently in operation. Also included are two units under construction, Salton Sea Unit V and CE Turbo, as well as additional Magma Royalties. o The Gas-Fired Projects: Yuma, PRI, and Saranac. o Falcon Seaboard Gas Company o Falcon Power Operating Company Fluor Daniel completed a review of the Consolidated Financial Model created by CEG and used to compute consolidated debt coverage ratios. The Consolidated Financial Model incorporates financial results of four detailed project-specific financial models: Imperial, Yuma, PRI, and Saranac. Fluor Daniel initially reviewed the Imperial financial model in October 1998 and has again reviewed this model as well as a model, for Magma Royalties. R.W. Beck has independently generated financial results for the Gas-Fired Projects and Falcon Power Operating Company. C.C. Pace provided the cash flow forecasts for Falcon Seaboard Gas Company that have also been incorporated into the Consolidated Financial Model. SECTION 2.0 CONCLUSIONS After a review of the Consolidated Financial Model and an examination of the supporting financial models, Fluor Daniel concludes: o The Consolidated Financial Model, prepared by CEG, accurately represents the results of the four project-specific models that contain the detailed project assumptions o The Consolidated Financial Model, that is based on the Base Case assumptions recommended by CE Generation and R.W. Beck, indicates that revenues appear to be adequate to provide sufficient cash flow for debt service, with Base Case debt service coverage ratios calculated from 1999 through 2018 of 2.59 minimum and 3.08 average. o The financial projections remain stable across a defined range of sensitivities and avoided cost assumptions, specified further below. SECTION 3.0 CONSOLIDATED FINANCIAL PROJECTIONS AND DEBT COVERAGE RATIOS 3.1 BASE CASE RESULTS Fluor Daniel has reviewed the Consolidated Financial Model and has analyzed the ability of CEG to pay anticipated debt service on the securities over the next 20 years. The results are summarized in the table of debt coverage ratios presented below. In addition, Fluor Daniel has performed a series of selected sensitivity analyses that are also listed on the table and described in more detail in the next section. A-2 SUMMARY OF DEBT COVERAGE RATIOS
SCENARIO MINIMUM COVERAGE AVERAGE COVERAGE -------- ---------------- ---------------- Base Case ...................... 2.59 3.08 Higher O&M ..................... 2.43 2.82 Increased Heat Rate ............ 2.48 3.02 Reduced Availability ........... 2.13 2.73 Low Power Price 1 .............. 2.56 2.94 Low Power Price 2 .............. 2.46 2.78 SCE Low Avoided Cost ........... 2.64 3.14 SCE Mid Avoided Cost ........... 2.69 3.52 SCE High Avoided Cost .......... 2.89 4.98
The Consolidated Financial Model used to compute debt coverages contains a twenty year projection of cash flow items beginning in year 1999. These items include revenues, expenses, initial and long term capital expenditures, royalties, and financing cash flows. The consolidated model brings forward the relevant cash flow items from the detailed project models and consolidates the results for measuring aggregate debt service coverage. Specifically, as directed by CEG, the debt coverage ratios are calculated by bringing forward revenues and expenses from the Imperial Valley, PRI, and Yuma projects and then determining operating income by subtraction. From this result, all capital expenditures from Imperial Valley, PRI and Yuma and net construction cash flows from the respective projects are subtracted. Subtracted next are all project-level debt service payments for Imperial Valley and PRI. An adjustment is made for additions and releases of funds from PRI. Next, cash flows from Saranac, Falcon Power Operating Company and Falcon Seaboard Gas Company are added to operating income. Finally, LOC and trustee fees are substracted resulting in cash available for debt service. The debt coverage ratio is the ratio of cash available for debt service to total CE Generation debt service. The Base Case Consolidated Financial Model, shown as Exhibit 1, indicates that cash flows from the CEG Projects are reasonable and should be sufficient to cover the projected annual operating expenses, post-completion capital expenditures, and debt service for the Securities. Base Case average debt coverage is 3.08 and minimum debt coverage is 2.59. 3.2 BASE CASE ASSUMPTIONS Among the many assumptions used for the analysis, CEG provided the assumptions regarding the pricing, term, and amortization of principal for the new Securities. The Securities will be long term bonds priced at an assumed annual interest rate of 7.42 percent. The final maturity is 20 years from issuance with an average life of approximately 11.9 years. Henwood Energy Services prepared the forecasts of spot electricity prices used for the Imperial Valley and Yuma Projects. CC Pace projected natural gas prices for Saranac and PRI. Based upon representations of CEG and/or R.W. Beck, regarding specific elements of geothermal and gas projects, Operations and Maintenance (O&M) escalation was assumed to be 2.5% per year for the geothermal projects and 2.7% per year for the Gas-Fired projects. SECTION 4.0 SENSITIVITY ANALYSIS Fluor Daniel, in conjunction with R.W. Beck, created and modeled certain sensitivity cases under CEG's direction to analyze the ability of the project to maintain debt coverage levels under several different scenarios. The four variables adjusted for this analysis are increased O&M expense, reduced fuel efficiency, reduced plant availability, reduced fuel efficiency for the Gas-Fired plants, increased fuel cost for the Gas-Fired projects, and power price sensitivities for Imperial Valley and Yuma. The results of this analysis are presented below. A-3 4.1 HIGHER O&M To test the sensitivity of CEG debt coverage ratios to changes in project operating costs, the level of O&M costs for all projects was raised by 10%. This sensitivity resulted in average debt coverage of 2.82 and minimum debt coverage of 2.43. 4.2 INCREASED HEAT RATE As a further sensitivity, the fuel efficiency in the gas-fired power plants was reduced through a 5% increase in the plant heat rate. The increased heat rate reduced average debt coverage to 3.02 and minimum coverage to 2.48. 4.3 REDUCED AVAILABILITY The impact of reduced availability on project debt coverage ratios was tested by reducing the annual availability of all projects from their existing Base Case level by 5%. This sensitivity resulted in average debt coverage of 2.73 and minimum debt coverage of 2.13. 4.4 POWER PRICE Henwood Energy Services prepared the forecast of future spot-market electric energy prices used in the financial projections for the Imperial Valley and Yuma projects. As a downside case, Henwood also prepared two cases based on assumptions of lower natural gas prices (10 or 15 percent). The lower natural gas forecasts were used by Henwood to forecast the corresponding lower electrical energy prices. Use of the low power price 1 (10% lower gas price) forecast reduced the average CEG debt coverage to 2.94 and minimum coverage to 2.56. The low power price 2 case (15% lower gas price) resulted in an average coverage of 2.78 and minimum coverage of 2.46. Three more power price scenarios were run to test debt coverages using projections of avoided costs made by Southern California Edison in 1995. The first scenario, SCE Low, resulted in an average debt coverage ratio of 3.14 and minimum coverage of 2.64. The SCE Mid price scenario produced an average coverage of 3.52 and minimum of 2.69. Finally, the SCE High scenario resulted in average debt coverage of 4.98 and minimum coverage of 2.89. A-4 4.5 BREAKEVEN ANALYSIS The following table presents the Power Exchange electric price that maintains project debt service at a level of 1.0 or higher.
BREAKEVEN (CENTS/KWH) --------------------- YEAR NOMINAL 1999 BASE ---- ------- --------- 1999 ............................................... 0.00 0.00 2000 ............................................... 0.00 0.00 2001 ............................................... 0.00 0.00 2002 ............................................... 0.22 0.20 2003 ............................................... 0.63 0.57 2004 ............................................... 1.01 0.89 2005 ............................................... 1.32 1.14 2006 ............................................... 1.16 0.97 2007 ............................................... 1.39 1.14 2008 ............................................... 0.95 0.76 2009 ............................................... 1.36 1.06 2010 ............................................... 2.32 1.77 2011 ............................................... 2.13 1.58 2012 ............................................... 1.77 1.29 2013 ............................................... 2.18 1.54 2014 ............................................... 1.82 1.25 2015 ............................................... 2.06 1.39 2016 ............................................... 2.05 1.35 2017 ............................................... 2.28 1.46 2018 ............................................... 2.09 1.31
A-5 ASSUMPTIONS, QUALIFICATIONS AND REVIEW DOCUMENTS THIS REPORT WAS PREPARED BY FLUOR DANIEL, INC. EXPRESSLY FOR USE BY CE GENERATION. IT IS FLUOR DANIEL'S UNDERSTANDING THAT THIS REPORT WILL BE INCLUDED IN THE PUBLIC OFFERING MEMORANDUM AND SUBSEQUENT PROSPECTUS FOR THE OFFERING OF THE BONDS, AS DESCRIBED HEREIN. NEITHER FLUOR DANIEL NOR ANY PERSON ACTING IN ITS BEHALF, MAKES ANY WARRANTY, EXPRESS OR IMPLIED, OR ASSUMES ANY LIABILITY WITH RESPECT TO THE USE OF ANY INFORMATION, TECHNOLOGY, ENGINEERING, OR METHODS DISCLOSED IN THIS REPORT. In the preparation of this Report and the opinions contained therein, Fluor Daniel has made certain assumptions with respect to conditions which may exist or events which may occur in the future. While we believe these assumptions to be reasonable for the purpose of this Report, they are dependent upon future events and actual conditions may differ from those assumed. In addition, we have used and relied exclusively upon the information specified below. Neither CE Generation nor Fluor Daniel Inc. has made an analysis, verified, or rendered an independent judgment of the validity of the information provided by others. While it is believed that the information contained herein will be reliable under the conditions and subject to the limitations set forth herein, neither CE Generation nor Fluor Daniel, Inc. guarantee the accuracy thereof. Further, some assumptions may vary significantly due to unanticipated events and circumstances. To the extent that actual future conditions differ from those assumed herein or provided to us by others, the actual results will vary from those forecast. Except for the sensitivity analyses presented herein, no other sensitivities were performed. This Report summarizes our work up to date of the Report. Thus, changed conditions occurring or becoming known after such date could affect the material presented to the extent of such changes. The principal assumptions and considerations utilized by Fluor Daniel in developing the results and conclusions presented in this report include the following: o The projected interest rates on the Securities, reinvestment rates, cost of arranging the financing and the amortization schedule of the Securities used in the debt service coverage analysis have been provided to Fluor Daniel. o CE Generation provided 1998 financial statements for the CE Generation and other cost accounting information as well as future projections of cost, expenses, prices, and other key assumptions. o Brine quantities and depletion rates were provided by GeothermEx. o The electricity pricing forecast was provided by Henwood Energy Services. o Fluor Daniel has not undertaken an independent review with all regulatory agencies which could under any circumstances have jurisdictions over or interests pertaining to the project REVIEW DOCUMENTS DOCUMENT DATE DOCUMENT ---- -------- 9/21/98 Proforma Cost Report 7/18/95 Salton Sea Funding Corporation Confidential Offering Circular 6/17/96 Salton Sea Funding Corporation Confidential Offering Circular 3/31/93 Technology Transfer Agreement -- Units I, II, & III 7/28/98 Second Amended and Restated Waste Disposal Agreement -- Units I, II, III, & IV 11/24/93 Ground Lease -- Units I & II 9/25/90 Plant Connection Agreement -- Unit II A-6 DOCUMENT DATE DOCUMENT ---- -------- 7/20/88 Plant Connection Agreement -- Unit III 3/31/93 Ground Lease -- Units III & IV 7/14/95 Plant Connection Agreement -- Unit IV 6/9/88 Plant Connection Agreement -- Del Ranch, L.P. 3/14/88 Ground Lease -- Del Ranch, L.P. 3/14/88 Technology Transfer Agreement -- Del Ranch, L.P. 6/9/88 Plant Connection Agreement -- Elmore, L.P. 3/14/88 Ground Lease -- Elmore, L.P. 3/14/88 Technology Transfer Agreement -- Elmore, L.P. 9/25/89 Plant Connection Agreement -- Leathers, L.P. 10/26/88 Ground Lease -- Leathers, L.P. 8/15/88 Technology Transfer Agreement -- Leathers, L.P. 12/6/88 Plant Connection Agreement -- Vulcan Power Company 4/14/98 IID Construction Agreement -- Salton Sea Unit V 4/1/98 IID Plant Connection Agreement -- Salton Sea Unit V 4/14/98 IID Transmission Services Agreement -- Salton Sea Unit V 7/30/98 Lump Sum Cost Proposal -- Salton Sea Unit V Project Schedule 8/5/98 Imperial Valley Operating Statistics 8/98 GeothermEx Report -- Assessment of the Resource Supply 8/5/98 BHP Royalty Agreement and Amendment 8/5/98 California Energy Commission, State of California Energy Resources Conservation and Development Commission Clearance/Acknowledgement that the Desert Valley/Salton Sea Unit V Project is not subject to the Commission's jurisdiction. 9/2/98 Salton Sea Unit V Engineering, Procurement, and Construction Contract 9/11/98 Region II Upgrade Engineering, Procurement, and Construction Contract 8/12/98 Amendments to Power Purchase Agreement 3/31/98 Securities and Exchange Commission Form 10-Q 12/31/97 Securities and Exchange Commission Form 10-K 1/26/99 Consolidated and Project-Specific financial models 2/10/99 Mammoth Royalties Agreements 2/12/99 Responses to Fluor Daniel Data Requests 2/8/99 Excerpts from CalEnergy Operating Company 10 Year Plan A-7 EXHIBIT 1 CE GENERATION, LLC Pro Forma Financial Projections ($'000s) Base Case
1999 2000 2001 2002 2003 2004 --------- --------- --------- --------- --------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 222,320 $ 168,258 $ 163,615 $ 175,747 $ 180,487 $ 185,522 PRI 83,498 86,128 88,997 91,887 71,866 -- Yuma 20,817 21,140 19,782 22,079 22,579 22,248 ------------------------------------------------------------------------ Total Revenues 326,635 275,526 272,394 289,713 274,932 207,770 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 55,448 49,737 50,462 52,366 51,852 51,319 PRI 51,081 51,687 53,094 54,503 42,015 -- Yuma 13,731 16,472 13,797 14,230 16,725 14,432 ------------------------------------------------------------------------ Total Expenses 120,260 117,896 117,353 121,099 110,592 65,751 OPERATING INCOME FROM CONSOLIDATED PROJECTS 206,376 157,630 155,040 168,614 164,340 142,019 LESS: CAPITAL EXPENDITURES Imperial Valley 21,525 21,159 17,305 7,334 17,779 15,598 PRI 1,409 1,002 715 516 351 -- Yuma 179 9 6 23 40 40 ------------------------------------------------------------------------ Total Capital Expenditures 23,113 22,170 18,026 7,873 18,170 15,638 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures (142,812) (23,546) -- -- -- -- Proceeds from Financing 118,681 -- -- -- -- -- Equity Contributions 24,131 23,546 -- -- -- -- ------------------------------------------------------------------------ Total Imperial Valley Construction -- -- -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 82,740 51,546 53,451 55,115 53,349 53,433 PRI 21,561 23,381 23,796 23,975 23,188 -- ------------------------------------------------------------------------ Total Project Debt Service 104,301 74,927 77,247 79,090 76,537 53,433 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) (85) (128) (67) 183 12,328 -- ------------------------------------------------------------------------ Total Releases (85) (128) (67) 183 12,328 -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 23,810 30,031 34,951 34,791 36,563 38,304 Falcon Power Operating Company 3,271 3,361 3,452 3,547 3,317 2,399 Falcon Seaboard Gas Company (3) 8,959 9,226 9,530 9,847 3,435 -- ------------------------------------------------------------------------ Total Other Revenues 36,040 42,618 47,933 48,185 43,315 40,703 LESS: LOC / TRUSTEE FEES 299 447 460 528 488 442 TOTAL CASH AVAILABLE FOR DEBT SERVICE 114,618 102,576 107,174 129,490 124,788 113,210 CE GENERATING DEBT SERVICE Interest 24,869 29,278 28,426 27,194 25,763 24,554 Principal Repayment -- 10,400 12,600 20,600 18,000 14,600 ------------------------------------------------------------------------ Total Debt Service 24,869 39,678 41,026 47,794 43,763 39,154 CE GENERATING DEBT COVERAGE 4.61 2.59 2.61 2.71 2.85 2.89
2005 2006 2007 2008 --------- --------- --------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 190,156 $ 183,391 $ 181,318 $ 187,934 PRI -- -- -- -- Yuma 23,459 23,408 23,531 24,590 --------------------------------------------- Total Revenues 213,615 206,799 204,849 212,524 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 52,997 52,726 53,260 54,305 PRI -- -- -- -- Yuma 14,880 15,118 19,613 16,310 --------------------------------------------- Total Expenses 67,877 67,844 72,873 70,615 OPERATING INCOME FROM CONSOLIDATED PROJECTS 145,738 138,955 131,975 141,909 LESS: CAPITAL EXPENDITURES Imperial Valley 26,092 14,562 16,215 7,609 PRI -- -- -- -- Yuma 40 40 40 40 --------------------------------------------- Total Capital Expenditures 26,132 14,602 16,255 7,649 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- Proceeds from Financing -- -- -- -- Equity Contributions -- -- -- -- --------------------------------------------- Total Imperial Valley Construction -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 50,654 46,226 43,378 44,323 PRI -- -- -- -- --------------------------------------------- Total Project Debt Service 50,654 46,226 43,378 44,323 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- --------------------------------------------- Total Releases -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 40,549 41,525 40,605 49,062 Falcon Power Operating Company 2,464 2,531 2,599 2,669 Falcon Seaboard Gas Company (3) -- -- -- -- --------------------------------------------- Total Other Revenues 43,013 44,056 43,204 51,731 LESS: LOC / TRUSTEE FEES 433 464 438 523 TOTAL CASH AVAILABLE FOR DEBT SERVICE 111,532 121,719 115,108 141,145 CE GENERATING DEBT SERVICE Interest 23,464 22,204 20,824 19,111 Principal Repayment 14,800 19,200 18,000 28,200 --------------------------------------------- Total Debt Service 38,264 41,404 38,824 47,311 CE GENERATING DEBT COVERAGE 2.91 2.94 2.96 2.98
Minimum DCR (1999 - 2018) 2.59 Average DCR (1999 - 2018) 3.08 (1) Changes in accounts held at PRI related to PRI debt (final year data provided by CEG) (2) Saranac cash flow based on partnership allocations after capital expenditures and debt service (3) Data provided by CC Pace A-8 EXHIBIT 1 CE GENERATION, LLC Pro Forma Financial Projections ($'000s) Base Case
2009 2010 2011 2012 2013 2014 -------- -------- ------- -------- -------- -------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $185,550 $189,055 $ 188,223 $188,701 $194,037 $197,086 PRI -- -- -- -- -- -- Yuma 24,238 22,959 22,978 22,927 23,735 23,818 --------------------------------------------------------------- Total Revenues 209,788 212,014 211,201 211,628 217,772 220,904 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 52,804 55,109 55,556 55,087 58,568 58,332 PRI -- -- -- -- -- -- Yuma 16,817 15,971 19,020 16,993 17,531 17,817 --------------------------------------------------------------- Total Expenses 69,621 71,080 74,576 72,080 76,099 76,149 OPERATING INCOME FROM CONSOLIDATED PROJECTS 140,167 140,934 136,625 139,548 141,672 144,754 LESS: CAPITAL EXPENDITURES Imperial Valley 17,666 10,456 14,570 8,944 18,198 7,529 PRI -- -- -- -- -- -- Yuma 40 40 40 40 40 40 --------------------------------------------------------------- Total Capital Expenditures 17,706 10,496 14,610 8,984 18,238 7,569 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- -- -- Proceeds from Financing -- -- -- -- -- -- Equity Contributions -- -- -- -- -- -- --------------------------------------------------------------- Total Imperial Valley Construction -- -- -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 40,294 38,551 29,749 25,106 21,951 23,477 PRI --------------------------------------------------------------- Total Project Debt Service 40,294 38,551 29,749 25,106 21,951 23,477 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- -- -- --------------------------------------------------------------- Total Releases -- -- -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 43,219 -- -- -- -- -- Falcon Power Operating Company 1,371 -- -- -- -- -- Falcon Seaboard Gas Company (3) -- -- -- -- -- -- --------------------------------------------------------------- Total Other Revenues 44,590 -- -- -- -- -- LESS: LOC / TRUSTEE FEES 468 349 348 388 372 409 TOTAL CASH AVAILABLE FOR DEBT SERVICE 126,289 91,538 91,918 105,070 101,111 113,300 CE GENERATING DEBT SERVICE Interest 17,153 15,715 14,624 13,301 11,786 10,072 Principal Repayment 24,600 14,200 15,200 20,480 20,400 25,800 --------------------------------------------------------------- Total Debt Service 41,753 29,915 29,824 33,781 32,186 35,872 CE GENERATING DEBT COVERAGE 3.02 3.06 3.08 3.11 3.14 3.16
2015 2016 2017 2018 ------- ------- -------- -------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 200,915 $ 200,536 $197,715 $197,521 PRI -- -- -- -- Yuma 24,365 24,476 24,940 25,336 ------------------------------------------ Total Revenues 225,280 225,012 222,655 222,857 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 59,839 59,145 60,019 60,035 PRI -- -- -- -- Yuma 22,643 19,254 19,864 20,464 ------------------------------------------ Total Expenses 82,482 78,399 79,883 80,499 OPERATING INCOME FROM CONSOLIDATED PROJECTS 142,798 146,613 142,772 142,358 LESS: CAPITAL EXPENDITURES Imperial Valley 6,427 8,828 10,036 8,315 PRI -- -- -- -- Yuma 40 40 40 40 ------------------------------------------ Total Capital Expenditures 6,467 8,868 10,076 8,355 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- Proceeds from Financing -- -- -- -- Equity Contributions -- -- -- -- ------------------------------------------ Total Imperial Valley Construction -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 23,740 23,743 21,725 10,528 PRI -- -- -- -- ------------------------------------------ Total Project Debt Service 23,740 23,743 21,725 10,528 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- ------------------------------------------ Total Releases -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) -- -- -- -- Falcon Power Operating Company -- -- -- -- Falcon Seaboard Gas Company (3) ------------------------------------------ Total Other Revenues -- -- -- -- LESS: LOC / TRUSTEE FEES 402 403 391 427 TOTAL CASH AVAILABLE FOR DEBT SERVICE 112,190 113,598 110,580 123,047 CE GENERATING DEBT SERVICE Interest 8,113 6,025 3,818 1,348 Principal Repayment 27,040 29,280 30,240 36,360 ------------------------------------------ Total Debt Service 35,153 35,305 34,058 37,708 CE GENERATING DEBT COVERAGE 3.19 3.22 3.25 3.26
Minimum DCR (1999 - 2018) 2.59 Average DCR (1999 - 2018) 3.08 (1) Changes in accounts held at PRI related to PRI debt (final year data provided by CEG) (2) Saranac cash flow based on partnership allocations after capital expenditures and debt service (3) Data provided by CC Pace A-9 EXHIBIT 1 CE GENERATION, LLC Pro Forma Financial Projections ($'000s) Higher O&M Case
1999 2000 2001 2002 2003 2004 --------- --------- --------- --------- --------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 222,222 $ 168,172 $ 163,528 $ 175,656 $ 180,396 $ 185,449 PRI 83,498 86,128 88,997 91,887 71,866 -- Yuma 20,817 21,140 19,782 22,079 22,579 22,248 --------------------------------------------------------------------------- Total Revenues 326,537 275,440 272,307 289,622 274,841 207,697 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 58,490 52,567 53,311 55,324 54,835 54,330 PRI 52,198 52,763 54,205 55,639 42,890 -- Yuma 14,195 17,179 14,201 14,644 17,353 14,863 --------------------------------------------------------------------------- Total Expenses 124,883 122,509 121,717 125,607 115,078 69,193 OPERATING INCOME FROM CONSOLIDATED PROJECTS 201,655 152,931 150,590 164,015 159,763 138,504 LESS: CAPITAL EXPENDITURES Imperial Valley 21,525 21,159 17,305 7,334 17,779 15,598 PRI 1,550 1,102 787 568 386 -- Yuma 197 10 7 25 44 44 --------------------------------------------------------------------------- Total Capital Expenditures 23,272 22,271 18,099 7,927 18,209 15,642 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures (142,812) (23,546) -- -- -- -- Proceeds from Financing 118,681 -- -- -- -- -- Equity Contributions 24,131 23,546 -- -- -- -- --------------------------------------------------------------------------- Total Imperial Valley Construction -- -- -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 82,740 51,546 53,451 55,115 53,349 53,433 PRI 21,561 23,381 23,796 23,975 23,188 -- --------------------------------------------------------------------------- Total Project Debt Service 104,301 74,927 77,247 79,090 76,537 53,433 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) (85) (128) (67) 183 12,328 -- --------------------------------------------------------------------------- Total Releases (85) (128) (67) 183 12,328 -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 22,424 28,305 33,068 32,849 34,556 36,234 Falcon Power Operating Company 3,598 3,696 3,797 3,901 3,649 2,639 Falcon Seaboard Gas Company (3) 8,959 9,226 9,530 9,847 3,435 -- --------------------------------------------------------------------------- Total Other Revenues 34,981 41,227 46,395 46,597 41,640 38,873 LESS: LOC / TRUSTEE FEES 299 447 460 528 488 442 TOTAL CASH AVAILABLE FOR DEBT SERVICE 108,679 96,385 101,112 123,249 118,497 107,861 CE GENERATING DEBT SERVICE Interest 24,869 29,278 28,426 27,194 25,763 24,554 Principal Repayment -- 10,400 12,600 20,600 18,000 14,600 --------------------------------------------------------------------------- Total Debt Service 24,869 39,678 41,026 47,794 43,763 39,154 CE GENERATING DEBT COVERAGE 4.37 2.43 2.46 2.58 2.71 2.75
2005 2006 2007 2008 --------- --------- --------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 190,051 $ 183,287 $ 181,191 $ 187,778 PRI -- -- -- -- Yuma 23,459 23,408 23,531 24,590 ----------------------------------------------- Total Revenues 213,510 206,695 204,722 212,368 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 56,422 56,651 57,760 59,455 PRI -- -- -- -- Yuma 15,320 15,546 20,443 16,778 ----------------------------------------------- Total Expenses 71,742 72,197 78,203 76,233 OPERATING INCOME FROM CONSOLIDATED PROJECTS 141,769 134,498 126,519 136,134 LESS: CAPITAL EXPENDITURES Imperial Valley 26,092 14,562 16,215 7,609 PRI -- -- -- -- Yuma 44 44 44 44 ----------------------------------------------- Total Capital Expenditures 26,136 14,606 16,259 7,653 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- Proceeds from Financing -- -- -- -- Equity Contributions -- -- -- -- ----------------------------------------------- Total Imperial Valley Construction -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 50,654 46,226 43,378 44,323 PRI -- -- -- -- ----------------------------------------------- Total Project Debt Service 50,654 46,226 43,378 44,323 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- ----------------------------------------------- Total Releases -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 38,414 39,318 38,326 46,720 Falcon Power Operating Company 2,710 2,784 2,859 2,936 Falcon Seaboard Gas Company (3) -- -- -- -- ----------------------------------------------- Total Other Revenues 41,124 42,102 41,185 49,656 LESS: LOC / TRUSTEE FEES 433 464 438 523 TOTAL CASH AVAILABLE FOR DEBT SERVICE 105,670 115,304 107,628 133,291 CE GENERATING DEBT SERVICE Interest 23,464 22,204 20,824 19,111 Principal Repayment 14,800 19,200 18,000 28,200 ----------------------------------------------- Total Debt Service 38,264 41,404 38,824 47,311 CE GENERATING DEBT COVERAGE 2.76 2.78 2.77 2.82
Minimum DCR (1999 - 2018) 2.43 Average DCR (1999 - 2018) 2.82 (1) Changes in accounts held at PRI related to PRI debt (final year data provided by CEG) (2) Saranac cash flow based on partnership allocations after capital expenditures and debt service (3) Data provided by CC Pace A-10 EXHIBIT 1 CE GENERATION, LLC Pro Forma Financial Projections ($'000s) Higher O&M Case
2009 2010 2011 2012 2013 2014 -------- --------- --------- --------- -------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $185,384 $ 188,860 $ 188,004 $ 188,454 $193,753 $ 196,767 PRI -- -- -- -- -- -- Yuma 24,238 22,959 22,978 22,927 23,735 23,818 ----------------------------------------------------------------- Total Revenues 209,622 211,819 210,982 211,381 217,488 220,585 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 58,492 61,745 63,108 63,647 68,557 69,560 PRI -- -- -- -- -- -- Yuma 17,294 16,462 19,775 17,505 18,054 18,323 ----------------------------------------------------------------- Total Expenses 75,786 78,207 82,883 81,152 86,611 87,883 OPERATING INCOME FROM CONSOLIDATED PROJECTS 133,836 133,612 128,099 130,229 130,877 132,702 LESS: CAPITAL EXPENDITURES Imperial Valley 17,666 10,456 14,570 8,944 18,198 7,529 PRI -- -- -- -- -- -- Yuma 44 44 44 44 44 44 ----------------------------------------------------------------- Total Capital Expenditures 17,710 10,500 14,614 8,988 18,242 7,573 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- -- -- Proceeds from Financing -- -- -- -- -- -- Equity Contributions -- -- -- -- -- -- ----------------------------------------------------------------- Total Imperial Valley Construction -- -- -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 40,294 38,551 29,749 25,106 21,951 23,477 PRI -- -- -- -- -- -- ----------------------------------------------------------------- Total Project Debt Service 40,294 38,551 29,749 25,106 21,951 23,477 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- -- -- ----------------------------------------------------------------- Total Releases -- -- -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 42,017 -- -- -- -- -- Falcon Power Operating Company 1,508 -- -- -- -- -- Falcon Seaboard Gas Company (3) -- -- -- -- -- -- ----------------------------------------------------------------- Total Other Revenues 43,525 -- -- -- -- -- LESS: LOC / TRUSTEE FEES 468 349 348 388 372 409 TOTAL CASH AVAILABLE FOR DEBT SERVICE 118,889 84,213 83,388 95,747 90,312 101,243 CE GENERATING DEBT SERVICE Interest 17,153 15,715 14,624 13,301 11,786 10,072 Principal Repayment 24,600 14,200 15,200 20,480 20,400 25,800 ----------------------------------------------------------------- Total Debt Service 41,753 29,915 29,824 33,781 32,186 35,872 CE GENERATING DEBT COVERAGE 2.85 2.82 2.80 2.83 2.81 2.82
2015 2016 2017 2018 -------- -------- -------- -------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $200,551 $200,129 $197,254 $197,003 PRI -- -- -- -- Yuma 24,365 24,476 24,940 25,336 ------------------------------------------- Total Revenues 224,916 224,605 222,194 222,339 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 72,643 73,494 76,344 78,479 PRI -- -- -- -- Yuma 23,649 19,811 20,433 21,047 ------------------------------------------- Total Expenses 96,292 93,305 96,777 99,526 OPERATING INCOME FROM CONSOLIDATED PROJECTS 128,625 131,300 125,416 122,813 LESS: CAPITAL EXPENDITURES Imperial Valley 6,427 8,828 10,036 8,315 PRI -- -- -- -- Yuma 44 44 44 44 ------------------------------------------- Total Capital Expenditures 6,471 8,872 10,080 8,359 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- Proceeds from Financing -- -- -- -- Equity Contributions -- -- -- -- ------------------------------------------- Total Imperial Valley Construction -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 23,740 23,743 21,725 10,528 PRI -- -- -- -- ------------------------------------------- Total Project Debt Service 23,740 23,743 21,725 10,528 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- ------------------------------------------- Total Releases -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) -- -- -- -- Falcon Power Operating Company -- -- -- -- Falcon Seaboard Gas Company (3) -- -- -- -- ------------------------------------------- Total Other Revenues -- -- -- -- LESS: LOC / TRUSTEE FEES 402 403 391 427 TOTAL CASH AVAILABLE FOR DEBT SERVICE 98,012 98,281 93,220 103,498 CE GENERATING DEBT SERVICE Interest 8,113 6,025 3,818 1,348 Principal Repayment 27,040 29,280 30,240 36,360 ------------------------------------------- Total Debt Service 35,153 35,305 34,058 37,708 CE GENERATING DEBT COVERAGE 2.79 2.78 2.74 2.74
Minimum DCR (1999 - 2018) 2.43 Average DCR (1999 - 2018) 2.82 (1) Changes in accounts held at PRI related to PRI debt (final year data provided by CEG) (2) Saranac cash flow based on partnership allocations after capital expenditures and debt service (3) Data provided by CC Pace A-11 EXHIBIT I CE GENERATION, LLC Pro Forma Financial Projections ($'000s) Increased Heat Rate Case
1999 2000 2001 2002 2003 2004 --------- --------- --------- --------- --------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 222,320 $ 168,258 $ 163,615 $ 175,747 $ 180,487 $ 185,522 PRI 83,498 86,128 88,997 91,887 71,866 -- Yuma 20,817 21,140 19,782 22,079 22,579 22,248 -------------------------------------------------------------------------- Total Revenues 326,635 275,526 272,394 289,713 274,932 207,770 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 55,448 49,737 50,462 52,366 51,852 51,319 PRI 52,537 53,153 54,582 56,014 43,183 -- Yuma 14,175 16,931 14,272 14,723 17,236 14,927 -------------------------------------------------------------------------- Total Expenses 122,160 119,821 119,316 123,103 112,271 66,246 OPERATING INCOME FROM CONSOLIDATED PROJECTS 204,476 155,705 153,077 166,610 162,661 141,524 LESS: CAPITAL EXPENDITURES Imperial Valley 21,525 21,159 17,305 7,334 17,779 15,598 PRI 1,409 1,002 715 516 351 -- Yuma 179 9 6 23 40 40 -------------------------------------------------------------------------- Total Capital Expenditures 23,113 22,170 18,026 7,873 18,170 15,638 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures (142,812) (23,546) -- -- -- -- Proceeds from Financing 118,681 -- -- -- -- -- Equity Contributions 24,131 23,546 -- -- -- -- -------------------------------------------------------------------------- Total Imperial Valley Construction -- -- -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 82,740 51,546 53,451 55,115 53,349 53,433 PRI 21,561 23,381 23,796 23,975 23,188 -- -------------------------------------------------------------------------- Total Project Debt Service 104,301 74,927 77,247 79,090 76,537 53,433 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) (85) (128) (67) 183 12,328 -- -------------------------------------------------------------------------- Total Releases (85) (128) (67) 183 12,328 -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 22,061 27,824 32,511 32,246 33,904 35,530 Falcon Power Operating Company 3,271 3,361 3,452 3,547 3,317 2,399 Falcon Seaboard Gas Company (3) 8,959 9,226 9,530 9,847 3,435 -- -------------------------------------------------------------------------- Total Other Revenues 34,291 40,411 45,493 45,640 40,656 37,929 LESS: LOC / TRUSTEE FEES 299 447 460 528 488 442 TOTAL CASH AVAILABLE FOR DEBT SERVICE 110,969 98,444 102,771 124,941 120,450 109,941 CE GENERATING DEBT SERVICE Interest 24,869 29,278 28,426 27,194 25,763 24,554 Principal Repayment -- 10,400 12,600 20,600 18,000 14,600 -------------------------------------------------------------------------- Total Debt Service 24,869 39,678 41,026 47,794 43,763 39,154 CE GENERATING DEBT COVERAGE 4.46 2.48 2.51 2.61 2.75 2.81
2005 2006 2007 2008 --------- --------- --------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 190,156 $ 183,391 $ 181,318 $ 187,934 PRI -- -- -- -- Yuma 23,459 23,408 23,531 24,590 ----------------------------------------------- Total Revenues 213,615 206,799 204,849 212,524 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 52,997 52,726 53,260 54,305 PRI -- -- -- -- Yuma 15,393 15,649 20,166 16,879 ----------------------------------------------- Total Expenses 68,390 68,375 73,426 71,184 OPERATING INCOME FROM CONSOLIDATED PROJECTS 145,225 138,424 131,422 141,340 LESS: CAPITAL EXPENDITURES Imperial Valley 26,092 14,562 16,215 7,609 PRI -- -- -- -- Yuma 40 40 40 40 ----------------------------------------------- Total Capital Expenditures 26,132 14,602 16,255 7,649 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- Proceeds from Financing -- -- -- -- Equity Contributions -- -- -- -- ----------------------------------------------- Total Imperial Valley Construction -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 50,654 46,226 43,378 44,323 PRI -- -- -- -- ----------------------------------------------- Total Project Debt Service 50,654 46,226 43,378 44,323 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- ----------------------------------------------- Total Releases -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 37,653 38,505 37,453 45,774 Falcon Power Operating Company 2,464 2,531 2,599 2,669 Falcon Seaboard Gas Company (3) -- -- -- -- ----------------------------------------------- Total Other Revenues 40,117 41,036 40,052 48,443 LESS: LOC / TRUSTEE FEES 433 464 438 523 TOTAL CASH AVAILABLE FOR DEBT SERVICE 108,123 118,168 111,403 137,288 CE GENERATING DEBT SERVICE Interest 23,464 22,204 20,824 19,111 Principal Repayment 14,800 19,200 18,000 28,200 ----------------------------------------------- Total Debt Service 38,264 41,404 38,824 47,311 CE GENERATING DEBT COVERAGE 2.83 2.85 2.87 2.90
Minimum DCR (1999 - 2018) 2.48 Average DCR (1999 - 2018) 3.02 (1) Changes in accounts held at PRI related to PRI debt (final year data provided by CEG) (2) Saranac cash flow based on partnership allocations after capital expenditures and debt service (3) Data provided by CC Pace A-12 Exhibit I CE GENERATION, LLC Pro Forma Financial Projections ($'000s) Increased Heat Rate Case
2009 2010 2011 2012 2013 2014 -------- -------- -------- -------- -------- -------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $185,550 $189,055 $188,223 $188,701 $194,037 $197,086 PRI -- -- -- -- -- -- Yuma 24,238 22,959 22,978 22,927 23,735 23,818 ---------------------------------------------------------------- Total Revenues 209,788 212,014 211,201 211,628 217,772 220,904 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 52,804 55,109 55,556 55,087 58,568 58,332 PRI -- -- -- -- Yuma 17,407 16,509 19,578 17,571 18,131 18,438 ---------------------------------------------------------------- Total Expenses 70,211 71,618 75,134 72,658 76,699 76,770 OPERATING INCOME FROM CONSOLIDATED PROJECTS 139,577 140,396 136,067 138,970 141,072 144,133 LESS: CAPITAL EXPENDITURES Imperial Valley 17,666 10,456 14,570 8,944 18,198 7,529 PRI -- -- -- -- -- -- Yuma 40 40 40 40 40 40 ---------------------------------------------------------------- Total Capital Expenditures 17,706 10,496 14,610 8,984 18,238 7,569 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- -- -- Proceeds from Financing -- -- -- -- -- -- Equity Contributions -- -- -- -- -- -- ---------------------------------------------------------------- Total Imperial Valley Construction -- -- -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 40,294 38,551 29,749 25,106 21,951 23,477 PRI -- -- -- -- -- -- ---------------------------------------------------------------- Total Project Debt Service 40,294 38,551 29,749 25,106 21,951 23,477 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- -- -- ---------------------------------------------------------------- Total Releases -- -- -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 41,516 -- -- -- -- -- Falcon Power Operating Company 1,371 -- -- -- -- -- Falcon Seaboard Gas Company (3) -- -- -- -- -- -- ---------------------------------------------------------------- Total Other Revenues 42,887 -- -- -- -- -- LESS: LOC / TRUSTEE FEES 468 349 348 388 372 409 TOTAL CASH AVAILABLE FOR DEBT SERVICE 123,996 91,000 91,360 104,492 100,511 112,679 CE GENERATING DEBT SERVICE Interest 17,153 15,715 14,624 13,301 11,786 10,072 Principal Repayment 24,600 14,200 15,200 20,480 20,400 25,800 ---------------------------------------------------------------- Total Debt Service 41,753 29,915 29,824 33,781 32,186 35,872 CE GENERATING DEBT COVERAGE 2.97 3.04 3.06 3.09 3.12 3.14
2015 2016 2017 2018 -------- -------- -------- -------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $200,915 $200,536 $197,715 $197,521 PRI -- -- -- -- Yuma 24,365 24,476 24,940 25,336 ------------------------------------------ Total Revenues 225,280 225,012 222,655 222,857 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 59,839 59,145 60,019 60,035 PRI -- -- -- -- Yuma 23,256 19,919 20,554 21,177 ------------------------------------------ Total Expenses 83,095 79,064 80,573 81,212 OPERATING INCOME FROM CONSOLIDATED PROJECTS 142,185 145,948 142,082 141,645 LESS: CAPITAL EXPENDITURES Imperial Valley 6,427 8,828 10,036 8,315 PRI -- -- -- -- Yuma 40 40 40 40 ------------------------------------------ Total Capital Expenditures 6,467 8,868 10,076 8,355 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- Proceeds from Financing -- -- -- -- Equity Contributions -- -- -- -- ------------------------------------------ Total Imperial Valley Construction -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 23,740 23,743 21,725 10,528 PRI -- -- -- -- ------------------------------------------ Total Project Debt Service 23,740 23,743 21,725 10,528 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- ------------------------------------------ Total Releases -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) -- -- -- -- Falcon Power Operating Company -- -- -- -- Falcon Seaboard Gas Company (3) -- -- -- -- ------------------------------------------ Total Other Revenues -- -- -- -- LESS: LOC / TRUSTEE FEES 402 403 391 427 TOTAL CASH AVAILABLE FOR DEBT SERVICE 111,577 112,933 109,890 122,334 CE GENERATING DEBT SERVICE Interest 8,113 6,025 3,818 1,348 Principal Repayment 27,040 29,280 30,240 36,360 ------------------------------------------ Total Debt Service 35,153 35,305 34,058 37,708 CE GENERATING DEBT COVERAGE 3.17 3.20 3.23 3.24
Minimum DCR (1999 - 2018) 2.48 Average DCR (1999 - 2018) 3.02 (1) Changes in accounts held at PRI related to PRI debt (final year data provided by CEG) (2) Saranac cash flow based on partnership allocations after capital expenditures and debt service (3) Data provided by CC Pace A-13 EXHIBIT I CE GENERATION, LLC Pro Forma Financial Projections ($'000s) Reduced Availability Case
1999 2000 2001 2002 2003 2004 --------- --------- --------- --------- --------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 213,742 $ 162,354 $ 157,889 $ 169,453 $ 173,918 $ 178,717 PRI 80,887 83,442 86,223 89,026 69,649 -- Yuma 19,748 20,056 18,770 20,949 21,423 21,106 -------------------------------------------------------------------------- Total Revenues 314,377 265,852 262,882 279,428 264,990 199,823 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 55,031 49,460 50,173 52,045 51,520 50,974 PRI 48,627 49,172 50,511 51,851 39,969 -- Yuma 13,085 15,992 13,300 13,517 14,135 16,027 -------------------------------------------------------------------------- Total Expenses 116,743 114,624 113,984 117,413 105,624 67,001 OPERATING INCOME FROM CONSOLIDATED PROJECTS 197,634 151,227 148,898 162,015 159,366 132,822 LESS: CAPITAL EXPENDITURES Imperial Valley 21,525 21,159 17,305 7,334 17,779 15,598 PRI 1,409 1,002 715 516 351 -- Yuma 179 9 6 23 40 40 -------------------------------------------------------------------------- Total Capital Expenditures 23,113 22,170 18,026 7,873 18,170 15,638 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures (142,812) (23,546) -- -- -- -- Proceeds from Financing 118,681 -- -- -- -- -- Equity Contributions 24,131 23,546 -- -- -- -- -------------------------------------------------------------------------- Total Imperial Valley Construction -- -- -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 82,740 51,546 53,451 55,115 53,349 53,433 PRI 21,561 23,381 23,796 23,975 23,188 -- -------------------------------------------------------------------------- Total Project Debt Service 104,301 74,927 77,247 79,090 76,537 53,433 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) (85) (128) (67) 183 12,328 -- -------------------------------------------------------------------------- Total Releases (85) (128) (67) 183 12,328 -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 16,981 18,964 25,479 24,923 26,265 27,573 Falcon Power Operating Company 3,271 3,361 3,452 3,547 3,317 2,399 Falcon Seaboard Gas Company (3) 8,448 8,697 8,983 9,282 2,998 -- -------------------------------------------------------------------------- Total Other Revenues 28,700 31,022 37,914 37,752 32,580 29,972 LESS: LOC / TRUSTEE FEES 299 447 460 528 488 442 TOTAL CASH AVAILABLE FOR DEBT SERVICE 98,536 84,577 91,013 112,457 109,080 93,281 CE GENERATING DEBT SERVICE Interest 24,869 29,278 28,426 27,194 25,763 24,554 Principal Repayment -- 10,400 12,600 20,600 18,000 14,600 -------------------------------------------------------------------------- Total Debt Service 24,869 39,678 41,026 47,794 43,763 39,154 CE GENERATING DEBT COVERAGE 3.96 2.13 2.22 2.35 2.49 2.38
2005 2006 2007 2008 --------- --------- --------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 184,433 $ 176,997 $ 174,725 $ 181,025 PRI -- -- -- -- Yuma 22,254 22,208 22,323 23,329 ----------------------------------------------- Total Revenues 206,687 199,205 197,048 204,354 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 52,631 52,382 52,916 53,941 PRI -- -- -- -- Yuma 14,344 14,784 19,034 15,714 ----------------------------------------------- Total Expenses 66,975 67,166 71,950 69,655 OPERATING INCOME FROM CONSOLIDATED PROJECTS 139,712 132,039 125,099 134,699 LESS: CAPITAL EXPENDITURES Imperial Valley 26,092 14,562 16,215 7,609 PRI -- -- -- -- Yuma 40 40 40 40 ----------------------------------------------- Total Capital Expenditures 26,132 14,602 16,255 7,649 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- Proceeds from Financing -- -- -- -- Equity Contributions -- -- -- -- ----------------------------------------------- Total Imperial Valley Construction -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 50,654 46,226 43,378 44,323 PRI -- -- -- -- ----------------------------------------------- Total Project Debt Service 50,654 46,226 43,378 44,323 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- ----------------------------------------------- Total Releases -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 29,361 29,864 28,438 36,373 Falcon Power Operating Company 2,464 2,531 2,599 2,669 Falcon Seaboard Gas Company (3) -- -- -- -- ----------------------------------------------- Total Other Revenues 31,825 32,395 31,037 39,042 LESS: LOC / TRUSTEE FEES 433 464 438 523 TOTAL CASH AVAILABLE FOR DEBT SERVICE 94,318 103,142 96,064 121,246 CE GENERATING DEBT SERVICE Interest 23,464 22,204 20,824 19,111 Principal Repayment 14,800 19,200 18,000 28,200 ----------------------------------------------- Total Debt Service 38,264 41,404 38,824 47,311 CE GENERATING DEBT COVERAGE 2.46 2.49 2.47 2.56
Minimum DCR (1999 - 2018) 2.13 Average DCR (1999 - 2018) 2.73 (1) Changes in accounts held at PRI related to PRI debt (final year data provided by CEG) (2) Saranac cash flow based on partnership allocations after capital expenditures and debt service (3) Data provided by CC Pace A-14 EXHIBIT 1 CE GENERATION, LLC Pro Forma Financial Projections ($'000s) Reduced Availability Case
2009 2010 2011 2012 2013 2014 -------- -------- -------- -------- -------- -------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $178,760 $182,128 $181,309 $181,781 $186,836 $189,782 PRI -- -- -- -- -- -- Yuma 22,997 21,767 21,786 21,738 22,505 22,584 ----------------------------------------------------------------- Total Revenues 201,757 203,895 203,095 203,519 209,341 212,366 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 52,442 54,720 55,173 54,711 58,190 57,962 PRI -- -- -- -- -- -- Yuma 16,200 15,401 18,177 16,382 16,898 17,433 ----------------------------------------------------------------- Total Expenses 68,642 70,121 73,350 71,093 75,088 75,395 OPERATING INCOME FROM CONSOLIDATED PROJECTS 133,115 133,774 129,745 132,426 134,253 136,971 LESS: CAPITAL EXPENDITURES Imperial Valley 17,666 10,456 14,570 8,944 18,198 7,529 PRI -- -- -- -- -- -- Yuma 40 40 40 40 40 40 ----------------------------------------------------------------- Total Capital Expenditures 17,706 10,496 14,610 8,984 18,238 7,569 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- -- -- Proceeds from Financing -- -- -- -- -- -- Equity Contributions -- -- -- -- -- -- ----------------------------------------------------------------- Total Imperial Valley Construction -- -- -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 40,294 38,551 29,749 25,106 21,951 23,477 PRI -- -- -- -- -- -- ----------------------------------------------------------------- Total Project Debt Service 40,294 38,551 29,749 25,106 21,951 23,477 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- -- -- ----------------------------------------------------------------- Total Releases -- -- -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 36,583 -- -- -- -- -- Falcon Power Operating Company 1,371 -- -- -- -- -- Falcon Seaboard Gas Company (3) -- -- -- -- -- -- ----------------------------------------------------------------- Total Other Revenues 37,954 -- -- -- -- -- LESS: LOC / TRUSTEE FEES 468 349 348 388 372 409 TOTAL CASH AVAILABLE FOR DEBT SERVICE 112,601 84,379 85,037 97,948 93,692 105,516 CE GENERATING DEBT SERVICE Interest 17,153 15,715 14,624 13,301 11,786 10,072 Principal Repayment 24,600 14,200 15,200 20,480 20,400 25,800 ----------------------------------------------------------------- Total Debt Service 41,753 29,915 29,824 33,781 32,186 35,872 CE GENERATING DEBT COVERAGE 2.70 2.82 2.85 2.90 2.91 2.94
2015 2016 2017 2018 -------- -------- -------- -------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $193,391 $192,903 $189,976 $189,676 PRI -- -- -- -- Yuma 23,101 23,209 23,650 24,025 ------------------------------------------ Total Revenues 216,492 216,112 213,626 213,701 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 59,458 58,756 59,628 59,632 PRI -- -- -- -- Yuma 17,109 23,281 19,134 19,709 ------------------------------------------ Total Expenses 76,567 82,037 78,762 79,341 OPERATING INCOME FROM CONSOLIDATED PROJECTS 139,925 134,076 134,863 134,360 LESS: CAPITAL EXPENDITURES Imperial Valley 6,427 8,828 10,036 8,315 PRI -- -- -- -- Yuma 40 40 40 40 ------------------------------------------ Total Capital Expenditures 6,467 8,868 10,076 8,355 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- Proceeds from Financing -- -- -- -- Equity Contributions -- -- -- -- ------------------------------------------ Total Imperial Valley Construction -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 23,740 23,743 21,725 10,528 PRI -- -- -- -- ------------------------------------------ Total Project Debt Service 23,740 23,743 21,725 10,528 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- ------------------------------------------ Total Releases -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) -- -- -- -- Falcon Power Operating Company -- -- -- -- Falcon Seaboard Gas Company (3) -- -- -- -- ------------------------------------------ Total Other Revenues -- -- -- -- LESS: LOC / TRUSTEE FEES 402 403 391 427 TOTAL CASH AVAILABLE FOR DEBT SERVICE 109,316 101,061 102,671 115,049 CE GENERATING DEBT SERVICE Interest 8,113 6,025 3,818 1,348 Principal Repayment 27,040 29,280 30,240 36,360 ------------------------------------------ Total Debt Service 35,153 35,305 34,058 37,708 CE GENERATING DEBT COVERAGE 3.11 2.86 3.01 3.05
Minimum DCR (1999 - 2018) 2.13 Average DCR (1999 - 2018) 2.73 (1) Changes in accounts held at PRI related to PRI debt (final year data provided by CEG) (2) Saranac cash flow based on partnership allocations after capital expenditures and debt service (3) Data provided by CC Pace A-15 EXHIBIT 1 CE GENERATION, LLC Pro Forma Financial Projections ($'000s) Low Power Price 2 Case
1999 2000 2001 2002 2003 2004 --------- --------- --------- --------- --------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 222,320 $ 167,959 $ 162,755 $ 164,637 $ 169,543 $ 176,429 PRI 83,498 86,128 88,997 91,887 71,866 -- Yuma 20,817 21,130 19,108 20,009 20,669 20,486 -------------------------------------------------------------------------- Total Revenues 326,635 275,217 270,860 276,533 262,078 196,915 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 55,448 49,721 50,420 51,716 51,332 50,882 PRI 51,081 51,687 53,094 54,503 42,015 -- Yuma 13,731 16,220 13,276 13,420 15,609 13,080 -------------------------------------------------------------------------- Total Expenses 120,260 117,628 116,790 119,639 108,956 63,962 OPERATING INCOME FROM CONSOLIDATED PROJECTS 206,376 157,589 154,070 156,894 153,122 132,953 LESS: CAPITAL EXPENDITURES Imperial Valley 21,525 21,159 17,305 7,334 17,779 15,598 PRI 1,409 1,002 715 516 351 -- Yuma 179 9 6 23 40 40 -------------------------------------------------------------------------- Total Capital Expenditures 23,113 22,170 18,026 7,873 18,170 15,638 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures (142,812) (23,546) -- -- -- -- Proceeds from Financing 118,681 -- -- -- -- -- Equity Contributions 24,131 23,546 -- -- -- -- -------------------------------------------------------------------------- Total Imperial Valley Construction -- -- -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 82,740 51,546 53,451 55,115 53,349 53,433 PRI 21,561 23,381 23,796 23,975 23,188 -- -------------------------------------------------------------------------- Total Project Debt Service 104,301 74,927 77,247 79,090 76,537 53,433 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) (85) (128) (67) 183 12,328 -- -------------------------------------------------------------------------- Total Releases (85) (128) (67) 183 12,328 -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 23,810 30,031 34,951 34,791 36,563 38,304 Falcon Power Operating Company 3,271 3,361 3,452 3,547 3,317 2,399 Falcon Seaboard Gas Company (3) 8,959 9,226 9,530 9,847 3,435 -- -------------------------------------------------------------------------- Total Other Revenues 36,040 42,618 47,933 48,185 43,315 40,703 LESS: LOC / TRUSTEE FEES 299 447 460 528 488 442 TOTAL CASH AVAILABLE FOR DEBT SERVICE 114,618 102,536 106,204 117,770 113,570 104,143 CE GENERATING DEBT SERVICE Interest 24,869 29,278 28,426 27,194 25,763 24,554 Principal Repayment -- 10,400 12,600 20,600 18,000 14,600 -------------------------------------------------------------------------- Total Debt Service 24,869 39,678 41,026 47,794 43,763 39,154 CE GENERATING DEBT COVERAGE 4.61 2.58 2.59 2.46 2.60 2.66
2005 2006 2007 2008 --------- --------- --------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 179,294 $ 173,202 $ 172,030 $ 173,653 PRI -- -- -- -- Yuma 21,778 22,003 22,231 22,456 ----------------------------------------------- Total Revenues 201,072 195,205 194,261 196,109 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 52,439 52,227 52,803 53,541 PRI -- -- -- -- Yuma 13,479 13,664 18,097 14,751 ----------------------------------------------- Total Expenses 65,918 65,891 70,900 68,292 OPERATING INCOME FROM CONSOLIDATED PROJECTS 135,154 129,314 123,361 127,817 LESS: CAPITAL EXPENDITURES Imperial Valley 26,092 14,562 16,215 7,609 PRI -- -- -- -- Yuma 40 40 40 40 ----------------------------------------------- Total Capital Expenditures 26,132 14,602 16,255 7,649 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- Proceeds from Financing -- -- -- -- Equity Contributions -- -- -- -- ----------------------------------------------- Total Imperial Valley Construction -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 50,654 46,226 43,378 44,323 PRI -- -- -- -- ----------------------------------------------- Total Project Debt Service 50,654 46,226 43,378 44,323 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- ----------------------------------------------- Total Releases -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 40,549 41,525 40,605 49,062 Falcon Power Operating Company 2,464 2,531 2,599 2,669 Falcon Seaboard Gas Company (3) -- -- -- -- ----------------------------------------------- Total Other Revenues 43,013 44,056 43,204 51,731 LESS: LOC / TRUSTEE FEES 433 464 438 523 TOTAL CASH AVAILABLE FOR DEBT SERVICE 100,948 112,078 106,494 127,053 CE GENERATING DEBT SERVICE Interest 23,464 22,204 20,824 19,111 Principal Repayment 14,800 19,200 18,000 28,200 ----------------------------------------------- Total Debt Service 38,264 41,404 38,824 47,311 CE GENERATING DEBT COVERAGE 2.64 2.71 2.74 2.69
Minimum DCR (1999 - 2018) 2.46 Average DCR (1999 - 2018) 2.78 (1) Changes in accounts held at PRI related to PRI debt (final year data provided by CEG) (2) Saranac cash flow based on partnership allocations after capital expenditures and debt service (3) Data provided by CC Pace A-16 EXHIBIT I CE GENERATION, LLC Pro Forma Financial Projections ($'000s) Low Power Price 2 Case
2009 2010 2011 2012 2013 2014 -------- -------- -------- -------- -------- -------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $173,813 $176,093 $175,760 $177,681 $178,750 $181,259 PRI -- -- -- -- -- -- Yuma 22,684 21,298 21,436 21,576 21,717 21,859 ---------------------------------------------------------------- Total Revenues 196,497 197,391 197,196 199,257 200,467 203,118 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 52,244 54,417 54,927 54,536 57,757 57,555 PRI -- -- -- -- -- -- Yuma 15,199 14,483 17,476 15,392 15,872 16,095 ---------------------------------------------------------------- Total Expenses 67,443 68,900 72,403 69,928 73,629 73,650 OPERATING INCOME FROM CONSOLIDATED PROJECTS 129,054 128,491 124,793 129,329 126,837 129,468 LESS: CAPITAL EXPENDITURES Imperial Valley 17,666 10,456 14,570 8,944 18,198 7,529 PRI -- -- -- -- -- -- Yuma 40 40 40 40 40 40 ---------------------------------------------------------------- Total Capital Expenditures 17,706 10,496 14,610 8,984 18,238 7,569 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- -- -- Proceeds from Financing -- -- -- -- -- -- Equity Contributions -- -- -- -- -- -- ---------------------------------------------------------------- Total Imperial Valley Construction -- -- -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 40,294 38,551 29,749 25,106 21,951 23,477 PRI -- -- -- -- -- -- ---------------------------------------------------------------- Total Project Debt Service 40,294 38,551 29,749 25,106 21,951 23,477 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- -- -- ---------------------------------------------------------------- Total Releases -- -- -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 43,219 -- -- -- -- -- Falcon Power Operating Company 1,371 -- -- -- -- -- Falcon Seaboard Gas Company (3) -- -- -- -- -- -- ---------------------------------------------------------------- Total Other Revenues 44,590 -- -- -- -- -- LESS: LOC / TRUSTEE FEES 468 349 348 388 372 409 TOTAL CASH AVAILABLE FOR DEBT SERVICE 115,176 79,095 80,086 94,851 86,277 98,014 CE GENERATING DEBT SERVICE Interest 17,153 15,715 14,624 13,301 11,786 10,072 Principal Repayment 24,600 14,200 15,200 20,480 20,400 25,800 ---------------------------------------------------------------- Total Debt Service 41,753 29,915 29,824 33,781 32,186 35,872 CE GENERATING DEBT COVERAGE 2.76 2.64 2.69 2.81 2.68 2.73
2015 2016 2017 2018 -------- -------- -------- -------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $183,359 $183,751 $179,898 $178,317 PRI -- -- -- -- Yuma 22,132 22,436 22,728 23,017 ------------------------------------------ Total Revenues 205,491 206,187 202,626 201,334 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 58,955 58,329 59,128 59,074 PRI -- -- -- -- Yuma 20,950 17,401 17,946 18,477 ------------------------------------------ Total Expenses 79,905 75,730 77,074 77,551 OPERATING INCOME FROM CONSOLIDATED PROJECTS 125,585 130,457 125,553 123,783 LESS: CAPITAL EXPENDITURES Imperial Valley 6,427 8,828 10,036 8,315 PRI -- -- -- -- Yuma 40 40 40 40 ------------------------------------------ Total Capital Expenditures 6,467 8,868 10,076 8,355 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- Proceeds from Financing -- -- -- -- Equity Contributions -- -- -- -- ------------------------------------------ Total Imperial Valley Construction -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 23,740 23,743 21,725 10,528 PRI -- -- -- -- ------------------------------------------ Total Project Debt Service 23,740 23,743 21,725 10,528 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- ------------------------------------------ Total Releases -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) -- -- -- -- Falcon Power Operating Company -- -- -- -- Falcon Seaboard Gas Company (3) -- -- -- -- ------------------------------------------ Total Other Revenues -- -- -- -- LESS: LOC / TRUSTEE FEES 402 403 391 427 TOTAL CASH AVAILABLE FOR DEBT SERVICE 94,977 97,443 93,360 104,473 CE GENERATING DEBT SERVICE Interest 8,113 6,025 3,818 1,348 Principal Repayment 27,040 29,280 30,240 36,360 ------------------------------------------ Total Debt Service 35,153 35,305 34,058 37,708 CE GENERATING DEBT COVERAGE 2.70 2.76 2.74 2.77
Minimum DCR (1999 - 2018) 2.46 Average DCR (1999 - 2018) 2.78 (1) Changes in accounts held at PRI related to PRI debt (final year data provided by CEG) (2) Saranac cash flow based on partnership allocations after capital expenditures and debt service (3) Data provided by CC Pace A-17 EXHIBIT 1 CE GENERATION, LLC Pro Forma Financial Projections ($'000s) SCE Low Case
1999 2000 2001 2002 2003 2004 --------- --------- --------- --------- --------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 222,318 $ 170,790 $ 171,231 $ 177,615 $ 180,513 $ 184,216 PRI 83,498 86,128 88,997 91,887 71,866 -- Yuma 20,006 20,794 21,546 22,025 22,427 21,888 -------------------------------------------------------------------------- Total Revenues 325,822 277,712 281,774 291,527 274,806 206,104 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 55,448 49,886 50,879 52,392 51,848 51,242 PRI 51,081 51,687 53,094 54,503 42,015 -- Yuma 13,731 16,472 13,797 14,230 16,725 14,432 -------------------------------------------------------------------------- Total Expenses 120,260 118,045 117,770 121,125 110,588 65,674 OPERATING INCOME FROM CONSOLIDATED PROJECTS 205,563 159,667 164,004 170,402 164,218 140,431 LESS: CAPITAL EXPENDITURES Imperial Valley 21,525 21,159 17,305 7,334 17,779 15,598 PRI 1,409 1,002 715 516 351 -- Yuma 179 9 6 23 40 40 -------------------------------------------------------------------------- Total Capital Expenditures 23,113 22,170 18,026 7,873 18,170 15,638 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures (142,812) (23,546) -- -- -- -- Proceeds from Financing 118,681 -- -- -- -- -- Equity Contributions 24,131 23,546 -- -- -- -- -------------------------------------------------------------------------- Total Imperial Valley Construction -- -- -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 82,740 51,546 53,451 55,115 53,349 53,433 PRI 21,561 23,381 23,796 23,975 23,188 -- -------------------------------------------------------------------------- Total Project Debt Service 104,301 74,927 77,247 79,090 76,537 53,433 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) (85) (128) (67) 183 12,328 -- -------------------------------------------------------------------------- Total Releases (85) (128) (67) 183 12,328 -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 23,810 30,031 34,951 34,791 36,563 38,304 Falcon Power Operating Company 3,271 3,361 3,452 3,547 3,317 2,399 Falcon Seaboard Gas Company (3) 8,959 9,226 9,530 9,847 3,435 -- -------------------------------------------------------------------------- Total Other Revenues 36,040 42,618 47,933 48,185 43,315 40,703 LESS: LOC / TRUSTEE FEES 299 447 460 528 488 442 TOTAL CASH AVAILABLE FOR DEBT SERVICE 113,805 104,613 116,138 131,278 124,666 111,621 CE GENERATING DEBT SERVICE Interest 24,869 29,278 28,426 27,194 25,763 24,554 Principal Repayment -- 10,400 12,600 20,600 18,000 14,600 -------------------------------------------------------------------------- Total Debt Service 24,869 39,678 41,026 47,794 43,763 39,154 CE GENERATING DEBT COVERAGE 4.58 2.64 2.83 2.75 2.85 2.85
2005 2006 2007 2008 --------- --------- --------- --------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $ 183,879 $ 178,620 $ 179,076 $ 182,181 PRI -- -- -- -- Yuma 22,266 22,679 23,132 23,544 ----------------------------------------------- Total Revenues 206,145 201,299 202,208 205,725 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 52,640 52,512 53,169 53,979 PRI -- -- -- -- Yuma 14,880 15,118 19,613 16,310 ----------------------------------------------- Total Expenses 67,520 67,630 72,782 70,289 OPERATING INCOME FROM CONSOLIDATED PROJECTS 138,625 133,669 129,426 135,437 LESS: CAPITAL EXPENDITURES Imperial Valley 26,092 14,562 16,215 7,609 PRI -- -- -- -- Yuma 40 40 40 40 ----------------------------------------------- Total Capital Expenditures 26,132 14,602 16,255 7,649 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- Proceeds from Financing -- -- -- -- Equity Contributions -- -- -- -- ----------------------------------------------- Total Imperial Valley Construction -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 50,654 46,226 43,378 44,323 PRI -- -- -- -- ----------------------------------------------- Total Project Debt Service 50,654 46,226 43,378 44,323 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- ----------------------------------------------- Total Releases -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 40,549 41,525 40,605 49,062 Falcon Power Operating Company 2,464 2,531 2,599 2,669 Falcon Seaboard Gas Company (3) -- -- -- -- ----------------------------------------------- Total Other Revenues 43,013 44,056 43,204 51,731 LESS: LOC / TRUSTEE FEES 433 464 438 523 TOTAL CASH AVAILABLE FOR DEBT SERVICE 104,419 116,433 112,559 134,673 CE GENERATING DEBT SERVICE Interest 23,464 22,204 20,824 19,111 Principal Repayment 14,800 19,200 18,000 28,200 ----------------------------------------------- Total Debt Service 38,264 41,404 38,824 47,311 CE GENERATING DEBT COVERAGE 2.73 2.81 2.90 2,85
Minimum DCR (1999 - 2018) 2.64 Average DCR (1999 - 2018) 3.14 (1) Changes in accounts held at PRI related to PRI debt (final year data provided by CEG) (2) Saranac cash flow based on partnership allocations after capital expenditures and debt service (3) Data provided by CC Pace A- 18 EXHIBIT 1 CE GENERATION, LLC Pro Forma Financial Projections ($'000s) SCE Low Case
2009 2010 2011 2012 2013 2014 -------- -------- -------- -------- -------- -------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $183,925 $188,105 $189,866 $194,486 $198,002 $203,235 PRI -- -- -- -- -- -- Yuma 23,996 22,695 23,098 23,565 24,000 24,470 ------------------------------------------------------------------ Total Revenues 207,921 210,800 212,964 218,051 222,002 227,705 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 52,771 55,057 55,668 55,420 58,745 58,675 PRI -- -- -- -- -- -- Yuma 16,817 15,971 19,020 16,993 17,531 17,817 ------------------------------------------------------------------ Total Expenses 69,588 71,028 74,688 72,413 76,276 76,492 OPERATING INCOME FROM CONSOLIDATED PROJECTS 138,333 139,773 138,276 145,639 145,726 151,213 LESS: CAPITAL EXPENDITURES Imperial Valley 17,666 10,456 14,570 8,944 18,198 7,529 PRI -- -- -- -- -- -- Yuma 40 40 40 40 40 40 ------------------------------------------------------------------ Total Capital Expenditures 17,706 10,496 14,610 8,984 18,238 7,569 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- -- -- Proceeds from Financing -- -- -- -- -- -- Equity Contributions -- -- -- -- -- -- ------------------------------------------------------------------ Total Imperial Valley Construction -- -- -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 40,294 38,551 29,749 25,106 21,951 23,477 PRI -- -- -- -- -- -- ------------------------------------------------------------------ Total Project Debt Service 40,294 38,551 29,749 25,106 21,951 23,477 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- -- -- ------------------------------------------------------------------ Total Releases -- -- -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) 43,219 -- -- -- -- -- Falcon Power Operating Company 1,371 Falcon Seaboard Gas Company (3) -- -- -- -- -- -- ------------------------------------------------------------------ Total Other Revenues 44,590 -- -- -- -- -- LESS: LOC / TRUSTEE FEES 468 349 348 388 372 409 TOTAL CASH AVAILABLE FOR DEBT SERVICE 124,455 90,377 93,569 111,160 105,165 119,758 CE GENERATING DEBT SERVICE Interest 17,153 15,715 14,624 13,301 11,786 10,072 Principal Repayment 24,600 14,200 15,200 20,480 20,400 25,800 ------------------------------------------------------------------ Total Debt Service 41,753 29,915 29,824 33,781 32,186 35,872 CE GENERATING DEBT COVERAGE 2.98 3.02 3.14 3.29 3.27 3.34
2015 2016 2017 2018 -------- -------- -------- -------- CASH FROM PROJECTS REVENUES FROM CONSOLIDATED PROJECTS Imperial Valley $207,181 $209,662 $207,850 $208,974 PRI -- -- -- -- Yuma 24,953 25,425 25,890 26,368 ------------------------------------------ Total Revenues 232,134 235,087 233,740 235,342 LESS: EXPENSES FROM CONSOLIDATED PROJECTS Imperial Valley 60,144 59,624 60,523 60,615 PRI -- -- -- -- Yuma 22,643 19,254 19,864 20,464 ------------------------------------------ Total Expenses 82,787 78,878 80,387 81,079 OPERATING INCOME FROM CONSOLIDATED PROJECTS 149,347 156,209 153,353 154,263 LESS: CAPITAL EXPENDITURES Imperial Valley 6,427 8,828 10,036 8,315 PRI -- -- -- -- Yuma 40 40 40 40 ------------------------------------------ Total Capital Expenditures 6,467 8,868 10,076 8,355 LESS: IMPERIAL VALLEY CONSTRUCTION CASH FLOWS Construction Expenditures -- -- -- -- Proceeds from Financing -- -- -- -- Equity Contributions -- -- -- -- ------------------------------------------ Total Imperial Valley Construction -- -- -- -- LESS: CONSOLIDATED PROJECT LEVEL DEBT SERVICE Imperial Valley 23,740 23,743 21,725 10,528 PRI -- -- -- -- ------------------------------------------ Total Project Debt Service 23,740 23,743 21,725 10,528 PLUS: RELEASE/(ADDITION) OF RESTRICTED FUNDS PRI (1) -- -- -- -- ------------------------------------------ Total Releases -- -- -- -- PLUS: OTHER REVENUE CASH FLOWS Saranac (2) -- -- -- -- Falcon Power Operating Company Falcon Seaboard Gas Company (3) -- -- -- -- ------------------------------------------ Total Other Revenues -- -- -- -- LESS: LOC / TRUSTEE FEES 402 403 391 427 TOTAL CASH AVAILABLE FOR DEBT SERVICE 118,739 123,194 121,161 134,952 CE GENERATING DEBT SERVICE Interest 8,113 6,025 3,818 1,348 Principal Repayment 27,040 29,280 30,240 36,360 ------------------------------------------ Total Debt Service 35,153 35,305 34,058 37,708 CE GENERATING DEBT COVERAGE 3.38 3.49 3.56 3.58
Minimum DCR (1999 - 2018) 2.64 Average DCR (1999 - 2018) 3.14 (1) Changes in accounts held at PRI related to PRI debt (final year data provided by CEG) (2) Saranac cash flow based on partnership allocations after capital expenditures and debt service (3) Data provided by CC Pace A-19 APPENDIX B INDEPENDENT ENGINEER'S REPORT CE GENERATION LLC NATURAL GAS PROJECTS [R.W. Beck LOGO] [THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY] APPENDIX B INDEPENDENT ENGINEER'S REPORT CE GENERATION LLC NATURAL GAS PROJECTS TABLE OF CONTENTS
PAGE ---- PRI PROJECT.....................................................................................................B-4 Project Operator.............................................................................................B-4 The Project..................................................................................................B-4 The Project Site..........................................................................................B-4 Environmental Site Conditions.............................................................................B-4 Description of the Project................................................................................B-5 Review of Technology......................................................................................B-8 Reliability and Availability..............................................................................B-8 Status of Permits and Approvals...........................................................................B-8 Operating History............................................................................................B-9 Performance History.......................................................................................B-9 Operating Programs and Procedures........................................................................B-10 Regulatory Compliance....................................................................................B-10 Projected Operating Results.................................................................................B-12 Annual Operating Revenues................................................................................B-12 Annual Operating Expenses................................................................................B-13 Senior Debt Service......................................................................................B-14 Distributions to CE Generation...........................................................................B-14 SARANAC PROJECT................................................................................................B-14 Project Operator............................................................................................B-14 The Project.................................................................................................B-14 The Project Site.........................................................................................B-14 Environmental Site Conditions............................................................................B-15 Description of the Project...............................................................................B-15 Review of Technology.....................................................................................B-18 Reliability and Availability.............................................................................B-18 Status of Permits and Approvals..........................................................................B-18 Operating History...........................................................................................B-19 Performance History......................................................................................B-19 Operating Programs and Procedures........................................................................B-20 Regulatory Compliance....................................................................................B-20 Projected Operating Results.................................................................................B-22 Annual Operating Revenues................................................................................B-22 Annual Operating Expenses................................................................................B-23 Senior Debt Service......................................................................................B-24 Distributions to CE Generation...........................................................................B-24 YUMA PROJECT...................................................................................................B-24 Project Operator............................................................................................B-25 The Project.................................................................................................B-25 The Project Site.........................................................................................B-25 Environmental Site Conditions............................................................................B-25 Description of the Project...............................................................................B-25 Review of Technology.....................................................................................B-28 Reliability and Availability.............................................................................B-28
B-i APPENDIX B INDEPENDENT ENGINEER'S REPORT CE GENERATION LLC NATURAL GAS PROJECTS TABLE OF CONTENTS (CONTINUED)
PAGE ---- Status of Permits and Approvals..........................................................................B-28 Operating History...........................................................................................B-29 Performance History......................................................................................B-29 Operating Programs and Procedures........................................................................B-30 Regulatory Compliance....................................................................................B-30 Projected Operating Results.................................................................................B-32 Annual Operating Revenues................................................................................B-32 Annual Operating Expenses................................................................................B-34 Distributions to CE Generation...........................................................................B-34 NORCON PROJECT.................................................................................................B-34 Project Operator............................................................................................B-35 The Project.................................................................................................B-35 The Project Site.........................................................................................B-35 Environmental Site Conditions............................................................................B-35 Description of the Project...............................................................................B-36 Review of Technology.....................................................................................B-38 Status of Permits and Approvals..........................................................................B-38 Regulatory Compliance.......................................................................................B-39 Projected Operating Results.................................................................................B-40 SUMMARY PROJECTED OPERATING RESULTS............................................................................B-41 Distributions from the Natural Gas Projects.................................................................B-41 Sensitivity Analyses........................................................................................B-41 Summary Comparison of Projected Operating Results...........................................................B-41 PRINCIPAL CONSIDERATIONS AND ASSUMPTIONS USED IN THE PROJECTION OF OPERATING RESULTS....................................................................B-42 CONCLUSIONS....................................................................................................B-43 EXHIBITS EXHIBIT B-1 Base Case Projected Operating Results...........................................................B-46 EXHIBIT B-2 Sensitivity A - Increased Operating Expenses....................................................B-52 EXHIBIT B-3 Sensitivity B - Increased Heat Rate.............................................................B-57 EXHIBIT B-4 Sensitivity C - Reduced Availability............................................................B-62 EXHIBIT B-5 Sensitivity D - Yuma Low Gas 1..................................................................B-67 EXHIBIT B-6 Sensitivity E - Yuma Low Gas 2..................................................................B-70 EXHIBIT B-7 Sensitivity F - Yuma SCE Low SRAC...............................................................B-73 EXHIBIT B-8 Sensitivity G - Yuma SCE Median SRAC............................................................B-76 EXHIBIT B-9 Sensitivity H - Yuma SCE High SRAC..............................................................B-79 EXHIBIT B-10 Sensitivity I - Yuma Breakeven Electricity Price.................................................B-82
Copyright (C)1999 R. W. Beck, Inc. All rights reserved. B-ii [R.W. Beck LOGO] February 24, 1999 CE Generation LLC 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Subject: INDEPENDENT ENGINEER'S REPORT ON THE CE GENERATION LLC NATURAL GAS PROJECTS Ladies and Gentlemen: Presented herein is the report (the "Report") of our review and analyses of the Saranac Power Partners, L.P. Project located in Plattsburgh, New York (the "Saranac Project"), the Yuma Cogeneration Associates Project located in Yuma, Arizona (the "Yuma Project"), the Power Resources Inc. ("PRI") Project located in Big Spring, Texas (the "PRI Project") and the NorCon Power Partners, L.P. ("NorCon") Project located in Erie, Pennsylvania (the "NorCon Project" and, collectively with the Saranac, Yuma and PRI Projects, the "Natural Gas Projects"). The PRI, Saranac, and NorCon Projects are operated by Falcon Power Operating Company ("FPOC"), a wholly-owned subsidiary of CE Generation. The Natural Gas Projects are gas-fired combined-cycle electric generating facilities currently in operation. This Report has been prepared in connection with the issuance by CE Generation LLC ("CE Generation") of approximately $400,000,000 principal amount of 7.416% Senior Secured Bonds Due December 15, 2018 (the "Securities"). CE Generation is wholly-owned by CalEnergy Company, Inc. ("CalEnergy"). The PRI Project is a nominal 200 megawatt ("MW") combined-cycle cogeneration facility located in Big Spring, Texas. The PRI Project consists of two General Electric ("GE") Frame 7EA combustion turbine generators ("CTGs") exhausting into individual heat recovery steam generators ("HRSGs") which provide steam to a single steam turbine generator ("STG") and to Fina as process steam. Fina has a standby boiler which operates as the backup steam source for process steam supply. The PRI Project is a Qualifying Facility ("QF") in accordance with Federal Energy Regulatory Commission ("FERC") requirements and has been in operation since June 1988. The PRI Project sells electric energy and capacity on a dispatchable basis to Texas Utilities Electric Company ("TUEC") pursuant to the PRI Power Purchase Agreement dated July 30, 1986 (the "PRI PPA"), which has a term ending in September 2003. The PRI Project sells steam to the adjacent Fina Oil and Chemical Company ("Fina") under a Purchase and Steam Sales Agreement between PRI and Fina dated November 21, 1986 (the "PRI Steam Sales Agreement"), which has an initial term ending in September 2003. The PRI Project is operated by FPOC (the "PRI Operator") pursuant to the PRI Operations and Maintenance Agreement between PRI and FPOC dated September 1, 1988 (the "PRI O&M Agreement"), which expires in January 2004. The PRI Project has several fuel contracts in place. The PRI Project has a fuel purchase agreement in place with Fina dated November 21, 1986 under which it is obligated to purchase an average of 3,600 million Btu per day ("MMBtu/day") of refinery gas (the "PRI Refinery Gas Contract"). The PRI Refinery Gas Contract terminates on September 30, 2003, with the provision that the PRI Refinery Gas Contract can be extended for a period of two years. ----------------------------------------------------------------------------- 1125 Seventeenth Street, Suite 1900 Denver, CO 80202-2615 Phone (303) 299-5200 Fax (303) 297-2811 B-1 Additional natural gas is delivered to the PRI Project pursuant to a Gas Supply Agreement with Falcon Seaboard Gas Company ("FSGC") dated December 30, 1988 (the "PRI Gas Supply Agreement"). FSGC is a wholly-owned subsidiary of CE Generation. FSGC has a gas contract with Louis Dreyfus Natural Gas Corporation ("Louis Dreyfus") dated December 1, 1988 (the "Louis Dreyfus Gas Contract"), which expires October 1, 2003. The Louis Dreyfus Gas Contract provides for FSGC to receive gas on a firm basis in accordance with a tiered arrangement with Louis Dreyfus. FSGC has two Gas Transportation Contracts with Westar, formerly Cabot Gas Supply, for interstate and intrastate transportation dated December 1, 1988, as amended, (the "FSGC Gas Transportation Contracts"). The FSGC Gas Transportation Contracts expire on September 30, 2003. The Saranac Project is a nominal 240 MW combined-cycle cogeneration facility located in Plattsburgh, New York. The Saranac Project consists of two GE Frame 7EA CTGs exhausting into individual HRSGs which provide steam to a single STG and to the steam customers as process steam. A single auxiliary boiler operates as the backup steam source for process steam supply. It is a QF and has been in operation since June 1994. The Saranac Project sells electric energy and capacity to New York State Electric and Gas Corporation ("NYSEG") pursuant to the Saranac Power Purchase Agreement, as amended, dated April 27, 1990 (the "Saranac PPA"), which has a term ending in June 2009. The Saranac Project sells steam to Georgia-Pacific under a 15-year steam sales agreement dated December 21, 1992 (the "Georgia-Pacific Steam Sales Agreement") and Tenneco Packaging ("Tenneco") under a steam sales agreement dated February 27, 1996 (the "Tenneco Steam Sales Agreement") which ends in June 2009. The Saranac Project is operated by FPOC (the "Saranac Operator") pursuant to the Saranac O&M Agreement dated September 30, 1994, as amended,(the "Saranac O&M Agreement"). Natural gas is delivered to the Saranac Project pursuant to the Saranac Gas Supply Agreement with Shell Canada dated May 20, 1992, as amended (the "Saranac Gas Supply Agreement"), which expires in June 2009 and the TransCanada Saranac Gas Transportation Agreement with TransCanada dated December 24, 1992 (the "Saranac Gas Transportation Agreement"). The Yuma Project is a nominal 50 MW combined-cycle cogeneration facility located in Yuma, Arizona. It is a QF and has been in operation since May 28, 1994. The Yuma Project consists of a single dual fuel capable GE model 6B CTG, exhausting to a single Nooter-Eriksen three-pressure HRSG which provides steam to a GE STG for additional electric generation, as well as process steam and chiller steam to Queen Carpet, Inc. ("Queen Carpet"). One gas-fired auxiliary boiler is operated to provide process steam to Queen Carpet when the HRSG is not operating. The Yuma Project sells electric energy and capacity on a dispatchable basis to San Diego Gas and Electric ("SDG&E") under the Yuma Standard Offer No. 2 Power Purchase Agreement dated March 7, 1990, as amended, (the "Yuma PPA"), which expires May 1, 2024. The Yuma Project also sells process and chiller steam to Queen Carpet under two energy services agreements. Process steam is sold under the Energy Services Agreement between America-West Industries, Inc. and Yuma Cogeneration Associates dated April 2, 1993 (the "Yuma Process ESA"). Chiller steam is sold under the Energy Services Agreement (Absorption Chiller Steam) between America-West Industries, Inc. and Yuma Cogeneration Associates dated May 3, 1993 (the "Yuma Chiller ESA"). The Yuma Process ESA and the Yuma Chiller ESA each have an initial term ending May 1, 2024. The Yuma Project is operated by Yuma Cogeneration Associates (the "Yuma Operator"), a wholly-owned subsidiary of CE Generation. Natural gas is supplied to the Yuma Project pursuant to the Gas Supply and Transportation Services Master Agreement between Yuma Cogeneration Associates and Southwest Gas Corporation ("SWG") dated November 21, 1992 (the "SWG Gas Supply and Transportation Agreement"). The initial term of the SWG Gas Supply and Transportation Agreement expires December 31, 2008. Fuel oil is purchased on a spot market basis. The NorCon Project is a nominal 80 MW combined-cycle cogeneration facility located near Erie, Pennsylvania. The NorCon Project utilizes two GE LM5000 CTGs, each one exhausting to a Deltak HRSG which provides steam for one Elliott STG. Each HRSG has a carbon monoxide ("CO") catalyst to reduce CO emissions and each CTG uses steam injection to reduce nitrogen oxides ("NOx") emissions. Process steam is extracted from the STG and sent to the facility owned by Welch Foods Inc. ("Welch") adjacent to the NorCon Project. Additional steam is extracted and sent to an ammonia refrigeration plant ("ARP") which cools ammonia for use as a B-2 refrigerant in the Welch facility. The NorCon Project has an auxiliary boiler that can supply back-up process steam while Welch maintains its own centrifugal refrigeration unit to back up the ARP. It is a QF and has been in operation since December 1992. The NorCon Project sells electric energy and capacity to Niagara Mohawk Power Corporation ("Niagara Mohawk") pursuant to the Power Purchase Agreement dated April 28, 1989 (the "NorCon PPA"), which has an initial term ending December 2017, and steam to Welch pursuant to the NorCon Thermal Energy Purchase Agreement dated July 31, 1991 (the "NorCon Thermal Energy Agreement"), which has an initial term ending in July 2011. The NorCon Project is operated and maintained by FPOC (the "NorCon Operator"), a wholly-owned subsidiary of CE Generation, pursuant to the Amended and Restated Operations and Maintenance Agreement dated June 1, 1991 (the "NorCon O&M Agreement"). The NorCon Project's base fuel requirement of 16,480 MMBtu/day is purchased from Louis Dreyfus pursuant to the Gas Sale and Purchase Agreement dated January 29, 1992 (the "NorCon Gas Supply Agreement"), which has an initial term ending in 2007. Small amounts of spot market gas are supplied either by Louis Dreyfus or local suppliers. Natural gas is transported by National Fuel Gas Supply Corporation pursuant to the Gas Transportation Letter Agreement dated November 19, 1991 (the "NorCon Gas Transportation Agreement"), which has an initial term ending in 2011. During the preparation of this Report, we have reviewed the various agreements related to the development of the Natural Gas Projects. These agreements set forth the obligations of each of the parties with respect to the operation of those Natural Gas Projects. As Independent Engineer, we have made no determination as to the validity and enforceability of these agreements; however, for the purposes of this Report, we have assumed these agreements will be fully enforceable in accordance with their terms and that all parties will comply with the provisions of their respective agreements. During the course of our review, we have visited and made general field observations of the Natural Gas Project sites as described later herein (collectively, the "Natural Gas Project Sites"). The general field observations were visual, above-ground examinations of selected areas, which we deemed adequate to comment on the existing condition of those Natural Gas Projects and the Natural Gas Project Sites and which were not in the detail which would be necessary to reveal conditions with respect to safety, geological or environmental conditions, the internal physical condition of any equipment, or the conformance with agreements, codes, permits, rules, or regulations of any party having jurisdiction with respect to the Natural Gas Projects or the Natural Gas Project Sites. In addition, with the exception of the NorCon Project, we have reviewed: (1) the status of permits and approvals for the Natural Gas Projects and compliance with those permits; (2) the historic and projected levels of production of the Natural Gas Projects; (3) the historic and projected O&M expenses of the Natural Gas Projects; (4) the historic and projected revenues of the Natural Gas Projects; and (5) historical operating records of the Natural Gas Projects. Based on our review, we have prepared a series of projections of net operating revenue of the Natural Gas Projects and distributions to CE Generation, which are attached as Exhibit B-1 to this Report (the "Projected Operating Results"). The Projected Operating Results are based on the assumptions described in this Report and the footnotes to Exhibits B-1. With respect to the NorCon Project, we have reviewed only the status of permits and compliance with those permits. Certain analyses and projections relied upon for the purposes of this Report were prepared by others. In developing the Projected Operating Results, we have relied upon projections market prices for the Yuma Project prepared by Henwood Energy Services, Inc. ("Henwood"), whose report is included as Appendix E to the Confidential Offering Circular (the "Henwood Report"), and a review of fuel supply and transportation contracts and projections of fuel commodity and transportation costs for the Natural Gas Projects performed by C.C. Pace Consulting, L.L.C. ("C.C. Pace"). In addition, Fluor Daniel, Inc. ("Fluor Daniel") has prepared a projection of sensitivity case electricity pricing for the Yuma Project for one of the sensitivity cases. Based on their experience in developing similar projections and performing similar reviews, we believe it is reasonable to rely upon the review and projections prepared by Henwood, C.C. Pace, and Fluor Daniel. B-3 PRI PROJECT The PRI Project is a nominal 200 MW combined-cycle cogeneration facility which commenced commercial operation in June 1988. The PRI Project sells electric energy and capacity to TUEC pursuant to the PRI PPA while selling process steam to Fina under the PRI Steam Sales Agreement. The PRI Project consists of two dual fuel fired GE Frame 7EA CTGs exhausting to separate HRSGs. The PRI Project uses natural gas as the primary fuel. One CTG has been up-rated from a firing temperature of 2,020 degrees Fahrenheit ("(degree)F") to a firing temperature of 2,035(degree)F, and the remaining Unit will be upgraded during its next major maintenance outage. The two pressure level HRSGs produce high pressure ("HP") and low pressure ("LP") steam which is directed to a single STG for additional power generation. Low pressure steam is extracted from the steam turbine for process steam to Fina and for use in a common feedwater deaerator. HP steam is also injected into the CTGs for NOx emissions control. Duct firing of the HRSGs is provided to generate additional steam. Some jet "A" liquid fuel is stored on site for CTG backup operation, testing, and diesel generator use. Jet "A" is produced in the Fina steam host facility adjacent to the PRI Project. PROJECT OPERATOR The PRI Project is operated under the PRI O&M Agreement by the PRI Operator. The PRI Operator commenced commercial operation and maintenance of the PRI Project in June 1988. THE PROJECT THE PROJECT SITE The PRI Project is located on 5.74 acres leased from Fina near Big Spring, Texas adjacent to the existing Fina plant (the "PRI Project Site") (see Figure B-1, PRI Project Site Plan). The PRI Project also owns approximately 20 acres adjacent to the leased site. The other wastewater disposal well is located on a 4-acre tract about 4 miles away. The general area is industrial in nature with the Sid Richardson, Ltd. carbon plant located nearby. The PRI Project Site is easily accessible from Interstate 20 and the site elevation is approximately 2,500 feet above sea level. The PRI Project Site is part of an Industrial District Agreement with the City of Big Spring whereby the city agrees not to annex the PRI Project Site and the PRI Project makes payments to the city in lieu of annexation. The term of the Industrial District Agreement expires on December 31, 2003. ENVIRONMENTAL SITE CONDITIONS We have not reviewed any reports of previous or recent environmental investigations regarding the potential for site contamination issues at the PRI Project Site. Because we did not conduct or review such environmental reports, we can offer no opinion with respect to potential site contamination at the PRI Project Site or potential future remediation costs should contamination be found. As of February 1999, the PRI Project was not listed on United States Environmental Protection Agency's ("USEPA's") National Priorities List of Superfund Sites or USEPA's Comprehensive Environmental Response Compensation Liability Information System ("CERCLIS") List. Visual inspections during our PRI Project Site visit of January 28, 1999 indicated that the PRI Operator is following "good housekeeping" procedures. We did not observe any unusual stained or soiled areas and the PRI Operator maintains spill cleanup kits at various locations on the PRI Project Site. The transformers, acid, and caustic tanks all have adequate secondary containment. We are not aware of any groundwater or soil contamination. The PRI Operator stated that there are no soil or groundwater monitoring requirements for the PRI Project Site, however, Fina has installed, monitors and operates a number of groundwater monitoring wells in the area. There are two groundwater monitoring wells near the PRI Project Site close to the north and south leased boundaries. B-4 DESCRIPTION OF THE PROJECT MECHANICAL EQUIPMENT AND SYSTEMS The PRI Project utilizes two GE Frame 7EA CTGs firing natural gas, steam injection to control NOx emissions and a blend of refinery off gas produced by Fina. The generator is totally enclosed water air-cooled. The CTGs are capable of firing jet "A" liquid fuel. The CTGs are supplied by GE with auxiliary equipment required for an indoor installation. Each CTG exhausts to a dedicated Deltak two-pressure level HRSG. Each HRSG incorporates a Coen natural gas-fired duct burner to supplement steam production during hot ambient temperatures or when one CTG is shut down. The PRI Project delivers up to 150,000 pounds per hour ("pph") of steam at 650 pounds per square inch, absolute ("psia") and 770(degree)F to Fina. No steam condensate is returned by Fina to the PRI Project. TrEated water is returned for cooling tower makeup. The Hitachi-supplied STG is an induction/extraction condensing unit capable of generating 75,000 kilowatts ("kW") at a throttle pressure of 1,200 pounds per square inch-gauge ("psig") and 940(Degree)F. The STG exhaust steam is condensed in a water-cooled condenser located under the steam turbine. Cooling water is provided by a three-cell induced draft cooling tower, and three 50 percent capacity circulating water pumps. ENVIRONMENTAL CONTROL SYSTEMS Steam injection is utilized in the CTGs to limit NOx emissions to the permitted levels. No other emissions reduction equipment is utilized or required. The PRI Project wastewater, including boiler and cooling tower blowdown, demineralizer wastes, and water recovered from the oily water separation system, discharges to the west holding pond before being injected into one of two underground formations with deepwell injection pumps. Non-contaminated stormwater and reverse osmosis reject discharges to the east holding pond for use as cooling tower makeup. Facility floor drains discharge to oil/water separators and then to the west holding pond. PRI signed a water transfer agreement with the Sid Richardson, Ltd. carbon plant dated April 28, 1997 (the "PRI Water Transfer Agreement") to take a specified amount of wastewater from the PRI Project. This water is rarely supplied and when it is supplied, the water flows into the east holding pond which is used for cooling tower makeup. The PRI Water Transfer Agreement expires in April 2007. ELECTRICAL AND CONTROL SYSTEMS The electrical interface with the electric transmission grid is at the substation located on the PRI Project Site. The generator outputs are stepped up by 138 kV via step-up transformers located near the generators and the 138 kV transformers are connected to a 345 kV switchyard located on the PRI Project Site switchyard. The PRI Project output is connected to the TUEC system on the high side of the 345 kV transformers. The PRI Project has two diesel generators, one rated 1,350 kW for "black start" capability, connected to the 4,160 volt switchgear and a smaller maintenance generator connected to the 480 volt motor control center. The 480 volt generator is used for emergency backup and startup. Jet "A" fuel for the diesels is obtained from Fina. The instrumentation and control system is a Foxboro Spectrum Multistation distributed control system ("DCS") and is budgeted for replacement with the Foxboro IA system beginning in April 1999 with completion scheduled in October 1999. The existing Hitachi, HISEC 04-M dual processing unit, steam turbine control system will be replaced and integrated into the new Foxboro IA system. The CTGs are controlled by GE Mark IV speedtronic control systems. Water Plant controls are Modicon programmable logic controllers ("PLCs"), which are micoprocessor based with math functions. B-5 Figure B-1 PRI PROJECT SITE PLAN [GRAPHIC SHOWING SITE PLAN OF THE PRI PROJECT OMITTED] B-6 Every organization in the country is faced with a potential problem on January 1, 2000, when the calendars on the millions of computers and microprocessors in the country change from the year 99 to 00 and certain other dates (for example, but not limited to, Leap Year and 9/9/99)(the "Y2K Issue"). The Y2K Issue occurs when computers or processors which use two-digit years misinterpret the year 2000 to be "00," zero, 1900, or some other erroneous date. The Y2K Issue has the potential to impact organizations like those of the Natural Gas Projects in several different ways. First, it could impact the instruments and controls within the major operating facilities such as the Natural Gas Projects. Although the Y2K Issue has received considerable publicity as it relates to computer information systems such as billing and financial systems, the problems regarding process control or embedded systems in operational equipment have received limited attention. This includes instrument and control systems for power plants and SCADA systems for substation, transmission and distribution facilities. The potential problems with these operational facilities are significant as is the effort required to identify and correct the problems. Evaluation of the actual status of the Natural Gas Projects, as well as other entities with whom the Natural Gas Projects have business or operational relations, relative to the Y2K Issue is beyond the scope of this Report. We have not conducted any independent evaluation or on-site testing of the aforesaid entities in any way to independently ascertain the actual hardware and software status. We caution that it is entirely possible that presently unknown conditions could arise, which lead to significant operational and/or administrative problems, and that these problems could have an adverse impact on the Natural Gas Projects. Additionally, the Y2K Issue has the potential to affect organizations other than those of the Natural Gas Projects, the continued performance of which is also critical to continued operation of the Natural Gas Projects. These other organizations may be located either up or downstream of the Natural Gas Projects in the production or transmission of electrical power. The PRI Operator stated that that it believes that the Y2K deficiencies with the plant DCS system will be resolved with the installation of the new Foxboro IA control system. The PRI Operator has prepared a "Year 2000 Contingency Planning and Preparations Guide" Draft Version 2.0 dated January 7, 1998, and plans to use this document to make and implement their preparations for all other Y2K issues at the PRI Project. This plan calls for complete implementation by July 31, 1999. OFF-SITE REQUIREMENTS Makeup water for the PRI Project is supplied from two local lakes under a contract with the Colorado River Municipal Water District which expires on September 30, 2003. Water from the lakes is clarified on site and filtered before being utilized by the plant demineralized water equipment and cooling tower makeup. Potable water for plant general use is supplied by Fina as part of the site lease agreement, however the plant utilizes bottled water for drinking water. A septic tank located near the warehouse handles the PRI Project sanitary waste. The 345 kV electric transmission lines extend approximately 7 miles from the PRI Project Site to the TUEC transmission system. Natural gas is obtained from FSGC, a wholly owned subsidiary of CE Generation, via pipeline into the PRI Project Site. Refinery gas is obtained from the Fina refinery adjacent to the PRI Project Site. Jet "A" fuel is obtained from Fina. Based on C.C. Pace's review of the PRI Gas Supply Agreement, the FSGC Gas Transportation Contracts, the Louis Dreyfus Gas Contract, the PRI Refinery Gas Contract, C.C. Pace's fuel cost projections, and our estimate of the fuel requirements of the PRI Project, we are of the opinion that the PRI Project possesses sufficient contract or spot natural gas commodity supplies to meet the requirements of the PRI PPA and that its contracted natural gas transportation capacity is adequate to deliver the natural gas supply requirements over the term of the PRI PPA. B-7 REVIEW OF TECHNOLOGY The GE Frame 7EA is proven technology and in general has exhibited the qualities of a reliable mature gas turbine technology. GE has issued Technical Information Letters ("TILs") with recommendations for the 17-stage compressor for the CTG. The PRI Project implemented the GE-recommended 17th stage compressor revisions prior to any failure at the PRI Project and, according to the PRI Operator, has kept up to date with TILs issued by GE. In June 1998 CTG No. 1 experienced a field failure. The failure was caused by thermal expansion and contraction of the generator rotor bars which obstructed the cooling holes resulting in inadequate cooling. The generator rotor failure was repaired, however, according to the PRI Operator, GE has not issued a TIL to address the cause of this failure. During the June 1998 generator repair, the PRI Project decided to proceed with the latest turbine up-rate for unit No. 1, which increased the turbine firing temperature from 2,020(degree)F to 2,035(degree)F. The plant made the decision to up-rate the turbine to decrease the use of the HRSG duct burner during peak periods, thus achieving fuel savings due to improved over all plant heat rate. CTG No. 2 is to be up-rated to the new firing temperature during the outage scheduled in October 1999. Based on our review, we are of the opinion that the PRI Project utilizes sound technology and proven methods of electric and thermal generation and has generally been designed and constructed in accordance with generally accepted industry practices. If operated and maintained consistent with generally accepted industry practices, the PRI Project should be capable of meeting the requirements of the PRI PPA, the PRI Steam Sales Agreement and current environmental permits throughout the term of the PRI PPA. Further, the PRI Project has adequately provided for all off-site requirements, including fuel, water supply, wastewater disposal and electrical interconnections. RELIABILITY AND AVAILABILITY Based on historical performance, review of O&M procedures and general observation of the PRI Project, we are of the opinion that the PRI Project is capable of maintaining an annual average availability, inclusive of curtailed hours, of 92 percent throughout the term of the PRI PPA. This availability includes the average annual "backdown", or curtailment, hours since the PRI Project must be available to run during all curtailment periods. The average capacity factor, which reflects the actual amount of generation, has been assumed to be 80 percent for the purposes of the Projected Operating Results, based on the allowed amount of curtailment. The stipulated annual average capacity factor is the projected average over the term of the PRI PPA. There may be years when the capacity factor is either above or below the projected annual average. STATUS OF PERMITS AND APPROVALS All of the major permits and approvals required to operate the PRI Project have been obtained. With respect to its Operating Permit, a new requirement under Title V of the Clean Air Act, has been applied for with the Texas Natural Resources Conservation Commission ("TNRCC"). While most of the permits required for operation must be renewed periodically, we know of no technical reason that such renewals would not be obtainable. Table 1 summarizes the status of the major permits and approvals issued for the PRI Project. B-8 TABLE 1 PRI PROJECT STATUS OF KEY PERMITS AND APPROVALS
PERMIT OR APPROVAL RESPONSIBLE AGENCY STATUS COMMENTS ------------------ ------------------ ------ -------- FEDERAL QF Status FERC In compliance Noticed 12/29/88 Prevention of Significant USEPA Approved October 14, The PRI Project submitted an Deterioration ("PSD") Permit 1986 application for amendments to the Air Quality Permit and the PSD Permit to the TNRCC on October 8, 1998 NPDES Storm Water Permit USEPA Approved 11/17/97 STATE Air Quality Permit TNRCC Approved September 29, Permit No. 17411 1986 Federal Operating Permit TNRCC Permit Application Approval Pending Underground Injection Permits TNRCC Approved 08/29/89 Permit No. WDW-280 Amended 06/23/95 Permit No. WDW-281 Expires: 08/29/99 Solid Waste Registration TNRCC Expires: 11/17/02
OPERATING HISTORY PERFORMANCE HISTORY The PRI Project's historical operating results have been compiled from data reports provided by the PRI Operator. The PRI Project has been in full commercial operation since June 1988 and has been operating at an average availability of 92.3 percent since full commercial operation. The PRI Project originally operated for a few months in simple-cycle mode until the HRSGs, steam turbine and other ancillary components were installed for full combined-cycle operation. The operating history since commercial operation is summarized in Table 2. Availability shown in Table 2 is defined as the sum of the total energy delivered to TUEC plus curtailment energy credited by TUEC divided by the product of the demonstrated capacity of 200 MW times the number of hours in a year. TABLE 2 PRI PROJECT OPERATING HISTORY
PRI PPA FUEL STEAM SALES AVAILABILITY(1) CAPACITY YEAR CAPACITY (MW) NET MWh (MMBtu) (Mlb) (%) FACTOR (%) ---- ------------- ------- ------- ------- ------- ---------- 1998 200 1,341,719 12,469,848 716,224 93.7 82.3 1997 200 1,305,333 12,396,779 944,902 91.2 79.7 1996 200 1,286,959 12,208,578 753,783 88.7 77.0 1995 200 1,406,121 13,396,194 847,122 97.4 85.9 1994 200 1,292,641 12,312,121 780,237 91.0 79.5
(1) The source of the data and calculations in the above table was the TUEC and PRI monthly reports and the Fina invoices for refinery fuel and steam sales. B-9 Based upon the operating history of the PRI Project and with an allowance for future degradation, we are of the opinion that, for the purpose of developing the Projected Operating Results, the PRI Project is capable of delivering net electrical capability of 200 MW at an annual average heat rate of approximately 9,500 Btu per kWh on a higher heating value ("HHV") basis and an availability, inclusive of curtailed hours, of 92 percent for the term of the PRI PPA. OPERATING PROGRAMS AND PROCEDURES We have reviewed with the PRI Operator the various operations and maintenance programs and procedures, training programs and performance monitoring systems. We did not review all aspects of these plans and procedures. However, we verified that the PRI Operator had in place all of the usual and necessary plans, procedures and documentation normally required to operate facilities of this type. The PRI Operator has implemented computer-based maintenance management systems at the PRI Project which schedule and track regularly scheduled preventive maintenance activities. The PRI Operator reported that equipment vendor maintenance recommendations were followed when setting up the maintenance management systems. These systems are also used to track corrective and emergency work orders and to keep equipment-specific records of maintenance activities, parts use, and labor requirements. All but minor maintenance on the CTGs is subcontracted to GE. The PRI Operator utilizes the computer software program Mainsaver(R) to assist it in its preventive and corrective maintenance programs. We did not review in detail the operations and maintenance procedures for major equipment and systems. However, the plant does have in place operating and procedural manuals. Spare parts are stored in both the in-plant warehouse area and a separate yard warehouse. Items stored on the PRI Project Site are those items requiring climatized storage. Items stored in the warehouse adjacent to the PRI Project Site are items not requiring climatized storage and large bulky items. Items are referenced by computer storage number in accordance with the software program Mainsaver(R). The PRI Operator's training programs provide an initial two-year employee training, however, refresher training is not currently provided. We have reviewed the organizational structure for the operation and maintenance for the PRI Project. There is a total of 24 operation and maintenance personnel. REGULATORY COMPLIANCE The PRI Project is subject to various permits and approvals issued by the TNRCC, USEPA, FERC. These permits and approvals establish design criteria, performance standards, monitoring, recordkeeping and reporting requirements for the CTGs, HRSGs, and ancillary equipment at the PRI Project. Although we did not conduct a detailed environmental audit, the following describes our understanding of the status of the PRI Project with respect to requirements set forth in its permits and approvals, pending regulations, and applicable environmental management laws and regulations based on review of documents provided for our on-site review and discussions with the PRI Operator. Based on our review, we are of the opinion, the PRI Project appears to be operating in general compliance with applicable environmental permits, approvals, laws, rules and regulations. AIR QUALITY PERMITS Before initiating construction on the PRI Project, PRI obtained an Air Quality Permit from the TNRCC and a PSD Permit from the USEPA. These permits specify design criteria, emission limitations and compliance monitoring requirements for the CTGs, HRSGs, and emergency diesel generators. On October 8, 1998, the PRI Project submitted an application for amendments to the Air Quality and PSD permits previously approved by the TNRCC. The amendments were necessitated as a result of the CTG B-10 up-rate which increased the output and firing temperature on CTG No. 1. As a result, the PRI Project must amend the previously approved permits to reflect the attendant increase in potential emissions. The increase in potential emissions, however, will not constitute a major modification under the PSD Rules. Based on the initial stack tests, the CTGs and HRSGs comply with the emission limitations specified in the Air Quality and PSD Permits. The last four quarterly reports submitted for the CTGs also demonstrated general compliance with the operating criteria specified in the permits. FEDERAL OPERATING PERMIT The PRI Project submitted an administratively complete application for a Federal Operating Permit to the TNRCC by the deadline specified in 30 TAC ss.122.130. The permit application cites the emission limitations and monitoring, recordkeeping and reporting requirements stipulated in the previously approved Air Quality and PSD Permits. If the application is approved as submitted to the TNRCC, no new requirements will be imposed on the CTGs, HRSGs, or emergency diesel generators in the Federal Operating Permit. NEW SOURCE PERFORMANCE STANDARDS Because the CTGs and HRSG duct burners have maximum heat input greater than 100 MMBtu per hour ("MMBtu/hr"), they are subject to the New Source Performance Standards ("NSPS") for Stationary Gas Turbines (40 CFR, Subpart GG) and Industrial Steam Generating Units (40 CFR, Subpart Db). Immediately after startup, the PRI Project was required to conduct stack test to demonstrate compliance with the NSPS. The PRI Project is also required to continuously record the electrical generation, fuel consumption, and steam-to-fuel ratio in each CTG and to report excess emissions from the CTGs quarterly to the USEPA. Based on the initial stack tests, the CTGs and HRSGs were shown to readily comply with the emission limitations specified in the applicable NSPS. The last four quarterly reports submitted for the gas turbines also demonstrated general compliance with the applicable standards. UNDERGROUND INJECTION PERMITS The PRI Project disposes of industrial wastewater, including regenerative wastes and cooling tower blowdown, in two injection wells located near the PRI Project Site. The TNRCC issued the original permits to conduct Class I underground injection for the two disposal wells on August 29, 1989. The PRI Project applied for amended permits before expiration of the original permits on August 29, 1994. The amended permits were issued on January 3, 1995 and will expire on August 29, 1999. HAZARDOUS AND SOLID WASTE REGISTRATION In accordance with 30 TAC 331, the PRI Project reports and, as necessary, updates solid waste generation at the PRI Project on Notice of Registration ("NOR") Forms submitted to the TNRCC. An annual report documenting the generation, transportation, disposal and recycling of both hazardous and Class I non-hazardous waste is also filed with the TNRCC. Based on the annual waste summary, a waste generation fee is assessed on the waste stored on site or disposed of off site at the end of each reporting year by the TNRCC. Waste that is recycled is exempt from the waste generation fee. STORMWATER PERMIT The PRI Project previously operated under an NPDES baseline general permit for stormwater discharges associated with industrial activities issued by the USEPA on September 25, 1992. Before expiration of the NPDES baseline general permit on September 25, 1997, the PRI Project submitted a Notice of Intent ("NOI") for coverage under the NPDES multi-sector general permit associated with industrial activities to the USEPA. The USEPA subsequently issued a notice of coverage under the NPDES multi-sector general permit to the PRI Project on November 17, 1997. B-11 QF STATUS The PRI Project is required by the PRI PPA to be a QF. On December 29, 1988, the PRI Project filed a notice with FERC of the qualifying status as a cogeneration facility for the PRI Project. Actual average Operating Standards and Efficiency Standards required for a QF, as provided by the PRI Operator, are listed in Table 3. TABLE 3 PRI PROJECT QF STATISTICS
OPERATING EFFICIENCY YEAR STANDARD (%) STANDARD (%) ---- ------------ ------------ 1998 18.91 49.22 1997 20.24 43.95 1996 20.27 48.74 1995 19.04 49.05
PROJECTED OPERATING RESULTS We have reviewed the historical operating information, estimates and projections of electrical generating capacity, steam generation capacity, fuel consumption, and operating costs of the PRI Project made available to us by CE Generation. On the basis of such data, we have prepared the Projected Operating Results. The Projected Operating Results are presented for each calendar year beginning January 1, 1999, representing the beginning of the quarterly distributions which will be available to CE Generation, through September 30, 2003, the expiration date of the PRI PPA. Revenues for the PRI Project are derived primarily from the sale of electricity to TUEC and steam to Fina. Expenses consist of the cost of fuel, including transportation, as estimated by C.C. Pace, and operating and maintenance expenses, based on the information provided by CE Generation, and existing senior debt service, as provided by CE Generation. Projected sources of revenues and expenses have been set for the PRI Project in the Projected Operating Results presented in Exhibit B-1. The Projected Operating Results are based on current contractual commitments as described herein and have been prepared using assumptions and considerations set forth in this Report and in the footnotes to Exhibit B-1. ANNUAL OPERATING REVENUES REVENUES FROM THE SALE OF ELECTRICITY The PRI PPA with TUEC expires September 30, 2003. TUEC is required to purchase all of the output from the PRI Project up to 200 MW per hour except when they elect to curtail the PRI Project down to a minimum of 79 MW. In any 12 consecutive months, the aggregate amount of all curtailments cannot be of such magnitude as to jeopardize the PRI Project's QF status. TUEC history of curtailments has not exceeded 300,000 MWh for any 12-month period. The PRI PPA specifies pricing for capacity and energy delivered to TUEC. The capacity payment is based on a firm capacity of 200 MW with an annual capacity factor greater than 65 percent. If the annual capacity factor falls below 65 percent, the capacity payment is zero. In addition, capacity billing adjustments can occur if the peak month capacity factor is less than 75 percent or if the peak period capacity factor is less than 82 percent. For the purposes of the Projected Operating Results, we have assumed that the PRI Project will achieve a peak period capacity factor such that no adjustments to the capacity payments will be made. Based on the maximum level of curtailment allowed under the PRI PPA, for the purposes of the Projected Operating Results, we have assumed an annual average capacity factor of 80 percent over the term of the PRI PPA. The PRI PPA specifies energy rates for energy produced under a 72.5 percent capacity factor. When the PRI Project has a monthly capacity factor at or above 72.5 percent, the energy rate is equal to 99 percent of TUEC's Weighted Average Cost of Gas ("WACOG"). The WACOG is determined using a heat rate of B-12 10,300 Btu per kWh and TUEC's average cost of gas for the applicable month, which has been estimated by C.C. Pace. The capacity and energy pricing for energy produced under a 72.5 percent capacity factor pursuant to the PRI PPA are presented in Table 4. TABLE 4 PRI PPA CAPACITY AND ENERGY PRICES
CAPACITY PRICE ENERGY PRICE YEAR ($/KW-MO) ($/MWH) ---- -------------- ------------ 1999 $16.24 $31.70 2000 16.81 32.80 2001 17.40 34.00 2002 18.00 35.20 2003 18.63 36.40
REVENUE FROM THE SALE OF STEAM The PRI Project has entered into the PRI Steam Sales Agreement for the sale of steam to Fina expiring September 30, 2003. The volume of steam Fina is required to purchase must be sufficient to allow the PRI Project to maintain its QF status under PURPA. The steam capacity available to Fina is between 51,000 pph and 115,000 pph. The minimum capacity Fina is required to purchase is 440,000 Mlb of steam annually. For the purposes of the Projected Operating Results, we have assumed that Fina will purchase 830,000 Mlb of steam per year, as estimated by CE Generation. Under the terms of the PRI Steam Sales Agreement, the price of steam is equal to $2.45 in 1991 dollars, escalating at a rate of 2.0 percent each June 1 beginning June 1, 1992. INTEREST INCOME We have included interest income on the senior debt service reserve and major maintenance reserve funds required under the Restated Term Loan Agreement dated December 30, 1988. CE Generation reports that the debt service reserve fund requirement is currently funded at $5,917,000 and is required to be maintained at a level equal to the next quarter's debt service payment. The major maintenance reserve fund has a minimum requirement, which we have assumed, of $1,000,000. CE Generation has estimated interest income on these reserve funds at a rate of 5.5 percent per year. The debt service reserve fund is assumed to be distributed to CE Generation upon the final payment of the term loan. ANNUAL OPERATING EXPENSES FUEL COSTS The PRI Refinery Gas Contract obligates the purchase of an average of 3,600 MMBtu/day of refinery gas. The PRI Refinery Gas Contract terminates on September 30, 2003 with the provision that it can be extended for a period of two years. For the purposes of the Projected Operating Results, we have assumed that the PRI Project will use approximately 1,051,000 MMBtu year. Under the terms of the PRI Refinery Gas Contract, the price of refinery gas is equal to $2.20 per MMBtu in 1987 dollars and escalates each January 1 at a rate of 2 percent annually. Natural gas is delivered to the PRI Project pursuant to the PRI Gas Supply Agreement with FSGC. FSGC provides gas through a separate contract with Louis Dreyfus, which expires October 1, 2003. The contractual rates under the Louis Dreyfus Gas Contract are fixed at $2.81 per MMBtu, which escalates by 3 percent per year each June 1 beginning June 1, 1997. Portions of the gas supplied under the Louis Dreyfus Gas Contract are priced on a spot basis. For the purpose of the Projected Operating Results, we have assumed a spot price of gas to the PRI Project as estimated by C.C. Pace. An annual reservation fee of $547,500, which is escalated at 3 percent per year starting in July 1, 1996, is also applied. B-13 Under the PRI Gas Supply Agreement, the PRI Project pays $0.075 per MMBtu in transportation charges. For deliveries above 25,000 MMBtu/day, an additional $0.06 per MMBtu is charged. OPERATION AND MAINTENANCE EXPENSES The PRI Project is operated by FPOC, a wholly-owned subsidiary of CE Generation, (the "PRI Operator") in accordance with the PRI O&M Agreement, which expires January 2004. The PRI Operator is reimbursed for direct costs for operations and maintenance and receives payment for an operator fee, management fee, operator's incentive fee, and any applicable sales or use tax. Pursuant to the PRI O&M Agreement, the annual PRI Operator's fee is $660,000 in 1989 dollars and escalates each January 1 at a rate of 3.5 percent and the annual management fee is fixed at $240,000. The PRI Operator's incentive fee is equal to 1.125 percent of gross revenue if the PRI Project operates at an annual capacity factor in excess of 82 percent. Base on the assumed capacity factor of 80 percent in the Projected Operating Results, the PRI Operator would not receive an incentive fee. SENIOR DEBT SERVICE Based on information provided by CE Generation, we have included a senior debt service payment based on the term loan principal amount of $90,529,000 as of January 1, 1999 and an interest rate of 10.385 percent per year in 1999 and 2000 and 10.635 percent per year from 2001 through 2003. The remaining balance of the term loan is payable in quarterly installments and matures on December 31, 2003. DISTRIBUTIONS TO CE GENERATION CE Generation indirectly owns 100 percent of the PRI Project and therefore it has been assumed that 100 percent of the cash available for distributions will be available to CE Generation. SARANAC PROJECT The Saranac Project is a nominal 240 MW combined-cycle cogeneration facility which commenced commercial operation in June 1994. The Saranac Project sells electric energy and capacity to NYSEG pursuant to the Saranac PPA while selling process steam to Georgia-Pacific and Tenneco. The Saranac Project consists of two natural gas-fired GE Frame 7EA CTGs exhausting to separate HRSGs. The HRSGs produce HP steam which is directed to a single STG for additional power generation, IP steam as process steam and STG admission, and LP steam for use in the integral HRSG deaerators. Duct firing of the HRSGs is provided to generate additional steam. Propane is stored on site for use when natural gas is unavailable. PROJECT OPERATOR The Saranac Project is operated under the Saranac O&M Agreement by FPOC (the "Saranac Operator"). The Saranac Operator commenced operation and maintenance of its first combined-cycle cogeneration facility in 1987. THE PROJECT THE PROJECT SITE The Saranac Project is located in the Town of Plattsburgh, New York near the existing Georgia-Pacific tissue plant and adjacent to the D&H railroad (the "Saranac Project Site") (see Figure B-2, Saranac Project Site Plan). The general area is industrial in nature with Tenneco and Georgia-Pacific being the closest neighbors to the Saranac Project Site. The Saranac Project Site is easily accessible from highway I-87. B-14 ENVIRONMENTAL SITE CONDITIONS We have not reviewed any reports of previous or recent environmental investigations regarding the potential for site contamination issues at the Saranac Project Site. Because we did not conduct or review such environmental reports, we can offer no opinion with respect to potential site contamination at the Saranac Project Site or potential future remediation costs should contamination be found. As of February 1999, the Saranac Project was not listed on USEPA's National Priorities List of Superfund Sites or USEPA's CERCLIS List. The Saranac Project is not listed on the Inactive Hazardous Waste Disposal Sites list, dated April 1998, published by NYSDEC. The Saranac Operator reported that there have been three relatively minor reportable spills over the last three years of operation. As required, NYSDEC was notified in all cases and the Saranac Operator took appropriate remedial action. NYSDEC has not required any further action. Visual inspections during our Saranac Project Site visit of February 4, 1999 indicated that the Saranac Operator is following "good housekeeping" procedures. We did not observe any unusual stained or soiled areas and the Saranac Operator maintains spill cleanup kits at various locations on the Saranac Project Site. The transformers, acid, caustic and ammonia storage tanks all have adequate secondary containment. We are not aware of any potential groundwater or soil contamination. The Saranac Operator stated that there are no soil or groundwater monitoring requirements for the Saranac Project Site. DESCRIPTION OF THE PROJECT MECHANICAL EQUIPMENT AND SYSTEMS The Saranac Project utilizes two dry low NOx ("DLN") GE Frame 7EA CTGs firing natural gas with a hydrogen-cooled generator. The CTGs are supplied by GE with auxiliary equipment required for an indoor installation. Each CTG exhausts to a dedicated Deltak three pressure level HRSG with an integral deaerator and feedwater heater. Each HRSG incorporates a natural gas fired duct burner to supplement steam production. The Saranac Project delivers up to 144,000 pph of steam at 250 psia and 450(degree)F to Georgia-Pacific. The GE-supplied STG is a single automatic extraction condensing unit with a controlled automatic induction/extraction, capable of generating 77,614 kW at an inlet steam flow rate of 549,400 pph of 1,265 psia and 925(Degree)F steam and a back pressure of 2 inches of mercury ("in. HgA"). The STG exhaust steam is condensed in an air-cooled condenser located to the north of the main facility building. A 3,000 psi water wash system has been added for once-a-year high pressure spray type washing to clear springtime poplar seed strings and other airborne fouling items. The A frame, all galvanized fin and tube air-cooled condenser is manufactured by GEA Power Cooling Systems, Inc. The air-cooled condenser package includes required air removal equipment (two 100 percent redundant steam jet air ejectors and one hogging ejector), fans with two speed motor drives, a condenser support structure, a condensate collection tank, an exhaust duct, certain piping and controls. ENVIRONMENTAL CONTROL SYSTEMS A DLN combustor system is utilized in the CTGs to limit NOx emissions. A selective catalytic reduction ("SCR") and a CO catalyst are installed in the HRSG to meet the air permit emission limits. SCR controls the NOx emissions from the CTGs and the duct burners to below 9 parts per million ("ppm"). The production of CO is controlled by the use of a CO catalyst. B-15 The Saranac Project wastewater, including boiler and cooling tower blowdown, discharges to the Town of Plattsburgh wastewater treatment facility after on-site pretreatment as required, which consists of automatic pH adjustment. Stormwater discharges to a swale running alongside the Saranac Project Site and subsequently to Scomotion Creek. Facility floor drains discharge to oil/water separators and then to the Town of Plattsburgh sanitary system. Drains in the acid/caustic tank area flow to a neutralization tank prior to discharge to the oil/water separators and to the town of Plattsburgh sanitary system. ELECTRICAL AND CONTROL SYSTEMS The electrical interface with the electric transmission grid is at the substation located approximately two miles from the Saranac Project Site. The connecting 115 kV underground cable is run in a connected duct and the SF-6 breakers are inspected every time the unit is down for a maintenance outage. The Saranac Project has two 1,500 kW gas-fired standby generators, one in the main powerhouse and one in the auxiliary boiler building. There is also a 1,500 kW No. 2 oil-fired emergency diesel generator. These generators are capable of black-starting the Saranac Project. An additional 400 kW No. 2 oil-fired generator is available for emergency lighting and other emergency/maintenance requirements. The instrumentation and control system is a Foxboro DCS and provides for custom graphics, system diagnostics, historical trending and report generation. Redundant multi-loop and microprocessors are provided for process protection, control and monitoring. We have reviewed the Y2K Issue with the Saranac Operator. The Saranac Operator reports that its Y2K compliance review is approximately 80 percent complete. The balance of the review is scheduled for completion by late March 1999. For a description of the Y2K Issue and the scope of our review relative to the Y2K Issue, please refer to the corresponding subsection of the PRI Project section of this Report. OFF-SITE REQUIREMENTS The Saranac Project utilizes the Town of Plattsburgh water supply and wastewater disposal systems. Both process and sanitary wastewater discharge to the Town of Plattsburgh sewer system. The 115 kV electric transmission lines extend from the Saranac Project Site to the NYSEG Northend substation. One 115 kV transmission line continues on to the NYPA Plattsburgh substation and the other continues on to the proposed NYSEG Ashley Road substation. The gas pipeline route is 22 miles long and extends from the Canadian border near the town of Chazy, where the line pressure is approximately 1,000 psi, to the Saranac Project Site. The route generally parallels highway I-87; however, only a small portion directly abuts the right-of-way of I-87. Based on C.C. Pace's review of the Saranac Gas Supply Agreement, the Saranac Gas Transportation Contracts, C.C. Pace's fuel cost projections, and our estimate of the fuel requirements of the Saranac Project, we are of the opinion that the Saranac Project possesses sufficient firm contract natural gas commodity supplies to meet the requirements of the Saranac PPA and that its contracted firm natural gas transportation capacity is adequate to deliver the natural gas supply requirements over the term of the Saranac PPA. B-16 FIGURE B-2 SARANAC PROJECT SITE PLAN [Graphic Showing Site Plan of the Saranac Project Omitted] B-17 REVIEW OF TECHNOLOGY While the operating experience of the GE Frame 7EA CTG is extensive, it has experienced some problems recently at facilities similar to the Saranac Project. These problems have been addressed at the Saranac Project and solutions have been incorporated as follows: o The GE Frame 7EA electric generators have been found to have out-of-phase vibration which over time has caused fatigue failure at certain stress points within the generator. The Saranac Project's electric generators Nos. 1 and 2 have been upgraded by GE and this problem has not occurred. o An apparent manufacturing defect has been found in certain electric generators regarding an inadequate number of side ripple springs. The insufficient number of ripple springs could lead over time to the degradation of the electric generator insulation and cause generator bar stator default. The Saranac Project's electric generators have had the generator wedges reglazed and this problem is not expected to occur. o The combustion turbines 17th stage compressor vanes failed and caused limited compressor and combustor damage in previous units of this generation. GE corrected this situation with an upgrade and the problem is not expected to occur at the Saranac Project. o Risk of potential damage to first stage compressor blades due to icing. Potential icing conditions are understood and watched for by the Saranac Operator. An air inlet icing situation has not been reported to have occurred at the Saranac Project. Based on our review, we are of the opinion that the Saranac Project utilizes sound technology and proven methods of electric and thermal generation and has generally been designed and constructed in accordance with generally accepted industry practices. If operated and maintained consistently with generally accepted industry practices, the Saranac Project should be capable of meeting the requirements of the Saranac PPA, the Georgia-Pacific Steam Sales Agreement, the Tenneco Steam Sales Agreement, and current environmental permits throughout the term of the Saranac PPA. Further, the Saranac Project has adequately provided for all off-site requirements, including fuel, water supply, wastewater disposal and electrical interconnections. RELIABILITY AND AVAILABILITY Based on historical performance, review of O&M practices and procedures and general observation of the Saranac Project, we are of the opinion that the Saranac Project is capable of maintaining an annual average availability of 94 percent. The stipulated annual average capacity factor is the projected average over the term of the Saranac PPA. There will be years when the availability is either above or below the projected annual average. STATUS OF PERMITS AND APPROVALS All of the major permits and approvals required to operate the Saranac Project have been obtained. While most of the permits required for operation must be renewed periodically, we know of no technical reason that such renewals would not be obtainable. A draft Title V Operating Permit was issued by NYSDEC on January 15, 1999. After the 30-day public comment period, the NYSDEC has another 45 days to comment and, assuming no problems arise, issue a final permit. The draft permit does not contain any new or more restrictive conditions or limitations, and essentially duplicates the conditions and limitations found in the PSD Permit Modification dated October 6, 1998, as described later herein. B-18 A list of key permits and approvals required for operation, and a summary of their status, is provided in Table 5. This represents our understanding based on our Saranac Project Site visit, discussions with the Saranac Operator, and a brief review of selected documents. TABLE 5 SARANAC PROJECT STATUS OF KEY PERMITS AND APPROVALS
PERMIT OR APPROVAL RESPONSIBLE AGENCY STATUS COMMENTS ------------------ ------------------ ------ -------- FEDERAL QF Status FERC In compliance Refer to text Wetlands Permit U.S. Corps of Obtained prior to Compensatory wetlands Engineers (joint construction monitoring has been with NYSDEC) completed STATE Air Quality Certificate to Operate NYSDEC Issued: December 20, 1994 Expires: December 20, 1999 Title V Operating Permit NYSDEC Received draft permit Currently in 30-day public January 15, 1999 comment period State Pollution Discharge NYSDEC Issued: November 1, 1998 A general permit for Elimination System ("SPDES") stormwater discharge LOCAL Wastewater Discharge Permit for Town of Plattsburgh Issued: November 1, 1996 Revised July 1, 1997 discharge to Town of Plattsburgh Expires: October 31, 2001 Requires weekly, monthly, sewer system quarterly monitoring and reporting
OPERATING HISTORY PERFORMANCE HISTORY The Saranac Project's historical operating results have been compiled from monthly operating reports provided by CE Generation. The Saranac Project has been in commercial operation since June 1994 and has been operating at an average availability of 94.9 percent since commercial operation. The operating history since commercial operation is summarized in Table 6. TABLE 6 SARANAC PROJECT OPERATING HISTORY
FUEL STEAM SALES AVAILABILITY CAPACITY YEAR AVERAGE MW NET MWh (MMBtu) (Mlb) (%) FACTOR (%) ---- ---------- ------- ------- ------- ------- ---------- 1998 207 1,680,912 14,563,522 778,039 92.8 85.4 1997 223 1,855,184 15,890,597 742,698 97.7 95.0 1996 227 1,886,894 15,869,553 628,175 95.2 97.0 1995 237 1,971,795 16,419,574 499,237 98.4 95.1 1994 235 937,931 7,964,336 128,792 90.7 89.4
Based upon the operating history of the Saranac Project and with an allowance for future degradation, we are of the opinion that, for the purpose of developing the Projected Operating Results, the Saranac B-19 Project is capable of delivering net electrical capability of 240 MW at an annual average heat rate of approximately 8,550 Btu per kWh (HHV) and an availability of 94 percent for the term of the Saranac PPA. OPERATING PROGRAMS AND PROCEDURES We have reviewed with the Saranac Operator the various operations and maintenance programs and procedures, training programs and performance monitoring systems. We did not review all aspects of these plans and procedures. However, we verified that the Saranac Operator had in place all of the usual and necessary plans, procedures and documentation normally required to operate facilities of this type. Specific documents reviewed included: Standard Operating Guidelines, Technician Qualification Program, Plant Start-up/Shut-down Checklist, and Control Room Operator Qualification. The Saranac Operator has implemented computer-based maintenance management systems at the Saranac Project which schedule and track regularly scheduled preventive maintenance activities. The Saranac Operator reported that equipment vendor maintenance recommendations were followed when setting up the maintenance management systems. These systems are also used to track corrective and emergency work orders and to keep equipment-specific records of maintenance activities, parts use, and labor requirements. All but minor maintenance is subcontracted to GE. The Saranac Operator utilizes the computer software program Mainsaver(R) to assist it in its preventive and corrective maintenance programs. We reviewed operations and maintenance procedures for major equipment and systems. The procedures appeared complete and included drawings and vendor manuals as well as step-by-step operating instructions and maintenance schedules. Normal daily maintenance is performed by the Saranac Operator's on-site personnel. Spare parts are stored in both the in-plant warehouse area and a separate yard warehouse. Items are stored by computer storage number in accordance with the software program Mainsaver(R). Larger items requiring a fork lift are stored in the yard warehouse, a five-level rack storage facility. The Saranac Operator's training programs provide initial employee training as well as periodic training to maintain competency of the Saranac Operator's on-site personnel. We have reviewed the organizational structure for the operation and maintenance for the Saranac Project. There is a total of 24 operation and maintenance personnel. REGULATORY COMPLIANCE The Saranac Project must be operated in accordance with all applicable environmental permits, approvals, laws, rules and regulations. Although we did not conduct a detailed environmental audit, the following describes our understanding of the status of the Saranac Project with respect to requirements set forth in its permits and approvals, pending regulations, and applicable environmental management laws and regulations based on review of documents provided for our on-site review and discussions with NYSDEC. Based on our review, we are of the opinion that the Saranac Project appears to be operating in general compliance with applicable environmental permits, approvals, laws, rules and regulations with the exceptions noted below. AIR PERMIT Review of the last four quarterly summary reports for the Saranac Project indicates that it has demonstrated satisfactory compliance with permitted emission limits and that monitoring systems are being properly maintained. Saranac performed emissions testing to demonstrate compliance with all applicable emissions requirements at low load operation. A PSD Permit Modification was issued by NYSDEC on October 6, 1998, which allows for gas turbine operation as low as 43 MW at 50(Degree)F, down from the original operating limit of 64.5 MW at 50(Degree)F. The draft Title V Operating Permit contains the same restrictions with respect to gas turbine B-20 operation to 50 percent load, defined as 43 MW at 50(Degree)F. Further, both the PSD Permit Modification and the draft Title V Operating Permit extend the allowable startup/shutdown time from 3 to 6 hours. QF STATUS The Saranac Project is required by the Saranac PPA to be a QF. Actual average Operating Standards and Efficiency Standards as provided by the Saranac Operator are listed in Table 7. TABLE 7 SARANAC PROJECT QF STATISTICS
OPERATING EFFICIENCY YEAR STANDARD (%) STANDARD (%) ---- ------------ ------------ 1998 12.43 46.72 1997 11.98 46.92 1996 7.47 46.77 1995 6.35 47.63
NOx BUDGET RULE As a further measure to bring all areas of the State of New York into compliance with the National Air Quality Standard for ozone, NYSDEC developed a NOx Budget Rule 6NYCRR27-3 that set up a NOx cap, allowance and trading system similar, on a state level, to the Federal SO2 allowance program under Title IV of the Clean Air Act Amendments of 1990. Each facility in operation by 1997 was allocated a certain number of allowances. If, in a given year's ozone season beginning in 1999, a facility emits more than its available allowances, it will have to purchase further allowances from other sources at market prices. If a facility emits less than its allowances, it may sell the excess allowances on the open market. The Saranac Project was allocated 177 tons per year of NOx allowance for the ozone season. Saranac submitted a plan to NYSDEC in December 1998 to modify their CEMS data acquisition system to support NOx trading. The Saranac Project is awaiting approval before implementing the modifications. WASTEWATER AND STORMWATER DISCHARGE Documents reviewed indicate that the Saranac Project has been operating in compliance with requirements of the wastewater and stormwater permits. As required under the wastewater discharge permit, the Saranac Operator submits weekly, monthly and quarterly reports to the Town of Plattsburgh. Review of these documents indicated they are comprehensive and demonstrate the Saranac Project's compliance with applicable limits. The Saranac Operator reports there have been no exceedances of wastewater limits during 1996, 1997, and 1998. WETLANDS The Saranac Project is required to monitor a wetlands mitigation area the size of 1.5 times the area of wetlands disturbed by the Saranac Project for 5 years after commercial operation. This monitoring was completed in November 1999. GENERAL COMPLIANCE Although we did not conduct a detailed environmental audit, the following observations are based on our review of related documentation and a Saranac Project Site visit and walkover conducted in February 1999. In general, the Saranac Project appeared to be using good housekeeping procedures and appropriate handling practices. B-21 The Saranac Operator reported that a noise monitoring survey, performed in 1994, did not reveal any significant problems. Two public complaints during the summer of 1997 have been resolved. A nearby facility, and not the Saranac Project, was determined to be the source of excessive noise. According to the Saranac Operator, there have been no further noise complaints since then. As required by the SPDES permit, the Saranac Operator maintains a Spill Prevention Countermeasure and Control ("SPCC") plan detailing spill cleanup procedures and appropriate plant personnel responsible for completing such procedures. CE Generation reported that the SPCC plan was completed on March 30, 1998. We understand that the Saranac Project is classified as a "small quantity generator" of hazardous waste under the applicable regulations. The Saranac Operator maintains a log of all manifests for hazardous materials shipped from the Saranac Project Site. Review of these manifests indicates shipments consist primarily of oily rags, used oil, and cleanup material from the three spills: sulfuric acid, polyethylene and ethylene glycol. A review of Saranac Project logs indicates the Saranac Operator has submitted the appropriate Superfund Amendments and Reauthorization Act of 1986 ("SARA") Title II notifications, as required under the Emergency Planning and Community Right-to-Know Act ("EPCRA") regarding hazardous materials on-site, to the Town of Plattsburgh and other appropriate parties. The Saranac Operator reported that internal environmental audits have been performed in recent years, but these were not made available for our review. PROJECTED OPERATING RESULTS We have reviewed the historical operating information, estimates and projections of electrical generating capacity, steam generation capacity, fuel consumption, and operating costs of the Saranac Project made available to us by CE Generation. On the basis of such data, we have prepared the Projected Operating Results. The Projected Operating Results are presented for each calendar year beginning January 1, 1999, representing the beginning of the quarterly distributions which will be available to CE Generation, through June 30, 2009, based on the term of the Saranac PPA. Revenues for the Saranac Project are derived primarily from the sale of electricity to NYSEG and steam to Georgia-Pacific and Tenneco. Expenses consist of the cost of fuel, including transportation, as estimated by C.C. Pace, and operating and maintenance expenses, based on information provided by CE Generation, and existing senior debt service, as provided by CE Generation. Projected sources of revenues and expenses have been set forth in the Projected Operating Results presented in Exhibit B-1. The Projected Operating Results are based on current contractual commitments as described herein and have been prepared using assumptions and considerations set forth in this Report and in the footnotes to Exhibit B-1. ANNUAL OPERATING REVENUES REVENUES FROM THE SALE OF ELECTRICITY The Saranac PPA with NYSEG expires in June 2009. NYSEG is required to purchase all of the output from the Saranac Project up to 240 MW per hour except for limited curtailment rights. The Saranac PPA specifies annual on-peak and off-peak variable capacity and energy prices for actual energy delivered. On-peak hours extend from 7:00 a.m. to 10:00 p.m. weekdays except for holidays. There is also a price for generation that is available but not delivered, which is equal to the variable energy rate plus the variable capacity component less 95 percent of the lesser of (1) 105 percent of sum of the variable energy rate plus the variable capacity component, or (2) the price of natural gas times the estimated heat rate. The effective Saranac PPA on-peak and off-peak prices, excluding the available generation rate, are presented in Table 8. B-22 TABLE 8 SARANAC PPA ELECTRICITY PRICE ($/MWH)
YEAR ON-PEAK PRICE(1) OFF-PEAK PRICE ---- ------------- -------------- 1999 $103.4 $60.9 2000 107.9 63.6 2001 112.5 66.4 2002 117.4 69.3 2003 122.5 72.5 2004 127.9 75.6 2005 133.4 79.0 2006 139.1 82.5 2007 145.3 86.1 2008 151.6 89.9 2009 158.2 93.9
(1) Includes variable capacity component of electricity price. REVENUE FROM THE SALE OF STEAM The Saranac Project has entered into the Georgia-Pacific Steam Sales Agreement and the Tenneco Steam Sales Agreement for the sale of steam, both expiring in June 2009. The volume of steam required to be purchased is sufficient to allow the Saranac Project to maintain its QF status under PURPA. The total amount of steam assumed to be purchased under these contracts is 713,000 Mlb of steam per year. The average steam price is equal to $3.04 per Mlb in 1998 dollars and escalates at 4 percent per year thereafter. INTEREST INCOME We have included interest income on the debt service reserve required under the term loan agreement. The debt service reserve fund requirement is equal to $7,000,000. CE Generation has estimated interest income on the debt service reserve fund at a rate of 5.5 percent per year. The debt service reserve fund is assumed to be distributed to CE Generation upon the final payment of the term loan. ANNUAL OPERATING EXPENSES FUEL COSTS The Saranac Project has entered into the Saranac Gas Transportation Agreement for the delivery of up to 51,000 MMBtu/day of natural gas on a firm basis along TransCanada's system. The total contract price for the gas is fixed in the Saranac Gas Supply Agreement, but is separated into transportation and commodity components. The transportation component has been assumed to be equal to approximately $0.88 per MMBtu and the remaining portion of the contract price is used as the commodity component. The transportation component is paid for the full 51,000 MMBtu/day at all times (excluding cost mitigation provided for in the Saranac Gas Supply Agreement). The commodity component is paid for the actual quantity of gas consumed. The total contract price is set at $2.97 per MMBtu through October 31, 1994, escalating by 4 percent on each subsequent November 1. The Saranac Project is required to purchase a minimum annual quantity equal to the annual aggregate of 80 percent of the maximum daily quantity. To the extent that the Saranac Project uses less than 51,000 MMBtu/day, certain rebates are made. These price of these rebates vary monthly, but have been assumed to be equal to approximately $0.56 per MMBtu and applied to the gas in excess of the average daily consumption. Under the Gas Transportation Agreement dated December 18, 1992 between North Country Gas Pipeline Corporation ("North Country") and Saranac (the "North Country Gas Transportation Agreement"), the B-23 Saranac Project has contracted with North Country to transport the gas from the TransCanada system at the Canada- U.S. border to the Saranac Project. Saranac pays demand charges to North Country; however, North Country is a wholly-owned subsidiary of Saranac. North Country also receives revenue from other pipeline customers. For the purposes of the Projected Operating Results, we have included a credit to the cost of gas transportation for the Saranac Project equal to the estimated net operating revenue of North Country, as estimated by C.C. Pace. OPERATION AND MAINTENANCE EXPENSES Pursuant to the Saranac O&M Agreement, the Saranac Operator will be compensated for its operations and maintenance services on both a monthly management fee basis plus reimbursement for its direct costs of performance. The monthly management fee is adjusted by the Employment Cost Index for Private Industry White Collar Wages and Salaries. Amendment No. 1 to the Saranac O&M Agreement agrees to a plan for reduction or increase in the management fee based on annual availability and heat rate of the Saranac Project. The operation and maintenance projections are derived from operating history provided by the Saranac Operator. Operation and maintenance expenses are assumed to escalate at inflation with the exception of property taxes, which have been assumed to remain flat, and labor costs, which have been assumed to escalate at a rate 2.0 percent above inflation, as estimated by CE Generation. SENIOR DEBT SERVICE Based on information provided by CE Generation, we have included a senior debt service payment based on the term loan principal amount of $189,288,000 as of January 1, 1999 and an interest rate of 8.185 percent per year, as reported by CE Generation. The term loan is payable in quarterly installments and matures on March 31, 2008. The senior debt service is paid out of the level 1 distributions and therefore has not been deducted in the Projected Operating Results from the cash available for distributions. DISTRIBUTIONS TO CE GENERATION Saranac's distributable cash flow has two levels of distribution. The level 1 distribution is paid on a pre-determined schedule. The level 2 distribution is the remaining portion of distributable cash flow after the level 1 distribution has been satisfied. Of the level 1 distribution, 99 percent is distributed to General Electric Capital Corporation ("GE Capital") and 0.3585 percent is available for distribution to a Tomen Power Corporation subsidiary ("TPC Saranac"). TPC Saranac receives 35.49 percent of the level 2 distributions prior to achieving an 8.35 percent after-tax return. After achieving an 8.35 percent after-tax return, TPC Saranac's share of the level 2 distributions is reduced to 17.82 percent. GE Capital receives 1 percent of the level 2 distributions. CE Generation receives all remaining level 1 and level 2 distributions. The TPC Saranac's historic internal rate of return and the calculation of TPC Saranac's after-tax income have been based on tax and depreciation assumptions provided by CE Generation. YUMA PROJECT The Yuma Project is a nominal 50 MW combined-cycle cogeneration facility which commenced commercial operation under the Yuma PPA on May 28, 1994, under which the Yuma Project sells electric energy and capacity to SDG&E. The Yuma Project sells process steam and steam for chilled water to Queen Carpet, formerly American-West Industries, Inc., under the Yuma Process ESA and the Yuma Chiller ESA. The Yuma Project consists of one dual fuel (natural gas and fuel oil) Frame 6B CTG exhausting to a separate Nooter-Eriksen three-pressure HRSG. The HRSG produce HP steam which is directed to a single STG for additional power generation, IP steam as process steam, CTG for NOx control and auxiliary boiler heating, and LP steam for use in the integral HRSG deaerators and chiller steam. Natural gas duct firing of the HRSG is provided to generate additional steam. Fuel oil is stored on site for use when natural gas is unavailable. The fuel oil tank capacity is 535,000 gallons or approximately 14 days at full load. B-24 PROJECT OPERATOR The Yuma Project is operated by the Yuma Operator utilizing Yuma Cogeneration Associates ("YCA") employees without an O&M agreement. YCA is a wholly-owned, indirect subsidiary of CE Generation. The Yuma Operator has been operating and maintaining the Yuma Project since 1994. THE PROJECT THE PROJECT SITE The 42.5-acre Yuma Project is located on the northwest boundary of Yuma, Arizona near the existing Queen Carpet plant and adjacent to the Santa Clara By-Pass Canal (the "Yuma Project Site") (see Figure C-3, Yuma Project Site Plan). The Yuma Project Site is located at First Street just west of B Avenue with the Colorado River to the north. The Yuma Project Site is owned by YCA. The general area is industrial in nature with some agricultural areas. The Yuma Project Site is easily accessible by highway. ENVIRONMENTAL SITE CONDITIONS We have not reviewed any reports of previous or recent environmental investigations regarding the potential for site contamination issues at the Yuma Project Site. Because we did not conduct or review such environmental reports, we can offer no opinion with respect to potential site contamination at the Yuma Project Site or potential future remediation costs should contamination be found. Visual inspections during our Yuma Project Site visit of January 28, 1999 indicated that the Yuma Operator is following "good housekeeping" procedures. We did not observe any unusual stained or soiled areas and the Yuma Operator maintains spill cleanup kits at the Yuma Project Site. The transformers, fuel oil, acid, caustic and ammonia storage tanks all have adequate secondary containment. As of February 1999, the Yuma Project was not listed on the USEPA's National Priorities List of Superfund Sites or USEPA's CERCLIS List. We are not aware of any potential groundwater or soil contamination. The Yuma Operator stated that there are no soil or groundwater monitoring requirements for the Yuma Project Site. DESCRIPTION OF THE PROJECT MECHANICAL EQUIPMENT AND SYSTEMS The Yuma Project utilizes a GE Frame 6 PG8541B CTG firing either natural gas or fuel oil capable of generating approximately 37 MW (gross) at design conditions (110(degree)F and 23 percent relative humidity). The combustion turbine is in the process of being "up-rated" to increase firing temperature which in turn may increase efficiency. The CTG package was manufactured by GE with the auxiliary equipment required for outdoor operation but is located in a sound enclosure. An evaporative cooler is included to increase CTG performance. The CTG exhausts to a Nooter-Eriksen three-pressure HRSG integral deaerator and feedwater heater. The HRSG includes a natural gas fired duct burner to supplement steam-generating capabilities. The HP steam system delivers HP steam to the STG at conditions discussed below. The HRSG IP steam system is designed to supply 23,580 pph of CTG NOx control steam at a pressure of 330 psig and 545(degree)F plus process steam to Queen Carpet (15,000 pph, 130 psig, 375(degree)F). The LP steam system delivers 35,000 pph of LP steam to the chiller at a pressure of 28 psig and 259(degree)F. The STG was manufactured by GE and is a dual extraction, bottom exhaust, condensing unit capable of generating approximately 18 MW (gross) at a HP steam flow of 158,990 pph at 1,250 psig and 950(degree)F and back pressure of 2.9 in. HgA. The STG is also located in a sound enclosure and mounted above the Type 304 stainless steel, single shell, two-pass condenser. B-25 The cooling tower supplies the condenser with cooling water at a design temperature of 91(degree)F. The cooling tower utilizes make-up water directly from the Colorado River or from the City of Yuma sewage treatment plant effluent. The cooling tower is a two-cell wooden structure (with PVC fill), induced mechanical draft, counter flow, evaporative tower. The chiller system is made up of two steam absorption type liquid chillers with a respective cooling capacity of 800 tons and 1,100 tons of refrigeration in the form of chilled water. The chiller system utilizes LP steam from the Yuma Project and returns the steam in the form of condensate. The chiller system is owned by Queen Carpet but is operated and maintained by the Yuma Operator. The auxiliary boiler provides process steam to Queen Carpet during SDG&E curtailments and CTG outages. The auxiliary boiler is maintained in a hot standby condition with steam from the process steam supply header. The auxiliary boiler system is a stand alone system with its own dedicated deaerator, feedwater pumps, blowdown separator, and hot water heat exchanger. The auxiliary boiler has a design steam flow rate of 17,000 pph at 125 psig and 353(degree)F. The auxiliary boiler is designed to operate on natural gas only. ENVIRONMENTAL CONTROL SYSTEMS A steam injected CTG system is utilized to limit NOx emissions. No SCR nor CO catalyst is installed in the HRSG to meet the air permit emission limits. Steam injection controls the NOx emissions from the CTGs and the duct burners to below 25 ppm on natural gas and 42 ppm while burning fuel oil. The Yuma Project utilizes raw water from the Colorado River for boiler/steam cycle make-up and evaporative cooling. Potable water is supplied by the City of Yuma. In compliance with environmental permits, the Yuma Project wastewater, including boiler blowdown, cooling tower blowdown, and neutralized water treatment wastewater is discharged to the Main Outlet Drain Extension ("MODE") canal. Stormwater run-off is discharged to an unlined evaporation retention pond. The Yuma Project floor and equipment drains also discharge into the retention pond. The Yuma Project does not include an oily water separator. Sanitary sewage is discharged to the City of Yuma sewer system. ELECTRICAL AND CONTROL SYSTEMS The electrical interface with the electrical transmission grid occurs at the Arizona Public service ("APS") Riverside 69 kV substation. The substation located approximately 500 yards from the Yuma Project property boundary and is connected by an overhead 69 kV transmission line to the Yuma Project switchyard. Electricity generated by the CTG and STG flows through a 13.8 switchgear to dedicated step-up transformers feeding the switchyard. The switchyard consists of a dead-end structure with two 69 kV circuit switches and two 69 kV air break disconnect switches. Yuma Project auxiliary power is taken from the 13.8 switchgear to feed 4,160 volt and 480 volt station service transformers which in turn feed 4,160 volt and 480 volt motor control centers. During curtailment periods, the Yuma Project receives backfeed power from APS through the step-up transformers. The Yuma Project has no "black-start" capabilities. Control for the Yuma Project is provided by a Bailey Controls INFI 90 microprocessor DCS. The DCS performs/controls plant regulatory systems, motor systems, monitoring, alarms, operations trending, and events data recording. The DCS also provides interface with the combustion turbine, CTG, steam turbine, STG, and HRSG. We have reviewed the Y2K Issue with the Yuma Operator. The Yuma Operator reports it has completed an assessment of Y2K problems and these are predominantly corrected at the Yuma Project Site. The remaining items will be corrected this spring during the annual outage. Their inventory included hand-held instruments and they are actually testing the items after correction. For a description of the Y2K Issue and the scope of our review relative to the Y2K Issue, please refer to the corresponding subsection of the PRI Project section of this Report. B-26 FIGURE B-3 YUMA PROJECT SITE PLAN [GRAPHIC SHOWING SITE PLAN OF THE YUMA PROJECT OMITTED] B-27 OFF SITE REQUIREMENTS The Yuma Project's primary source water is from the Colorado River as arranged with the City of Yuma. A secondary source is available to the Yuma Project by taking the tertiary discharge from an adjacent wastewater clean up facility. The primary source is 300 acre feet per year with an additional 500 acre feet per year available. The option on the additional volume is renewed every five years. Natural gas is obtained from SWG via a pipeline into the Yuma Project Site. Fuel oil is purchased on a spot market basis. Based on C.C. Pace's review of the SWG Gas Supply and Agreement, C.C. Pace's fuel cost projections, and our estimate of the fuel requirements of the Yuma Project, we are of the opinion that the Yuma Project possesses sufficient contract natural gas commodity supplies to meet the requirements of the Yuma PPA and that its contracted natural gas transportation capacity is adequate to deliver the natural gas supply requirements over the term of the Securities. REVIEW OF TECHNOLOGY GE originally developed the Frame 6B as a heavy-duty gas turbine in 1978. Since its inception, 450 units have been placed in service worldwide. Problems to date with Frame 6B include premature failure of a limited number of first stage turbine blades. These failures were blamed on high temperature deformation in combination with local corrosion. In 1993, GE developed a new metallurgical process to reduce blade deformation. The Yuma Project replaced the original first stage turbine blades with the metallurgically improved blades in 1997. Based on our review, we are of the opinion the Yuma Project utilizes sound technology and proven methods of electric and thermal generation and has been generally designed and constructed in accordance with generally accepted industry practices. If operated and maintained consistently with generally accepted industry practices, the Yuma Project should be capable of meeting the requirements of the Yuma PPA, the Yuma Chiller ESA, the Yuma Process ESA, and current environmental permits throughout the term of the Securities. Further, the Yuma Project has adequately provided for all off-site requirements, including fuel, water supply, wastewater disposal and electrical interconnections. RELIABILITY AND AVAILABILITY Based on historical performance, review of O&M practices and procedures and general observation of the Yuma Project, we are of the opinion that the Yuma Project is capable of maintaining an annual average contract availability of 96 percent. The contract availability is based on the Yuma PPA which allows major outage type maintenance to occur during the "block" periods of curtailment. The Yuma PPA specifically prohibits maintenance from occurring during the "flexible" curtailment periods. Block periods of curtailment are allocated in either 200 or 400 hour increments. The flexible curtailment periods are 8 to 10 continuous hour increments. The stipulated annual average capacity factor is the projected average over the term of the Securities. There will be years when the availability is either above or below the projected annual average. STATUS OF PERMITS AND APPROVALS All of the major permits and approvals required to operate the Yuma Project have been obtained. While most of the permits required for operation must be renewed periodically, we know of no technical reason that such renewals would not be obtainable. A list of key permits and approvals required for operation, and a summary of their status, is provided in Table 9. This represents our understanding based on our Yuma Project Site visit, discussions with the Yuma Operator, and a brief review of selected documents. B-28 TABLE 9 YUMA PROJECT STATUS OF KEY PERMITS AND APPROVALS
PERMIT OR APPROVAL RESPONSIBLE AGENCY STATUS COMMENTS ------------------ ------------------ ------ -------- FEDERAL QF Status FERC In compliance Refer to text Waste Water Discharge Permit U.S. Department of Issued March 6, 1993 Does not require renewal the Interior, Bureau of Land Reclamation STATE Air Permit Arizona Department Issued October 13, 1993 Superseded by Title V of Environmental Revised September 15, 1995 Operating Permit Quality ("ADEQ") Title V Operating Permit ADEQ Draft Permit Issued in Public Notice February February 1999 1999, expect issuance of Final April 1999 Aquifer Protection Permit ADEQ Issued September 18, 1996; Backup permit for valid for the life of the wastewater discharge when project MODE is out of service LOCAL Conditional Use Permit City of Yuma Issued December 12, 1990 Valid for life of Amended October 14, 1992 project. Covers sanitary and August 11, 1993 wastewater discharges Discharge Permit No. 0010 City of Yuma Issued June 13, 1990 Backup for wastewater Modified June 3, 1994 discharge when MODE is out of service. Has been allowed to expire.
OPERATING HISTORY PERFORMANCE HISTORY The Yuma Project's historical operating results have been compiled from monthly or annual operating reports provided by CE Generation. The Yuma Project has been in commercial operation since June 1994 and has been operating at an average contract availability of 96.7 percent since commercial operation. The operating history since commercial operation is summarized in Table 10. TABLE 10 YUMA PROJECT OPERATING HISTORY
FUEL STEAM SALES AVAILABILITY(1) CAPACITY(2) YEAR AVERAGE MW NET MWh (MMBtu) (Mlb) (%) FACTOR (%) ---- ---------- ------- ------- ------- ------- ---------- 1998 54.5 406,765 3,578,741 214,339 96.0 93.0 1997 50.1 373,626 3,357,027 195,098 96.2 85.3 1996 50.8 378,715 3,316,320 159,963 97.0 86.5 1995 53.4 398,442 3,437,576 206,076 97.8 91.0
(1) Based on total hours out of service and not during a curtailments. (2) Based on 7,460 non-curtailed hours in a year and 50 MW. B-29 Based upon the operating history of the Yuma Project and with an allowance for future degradation, we are of the opinion that, for the purpose of developing the Projected Operating Results the Yuma Project is capable of delivering net electrical capability of 56.5 MW at an annual average heat rate of approximately 8,830 Btu per kWh (HHV) and a contract availability of 96 percent (assuming current curtailment practices continue) for the term of the Securities. OPERATING PROGRAMS AND PROCEDURES We have reviewed with the Yuma Operator the various operations and maintenance programs and procedures, training programs and performance monitoring systems. We did not review all aspects of these plans and procedures. However, we verified that the Yuma Operator had in place all of the usual and necessary plans, procedures and documentation normally required to operate facilities of this type. Specific documents reviewed included: Standard Operating Guidelines, Technician Qualification Program, Operator Training Programs, and Control Room Operator Qualification. The Yuma Operator has implemented computer-based maintenance management systems at the Yuma Project which schedule and track regularly scheduled preventive maintenance activities. CE Generation reported that equipment vendor maintenance recommendations were followed when setting up the maintenance management systems, plus utilizing their own experiences. These systems are also used to track corrective and emergency work orders and to keep equipment-specific records of maintenance activities, parts use, and labor requirements. The Yuma Operator utilizes the computer software program Mainsaver(R) to assist it in its preventive and corrective maintenance programs. We reviewed operations and maintenance procedures for major equipment and systems. The procedures appeared complete and included drawings and vendor manuals as well as step-by-step operating instructions and maintenance schedules. Normal daily maintenance is performed by the Yuma Operator's on-site personnel. Spare parts are stored in both the in-plant warehouse area and a separate yard shipping containers. Items are stored by computer storage number in accordance with the software program Mainsaver(R). The warehouse and maintenance shop are fork lift accessible. The Yuma Operator's training programs provide initial employee training as well as periodic training to maintain competency of the Yuma Operator's on-site personnel. The core training program was designed and is maintained by the Yuma Operator and consists of ten modules. Specific special training is addressed based on needs. We have reviewed the organizational structure for the operation and maintenance for the Yuma Project. There is a total of 15 operation and maintenance personnel. REGULATORY COMPLIANCE The Yuma Project must be operated in accordance with all applicable environmental permits, approvals, laws, rules and regulations. Although we did not conduct a detailed environmental audit, the following describes our understanding of the status of the Yuma Project with respect to requirements set forth in its permits and approvals, pending regulations, and applicable environmental management laws and regulations based on review of documents provided for our review and discussions with the Yuma Operator. Based on our review, we are of the opinion that the Yuma Project appears to be operating in general compliance with applicable environmental permits, approvals, laws, rules and regulations. AIR PERMIT The Yuma Project is currently operating under ADEQ Permit, dated October 13, 1993, as revised via Minor Permit Revision, dated September 15, 1995. The Yuma Project has recently received a Draft Title V Operating Permit which is scheduled for Public Comment notice on February 18, 1999. The Public Comment B-30 period will expire by the end of March 1999, and a final permit is anticipated to be issued by the end of April 1999. The Draft Title V Permit essentially duplicates the original air permit, with all operating, emissions, monitoring and recordkeeping requirements remaining the same as in the existing permit. QF STATUS The Yuma Project is required by the Yuma PPA to be a QF. Actual operating results provided by the Yuma Operator indicate that the Yuma Project is achieving average Operating Standards and Efficiency Standards required for QF status as listed in Table 11. TABLE 11 YUMA PROJECT QF STATISTICS
OPERATING EFFICIENCY YEAR STANDARD (%) STANDARD (%) ---- ------------ ------------ 1998 13.4 46.5 1997 13.0 46.9 1996 10.9 46.5 1995 13.3 47.4
WASTEWATER AND STORMWATER DISCHARGE PERMITS Plant wastewater is discharged to the Bureau of Land Reclamation's MODE under a permit with the Bureau of Land Reclamation, which requires wastewater sampling and analysis to be performed every 6 months. Documents reviewed containing the results of this ongoing sampling and analysis indicate that the Yuma Project has been operating in compliance with its wastewater discharge permit. The Yuma Project also has an evaporation pond which serves as a backup in the event the MODE is unavailable for discharge due to scheduled service requirements. The evaporation pond, which has never been used, has an Aquifer Protection Permit from the ADEQ. Sanitary wastes from the Yuma Project are discharged to the City of Yuma publicly-owned treatment works in accordance with the City of Yuma Conditional Approval, dated June 13, 1990. The Yuma Project's stormwater is collected in a retention/evaporation pond. Since the stormwater is not discharged to waters of the United States, the stormwater system does not require a discharge permit. GENERAL COMPLIANCE Although we did not conduct a detailed environmental audit, the following observations are based on our review of related documentation and a site visit on January 28, 1999. In general, the Yuma Project appeared to be using good housekeeping procedures and appropriate materials handling practices. The SPCC Plan was up to date and covered the appropriate areas expected to be addressed in this type of document for these types of plants. There have been no reportable spills documented for the entire operating history of the project. The Yuma Project is classified as a Small Quantity Generator of Hazardous Wastes under applicable regulations. The Yuma Project maintains a log of all manifests for hazardous wastes shipped from the site. There were two manifests in 1997; one for lab packs of expired chemicals; and one for 4,000 pounds of soil contaminated with sulfuric acid. There were no manifests for 1998. B-31 A review of the Yuma Project documentation indicates that the appropriate SARA Tier II Reports and notifications under EPCRA regarding hazardous materials stored on-site have been submitted to the City of Yuma and the other appropriate parties. PROJECTED OPERATING RESULTS We have reviewed the historical operating information, estimates and projections of electrical generating capacity, steam generation capacity, fuel consumption, and operating costs of the Yuma Project made available to us. On the basis of such data, we have prepared the Projected Operating Results. The Projected Operating Results are presented for each calendar year beginning January 1, 1999, representing the beginning of the quarterly distributions which will be available to CE Generation, through December 31, 2018. Although the Securities have a final maturity of December 15, 2018, CE Generation has stated that a full year of revenues will be available to pay the debt service on the Securities in 2018. Revenues for the Yuma Project are derived primarily from the sale of electricity and steam. Expenses consist of the cost of fuel, including transportation, as estimated by C.C. Pace, and operating and maintenance expenses, based on information provided by CE Generation. Projected sources of revenues and expenses have been set forth in the Projected Operating Results presented in Exhibit B-1. The Projected Operating Results are based on current contractual commitments as described herein and have been prepared using assumptions and considerations set forth in this Report and in the footnotes to Exhibit B-1. ANNUAL OPERATING REVENUES REVENUES FROM THE SALE OF ELECTRICITY The Yuma Project sells capacity and energy to SDG&E under the terms of the Yuma PPA. The term of the Yuma PPA is for 30 years from the firm capacity operation date, and thus expires May 1, 2024. Under the Yuma PPA, the Yuma Project sells 50 MW of firm capacity to SDG&E at the fixed (unescalated) rate of $140.00 per kW-year. In addition, the Yuma Project is entitled to a capacity bonus if it delivers firm capacity during the on-peak hours (11 a.m. to 6 p.m., weekdays) of the peak months (May to September) at a capacity factor of 85 percent or greater. Based on historical operating data and projections by CE Generation, for the purposes of the Projected Operating Results, we have assumed the on-peak availability factor to be 92 percent. Under the terms of the Yuma PPA, SDG&E purchases energy at their schedule of time-differentiated payments and conditions for purchase of energy from QFs. These energy prices are derived from SDG&E's full avoided operating costs. For the purpose of the Projected Operating Results, we have assumed the energy prices projected by Henwood. Henwood has projected that energy prices will be equal to SDG&E's short-run avoided costs in 1999 and 2000 and thereafter will be equal to the California Power Exchange ("PX") prices. It should be noted that the prices projected by Henwood range from 1.3 percent to 17.4 percent higher than those projected by the California Energy Commission ("CEC"). On average, Henwood's projected PX prices are approximately 10 percent higher than those projected by CEC. Under Amendment Two to the Yuma PPA, SDG&E will accept up to 56.5 MW of energy from the Yuma Project. However, SDG&E has the option to schedule a block curtailment of one 400 hour block or two 200 hour blocks with not less then three weeks notice. In addition, in years one through nine of the Yuma PPA, SDG&E may schedule up to 900 hours of flexible curtailment with at least two hours notice. Each flexible curtailment period has a duration of no less than eight consecutive hours, and the maximum number of these curtailments in a calendar year is 125. In years 10 through 15 of the contract (i.e., May 1, 2004 to April 30, 2010), the number of flexible curtailment hours is increased to 1,400 per year. After May 1, 2010, the flexible curtailment hours is increased to 2,200 per year with the maximum number of curtailments increased to 150. For the purposes of the Projected Operating Results, we have assumed that SDG&E schedules the maximum number of curtailment hours it is entitled to in any year. Based on historical operating results and the amount of curtailment allowed in the Yuma PPA, we have assumed energy delivered to SDG&E to be 387,400 MWh in years one to nine, 361,400 MWh in years 10 to 16, and 319,900 MWh thereafter. B-32 REVENUE FROM THE SALE OF STEAM ABSORPTION CHILLER STEAM. The Yuma Project sells absorption chiller steam to Queen Carpet under the terms of the Yuma Chiller ESA. The term of the Yuma Chiller ESA is for 30 years from the firm capacity availability date, and thus expires May 1, 2024. Under the Yuma Chiller ESA, the Yuma Project delivers to Queen Carpet sufficient steam to operate their equipment, up to a maximum of 35,000 pph. Chiller steam deliveries are not required when the Yuma Project is curtailed or otherwise on outage. Based on CE Generation's 1998 budget, we have assumed the chiller steam deliveries to be 116,540,000 pounds per year. The Yuma Chiller ESA sets the purchase price of the chiller steam at 60 percent of the equivalent cost to Queen Carpet of producing chilled water at the electrical energy price per Arizona Public Service's ("APS") tariff E-34. The chiller steam price is based on 60 percent of Queen Carpet's avoided cost of operating its own chillers. Its avoided cost is calculated in the Yuma Chiller ESA as the product of the assumed steam absorption chiller efficiency of 47.62 and the sum of the avoided electricity and operating and maintenance cost. The electricity cost is calculated based on Queen Carpet's chiller efficiency constant of 0.78 kW/ton-hour and APS's rate E-34, which was reported by CE Generation to be $40.00 per MWh in 1998 and which we have assumed to escalate with the PX price. Queen Carpet's avoided cost of operation and maintenance for its chillers is defined as $0.0130 per ton in 1993 and adjusted each January 1 by the U.S City Average Consumers Price Index for All Urban Consumers ("CPI"). At the end of each year, Queen Carpet pays CE Generation a true up amount in addition to the above purchase price. The true up steam is all steam above the minimum thermal usage, defined in the Yuma Chiller ESA to be an annual average during actual operation of 10,731 pph of steam delivered. The true up steam price is 25 percent of the chiller steam price. PROCESS STEAM. The Yuma Project sells process steam to Queen Carpet under the terms of the Yuma Process ESA. The term of the Yuma Process ESA is for 30 years from the firm capacity availability date, and thus expires May 1, 2024. Under the Yuma Process ESA, the Yuma Project delivers to Queen Carpet sufficient steam to operate their equipment, up to a maximum of 15,000 pph. Process steam deliveries are required when the Yuma Project is curtailed or otherwise on outage. Such steam is produced in the standby boilers and is referred to as supplemental steam. Based on projections prepared by CE Generation, we have assumed the process steam deliveries to be 49,500 Mlb per year (an average of 6,911 pph while operating), and the supplemental steam deliveries to be 9,200 Mlb per year (an average of 5,735 pph while curtailed or on outage). The Yuma Process ESA sets the purchase price of the process steam at 75 percent of net avoided cost to Queen Carpet of producing process steam at the price of natural gas purchased from the nearest available gas utility by an industrial customer. The process steam price is calculated as 75 percent of Queen Carpet's avoided cost of process steam. The avoided cost of process steam is calculated as the sum of the nearest available gas utility price of natural gas in dollars per MMBtu for large industrial users divided by the efficiency of Queen Carpet's existing standby boilers of 63 percent and the operation and maintenance costs of existing standby boilers, multiplied by the difference in the enthalpy of the steam delivered and the condensate returned. The cost of gas was reported by CE Generation to be $4.02 per MMBtu in 1998 and has been assumed to escalate with the Yuma Project price of natural gas. The operation and maintenance costs of existing standby boilers is set contractually at $1.41 per Mlb of steam in 1992, adjusted each January 1 by the CPI. The enthalpy of the steam delivered is estimated by CE Generation to be 1,197 Btu per pound ("Btu/lb") and the condensate return is estimated to be zero. The price paid for supplemental steam is the lesser of (i) CE Generation's actual cost of producing the supplemental steam, or (ii) 100 percent of Queen Carpet's avoided cost of process steam, as described above. B-33 ANNUAL OPERATING EXPENSES FUEL COSTS YCA has entered into a Gas Supply and Transportation Services Master Agreement with SWG. The master agreement combines several earlier agreements (including a supply agreement and a transportation agreement) into one agreement with common terms and conditions. The primary term of the agreement is to December 31, 2008, and continues year to year thereafter. The maximum daily quantity under the agreement is 20,000 MMBtu per day. Under the agreement, YCA pays a monthly service charge which is currently $15,000 per month, and which we have assumed to escalate at half the rate of inflation. The rate per MMBtu of the delivered gas is based on SWG's average cost of gas plus $0.25 per MMBtu. For the purposes of our Projected Operating Results, we have used the natural gas commodity prices as projected by Henwood and reviewed by C.C. Pace and transportation cost as projected by C.C Pace. We have also included use and sales taxes, which include county, state, city, and Arizona energy assessment taxes, of 7.86 percent, as estimated by CE Generation. OPERATION AND MAINTENANCE EXPENSES The operation and maintenance projections are derived from historical data and 1999 projections provided by CE Generation. Operation and maintenance expenses are assumed to escalate at the rate of general inflation. The schedule of major maintenance expenses has been projected by CE Generation. YCA has entered into a Firm Transmission Service Agreement with APS and SDG&E dated February 4, 1993 (the "Yuma Firm Transmission Service Agreement") for the transmission of 50.85 MW of electricity from the Yuma Project to SDG&E. The wheeling cost is $1.52 per kW-month, unescalated. Under the terms of the Yuma Firm Transmission Service Agreement, the Yuma Project delivers one percent of the scheduled capacity and associated energy to APS as reimbursement for electrical losses on APS' electric system. The term of the Yuma Firm Transmission Service Agreement is from the initial operation date of the Yuma Project through December 31, 2024. YCA has also entered into an Interruptible Transmission Service Agreement with APS dated June 15, 1994 (the "YCA Interruptible Transmission Service Agreement") for the transmission of energy above the firm transmission capacity. The wheeling cost is $2.082 per MWh, which does not escalate. Under the terms of the YCA Interruptible Transmission Service Agreement, the Yuma Project delivers one percent of the scheduled energy delivered to APS as reimbursement for electrical losses on APS' electric system. The term of the YCA Interruptible Transmission Service Agreement is concurrent with the term of the YCA Firm Transmission Service Agreement. OTHER EXPENSES Other expenses, including operating fees, water, audit, legal, finance, insurance, and property and other taxes, are as estimated by CE Generation for 1999 and are assumed to escalate at the rate of general inflation. DISTRIBUTIONS TO CE GENERATION CE Generation owns 100 percent of the Yuma Project and therefore it has been assumed that 100 percent of the cash available for distributions will be available to CE Generation. NORCON PROJECT The NorCon Project is a nominal 80 MW combined-cycle cogeneration facility which began commercial operation in December, 1992. The NorCon Project sells electric energy to Niagara Mohawk pursuant B-34 to the NorCon PPA while selling process steam and chilled ammonia to Welch under the NorCon Steam Agreement. The NorCon Project consists of two natural gas-fired GE LM5000 CTGs exhausting to separate HRSGs. The HRSGs produce HP steam, which is sent to either the CTG's combustors to control NOx emissions or to a single STG for additional power generation; IP steam, which is used as process steam and STG admission; and LP steam for use in the integral HRSG deaerators. Duct firing of the HRSGs is provided to generate additional steam when needed. PROJECT OPERATOR The NorCon Project is operated under the NorCon O&M Agreement by the NorCon Operator. The NorCon Operator commenced operation and maintenance of its first combined-cycle cogeneration facility in 1987. THE PROJECT THE PROJECT SITE The NorCon Project is located in the Township of North East approximately 13 miles northeast of Erie, Pennsylvania (the "NorCon Project Site") (see Figure B-4, NorCon Project Site Plan). The NorCon Project facilities are located on 12.1 acres in an industrial zone adjacent to Welch property and about 2.5 miles south of downtown North East. ENVIRONMENTAL SITE CONDITIONS We have reviewed two reports prepared by others for CE Generation regarding the NorCon Project Site investigations at the subject property including: (1) the Phase I Environmental Site Assessment (June 1991) prepared by Hill Engineering for Northern Consolidated Power, Inc.; and (2) the Phase I Environmental Site Assessment for NorCon Cogeneration Plant and Related Properties (August 1996) prepared by Black & Veatch, Inc. ("Black & Veatch") for CE Generation. These assessments identified prior NorCon Project Site uses including agricultural/orchard production, a dairy farm, and a small portion of the property previously used to store junked automobiles. The Hill Phase I ESA identified "no obvious signs of conditions that would suggest the presence of hazardous wastes at the site." Limited soil sampling by Hill did not identify any concerns. Black & Veatch's Phase I ESA addressed the NorCon Project Site, the ARP plant, a 3.84-acre parcel (currently in grape production) adjacent to the plant site, and the 9.5-acre Ripley substation site located approximately four miles to the east. Black & Veatch concluded that their investigation "revealed no evidence of recognized environmental conditions in connection with these properties." In addition, we conducted a site reconnaissance of the NorCon Project Site, the ARP site and the substation site on February 2, 1999. The NorCon Project maintains a 4,200-gallon aboveground diesel fuel storage tank and four 30,000-gallon propane tanks at the NorCon Project Site. We observed no on-site spills, stains or other evidence of potential site contamination issues. Further, we did not observe any off-site areas that would appear to present a significant contamination potential to the NorCon Project. The NorCon Project is not listed on any current state or federal database that typically list contaminated sites or hazardous waste sites, including the National Priorities List of Superfund Sites or the CERCLIS List dated January 26, 1999, prepared by the USEPA and the Hazardous Sites Cleanup Act Site List dated November 3, 1998, prepared by the Pennsylvania Department of Environmental Protection ("PDEP"). Further, there are no off-site areas documented on the above lists that would have any impact upon the NorCon Project Site. The NorCon Operator stated that no significant spills had ever occurred at the property, and that there are no soil or groundwater monitoring requirements for the NorCon Project. This is consistent with our review of files at the PDEP Regional Office on February 3, 1999 that did not identify any significant spills or potential site contamination issues at the NorCon Project Site resulting from on-site operations or off-site sources. In our opinion the likelihood of significant contamination impacts to the subject property is extremely low. B-35 DESCRIPTION OF THE PROJECT MECHANICAL EQUIPMENT AND SYSTEMS The NorCon Project utilizes two GE LM5000 PC CTGs firing natural gas. The CTGs were supplied by Stewart & Stevenson, Inc. and GE with all auxiliary equipment required for an indoor installation. The electric generators were manufactured by Brush and are air-cooled. Each CTG exhausts to a dedicated Deltak three pressure level HRSG with an integral deaerator and feedwater heater. Each HRSG incorporates a natural gas-fired duct burner to supplement steam production when needed. The NorCon Project delivers up to 151,000 pph of saturated steam at approximately 135 psig to Welch. The Elliot STG is a single automatic extraction condensing unit with a controlled automatic induction/extraction, capable of generating 9,850 kW at an HP inlet steam flow rate of 89,000 pph of 665 psia and 675(degree)F steam, an IP inlet steam flow rate of 61,000 pph of 100 psia, 385(degree)F steam, a process steam extraction of 32,500 pph of 190 psia steam, and a back-pressure of 2.5 in. HgA. The STG exhaust steam is condensed in an air-cooled condenser. A high pressure (3,000 psi) water wash system has been added to reduce fouling which improves heat transfer, reduces back-pressure on the STG and increases STG output. The NorCon Project also includes the 1,200-ton ARP supplied by Babcock Borsig that uses process steam extracted from the STG to convert low pressure ammonia vapor from the Welch plant into chilled pressurized ammonia liquid which is returned to the plant. The ARP replaced a standard centrifugal refrigeration system which is maintained by Welch in standby and used when the ARP is out of service. An auxiliary boiler and a natural gas compression station are also included in the NorCon Project. The auxiliary boiler can be fired on either natural gas or propane and is capable of meeting Welch's process steam load when the CTGs are out of service. The gas compression station is composed of four motor-driven gas compressors capable of increasing gas pressure from 300 psi to the 650 psi required by the aeroderivative LM5000 CTGs. ENVIRONMENTAL CONTROL SYSTEMS The NorCon Project's air emission sources include two natural gas-fired combustion turbines, two natural gas-fired duct burners, three diesel-fired emergency generators, and one natural gas- or propane-fired auxiliary boiler. A steam injection system in each gas turbine is used to control emissions of NOx and an oxidation catalyst system is used to reduce volatile organic compound ("VOC") and CO emissions. The NorCon Project is required to maintain a continuous emissions monitoring system ("CEMS") for NOx and CO emissions. The NorCon Project generates wastewater from demineralization backwash, boiler blowdown, cooling tower blowdown, plant floor washdowns, and sanitary wastewaters. The ARP produces cooling tower blowdown. These wastewaters are discharged to the publicly-owned treatment works owned by the North East Borough Sewer Authority (the "POTW"). NorCon Project floor drains discharge to an oil/water separator prior to discharge to the sewer system. The NorCon Project's process wastewaters are pretreated for pH control prior to discharge. Stormwater discharges from the cogeneration plant are directed to an on-site settling basin prior to discharge to an unnamed tributary to Sixteen Mile Creek. ELECTRICAL AND CONTROL SYSTEMS The NorCon Project transports electricity to Niagara Mohawk via a dedicated, 8 mile, 115 kV transmission line to a remote substation located just over the state line in Ripley, New York, where voltage is increased to 230 kV and fed into Niagara Mohawk's system. The facility also includes a 13.8 kV feed to the ARP B-36 FIGURE B-4 NORCON PROJECT SITE PLAN [Graphic Showing Site Plan of the NorCon Project Omitted] B-37 at Welch's plant. The NorCon Project has two 900 kW diesel engine generators that are capable of black-starting the facility. A 500 kW emergency diesel generator is also included at the ARP. The NorCon Project also has a 125 volt dc uninterruptible power supply ("UPS") system. The two CTGs use a Woodward 501 control system. The plant has a DCS supplied by Foxboro. We have reviewed the Y2K Issue with the NorCon Operator. The NorCon Operator reports that its Y2K compliance review is approximately 80 percent complete, including an extensive evaluation of all Y2K issues associated with the NorCon Project. The NorCon Operator has contacted all relevant equipment manufacturers and intends to update the DCS and controllers for the ARP and STG. The NorCon operator is planning to perform the majority of Y2K related modifications during the next scheduled major outage in August 1999. The NorCon Project Y2K compliance program is scheduled to be completed by September 1999. For a description of the Y2K Issue and the scope of our review relative to the Y2K Issue, please refer to the corresponding subsection of the PRI Project section of this Report. OFF-SITE FACILITIES The NorCon Project includes the following off-site facilities: an 8-mile, 115 kV power interconnection to Niagara Mohawk at a remote substation in Ripley, New York; a 13.8 kV power feed to the APR, a process steam line and a condensate return line between the NorCon Project Site and the Welch plant; a natural gas distribution line that delivers 300 psi gas to the plant fence; and North East Township raw water supply and wastewater discharge lines. REVIEW OF TECHNOLOGY The LM5000 CTGs used in the NorCon Project were first introduced by GE in 1988. Several of GE's LM5000s installed since 1988 have experienced problems that have resulted in extended unit forced outages. According to the NorCon Operater, Unit No. 2 has experienced two separate blade failures on the fourth stage of the HP compressor: one in January 1997 and another in November 1998. However, since the NorCon Project has a lease engine agreement with GE, the longest downtime due to these blade failures was nine days. Due to these and other LM5000 CTG failures, GE has developed and highly recommends an aggressive preventative maintenance program for all its LM5000 CTG Users including taking each LM5000 off-line every six weeks for preventive maintenance and adding an updated vibration monitoring system. The NorCon Operator reported a reduction in spurious trips due to implementation of this program. Based on our discussions with the NorCon Operator, we are of the opinion that the NorCon Project utilizes sound technology and proven methods of electric and thermal generation and has generally been designed and constructed in accordance with generally accepted industry practices. Further, the NorCon Project has adequately provided for all off-site requirements, including fuel, water supply, wastewater disposal and electrical interconnections. STATUS OF PERMITS AND APPROVALS All of the major permits and approvals required to operate the NorCon Project have been obtained. The NorCon Project's emissions are permitted by a Title V Operating Permit issued by the PDEP on June 4, 1998. The Title V Permit is the only operating air permit required and expires June 30, 2003. Permitted air contaminants emitted from the NorCon Project include NOx, CO, particulate matter 10 microns and larger ("PM-10"), SO2 and VOCs. The NorCon Project's process wastewaters have been authorized for discharge to the local sewer system by an Industrial Wastewater Discharge Agreement ("IWDA") between NorCon and the POTW dated B-38 September 4, 1991. The NorCon Project has made application for renewal of the IWDA with the Borough of North East. According to a representative of the Borough, the new permit will reflect new permit limitations for zinc and copper that are less restrictive than the current permit. According to the Borough representative, the new permit is expected to be issued by April 9, 1999. A list of key permits and approvals required for operation, and a summary of their status, is provided in Table 12. This represents our understanding based on a site visit on February 2, 1999, discussions with the NorCon Operator, an on-site review of NorCon Project documents, and discussions with the PDEP and North East Borough representatives. TABLE 12 NORCON PROJECT STATUS OF KEY PERMITS AND APPROVALS
PERMIT OR APPROVAL RESPONSIBLE AGENCY STATUS COMMENTS ------------------ ------------------ ------ -------- FEDERAL QF Status FERC Refer to text Stormwater Discharge Permit USEPA Issued January 12, 1998 In compliance. General NPDES Permit for stormwater discharges STATE Title V Operating Permit PDEP Issued June 4, 1998 In compliance RACT Approval PDEP Issued: September 21, 1995 In compliance LOCAL Industrial Wastewater Discharge Borough of North Issued September 4, 1991 In compliance. Permit Agreement Permit for discharge to East, Pennsylvania renewal anticipated to be local sewer system issued by April 9, 1999.
REGULATORY COMPLIANCE The NorCon Project must be operated in accordance with all applicable environmental permits, approvals, laws, rules and regulations. The following describes our understanding of the status of the NorCon Project with respect to regulatory compliance issues. AIR PERMIT Our review of NorCon Project and PDEP files and interviews with the NorCon Operator and the PDEP indicate that the NorCon Project is in compliance with its Title V Operating Permit. Our review of 1997-1998 emissions data indicates that the NorCon Project has had occasional minor excursions of permit limitations for excess NOx emissions during startup/shutdown and during normal operations. Based on our discussions with the PDEP, the excursions are insignificant and do not present a significant long-term environmental concern. According to the NorCon Operator there have been no notices of violation ("NOVs") issued by the PDEP for these exceedances. The PDEP stated that the NorCon Project has a good compliance record and expressed no concerns regarding current NorCon Project management. NOx RACT RULE Title I of the Clean Air Act Amendments of 1990 requires state regulatory agencies to implement Reasonably Available Control Technology ("RACT") to reduce ozone levels. The NorCon Project is located within an area classified as a moderate nonattainment zone for ozone, since it is located within the Ozone Transport B-39 Region. The NorCon Project is classified as a major stationary source for NOx and CO emissions, thus RACT must be implemented to reduce NOx emissions. The NorCon Project has received a RACT Approval, dated September 21, 1995. NOx BUDGET RULE In accordance with the September 27, 1994 Memorandum of Understanding ("MOU") among Northeast Ozone Transport States, the PDEP promulgated regulations to limit NOx emissions from fossil-fired units. These regulations are designed to ensure that by May 1, 1999, affected facilities in the "outer zone" (including the NorCon Project) must reduce their combined rate of NOx emissions by 55 percent of the 1990 baseline or emit NOx at a rate no greater than 0.20 pounds per MMBtu. Under the PDEP's current regulations, beginning in 1999, each affected source must hold by December 31 of each year a quantity of "NOx allowances" equal to or greater than the total NOx emitted from the source during the "NOx allowance control period" (May 1 through September 30) for the year. The NorCon Project was allocated an initial allowance of 50 tons per unit. Our review of actual 1997 and 1998 NOx emissions data indicates that the NorCon Project should meet its NOx emission limits during the five-3month ozone transport period. WASTEWATER AND STORMWATER DISCHARGES Our review of NorCon Project files and interviews with NorCon Project and North East Borough representatives indicates that the NorCon Project is in compliance with its IWDA. Our review of 1997-1998 discharge monitoring reports indicates that the NorCon Project has had occasional non-significant exceedances of zinc, copper, and oil and grease, relative to permit limitations. Most of these exceedances were for higher than permitted levels of zinc and copper in the cooling tower blowdown at the ARP. A discussion with a Borough representative indicates that the exceedances have not been a concern to the POTW, and that new permit limitations are expected to become effective for zinc, copper, and oil and grease when the IWDA renewal is issued in approximately eight weeks. Our review of NorCon Project discharge monitoring reports indicates that the NorCon Project would have met all discharge limitations if the anticipated new permit limitations had been in effect during 1998. The NorCon Operator stated they will be able to maintain compliance with the wastewater discharge permit. GENERAL COMPLIANCE Although we did not conduct a detailed environmental audit, the following observations are based on our review of related documentation, our site visit conducted February 2, 1999, and interviews with the NorCon Operator. In general, the NorCon Project appeared to be using good housekeeping practices and appropriate handling procedures for fuels and hazardous chemicals. The NorCon Operator indicated that no complaints had been received from the public since construction and initial startup in the early 1990s. The NorCon Project is registered as a small quantity generator of hazardous waste, and appears to be in compliance with hazardous waste regulations. The NorCon Project is aware of their obligations to prepare a Risk Management Plan per Section 112-R of the Clean Air Act, summarizing the NorCon Project's accidental release prevention program, and indicated that they would meet the June 21, 1999 deadline for plan submittal. PROJECTED OPERATING RESULTS CE Generation has indicated that the estimated distributions from the NorCon Project are immaterial in comparison to the total distributions available to service the debt service associated with the Securities. Therefore, for the purposes of this Report, we have assumed that no distributions from the NorCon Project will be made to CE Generation during the term of the Securities. B-40 SUMMARY PROJECTED OPERATING RESULTS DISTRIBUTIONS FROM THE NATURAL GAS PROJECTS The distributions to CE Generation from the Natural Gas Projects are presented for the terms of the respective power purchase agreements in Exhibit B-1. It should be noted that the distributions to CE Generation from the Natural Gas Projects are dependent primarily on the sale of electricity under contracts with electric utilities. The Energy Policy Act fundamentally changed the Federal regulation of the electric utility industry. At this time we cannot predict what impact changes in legislation, regulation or market conditions will have on the ability or willingness of the power purchasers to pay the stipulated capacity costs contained in the Natural Gas Projects' power purchase agreements. Accordingly, we have therefore assumed that the capacity pricing provisions contained in the Natural Gas Projects' power purchase agreements will remain effective throughout their respective terms. For further discussion of the potential impact of the restructuring of the electric utility industry on the projected electricity rates and CE Generation, please refer to the section entitled "Regulatory Matters" contained in the Confidential Offering Circular. SENSITIVITY ANALYSES Due to the uncertainties necessarily inherent in relying on assumptions and projections, it should be anticipated that certain circumstances and events may differ from those assumed and described herein and that such will affect the results of our Base Case Projected Operating Results. In order to demonstrate the impact of certain circumstances on the Base Case Projected Operating Results, certain sensitivity analyses were developed. It should be noted that other examples could have been considered and those presented are not intended to reflect the full extent of possible impacts on the Natural Gas Projects. These sensitivity analyses, labeled as Sensitivity Case A through I in Exhibits B-2 through B-10, present the Projected Operating Results assuming, respectively, that (a) operating and maintenance expenses increase by 10 percent over that assumed in the Base Case Projected Operating Results; (b) the fuel consumption of the Natural Gas Projects increases by 5 percent over that assumed in the Base Case Projected Operating Results: (c) the availabilities of the Natural Gas Projects are reduced by 5 percentage points from that as assumed in the Base Case Projected Operating Results; (d) the electricity prices and cost of fuel to the Yuma Project increase according to the "Low Gas 1" case described in the Henwood Report; (e) the electricity prices and cost of fuel to the Yuma Project increase according to the "Low Gas 2" case described in the Henwood Report; (f) the electricity prices and cost of fuel to the Yuma Project increase according to the "SCE Low SRAC" case described in the Henwood Report; (g) the electricity prices and cost of fuel to the Yuma Project increase according to the "SCE Median SRAC" case described in the Henwood Report; (h) the electricity prices and cost of fuel to the Yuma Project increase according to the "SCE High SRAC" case described in the Henwood Report; and (i) the electricity prices to the Yuma Project are equal to the level sufficient to maintain an annual debt service coverage of 1.00 in all years, as projected by Fluor Daniel. Exhibits B-5 through B-10 contain only the Projected Operating Results for the Yuma Project. Since the PRI and Saranac Projects are not impacted by the change in assumptions for these sensitivity cases, the Projected Operating Results for the PRI and Saranac Projects for these cases are the same as the Base Case Projected Operating Results. SUMMARY COMPARISON OF PROJECTED OPERATING RESULTS The estimated distributions to CE Generation from the Natural Gas Projects for selected fiscal years of operation for the Base Case and each sensitivity case are presented in Table 13. The Base Case and each of the sensitivity cases are presented in Exhibits B-1 through B-10. B-41 TABLE 13 PROJECTED NATURAL GAS PROJECT DISTRIBUTIONS ($000)
YUMA YUMA YUMA YUMA BREAKEVEN INCREASED INCREASED REDUCED YUMA YUMA SCE LOW SCE MEDIAN SCE HIGH ELECTRICITY YEAR BASE CASE O&M HEAT RATE AVAILABILITY LOW GAS 1 LOW GAS 2 SRAC SRAC SRAC PRICE ---- --------- --- --------- ------------ --------- --------- ------ ------ ------ ----- 1999 $40,079 $36,952 $36,430 $32,670 $40,079 $40,079 $39,268 $39,578 $40,702 $33,172 2000 44,620 41,010 40,488 32,778 44,908 44,862 44,274 44,700 46,172 39,961 2001 52,255 48,784 47,852 42,077 52,728 52,102 54,019 54,639 56,382 46,276 2002 55,693 52,147 51,144 45,199 55,232 54,433 55,639 56,298 58,390 47,867 2003 54,703 51,154 50,365 45,668 54,631 53,909 54,551 55,326 57,806 48,889 2004 46,080 43,575 42,811 32,612 46,250 45,670 45,720 46,659 49,298 38,304 2005 49,088 46,510 45,679 37,231 49,491 48,808 47,895 49,305 52,015 40,549 2010 6,948 6,454 6,410 6,326 6,869 6,775 6,684 8,539 13,977 233 2015 1,682 672 1,069 5,952 1,591 1,142 2,270 4,733 16,410 0
PRINCIPAL CONSIDERATIONS AND ASSUMPTIONS USED IN THE PROJECTION OF OPERATING RESULTS In the preparation of our Report and the opinions that follow, we have made certain assumptions with respect to conditions that may exist or events that may occur in the future. While we believe these assumptions to be reasonable for the purpose of this Report, they are dependent upon future events, and actual conditions may differ from those assumed. In addition, we have used and relied upon certain information provided to us by sources which we believe to be reliable. While we believe the use of such information and assumptions to be reasonable for the purposes of our Report, we offer no other assurances with respect thereto and some assumptions may vary significantly due to unanticipated events and circumstances. To the extent that future conditions differ from those assumed herein or provided to us by others, the actual results will vary from those forecast. This Report summarizes our work up to the date of this Report. Thus, changed conditions occurring or becoming known after such date could affect the material presented based upon the extent of such changes. The principal considerations and assumptions made by us in developing the input to the Projected Operating Results and the principal information provided to us by others include the following: 1. As Independent Engineer, we have made no determination as to the validity and enforceability of any contract, agreement, rule, or regulation applicable to the Natural Gas Projects and their operations. However, for purposes of this Report, we have assumed that all such contracts, agreements, rules, and regulations will be fully enforceable in accordance with their terms and that all parties will comply with the provisions of their respective agreements. 2. Our review of the design of the Natural Gas Projects was based on information provided by CE Generation and our visual observations during our site visits. 3. The operators will maintain the Natural Gas Projects in accordance with good engineering practice, will perform all required major maintenance in a timely manner, and will not operate the equipment to cause it to exceed the equipment manufacturers' recommended maximum ratings. 4. The operators will employ qualified and competent personnel and will generally operate the Natural Gas Projects in a sound and businesslike manner. B-42 5. The Natural Gas Projects will identify and implement solutions to the Y2K Problem in a manner which will not impact the projected net revenues of the Natural Gas Projects. 6. Inspections, overhauls, repairs and modifications are planned for and conducted in accordance with manufacturers' recommendations, and with special regard for the need to monitor certain operating parameters to identify early signs of potential problems. 7. Proposed restructuring of the electric utility industry will not significantly impact the projected electricity revenues of the PRI, Saranac, and Yuma Projects. 8. All licenses, permits and approvals, and permit modifications necessary to operate the Natural Gas Projects have been, or will be, obtained on a timely basis and any changes in required licenses, or permits and approvals will not require reduced operation of, or increased costs to, the Natural Gas Projects. 9. The CPI and general inflation, used variously to escalate various revenues and expenses, will increase at an average annual rate of 2.7 percent. 10. The performance of the PRI, Saranac, and Yuma Projects will be as assumed in the Projected Operating Results. 11. The price of electricity and natural gas for the Yuma Project will be as estimated by Henwood. 12. The cost of natural gas to the PRI and Saranac Projects and the cost of natural gas transportation of the Yuma Project will be as estimated by C.C. Pace. The Yuma natural gas contracts will be extended at pricing provision equal to the current agreements through the term of the Securities. 13. The steam sales to the various steam hosts will be as assumed in the Projected Operating Results. 14. The non-fuel operating and maintenance expenses, including the cost of major maintenance, will be consistent with the information provided by CE Generation, and will increase thereafter at the assumed change in the general inflation rate, except as noted otherwise in this Report. 15. The senior debt service requirements and interest income of the PRI and Saranac Projects will be as reported by CE Generation. 16. There will be no additional capital improvements to the PRI, Saranac, and Yuma Projects other than those assumed in the Projected Operating Results. 17. The will be no distributions made to CE Generation from the Natural Gas Projects after the expiration of the respective power purchase agreements. 18. There will be no distributions made to CE Generation from the NorCon Project. 19. A full year of revenues from the Yuma Project will be available to pay the debt service on the Securities in 2018, as estimated by CE Generation. CONCLUSIONS Set forth below are the principal opinions we have reached after our review of the Natural Gas Projects. For a complete understanding of the estimates, assumptions, and calculations upon which these opinions B-43 are based, the Report should be read in its entirety. On the basis of our review and analyses of the Natural Gas Projects and the assumptions set forth in this Report, we are of the opinion that: 1. The operators of the Natural Gas Projects have demonstrated the ability to discharge their responsibilities under the respective O&M agreements. 2. The Natural Gas Project sites are suitable for the operation of the Natural Gas Projects. 3. The Natural Gas Projects utilize sound technology and proven methods of electric and thermal generation and have generally been designed and constructed in accordance with generally accepted industry practices. 4. The Natural Gas Projects adequately provide for all off-site requirements, including fuel, water supply, wastewater disposal and electrical interconnections. 5. The PRI, Saranac, and Yuma Projects possess sufficient contract or access to spot natural gas commodity supply to meet the requirements of the respective power purchase agreements and the contracted natural gas transportation capacity for these projects is adequate to deliver the natural gas supply requirements. 6. If the PRI, Saranac, and Yuma Projects are operated and maintained consistent with generally accepted industry practices, these projects should be capable of meeting the requirements of their respective power purchase agreements, current environmental permits and, where applicable, steam sales agreements, throughout the term of the respective power purchase agreements. 7. If the operators operate the PRI, Saranac, and Yuma Projects in accordance with generally accepted industry practices, these projects should have useful lives extending through the final maturity of the Securities. 8. All of the major permits and approvals required to operate the Natural Gas Projects have been or are currently in the process of being obtained. While most operating permits must be renewed periodically, we know of no technical reason that such renewals would not be obtainable. 9. Based on the historical performance, operation and maintenance practices and observed conditions of the PRI, Saranac, and Yuma Projects, these projects should be capable of achieving the average annual availabilities, net electrical capabilities, capacity factors, steam supply requirements and heat rates assumed in the Projected Operating Results. 10. The operation and maintenance procedures and practices at the PRI, Saranac, and Yuma Projects are consistent with good engineering practices and generally accepted industry practices and take into consideration existing environmental and permit requirements applicable to these projects. The operators' organizational structures for these projects are comparable to other facilities using similar technologies with which we are familiar. 11. The Natural Gas Projects appear to be operating in general compliance with applicable environmental permits, approvals, laws, rules and regulations. 12. The basis for the estimates provided by CE Generation of the costs of operating and maintaining the PRI, Saranac, and Yuma Projects, including the cost of major maintenance, is reasonable. Respectfully submitted, /S/ R. W. BECK, INC. B-44 [THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY] B-45 Exhibit B-1 CE Generation Gas Projects Projected Operating Results Base Case
Year Ending December 31, 1999(1) 2000 2001 2002 2003(1) ---------- ---------- ---------- ---------- ---------- PRI PROJECT PERFORMANCE Contract Capacity (kW)(2) 200,000 200,000 200,000 200,000 200,000 Capacity Factor (%)(3) 80.0% 80.0% 80.0% 80.0% 80.0% Energy Sales (MWh) 1,401,600 1,401,600 1,401,600 1,401,600 1,051,200 Steam Sales (Mlb)(4) 830,000 830,000 830,000 830,000 830,000 Heat Rate (Btu/Wh)(5) 9,500 9,500 9,500 9,500 9,500 Fuel Consumption (BBtu)(6) 13,315 13,315 13,315 13,315 9,986 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(8) $194.88 201.72 208.80 216.00 223.56 Energy Component Tier 1 Energy Price ($/MWh)(9) $31.70 32.80 34.00 35.20 36.40 Tier 2 Energy Price ($/MWh)(9) $24.82 25.06 25.52 25.98 26.79 Steam Price ($/Mlb)(10) $2.85 2.90 2.96 3.02 3.08 Natural Gas Price ($/MMBtu)(11) $2.892 2.968 3.050 3.135 3.227 Gas Transportation Cost ($/MMBtu)(12) $0.102 0.102 0.102 0.102 0.102 OPERATING REVENUES ($000) Revenue from Electricity Sales Capacity $38,976 40,344 41,760 43,200 33,534 Energy $41,779 42,989 44,386 45,783 35,485 Steam Revenue $2,363 2,410 2,459 2,508 2,558 Interest Income (13) $380 385 392 396 289 ---------- ---------- ---------- ---------- ---------- Total Operating Revenues $83,498 86,128 88,997 91,887 71,866 OPERATING EXPENSES ($000)(14) Fuel Expense $38,510 39,525 40,618 41,741 32,230 Fuel Transportation Expense $1,360 1,360 1,360 1,360 1,020 Auxiliary Fuel $48 30 30 30 23 Operator's Fee $1,171 1,204 1,237 1,272 981 Plant Operations $3,131 3,216 3,302 3,392 2,612 Major Maintenance $3,337 3,427 3,520 3,615 2,784 Other O&M $904 1,014 1,087 1,142 882 Insurance $347 380 405 412 326 Administrative Fees $886 144 148 152 117 Property Taxes $1,387 1,387 1,387 1,387 1,040 Capital Expenditures $1,409 1,002 715 516 351 ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $52,490 52,689 53,809 55,019 42,366 NET OPERATING REVENUES ($000) $31,008 33,439 35,188 36,868 29,500 SENIOR DEBT SERVICE (15) Balance Outstanding (Jan 1) $90,529 76,261 60,174 42,055 21,743 Principal $14,268 16,088 18,119 20,313 21,743 Interest $8,044 8,561 6,940 4,989 1,459 ---------- ---------- ---------- ---------- ---------- Total Senior Debt Service $21,561 23,381 23,796 23,975 23,188 Payments into Debt Reserve Fund $85 128 67 (183) (6,014) Debt Service Reserve Fund Balance (16) $6,002 6,130 6,196 6,014 0 Major Maintenance Reserve Fund Balance (17) $1,000 1,000 1,000 1,000 1,000 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $9,362 9,930 11,325 13,076 12,326 DISTRIBUTIONS TO CE GENERATION ($000)(18) $9,362 9,930 11,325 13,076 12,326
B-46 Exhibit B-1 CE Generation Gas Projects Projected Operating Results Base Case
Year Ending December 31, 1999(1) 2000 2001 2002 2003 2004 --------- --------- --------- --------- --------- --------- SARANAC PROJECT PERFORMANCE Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000 240,000 Availability Factor (%)(20) 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% Capacity Factor (%)(21) 85.54% 85.54% 85.54% 85.54% 85.54% 85.54% Energy Sales (MWh)(22) 1,798,400 1,798,400 1,798,400 1,798,400 1,798,400 1,798,400 Available Generation (MWh)(23) 177,900 177,900 177,900 177,900 177,900 177,900 Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 713,000 713,000 Heat Rate (Btu/kWh)(25) 8,550 8,550 8,550 8,550 8,550 8,550 Fuel Consumption (BBtu)(26) 15,466 15,466 15,466 15,466 15,466 15,466 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(27) $76.91 80.50 83.76 87.02 90.28 94.51 Energy Price ($/MWh)(28) $68.03 70.96 74.04 77.30 80.81 84.27 Steam Price ($/Mlb)(29) $3.16 3.29 3.42 3.56 3.70 3.85 Natural Gas Price ($/MMBtu)(30) $2.760 2.906 3.057 3.215 3.378 3.548 Gas Transportation Cost ($/MMBtu)(31) $0.977 0.978 0.978 0.979 0.979 0.980 OPERATING REVENUES ($000) Revenue from Electricity Sales Capacity $18,459 19,320 20,102 20,884 21,666 22,683 Energy $134,438 140,243 146,328 152,777 159,713 166,545 Steam Revenue $2,256 2,346 2,440 2,538 2,639 2,745 Interest Income (32) $385 385 385 385 385 385 --------- --------- --------- --------- --------- --------- Total Operating Revenues $155,538 162,294 169,255 176,584 184,403 192,358 OPERATING EXPENSES ($000)(33) Fuel Expense $42,691 44,942 47,282 49,716 52,248 54,880 Fuel Transportation Expense $15,110 15,120 15,129 15,138 15,146 15,156 Operation & Maintenance $2,376 2,488 2,605 2,727 2,855 2,989 Operator's Fee $2,100 2,157 2,215 2,275 2,336 2,399 Repair & Maintenance $5,930 6,090 6,255 6,424 6,597 6,775 Water & Chemicals $386 396 407 418 429 441 Consumables $476 489 502 516 530 544 State Excise Tax on Steam Revenues (34) $79 82 85 89 92 96 Insurance $767 788 809 831 853 876 Administrative & General $975 1,001 1,028 1,056 1,084 1,114 Property Taxes $3,016 3,016 3,016 3,016 3,016 3,016 Wheeling Charges (35) $5,424 5,695 5,980 6,279 6,593 6,923 Letter-of-Credit Fees $275 282 289 297 304 312 --------- --------- --------- --------- --------- --------- Total Operating Expenses $79,605 82,546 85,602 88,782 92,083 95,521 NET OPERATING REVENUES ($000) $75,933 79,748 83,653 87,802 92,320 96,837 SENIOR DEBT SERVICE (36) Balance Outstanding (Jan 1) $189,282 181,097 170,047 156,951 141,399 122,573 Principal $8,185 11,050 13,096 15,552 18,826 22,100 Interest $15,242 14,484 13,516 12,369 10,996 9,354 --------- --------- --------- --------- --------- --------- Total Senior Debt Service $23,427 25,534 26,612 27,921 29,822 31,454 Payments into Base Reserve Fund $0 0 0 0 0 0 Base Reserve Fund Balance (37) $7,000 7,000 7,000 7,000 7,000 7,000 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $75,933 79,748 83,653 87,802 92,320 96,837 DISTRIBUTIONS TO OTHER PARTNERS (38) $52,123 49,717 48,703 53,011 55,757 58,533 DISTRIBUTIONS TO CE GENERATION ($000)(38) $23,810 30,031 34,951 34,791 36,563 38,304 Year Ending December 31, 2005 2006 2007 2008 2009(1) --------- --------- --------- --------- --------- SARANAC PROJECT PERFORMANCE Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000 Availability Factor (%)(20) 94.00% 94.00% 94.00% 94.00% 94.00% Capacity Factor (%)(21) 85.54% 85.54% 85.54% 85.54% 85.54% Energy Sales (MWh)(22) 1,798,400 1,798,400 1,798,400 1,798,400 899,200 Available Generation (MWh)(23) 177,900 177,900 177,900 177,900 88,900 Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 356,600 Heat Rate (Btu/kWh)(25) 8,550 8,550 8,550 8,550 8,550 Fuel Consumption(BBtu)(26) 15,466 15,466 15,466 15,466 7,733 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(27) 97.77 101.68 106.57 110.48 115.38 Energy Price ($/MWh)(28) 88.06 91.91 95.91 100.17 104.59 Steam Price ($/Mlb)(29) 4.00 4.16 4.33 4.50 4.68 Natural Gas Price ($/MMBtu)(30) 3.725 3.910 4.101 4.300 4.472 Gas Transportation Cost ($/MMBtu)(31) 0.981 0.981 0.982 0.982 0.971 OPERATING REVENUES ($000) Revenue from Electricity Sales Capacity 23,465 24,404 25,577 26,516 13,845 Energy 174,035 181,647 189,550 197,973 103,343 Steam Revenue 2,855 2,969 3,088 3,211 1,670 Interest Income (32) 385 385 385 385 0 --------- --------- --------- --------- --------- Total Operating Revenues 200,740 209,405 218,600 228,085 118,858 OPERATING EXPENSES ($000)(33) Fuel Expense 57,618 60,465 63,427 66,506 34,579 Fuel Transportation Expense 15,165 15,175 15,184 15,193 7,511 Operation & Maintenance 3,130 3,277 3,431 3,592 1,881 Operator's Fee 2,464 2,531 2,599 2,669 1,371 Repair & Maintenance 6,958 7,146 7,339 7,537 3,870 Water & Chemicals 453 465 478 491 252 Consumables 559 574 589 605 311 State Excise Tax on Steam Revenues (34) 100 104 108 112 58 Insurance 900 924 949 975 501 Administrative & General 1,144 1,175 1,206 1,239 636 Property Taxes 3,016 3,016 3,016 3,016 1,508 Wheeling Charges (35) 7,269 7,632 8,014 8,415 4,418 Letter-of-Credit Fees 321 330 339 179 0 --------- --------- --------- --------- --------- Total Operating Expenses 99,097 102,814 106,679 110,529 56,896 NET OPERATING REVENUES ($000) 101,643 106,591 111,921 117,556 61,962 SENIOR DEBT SERVICE (36) Balance Outstanding (Jan 1) 100,473 74,281 43,177 8,799 0 Principal 26,193 31,104 34,378 8,799 0 Interest 7,420 5,125 2,479 180 0 --------- --------- --------- --------- --------- Total Senior Debt Service 33,613 36,229 36,857 8,979 0 Payments into Base Reserve Fund 0 0 0 (7,000) 0 Base Reserve Fund Balance (37) 7,000 7,000 7,000 0 0 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 101,643 106,591 111,921 124,556 61,962 DISTRIBUTIONS TO OTHER PARTNERS (38) 61,094 65,066 71,316 75,494 18,744 DISTRIBUTIONS TO CE GENERATION ($000)(38) 40,549 41,525 40,605 49,062 43,219
B-47 Exhibit B-1 CE Generation Gas Projects Projected Operating Results Base Case
Year Ending December 31, 1999(1) 2000 2001 2002 2003 2004 -------- -------- -------- -------- -------- -------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 Energy ($/MWh)(50) $30.90 31.70 28.16 33.99 35.23 36.82 Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 Chilling Steam Price ($/Mlb)(52) $1.32 1.33 1.34 1.54 1.59 1.65 True-up Steam Price ($/Mlb)(52) $0.33 0.33 0.34 0.38 0.40 0.41 Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $11,971 12,281 10,909 13,168 13,648 13,307 Steam Revenue Process Steam $387 397 407 418 428 410 Supplemental Steam $96 98 101 103 106 141 Chilling Steam $154 155 156 179 185 179 True-up Steam $13 13 13 15 16 15 -------- -------- -------- -------- -------- -------- Total Operating Revenues $20,817 21,140 19,782 22,079 22,579 22,248 OPERATING EXPENSES ($000) Natural Gas $8,251 8,546 8,852 9,175 9,498 9,198 Natural Gas Use/Sales Taxes (54) $648 672 696 721 746 723 Natural Gas Service Fees (55) $182 185 187 190 192 195 Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 Major Maintenance (57) $183 3,278 193 198 2,262 209 Other Operating Fees/Water (56) $443 455 467 480 493 506 Audit, Legal & Finance (56) $762 12 13 13 13 14 Insurance (56) $157 161 166 170 175 179 Property & Other Taxes (56) $779 800 822 844 867 890 Capital Expenditures (56) $179 9 6 23 40 40 Wheeling (58) $963 963 963 963 963 961 -------- -------- -------- -------- -------- -------- Total Operating Expenses $13,910 16,481 13,803 14,253 16,765 14,472 NET OPERATING REVENUES ($000) $6,907 4,659 5,979 7,826 5,814 7,776 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,907 4,659 5,979 7,826 5,814 7,776 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,907 4,659 5,979 7,826 5,814 7,776 Year Ending December 31, 2005 2006 2007 2008 2009 -------- -------- -------- -------- -------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,800 1,800 1,800 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 83.4% 83.4% 83.4% 83.4% 83.4% Energy Generated (MWh)(42) 365,100 365,100 365,100 365,100 365,100 Transmission Losses (MWh)(45) 3,700 3,700 3,700 3,700 3,700 Energy Delivered (MWh) 361,400 361,400 361,400 361,400 361,400 Process Steam Sales (Mlb)(46) 46,200 46,200 46,200 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 11,900 11,900 11,900 11,900 11,900 Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,248 3,248 3,248 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92 163.92 Energy ($/MWh)(50) 40.09 39.91 40.19 43.05 42.04 Process Steam Price ($/Mlb)(51) 9.11 9.35 9.63 9.85 10.11 Supplemental Steam Price ($/Mlb)(51) 12.15 12.47 12.84 13.14 13.48 Chilling Steam Price ($/Mlb)(52) 1.77 1.78 1.80 1.90 1.89 True-up Steam Price ($/Mlb)(52) 0.44 0.44 0.45 0.48 0.47 Natural Gas Price ($/MMBtu)(53) 2.67 2.77 2.89 2.97 3.08 Gas Transportation Cost ($/MMBtu)(53) 0.27 0.27 0.28 0.29 0.30 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment 1,196 1,196 1,196 1,196 1,196 Energy Payment 14,489 14,423 14,525 15,558 15,193 Steam Revenue Process Steam 421 432 445 455 467 Supplemental Steam 145 148 153 156 160 Chilling Steam 192 193 195 207 205 True-up Steam 16 16 17 18 17 -------- -------- -------- -------- -------- Total Operating Revenues 23,459 23,408 23,531 24,590 24,238 OPERATING EXPENSES ($000) Natural Gas 9,526 9,864 10,283 10,579 10,952 Natural Gas Use/Sales Taxes (54) 749 775 808 831 861 Natural Gas Service Fees (55) 198 200 203 206 209 Operating & Maintenance (56) 1,599 1,642 1,687 1,732 1,779 Major Maintenance (57) 215 0 3,950 233 239 Other Operating Fees/Water (56) 520 534 548 563 578 Audit, Legal & Finance (56) 14 14 15 I5 16 Insurance (56) 184 189 194 200 205 Property & Other Taxes (56) 914 939 964 990 1,017 Capital Expenditures (56) 40 40 40 40 40 Wheeling (58) 961 961 961 961 961 -------- -------- -------- -------- -------- Total Operating Expenses 14,920 15,158 19,653 16,350 16.857 NET OPERATING REVENUES ($000) 8,539 8,250 3,878 8,240 7,381 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 8,539 8,250 3,878 8,240 7,381 DISTRIBUTIONS TO CE GENERATION ($000)(59) 8,539 8,250 3,878 8,240 7,381
B-48 Exhibit B-1 CE Generation Gas Projects Projected Operating Results Base Case
Year Ending December 31 2010 2011 2012 2013 2014 2015 -------- -------- -------- -------- -------- -------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $43.48 43.48 43.26 45.70 45.89 47.57 Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 11.59 Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 15.45 Chilling Steam price ($/Mlb)(52) $1.95 1.96 1.97 2.06 2.09 2.16 True-up Steam Price ($/Mlb)(52) $0.49 0.49 0.49 0.52 0.52 0.54 Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 3.62 Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 0.35 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $13,909 13,909 13,839 14,619 14,680 15,218 Steam Revenue Process Steam $425 436 448 460 473 474 Supplemental Steam $226 232 238 244 251 252 Chilling Stream $187 189 190 199 201 207 True-up Steam $16 16 16 17 17 18 -------- -------- -------- -------- -------- -------- Total Operating Revenues $22,959 22,978 22,927 23,735 23,818 24,365 OPERATING EXPENSES ($000) Natural Gas $10,075 10,439 10,817 11,209 11,616 11,457 Natural Gas Use/Sales Taxes (54) $792 820 850 881 913 900 Natural Gas Service Fees (55) $211 214 217 220 223 226 Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 2,087 Major Maintenance (57) $245 2,799 259 266 0 4,887 Other Operating Fees/Water (56) $594 610 626 643 661 678 Audit, Legal & Finance (56) $16 17 17 17 18 18 Insurance (56) $210 216 222 228 234 240 Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 1,193 Capital Expenditures (56) $40 40 40 40 40 40 Wheeling (58) $957 957 957 957 957 957 -------- -------- -------- -------- -------- -------- Total Operating Expenses $16,011 19,060 17,033 17,571 l7,857 22,683 NET OPERATING REVENUES ($000) $6,948 3,918 5,894 6,164 5,961 1,682 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,948 3,918 5,894 6,164 5,961 1,682 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,948 3,918 5,894 6,164 5,961 1,682 Year Ending December 31 2016 2017 2018 -------- -------- -------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 Energy Rate ($/MWh)(50) 47.79 49.16 50.31 Process Steam Price ($/Mlb)(51) 12.20 12.53 12.86 Supplemental Steam Price ($/Mlb)(51) 16.26 16.71 17.15 Chilling Steam price ($/Mlb)(52) 2.18 2.24 2.30 True-up Steam Price ($/Mlb)(52) 0.55 0.56 0.57 Natural Gas Price ($/MMBtu)(53) 3.97 4.11 4.25 Gas Transportation Cost ($/MMBtu)(53) 0.36 0.37 0.38 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 7,000 Bonus Capacity Payment 1,196 1,196 1,196 Energy Payment 15,288 15,726 16,094 Steam Revenue Process Steam 499 512 526 Supplemental Steam 265 272 280 Chilling Stream 210 216 221 True-up Steam 18 18 19 -------- -------- -------- Total Operating Revenues 24,476 24,940 25,336 OPERATING EXPENSES ($000) Natural Gas 12,468 12,915 13,351 Natural Gas Use/Sales Taxes(54) 980 1,015 1,049 Natural Gas Service Fees (55) 229 232 235 Operating & Maintenance (56) 2,144 2,202 2,261 Major Maintenance (57) 288 296 304 Other Operating Fees/Water (56) 697 716 735 Audit, Legal & Finance (56) 19 19 20 Insurance (56) 247 254 260 Property & Other Taxes (56) 1,225 1,258 1,292 Capital Expenditures (56) 40 40 40 Wheeling (58) 957 957 957 -------- -------- -------- Total Operating Expenses 19,294 19,904 20,504 NET OPERATING REVENUES ($000) 5,182 5,036 4,832 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 5,182 5,036 4,832 DISTRIBUTIONS TO CE GENERATION ($000)(59) 5,182 5,036 4,832
B-49 Footnotes to Exhibit B-1 1. Represents twelve months for 1999, representing the beginning of the quarterly distributions which will be available to CE Generation, and 12 months for 2018, except for the PRI Project and the Saranac Project, for which no distributions are assumed after the expiration of the PRI PPA and Saranac PPA on September 30, 2003 and June 30, 2009, respectively. Although the Securities have a final maturity of December 15, 2018, CE Generation has stated that a full year of revenues will be available to pay the debt service on the Securities in 2018. 2. Net plant capacity of 200,000 kW as set forth in the PPI PPA. 3. Capacity factor based on an assumed dispatch factor of 100 percent less the contractually allowed curtailment during the term of the PRI PPA. 4. Based on the historic level of steam sales to Fina at 830,000 Mlb per year. 5. As estimated by R.W. Beck based on the historic level of net plant heat rate. 6. Includes fuel based on the average annual heat rate. 7. Based on projections prepared by Blue Chip Economic Indicators dated October 10, 1998. 8. Capacity rate as set forth in the PRI PPA. 9. As set forth in the PRI PPA, the energy rate for energy produced monthly above a 72.5 percent capacity factor is equal to the product of TUEC's monthly weighted average cost of gas, as estimated by C.C. Pace, the monthly energy produced above a 72.5 percent capacity factor and 0.99. Below a 72.5 percent capacity factor, the energy pricing is as set forth in the PRI PPA. 10. Fina steam price is $2.45 per Mlb of steam beginning in 1991 and escalated each June 1 beginning June 1, 1992 at 2.0 percent per contract year thereafter pursuant to the PRI Steam Sales Agreement. 11. As projected by C.C. Pace in accordance with the PRI Gas Supply Agreement. The reservation fee is equal to $547,500 per year beginning July 1, 1989 and escalates at 3 percent beginning on July 1, 1996. The fuel prices under the Louis Dreyfus Gas Contract change each June 1. Spot gas pricing has been projected by C.C. Pace. 12. As set forth in the PRI Gas Supply Agreement. 13. Estimated based on the debt service reserve fund and major maintenance reserve fund balances required under the Amended and Restated Term Loan Agreement dated December 30, 1988 and a reinvestment rate of 5.5 percent, as estimated by CE Generation. 14. Based on information provided by CE Generation. Non-fuel operating expenses assumed to escalate at the rate of general inflation. 15. As set forth in the PRI Amended and Restated Term Loan Agreement provided by CE Generation. 16. The debt service reserve fund balance is to be maintained at the next quarter's debt service payment pursuant to the PRI Amended and Restated Term Loan Agreement. 17. The maintenance reserve account maintains a $1,000,000 balance in accordance with the PRI operating budget for periodic overhauls, repairs and spare parts. 18. One hundred percent of cash available for distribution is distributed to CE Generation. 19. Net plant capacity of 240,000 kW as set forth in the Saranac PPA. 20. As estimated by R.W. Beck. 21. Capacity factor based on an assumed dispatch factor of 100 percent less certain contractually allowed curtailment during the term of the Saranac PPA. 22. Calculated as set forth in the Saranac PPA. 23. Based on the historical energy curtailment by NYSEG under the Saranac PPA. 24. Based on historic level of steam sales. Assumes 520,300 Mlb per year of steam sales to Georgia-Pacific and 192,700 Mlb per year of steam sales to Tenneco. 25. As estimated by R.W. Beck. 26. Includes generation fuel based on an average annual beat rate and auxiliary boiler fuel at a rate of 1,400 Btu/lb of steam. 27. As set forth in the Saranac PPA, capacity rate is equal to the weighted average of the schedule of on-peak and off-peak variable capacity prices based on on-peak hours of 3,810 and 4,950 hours per year, respectively. 28. As set forth in the Saranac PPA, energy rate is equal to the weighted average of the schedule of on-peak and off-peak variable energy prices. Scheduled pricing based on a commercial operation date of May 1994. Includes available generation revenue calculated as variable energy rate plus variable capacity component less 95 percent of the lesser of (1) 105 percent of sum of the variable energy rate plus the variable capacity component, or (2) the price of natural gas times the estimated heat rate times the available generation. 29. Represents average steam price under Georgia-Pacific and Tenneco Steam Sales Agreements. Average steam price is equal to $3.04 per Mlb in 1998 escalated at 4.0 percent per year thereafter. 30. As set forth in the Saranac Gas Arrangements, natural gas price is equal to a contract price of $2.97 per MMBtu through October 31, 1994 and escalating by 4.0 percent each November 1 thereafter. Demand component is based on TransCanada's firm transportation rate and the contract quantity based on a 100 percent load factor. Commodity charge is the remaining portion of the contract price and is assessed only for actual fuel burned. 31. As set forth in the Saranac Gas Transportation Agreements. 32. Estimated based on the debt service reserve fund and major maintenance reserve fund balances and a reinvestment rate of 5 percent, as estimated by CE Generation. 33. Based on information provided by CE Generation. Non-fuel operating expenses assumed to escalate at the rate of general inflation, except where noted. 34. Equal to 3.5 percent of annual steam revenue. B-50 Footnotes to Exhibit B-1 (Continued) 35. As set forth in the Saranac PPA, equal to $4,250,000 per year in 1994 dollars escalated at 5.0 percent per year. 36. Based on information provided by CE Generation. Not deducted from cash available for distributions since senior debt service is paid out of level 1 distributions. 37. As required under senior credit agreement. Based on information provided by CE Generation. 38. Based on distributions to GE Capital equal to 99 percent of scheduled level 1 distributions and 1 percent of level 2 distributions and distributions to TPC Saranac equal to 0.3585 percent of scheduled level 1 distributions plus of 35.49 percent of level 2 distributions until an after-tax return of 8.35 percent is achieved. After achieving an 8.35 after-tax return, which is projected in the Base Case to occur in the first quarter of 2000, TPC Saranac's share is reduced from 35.49 to 17.82 percent. CE Generation receives all remaining level 1 and level 2 distributions. 39. Maximum energy deliverable to SDG&E under the Yuma PPA. 40. Contracted firm capacity under the Yuma PPA. 41. Curtailment hours assumed at contract maximums and consist of a block curtailment of 400 hours plus 900 hours of flexible curtailment through May 1, 2004, 1,400 hours of flexible curtailment from May 1, 2004 through May 1, 2009, and 2,200 hours of flexible curtailment each year thereafter. 42. Estimated by R.W. Beck based on historical operating data. 43. Estimated by R.W. Beck based on historical operating data. Peak hours under the Yuma PPA are defined as 11 A.M. to 6 P.M. weekdays, May through September. 44. Based on contracted firm capacity. 45. Pursuant to transmission agreements with APS, losses are equal to one percent of scheduled capacity and associated energy. 46. As estimated by CE Generation. 47. Includes auxiliary boiler. 48. Pursuant to the Yuma PPA. 49. Pursuant to the Yuma PPA. Assumes 92 percent on-peak availability and one percent losses from the point of delivery to the designated point of interconnection with SDG&E. 50. As estimated by Henwood. 51. As estimated by C.C. Pace. 52. Calculated pursuant to the Yuma Process ESA. Supplemental steam is steam produced in the auxiliary boiler. 53. Calculated pursuant to Yuma Chiller ESA. True-up steam is steam in excess of an annual average of 10,721 pounds per hour. 54. Gas use and sales taxes assumed to be equal to 7.86 percent of gas expenses, as estimated by CE Generation. 55. SWG special gas procurement tariff is $15,000 per month in 1998, as provided by CE Generation. Assumed by R.W. Beck to escalate at one half the general rate of inflation. 56. Estimated for 1999 by CE Generation and assumed to escalate at the assumed rate of general inflation of 2.7 percent per year thereafter. 57. Major maintenance schedule as estimated by CE Generation. 58. Includes firm and interruptible transmission costs based on firm transmission service charge of $1.52 per kW-month, and interruptible transmission service charge of $2.082 per MWh, unescalated pursuant to transmission agreements with APS. 59. One hundred percent of cash available for distribution is distributed to CE Generation. B-51 Exhibit B-2 CE Generation Gas Projects Projected Operating Results Sensitivity A: Increased Operating Expenses
Year Ending December 31, 1999(1) 2000 2001 2002 2003(1) ---------- --------- --------- ---------- ---------- PRI PROJECT PERFORMANCE Contract Capacity (kW)(2) 200,000 200,000 200,000 200,000 200,000 Capacity Factor (%)(3) 80.0% 80.0% 80.0% 80.0% 80.0% Energy Sales (MWh) 1,401,600 1,401,600 1,401,600 1,401,600 1,051,200 Steam Sales (Mlb)(4) 830,000 830,000 830,000 830,000 830,000 Heat Rate (Btu/kWh)(5) 9,500 9,500 9,500 9,500 9,500 Fuel Consumption (BBtu)(6) 13,315 13,315 13,315 13,315 9,986 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(8) $194.88 201.72 208.80 216.00 223.56 Energy Component Tier 1 Energy Price ($/MWh)(9) $31.70 32.80 34.00 35.20 36.40 Tier 2 Energy Price ($/MWh)(9) $24.82 25.06 25.52 25.98 26.79 Steam Price ($/Mlb)(10) $2.85 2.90 2.96 3.02 3.08 Natural Gas Price ($/MMBtu)(11) $2.892 2.968 3.050 3.135 3.227 Gas Transportation Cost ($/MMBtu)(12) $0.102 0.102 0.102 0.102 0.102 OPERATING REVENUES ($000) Revenue from Electricity Sales Capacity $38,976 40,344 41,760 43,200 33,534 Energy $41,779 42,989 44,386 45,783 35,485 Steam Revenue $2,363 2,410 2,459 2,508 2,558 Interest Income (13) $380 385 392 396 289 ---------- --------- --------- ---------- ---------- Total Operating Revenues $83,498 86,128 88,997 91,887 71,866 OPERATING EXPENSES ($000)(14) Fuel Expense $38,510 39,525 40,618 41,741 32,230 Fuel Transportation Expense $1,360 1,360 1,360 1,360 1,020 Auxiliary Fuel $48 30 30 30 23 Operator's Fee $1,288 1,324 1,361 1,399 1,079 Plant Operations $3,444 3,537 3,633 3,731 2,874 Major Maintenance $3,671 3,770 3,872 3,976 3,063 Other O&M $994 1,115 1,196 1,256 970 Insurance $382 418 446 453 358 Administrative Fees $975 158 163 167 129 Property Taxes $1,526 1,526 1,526 1,526 1,144 Capital Expenditures $1,550 1,102 787 568 386 ---------- --------- --------- ---------- ---------- Total Operating Expenses $53,748 53,865 54,992 56,207 43,276 NET OPERATING REVENUES ($000) $29,750 32,263 34,005 35,680 28,590 SENIOR DEBT SERVICE (15) Balance Outstanding (Jan 1) $90,529 76,261 60,174 42,055 21,743 Principal $14,268 16,088 18,119 20,313 21,743 Interest $8,044 8,561 6,940 4,989 1,459 ---------- --------- --------- ---------- ---------- Total Senior Debt Service $21,561 23,381 23,796 23,975 23,188 Payments into Debt Reserve Fund $85 128 67 (183) (6,014) Debt Service Reserve Fund Balance (16) $6,002 6,130 6,196 6,014 0 Major Maintenance Reserve Fund Balance (17) $1,000 1,000 1,000 1,000 1,000 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $8,104 8,754 10,142 11,888 11,416 DISTRIBUTIONS TO CE GENERATION ($000)(18) $8,104 8,754 10,142 11,888 11,416
B-52 Exhibit B-2 CE Generation Gas Projects Projected Operating Results Sensitivity A: Increased Operating Expenses
Year Ending December 31, 1999(1) 2000 2001 2002 2003 ---------- ---------- ---------- ---------- ---------- SARANAC PROJECT PERFORMANCE Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000 Availability Factor (%)(20) 94.00% 94.00% 94.00% 94.00% 94.00% Capacity Factor (%)(21) 85.54% 85.54% 85.54% 85.54% 85.54% Energy Sales (MWh)(22) 1,798,400 1,798,400 1,798,400 1,798,400 1,798,400 Available Generation (MWh)(23) 177,900 177,900 177,900 177,900 177,900 Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 713,000 Heat Rate (Btu/kWh)(25) 8,550 8,550 8,550 8,550 8,550 Fuel Consumption (BBtu)(26) 15,466 15,466 15,466 15,466 15,466 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(27) $76.91 80.50 83.76 87.02 90.28 Energy Price ($/MWh)(28) $68.03 70.96 74.04 77.30 80.81 Steam Price ($/Mlb)(29) $3.16 3.29 3.42 3.56 3.70 Natural Gas Price ($/MMBtu)(30) $2.760 2.906 3.057 3.215 3.378 Gas Transportation Cost ($/MMBtu)(31) $0.977 0.978 0.978 0.979 0.979 OPERATING REVENUES ($000) Revenue from Electricity Sales Capacity $18,459 19,320 20,102 20,884 21,666 Energy $134,438 140,243 146,328 152,777 159,713 Steam Revenue $2,256 2,346 2,440 2,538 2,639 Interest Income (32) $385 385 385 385 385 ---------- ---------- ---------- ---------- ---------- Total Operating Revenues $155,538 162,294 169,255 176,584 184,403 OPERATING EXPENSES ($000)(33) Fuel Expense $42,691 44,942 47,282 49,716 52,248 Fuel Transportation Expense $15,110 15,120 15,129 15,138 15,146 Operation & Maintenance $2,614 2,737 2,865 3,000 3,141 Operator's Fee $2,310 2,372 2,436 2,502 2,570 Repair & Maintenance $6,523 6,699 6,880 7,066 7,257 Water & Chemicals $425 436 448 460 472 Consumables $524 538 552 567 582 State Excise Tax on Steam Revenues (34) $87 90 94 98 102 Insurance $844 867 890 914 939 Administrative & General $1,072 1,101 1,131 1,162 1,193 Property Taxes $3,318 3,318 3,318 3,318 3,318 Wheeling Charges (35) $5,967 6,265 6,578 6,907 7,252 Letter-of-Credit Fees $303 310 318 326 335 ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $81,788 84,795 87,92l 91,174 94,555 NET OPERATING REVENUES ($000) $73,750 77,499 81,334 85,410 89,848 SENIOR DEBT SERVICE (36) Balance Outstanding (Jan 1) $189,282 181,097 170,047 156,951 141,399 Principal $8,185 11,050 13,096 15,552 18,826 Interest $15,242 14,484 13,516 12,369 10,996 ---------- ---------- ---------- ---------- ---------- Total Senior Debt Service $23,427 25,534 26,612 27,921 29,822 Payments into Base Reserve Fund $0 0 0 0 0 Base Reserve Fund Balance (37) $7,000 7,000 7,000 7,000 7,000 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $73,750 77,499 81,334 85,410 89,848 DISTRIBUTIONS TO OTHER PARTNERS (38) $51,327 49,195 48,266 52,561 55,292 DISTRIBUTIONS TO CE GENERATION ($000)(38) $22,424 28,305 33,068 32,849 34,556 Year Ending December 31, 2004 2005 2006 2007 2008 2009(1) ---------- ---------- ---------- ---------- ---------- ---------- SARANAC PROJECT PERFORMANCE Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000 240,000 Availability Factor (%)(20) 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% Capacity Factor (%)(21) 85.54% 85.54% 85.54% 85.54% 85.54% 85.54% Energy Sales (MWh)(22) 1,798,400 1,798,400 1,798,400 1,798,400 1,798,400 899,200 Available Generation (MWh)(23) 177,900 177,900 177,900 177,900 177,900 88,900 Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 713,000 356,600 Heat Rate (Btu/kWh)(25) 8,550 8,550 8,550 8,550 8,550 8,550 Fuel Consumption (BBtu)(26) 15,466 15,466 15,466 15,466 15,466 7,733 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(27) 94.51 97.77 101.68 106.57 110.48 115.38 Energy Price ($/MWh)(28) 84.27 88.06 91.91 95.91 100.17 104.59 Steam Price ($/Mlb)(29) 3.85 4.00 4.16 4.33 4.50 4.68 Natural Gas Price ($/MMBtu)(30) 3.548 3.725 3.910 4.101 4.300 4.472 Gas Transportation Cost ($/MMBtu)(31) 0.980 0.981 0.981 0.982 0.982 0.971 OPERATING REVENUES ($000) Revenue from Electricity Sales Capacity 22,683 23,465 24,404 25,577 26,516 13,845 Energy 166,545 174,035 181,647 189,550 197,973 103,343 Steam Revenue 2,745 2,855 2,969 3,088 3,211 1,670 Interest Income (32) 385 385 385 385 385 0 ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Revenues 192,358 200,740 209,405 218,600 228,085 118,858 OPERATING EXPENSES ($000)(33) Fuel Expense 54,880 57,618 60,465 63,427 66,506 34,579 Fuel Transportation Expense 15,156 15,165 15,175 15,184 15,193 7,511 Operation & Maintenance 3,288 3,443 3,605 3,774 3,952 2,069 Operator's Fee 2,639 2,710 2,784 2,859 2,936 1,508 Repair & Maintenance 7,453 7,654 7,861 8,073 8,291 4,257 Water & Chemicals 485 498 512 525 540 277 Consumables 598 614 631 648 665 342 State Excise Tax on Steam Revenues (34) 106 110 114 119 124 64 Insurance 964 990 1,017 1,044 1,073 551 Administrative & General 1,225 1,258 1,292 1,327 1,363 700 Property Taxes 3,318 3,318 3,318 3,318 3,318 1,659 Wheeling Charges (35) 7,615 7,996 8,396 8,815 9,256 4,859 Letter-of-Credit Fees 344 353 363 373 197 0 ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses 98,071 101,727 105,533 109,486 113,414 58,376 NET OPERATING REVENUES ($000) 94,287 99,013 103,872 109,114 114,671 60,482 SENIOR DEBT SERVICE (36) Balance Outstanding (Jan 1) 122,573 100,473 74,281 43,177 8,799 0 Principal 22,100 26,193 31,104 34,378 8,799 0 Interest 9,354 7,420 5,125 2,479 180 0 ---------- ---------- ---------- ---------- ---------- ---------- Total Senior Debt Service 31,454 33,613 36,229 36,857 8,979 0 Payments into Base Reserve Fund 0 0 0 0 (7,000) 0 Base Reserve Fund Balance (37) 7,000 7,000 7,000 7,000 0 0 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 94,287 99,013 103,872 109,114 121,671 60,482 DISTRIBUTIONS TO OTHER PARTNERS (38) 58,053 60,599 64,554 70,788 74,951 18,465 DISTRIBUTIONS TO CE GENERATION ($000)(38) 36,234 38,414 39,318 38,326 46,720 42,017
B-53 Exhibit B-2 CE Generation Gas Projects Projected Operating Results Sensitivity A: Increased Operating Expenses
Year Ending December 31, 1999(1) 2000 2001 2002 2003 2004 2005 -------- -------- -------- -------- -------- -------- -------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4% Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100 Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700 Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400 Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900 Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price $140.00 140.00 140.00 140.00 140.00 140.00 140.00 Capacity Price ($/kW-yr)(48) Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $30.90 31.70 28.16 33.99 35.23 36.82 40.09 Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11 Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15 Chilling Steam Price ($/Mlb)(52) $1.32 1.33 1.34 1.54 1.59 1.65 1.77 True-up Steam Price ($/Mlb)(52) $0.33 0.33 0.34 0.38 0.40 0.41 0.44 Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67 Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $11,971 12,281 10,909 13,168 13,648 13,307 14,489 Steam Revenue Process Steam $387 397 407 418 428 410 421 Supplement Steam $96 98 101 103 106 141 145 Chilling Steam $154 155 156 179 185 179 192 True-up Steam $13 13 13 15 16 15 16 -------- -------- -------- -------- -------- -------- -------- Total Operating Revenues $20,817 21,140 19,782 22,079 22,579 22,248 23,459 OPERATING EXPENSES ($000) Natural Gas $8,251 8,546 8,852 9,175 9,498 9,198 9,526 Natural Gas Use/Sales Taxes (54) $648 672 696 721 746 723 749 Natural Gas Service Fees (55) $182 185 187 190 192 195 198 Operating & Maintenance (56) $1,499 1,540 1,581 1,624 1,668 1,713 1,759 Major Maintenance (57) $201 3,606 212 218 2,488 230 237 Other Operating Fees/Water (56) $487 500 514 528 542 557 572 Audit, Legal & Finance (56) $838 l4 14 14 15 15 15 Insurance (56) $173 177 182 187 192 197 203 Property & Other Taxes (56) $857 880 904 928 953 979 1,005 Capital Expenditures (56) $197 10 7 25 44 44 44 Wheeling (58) $1,059 1,059 1,059 1,059 1,059 1,056 1,056 -------- -------- -------- -------- -------- -------- -------- Total Operating Expenses $14,392 17,189 14,208 14,669 17,397 14,907 15,364 NET OPERATING REVENUES ($000) $6,425 3,951 5,574 7,410 5,182 7,341 8,096 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,425 3,951 5,574 7,410 5,182 7,341 8,096 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,425 3,951 5,574 7,410 5,182 7,341 8,096 Year Ending December 31, 2006 2007 2008 2009 -------- -------- -------- -------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,800 1,800 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 83.4% 83.4% 83.4% 83.4% Energy Generated (MWh)(42) 365,100 365,100 365,100 365,100 Transmission Losses (MWh)(45) 3,700 3,700 3,700 3,700 Energy Delivered (MWh) 361,400 361,400 361,400 361,400 Process Steam Sales (Mlb)(46) 46,200 46,200 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 11,900 11,900 11,900 11,900 Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,248 3,248 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 Electricity Price 140.00 140.00 140.00 140.00 Capacity Price ($/kW-yr)(48) Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) 39.91 40.19 43.05 42.04 Process Steam Price ($/Mlb)(51) 9.35 9.63 9.85 10.11 Supplemental Steam Price ($/Mlb)(51) 12.47 12.84 13.14 13.48 Chilling Steam Price ($/Mlb)(52) 1.78 1.80 1.90 1.89 True-up Steam Price ($/Mlb)(52) 0.44 0.45 0.48 0.47 Natural Gas Price ($/MMBtu)(53) 2.77 2.89 2.97 3.08 Gas Transportation Cost ($/MMBtu)(53) 0.27 0.28 0.29 0.30 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 7,000 7,000 Bonus Capacity Payment 1,196 1,196 1,196 1,196 Energy Payment 14,423 14,525 15,558 15,193 Steam Revenue Process Steam 432 445 455 467 Supplement Steam 148 153 156 160 Chilling Steam 193 195 207 205 True-up Steam 16 17 18 17 -------- -------- -------- -------- Total Operating Revenues 23,408 23,531 24,590 24,238 OPERATING EXPENSES ($000) Natural Gas 9,864 10,283 10,579 10,952 Natural Gas Use/Sales Taxes (54) 775 808 831 861 Natural Gas Service Fees (55) 200 203 206 209 Operating & Maintenance (56) 1,807 1,855 1,906 1,957 Major Maintenance (57) 0 4,345 256 263 Other Operating Fees/Water (56) 587 603 619 636 Audit, Legal & Finance (56) 16 16 17 17 Insurance (56) 208 214 219 225 Property & Other Taxes (56) 1,033 1,060 1,089 1,118 Capital Expenditures (56) 44 44 44 44 Wheeling (58) 1,056 1,056 1,056 1,056 -------- -------- -------- -------- Total Operating Expenses 15,590 20,487 16,822 17,338 NET OPERATING REVENUES ($000) 7,818 3,044 7,768 6,900 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 7,818 3,044 7,768 6,900 DISTRIBUTIONS TO CE GENERATION ($000)(59) 7,818 3,044 7,768 6,900
B-54 Exhibit B-2 CE Generation Gas Projects Projected Operating Results Sensitivity A: Increased Operating Expenses
Year Ending December 31, 2010 2011 2012 2013 2014 2015 2016 -------- -------- -------- -------- -------- -------- -------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 2,886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $43.48 43.48 43.26 45.70 45.89 47.57 47.79 Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 11.59 12.20 Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 15.45 16.26 Chilling Steam Price($/Mlb)(52) $1.95 1.96 1.97 2.06 2.09 2.16 2.18 True-up Steam Price ($/Mlb)(52) $0.49 0.49 0.49 0.52 0.52 0.54 0.55 Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 3.62 3.97 Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 0.35 0.36 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $13,909 13,909 13,839 14,619 14,680 15,218 15,288 Steam Revenue Process Steam $425 436 448 460 473 474 499 Supplemental Steam $226 232 238 244 251 252 265 Chilling Stream $187 189 190 199 201 207 210 True-up Steam $16 16 16 17 17 18 18 -------- -------- -------- -------- -------- -------- -------- Total Operating Revenues $22,959 22,978 22,927 23,735 23,818 24,365 24,476 OPERATING EXPENSES ($000) Natural Gas $10,075 10,439 10,817 11,209 11,616 11,457 12,468 Natural Gas Use/Sales Taxes (54) $792 820 850 881 913 900 980 Natural Gas Service Fees (55) $211 214 217 220 223 226 229 Operating & Maintenance (56) $2,010 2,064 2,120 2,177 2,236 2,296 2,358 Major Maintenance (57) $270 3,079 285 293 0 5,376 317 Other Operating Fees/Water (56) $653 671 689 708 727 746 766 Audit, Legal & Finance (56) $18 18 19 19 20 20 21 Insurance (56) $232 238 244 251 258 264 272 Property & Other Taxes (56) $1,149 1,180 1,212 1,244 1,278 1,312 1,348 Capital Expenditures (56) $44 44 44 44 44 44 44 Wheeling (58) $1,052 1,052 1,052 1,052 1,052 1,052 1,052 -------- -------- -------- -------- -------- -------- -------- Total Operating Expenses $16,506 19,819 17,549 18,098 18,367 23,693 19,855 NET OPERATING REVENUES ($000) $6,454 3,159 5,378 5,637 5,451 672 4,621 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,454 3,159 5,378 5,637 5,451 672 4,621 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,454 3,159 5,378 5,637 5,451 672 4,621 Year Ending December 31, 2017 2018 -------- -------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 Curtailment Hours (41) 2,600 2,600 Availability Factor (42) 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 Energy Rate ($/MWh)(50) 49.16 50.31 Process Steam Price ($/Mlb)(51) 12.53 12.86 Supplemental Steam Price ($/Mlb)(51) 16.71 17.15 Chilling Steam Price($/Mlb)(52) 2.24 2.30 True-up Steam Price ($/Mlb)(52) 0.56 0.57 Natural Gas Price ($/MMBtu)(53) 4.11 4.25 Gas Transportation Cost ($/MMBtu)(53) 0.37 0.38 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 Bonus Capacity Payment 1,196 1,196 Energy Payment 15,726 16,094 Steam Revenue Process Steam 512 526 Supplemental Steam 272 280 Chilling Stream 216 221 True-up Steam 18 19 -------- -------- Total Operating Revenues 24,940 25,336 OPERATING EXPENSES ($000) Natural Gas 12,915 13,351 Natural Gas Use/Sales Taxes (54) 1,015 1,049 Natural Gas Service Fees (55) 232 235 Operating & Maintenance (56) 2,422 2,487 Major Maintenance (57) 326 334 Other Operating Fees/Water (56) 787 808 Audit, Legal & Finance (56) 21 22 Insurance (56) 279 287 Property & Other Taxes (56) 1,384 1,422 Capital Expenditures (56) 44 44 Wheeling (58) 1,052 1,052 -------- -------- Total Operating Expenses 20,477 21,091 NET OPERATING REVENUES ($000) 4,463 4,245 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 4,463 4,245 DISTRIBUTIONS TO CE GENERATION ($000)(59) 4,463 4,245
B-55 Footnotes to Exhibit B-2 The footnotes to Exhibit B-2 are the same as the footnotes for Exhibit B-1, except: 14. All non-fuel related operating costs are assumed to be 10 percent higher than that assumed in the Base Case. 33. All non-fuel related operating costs are assumed to be 10 percent higher than that assumed in the Base Case. 56. All non-fuel related operating costs are assumed to be 10 percent higher than that assumed in the Base Case. B-56 Exhibit B-3 CE Generation Gas Projects Projected Operating Results Sensitivity B: Increased Heat Rate
Year Ending December 31, 1999(1) 2000 2001 2002 2003(1) ---------- ---------- ---------- ---------- ---------- PRI PROJECT PERFORMANCE Contract Capacity (kW)(2) 200,000 200,000 200,000 200,000 200,000 Capacity Factor (%)(3) 80.0% 80.0% 80.0% 80.0% 80.0% Energy Sales (MWh) 1,401,600 1,401,600 1,401,600 1,401,600 1,051,200 Steam Sales (Mlb)(4) 830,000 830,000 830,000 830,000 830,000 Heat Rate (Btu/kWh)(5) 9,975 9,975 9,975 9,975 9,975 Fuel Consumption (BBtu)(6) 13,981 13,981 13,981 13,981 10,486 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(8) $194.88 201.72 208.80 216.00 223.56 Energy Component Tier 1 Energy Price ($/MWh)(9) $31.70 32.80 34.00 35.20 36.40 Tier 2 Energy Price ($/MWh)(9) $24.82 25.06 25.52 25.98 26.79 Steam Price ($/Mlb)(10) $2.85 2.90 2.96 3.02 3.08 Natural Gas Price ($/MMBtu)(11) $2.852 2.926 3.005 3.087 3.179 Gas Transportation Cost ($/MMBtu)(12) $0.104 0.104 0.104 0.104 0.104 OPERATING REVENUES ($000) Revenue from Electricity Sales Capacity $38,976 40,344 41,760 43,200 33,534 Energy $41,779 42,989 44,386 45,783 35,485 Steam Revenue $2,363 2,410 2,459 2,508 2,558 Interest Income (13) $380 385 392 396 289 ---------- ---------- ---------- ---------- ---------- Total Operating Revenues $83,498 86,128 88,997 91,887 71,866 OPERATING EXPENSES ($000)(14) Fuel Expense $39,877 40,902 42,017 43,163 33,331 Fuel Transportation Expense $1,449 1,449 1,449 1,449 1,087 Auxiliary Fuel $48 30 30 30 23 Operator's Fee $1,171 1,204 1,237 1,272 981 Plant Operations $3,131 3,216 3,302 3,392 2,612 Major Maintenance $3,337 3,427 3,520 3,615 2,784 Other O&M $904 1,014 1,087 1,142 882 Insurance $347 380 405 412 326 Administrative Fees $886 144 148 152 117 Property Taxes $1,387 1,387 1,387 1,387 1,040 Capital Expenditures $1,409 1,002 715 516 351 ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $53,946 54,155 55,297 56,530 43,534 NET OPERATING REVENUES ($000) $29,552 31,973 33,700 35,357 28,332 SENIOR DEBT SERVICE (15) Balance Outstanding (Jan 1) $90,529 76,261 60,174 42,055 21,743 Principal $14,268 16,088 18,119 20,313 21,743 Interest $8,044 8,561 6,940 4,989 1,459 ---------- ---------- ---------- ---------- ---------- Total Senior Debt Service $21,561 23,381 23,796 23,975 23,188 Payments into Debt Reserve Fund $85 128 67 (183) (6,014) Debt Service Reserve Fund Balance (16) $6,002 6,130 6,196 6,014 0 Major Maintenance Reserve Fund Balance (17) $1,000 1,000 1,000 1,000 1,000 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $7,906 8,464 9,837 11,565 11,158 DISTRIBUTIONS TO CE GENERATION ($000)(18) $7,906 8,464 9,837 11,565 11,158
B-57 Exhibit B-3 CE Generation Gas Projects Projected Operating Results Sensitivity B: Increased Heat Rate
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 ---------- ---------- ---------- ---------- ---------- ---------- SARANAC PROJECT PERFORMANCE Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000 240,000 Availability Factor (%)(20) 94.00% 94.00% 94.00% 94.00% 94.00% 94.00% Capacity Factor (%)(21) 85.54% 85.54% 85.54% 85.54% 85.54% 85.54% Energy Sales (MWh)(22) 1,798,400 1,798,400 1,798,400 1,798,400 1,798,400 1,798,400 Available Generation (MWh)(23) 177,900 177,900 177,900 177,900 177,900 177,900 Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 713,000 713,000 Heart Rate (Btu/kWh)(25) 8,978 8,978 8,978 8,978 8,978 8,978 Fuel Consumption (BBtu)(26) 16,236 16,236 16,236 16,236 16,236 16,236 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(27) $76.91 80.50 83.76 87.02 90.28 94.51 Energy Price ($/MWh)(28) $67.92 70.86 73.93 77.19 80.69 84.14 Steam Price ($/Mlb)(29) $3.16 3.29 3.42 3.56 3.70 3.85 Natural Gas Price ($/MMBtu)(30) $2.760 2.906 3.057 3.215 3.378 3.548 Gas Transportation Cost ($/MMBtu)(31) $0.957 0.958 0.958 0.959 0.959 0.960 OPERATING REVENUES ($000) Revenue from Electricity Sales Capacity $18,459 19,320 20,102 20,884 21,666 22,683 Energy $134,239 140,033 146,106 152,546 159,468 166,288 Steam Revenue $2,256 2,346 2,440 2,538 2,639 2,745 Interest Income (32) $385 385 385 385 385 385 ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Revenues $155,339 162,084 169,033 176,353 184,158 192,101 OPERATING EXPENSES ($000)(33) Fuel Expense $44,816 47,178 49,635 52,190 54,848 57,611 Fuel Transportation Expense $15,540 15,550 15,559 15,568 15,576 15,586 Operation & Maintenance $2,376 2,488 2,605 2,727 2,855 2,989 Operator's Fee $2,100 2,157 2,215 2,275 2,336 2,399 Repair & Maintenance $5,930 6,090 6,255 6,424 6,597 6,775 Water & Chemicals $386 396 407 418 429 441 Consumables $476 489 502 516 530 544 State Excise Tax on Steam Revenues (34) $79 82 85 89 92 96 Insurance $767 788 809 831 853 876 Administrative & General $975 1,001 1,028 1,056 1,084 1,114 Property Taxes $3,016 3,016 3,016 3,016 3,016 3,016 Wheeling Charges (35) $5,424 5,695 5,980 6,279 6,593 6,923 Letter-of-Credit Fees $275 282 289 297 304 312 ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $82,160 85,212 88,385 91,686 95,113 98,682 NET OPERATING REVENUES ($000) $73,179 76,872 80,648 84,667 89,045 93,419 SENIOR DEBT SERVICE (36) Balance Outstanding (Jan 1) $189,282 181,097 170,047 156,951 141,399 122,573 Principal $8,185 11,050 13,096 15,552 18,826 22,100 Interest $15,242 14,484 13,516 12,369 10,996 9,354 ---------- ---------- ---------- ---------- ---------- ---------- Total Senior Debt Service $23,427 25,534 26,612 27,921 29,822 31,454 Payments into Base Reserve Fund $0 0 0 0 0 0 Base Reserve Fund Balance (37) $7,000 7,000 7,000 7,000 7,000 7,000 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $73,179 76,872 80,648 84,667 89,045 93,419 DISTRIBUTIONS TO OTHER PARTNERS (38) $51,118 49,049 48,137 52,421 55,141 57,890 DISTRIBUTIONS TO CE GENERATION ($000)(38) $22,061 27,824 32,511 32,246 33,904 35,530 Year Ending December 31 2005 2006 2007 2008 2009(1) ---------- ---------- ---------- ---------- -------- SARANAC PROJECT PERFORMANCE Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000 Availability Factor (%)(20) 94.00% 94.00% 94.00% 94.00% 94.00% Capacity Factor (%)(21) 85.54% 85.54% 85.54% 85.54% 85.54% Energy Sales (MWh)(22) 1,798,400 1,798,400 1,798,400 1,798,400 899,200 Available Generation (MWh)(23) 177,900 177,900 177,900 177,900 88,900 Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 356,600 Heart Rate (Btu/kWh)(25) 8,978 8,978 8,978 8,978 8,978 Fuel Consumption (BBtu)(26) 16,236 16,236 16,236 16,236 8,118 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(27) 97.77 101.68 106.57 110.48 115.38 Energy Price ($/MWh)(28) 87.92 91.77 95.76 100.02 104.42 Steam Price ($/Mlb)(29) 4.00 4.16 4.33 4.50 4.68 Natural Gas Price ($/MMBtu)(30) 3.725 3.910 4.101 4.300 4.472 Gas Transportation Cost ($/MMBtu)(31) 0.961 0.961 0.962 0.962 0.952 OPERATING REVENUES ($000) Revenue from Electricity Sales Capacity 23,465 24,404 25,577 26,516 13,845 Energy 173,765 181,365 189,253 197,662 103,182 Steam Revenue 2,855 2,969 3,088 3,211 1,670 Interest Income (32) 385 385 385 385 0 ---------- ---------- ---------- ---------- -------- Total Operating Revenues 200,470 209,123 218,303 227,774 118,697 OPERATING EXPENSES ($000)(33) Fuel Expense 60,485 63,474 66,583 69,816 36,299 Fuel Transportation Expense 15,595 15,605 15,614 15,623 7,726 Operation & Maintenance 3,130 3,277 3,431 3,592 1,881 Operator's Fee 2,464 2,531 2,599 2,669 1,371 Repair & Maintenance 6,958 7,146 7,339 7,537 3,870 Water & Chemicals 453 465 478 491 252 Consumables 559 574 589 605 311 State Excise Tax on Steam Revenues (34) 100 104 108 112 58 Insurance 900 924 949 975 501 Administrative & General 1,144 1,175 1,206 1,239 636 Property Taxes 3,016 3,016 3,016 3,016 1,508 Wheeling Charges (35) 7,269 7,632 8,014 8,415 4,418 Letter-of-Credit Fees 321 330 339 179 0 ---------- ---------- ---------- ---------- -------- Total Operating Expenses 102,394 106,253 110,265 114,269 58,831 NET OPERATING REVENUES ($000) 98,076 102,870 108,038 113,505 59,866 SENIOR DEBT SERVICE (36) Balance Outstanding (Jan 1) 100,473 74,281 43,177 8,799 0 Principal 26,193 31,104 34,378 8,799 0 Interest 7,420 5,125 2,479 180 0 ---------- ---------- ---------- ---------- -------- Total Senior Debt Service 33,613 36,229 36,857 8,979 0 Payments into Base Reserve Fund 0 0 0 (7,000) 0 Base Reserve Fund Balance (37) 7,000 7,000 7,000 0 0 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 98,076 102,870 108,038 120,505 59,866 DISTRIBUTIONS TO OTHER PARTNERS (38) 60,422 64,366 70,586 74,731 18,349 DISTRIBUTIONS TO CE GENERATION ($000)(38) 37,653 38,505 37,453 45,774 41,516
B-58 Exhibit B-3 CE Generation Gas Projects Projected Operating Results Sensitivity B: Increased Heat Rate
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005 -------- ------- ------- ------- ------- ------- ------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4% Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100 Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700 Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400 Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900 Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700 Heat Rate (Btu/kWh)(42) 9,272 9,272 9,272 9,272 9,272 9,272 9,272 Fuel Consumption (BBtu)(47) 3,647 3,647 3,647 3,647 3,647 3,410 3,410 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $30.90 31.70 28.16 33.99 35.23 36.82 40.09 Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11 Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15 Chilling Steam Price ($/Mlb)(52) $1.32 1.33 1.34 1.54 1.59 1.65 1.77 True-up Steam Price ($/Mlb)(52) $0.33 0.33 0.34 0.38 0.40 0.41 0.44 Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67 Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $11,971 12,281 10,909 13,168 13,648 13,307 14,489 Steam Revenue Process Steam $387 397 407 418 428 410 421 Supplemental Steam $96 98 101 103 106 141 145 Chilling Steam $154 155 156 179 185 179 192 True-up Steam $13 13 13 15 16 15 16 -------- ------- ------- ------- ------- ------- ------- Total Operating Revenues $20,817 21,140 19,782 22,079 22,579 22,248 23,459 OPERATING EXPENSES ($000) Natural Gas $8,662 8,972 9,293 9,632 9,971 9,657 10,002 Natural Gas Use/Sales Taxes (54) $681 705 730 757 784 759 786 Natural Gas Service Fees (55) $182 185 187 190 192 195 198 Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599 Major Maintenance (57) $183 3,278 193 198 2,262 209 215 Other Operating Fees/Water (56) $443 455 467 480 493 506 520 Audit, Legal & Finance (56) $762 12 13 13 13 14 14 Insurance (56) $157 161 166 170 175 179 184 Property & Other Taxes (56) $779 800 822 844 867 890 914 Capital Expenditures (56) $179 9 6 23 40 40 40 Wheeling (58) $963 963 963 963 963 961 961 -------- ------- ------- ------- ------- ------- ------- Total Operating Expenses $14,354 16,940 14,278 14,746 17,276 14,967 15,433 NET OPERATING REVENUES ($000) $6,463 4,200 5,504 7,333 5,303 7,281 8,026 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,463 4,200 5,504 7,333 5,303 7,281 8,026 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,463 4,200 5,504 7,333 5,303 7,281 8,026 Year Ending December 31 2006 2007 2008 2009 -------- ------- ------- ------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,800 1,800 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 83.4% 83.4% 83.4% 83.4% Energy Generated (MWh)(42) 365,100 365,100 365,100 365,100 Transmission Losses (MWh)(45) 3,700 3,700 3,700 3,700 Energy Delivered (MWh) 361,400 361,400 361,400 361,400 Process Steam Sales (Mlb)(46) 46,200 46,200 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 11,900 11,900 11,900 11,900 Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700 Heat Rate (Btu/kWh)(42) 9,272 9,272 9,272 9,272 Fuel Consumption (BBtu)(47) 3,410 3,410 3,410 3,410 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) 39.91 40.19 43.05 42.04 Process Steam Price ($/Mlb)(51) 9.35 9.63 9.85 10.11 Supplemental Steam Price ($/Mlb)(51) 12.47 12.84 13.14 13.48 Chilling Steam Price ($/Mlb)(52) 1.78 1.80 1.90 1.89 True-up Steam Price ($/Mlb)(52) 0.44 0.45 0.48 0.47 Natural Gas Price ($/MMBtu)(53) 2.77 2.89 2.97 3.08 Gas Transportation Cost ($/MMBtu)(53) 0.27 0.28 0.29 0.30 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 7,000 7,000 Bonus Capacity Payment 1,196 1,196 1,196 1,196 Energy Payment 14,423 14,525 15,558 15,193 Steam Revenue Process Steam 432 445 455 467 Supplemental Steam 148 153 156 160 Chilling Steam 193 195 207 205 True-up Steam 16 17 18 17 -------- ------- ------- ------- Total Operating Revenues 23,408 23,531 24,590 24,238 OPERATING EXPENSES ($000) Natural Gas 10,356 10,796 11,106 11,499 Natural Gas Use/Sales Taxes (54) 814 848 873 904 Natural Gas Service Fees (55) 200 203 206 209 Operating & Maintenance (56) 1,642 1,687 1,732 1,779 Major Maintenance (57) 0 3,950 233 239 Other Operating Fees/Water (56) 534 548 563 578 Audit, Legal & Finance (56) 14 15 15 16 Insurance (56) 189 194 200 205 Property & Other Taxes (56) 939 964 990 1,017 Capital Expenditures (56) 40 40 40 40 Wheeling (58) 961 961 961 961 -------- ------- ------- ------- Total Operating Expenses 15,689 20,206 16,919 17,447 NET OPERATING REVENUES ($000) 7,719 3,325 7,671 6,791 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 7,719 3,325 7,671 6,791 DISTRIBUTIONS TO CE GENERATION ($000)(59) 7,719 3,325 7,671 6,791
B-59 Exhibit B-3 CE Generation Gas Projects Projected Operating Results Sensitivity B: Increased Heat Rate
Year Ending December 31 2010 2011 2012 2013 2014 2015 2016 -------- ------- ------- ------- ------- ------- ------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 9,272 9,272 9,272 9,272 9,272 9,272 9,272 Fuel Consumption (BBtu)(47) 3,029 3,029 3,029 3,029 3,029 3,029 3,029 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $43.48 43.48 43.26 45.70 45.89 47.57 47.79 Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 11.59 12.20 Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 15.45 16.26 Chilling Steam Price ($/Mlb)(52) $1.95 1.96 1.97 2.06 2.09 2.16 2.18 True-up Steam Price ($/Mlb)(52) $0.49 0.49 0.49 0.52 0.52 0.54 0.55 Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 3.62 3.97 Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 0.35 0.36 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $13,909 13,909 13,839 14,619 14,680 15,218 15,288 Steam Revenue Process Steam $425 436 448 460 473 474 499 Supplemental Steam $226 232 238 244 251 252 265 Chilling Steam $187 189 190 199 201 207 210 True-up Steam $16 16 16 17 17 18 18 -------- ------- ------- ------- ------- ------- ------- Total Operating Revenues $22,959 22,978 22,927 23,735 23,818 24,365 24,476 OPERATING EXPENSES ($000) Natural Gas $10,574 10,956 11,353 11,765 12,192 12,025 13,085 Natural Gas Use/Sales Taxes (54) $831 861 892 925 958 945 1,028 Natural Gas Service Fees (55) $211 214 217 220 223 226 229 Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 2,087 2,144 Major Maintenance (57) $245 2,799 259 266 0 4,887 288 Other Operating Fees/Water (56) $594 610 626 643 661 678 697 Audit, Legal & Finance (56) $16 17 17 17 18 18 19 Insurance (56) $210 216 222 228 234 240 247 Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 1,193 1,225 Capital Expenditures (56) $40 40 40 40 40 40 40 Wheeling (58) $957 957 957 957 957 957 957 -------- ------- ------- ------- ------- ------- ------- Total Operating Expenses $16,549 19,618 17,611 18,171 18,478 23,296 19,959 NET OPERATING REVENUES ($000) $6,410 3,360 5,316 5,564 5,340 1,069 4,517 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,410 3,360 5,316 5,564 5,340 1,069 4,517 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,410 3,360 5,316 5,564 5,340 1,069 4,517 Year Ending December 31 2017 2018 -------- ------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 Curtailment Hours (41) 2,600 2,600 Availability Factor (42) 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 Heat Rate (Btu/kWh)(42) 9,272 9,272 Fuel Consumption (BBtu)(47) 3,029 3,029 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 Energy Rate ($/MWh)(50) 49.16 50.31 Process Steam Price ($/Mlb)(51) 12.53 12.86 Supplemental Steam Price ($/Mlb)(51) 16.71 17.15 Chilling Steam Price ($/Mlb)(52) 2.24 2.30 True-up Steam Price ($/Mlb)(52) 0.56 0.57 Natural Gas Price ($/MMBtu)(53) 4.11 4.25 Gas Transportation Cost ($/MMBtu)(53) 0.37 0.38 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 Bonus Capacity Payment 1,196 1,196 Energy Payment 15,726 16,094 Steam Revenue Process Steam 512 526 Supplemental Steam 272 280 Chilling Steam 216 221 True-up Steam 18 19 -------- ------- Total Operating Revenues 24,940 25,336 OPERATING EXPENSES ($000) Natural Gas 13,555 14,012 Natural Gas Use/Sales Taxes (54) 1,065 1,101 Natural Gas Service Fees (55) 232 235 Operating & Maintenance (56) 2,202 2,261 Major Maintenance (57) 296 304 Other Operating Fees/Water (56) 716 735 Audit, Legal & Finance (56) 19 20 Insurance (56) 254 260 Property & Other Taxes (56) 1,258 1,292 Capital Expenditures (56) 40 40 Wheeling (58) 957 957 -------- ------- Total Operating Expenses 20,594 21,217 NET OPERATING REVENUES ($000) 4,346 4,119 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 4,346 4,119 DISTRIBUTIONS TO CE GENERATION ($000)(59) 4,346 4,119
B-60 Footnotes to Exhibit B-3 The footnotes to Exhibit B-3 are the same as the footnotes for Exhibit B-1, except: 5. Assumes fuel consumption is 5 percent higher than that assumed in the Base Case. 25. Assumes fuel consumption is 5 percent higher than that assumed in the Base Case. 42. Assumes fuel consumption is 5 percent higher than that assumed in the Base Case. B-61 Exhibit B-4 CE Generation Gas Projects Projected Operating Results Sensitivity C: Reduced Availability
Year Ending December 31, 1999(1) 2000 2001 2002 2003(1) --------- --------- --------- --------- ------- PRI PROJECT PERFORMANCE Contract Capacity (kW)(2) 200,000 200,000 200,000 200,000 200,000 Capacity Factor (%)(3) 75.0% 75.0% 75.0% 75.0% 75.0% Energy Sales (MWh) 1,314,000 1,314,000 1,314,000 1,314,000 985,500 Steam Sales (Mlb)(4) 830,000 830,000 830,000 830,000 830,000 Heat Rate (Btu/kWh)(5) 9,500 9,500 9,500 9,500 9,500 Fuel Consumption (BBtu)(6) 12,483 12,483 12,483 12,483 9,362 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(8) $194.88 201.72 208.80 216.00 223.56 Energy Component Tier 1 Energy Price ($/MWh)(9) $31.70 32.80 34.00 35.20 36.40 Tier 2 Energy Price ($/MWh)(9) $24.82 25.06 25.52 25.98 26.79 Steam Price ($/Mlb)(10) $2.85 2.90 2.96 3.02 3.08 Natural Gas Price ($/MMBtu)(11) $2.895 2.972 3.054 3.138 3.231 Gas Transportation Cost ($/MMBtu)(12) $0.102 0.102 0.102 0.102 0.102 OPERATING REVENUES ($000) Revenue from Electricity Sales Capacity $38,976 40,344 41,760 43,200 33,534 Energy $39,168 40,303 41,612 42,922 33,268 Steam Revenue $2,363 2,410 2,459 2,508 2,558 Interest Income (13) $380 385 392 396 289 --------- --------- --------- --------- ------- Total Operating Revenues $80,887 83,442 86,223 89,026 69,649 OPERATING EXPENSES ($000)(14) Fuel Expense $36,141 37,095 38,120 39,174 30,248 Fuel Transportation Expense $1,275 1,275 1,275 1,275 956 Auxiliary Fuel $48 30 30 30 23 Operator's Fee $1,171 1,204 1,237 1,272 981 Plant Operations $3,131 3,216 3,302 3,392 2,612 Major Maintenance $3,337 3,427 3,520 3,615 2,784 Other O&M $904 1,014 1,087 1,142 882 Insurance $347 380 405 412 326 Administrative Fees $886 144 148 152 117 Property Taxes $1,387 1,387 1,387 1,387 1,040 Capital Expenditures $1,409 1,002 715 516 351 --------- --------- --------- --------- ------- Total Operating Expenses $50,036 50,174 51,226 52,367 40,320 NET OPERATING REVENUES ($000) $30,851 33,268 34,997 36,659 29,329 SENIOR DEBT SERVICE (15) Balance Outstanding (Jan 1) $90,529 76,261 60,174 42,055 21,743 Principal $14,268 16,088 18,119 20,313 21,743 Interest $8,044 8,561 6,940 4,989 1,459 --------- --------- --------- --------- ------- Total Senior Debt Service $21,561 23,381 23,796 23,975 23,188 Payments into Debt Reserve Fund $85 128 67 (183) (6,014) Debt Service Reserve Fund Balance (16) $6,002 6,130 6,196 6,014 0 Major Maintenance Reserve Fund Balance (17) $1,000 1,000 1,000 1,000 1,000 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $9,205 9,759 11,134 12,867 12,155 DISTRIBUTIONS TO CE GENERATION ($000)(18) $9,205 9,759 11,134 12,867 12,155
B-62 Exhibit B-4 CE Generation Gas Projects Projected Operating Results Sensitivity C: Reduced Availability
Year Ending December 31, 1999(1) 2000 2001 2002 2003 2004 --------- --------- --------- --------- --------- --------- SARANAC PROJECT PERFORMANCE Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000 240,000 Availability Factor (%)(20) 89.00% 89.00% 89.00% 89.00% 89.00% 89.00% Capacity Factor (%)(21) 80.99% 80.99% 80.99% 80.99% 80.99% 80.99% Energy Sales (MWh)(22) 1,702,700 1,702,700 1,702,700 1,702,700 1,702,700 1,702,700 Available Generation (MWh)(23) 74,800 74,800 74,800 74,800 74,800 74,800 Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 713,000 713,000 Heat Rate (Btu/kWh)(25) 8,550 8,550 8,550 8,550 8,550 8,550 Fuel Consumption (BBtu)(26) 14,648 14,648 14,648 14,648 14,648 14,648 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(27) $72.82 76.22 79.30 82.39 85.47 89.48 Energy Price ($/MWh)(28) $68.61 71.58 74.70 78.00 81.55 85.05 Steam Price ($/Mlb)(29) $3.16 3.29 3.42 3.56 3.70 3.85 Natural Gas Price ($/MMBtu)(30) $2.760 2.906 3.057 3.215 3.378 3.548 Gas Transportation Cost ($/MMBtu)(31) $1.000 1.001 1.002 1.002 1.003 1.003 OPERATING REVENUES ($000) Revenue from Electricity Sales Capacity $17,477 18,292 19,032 19,773 20,513 21,476 Energy $121,952 127,232 132,771 138,644 144,959 151,172 Steam Revenue $2,256 2,346 2,440 2,538 2,639 2,745 Interest Income (32) $385 385 385 385 385 385 --------- --------- --------- --------- --------- --------- Total Operating Revenues $142,070 148,255 154,628 161,340 168,496 175,778 OPERATING EXPENSES ($000)(33) Fuel Expense $40,433 42,564 44,780 47,086 49,484 51,977 Fuel Transportation Expense $14,652 14,662 14,671 14,680 14,688 14,698 Operation & Maintenance $2,376 2,488 2,605 2,727 2,855 2,989 Operator's Fee $2,100 2,157 2,215 2,275 2,336 2,399 Repair & Maintenance $5,930 6,090 6,255 6,424 6,597 6,775 Water & Chemicals $386 396 407 418 429 441 Consumables $476 489 502 516 530 544 State Excise Tax on Steam Revenues (34) $79 82 85 89 92 96 Insurance $767 788 809 831 853 876 Administrative & General $975 1,001 1,028 1,056 1,084 1,114 Property Taxes $3,016 3,016 3,016 3,016 3,016 3,016 Wheeling Charges (35) $5,424 5,695 5,980 6,279 6,593 6,923 Letter-of-Credit Fees $275 282 289 297 304 312 --------- --------- --------- --------- --------- --------- Total Operating Expenses $76,889 79,710 82,642 85,694 88,861 92,160 NET OPERATING REVENUES ($000) $65,181 68,545 71,986 75,646 79,635 83,618 SENIOR DEBT SERVICE (36) Balance Outstanding (Jan 1) $189,282 181,097 170,047 156,951 141,399 122,573 Principal $8,185 11,050 13,096 15,552 18,826 22,100 Interest $15,242 14,484 13,516 12,369 10,996 9,354 --------- --------- --------- --------- --------- --------- Total Senior Debt Service $23,427 25,534 26,612 27,921 29,822 31,454 Payments into Base Reserve Fund $0 0 0 0 0 0 Base Reserve Fund Balance (37) $7,000 7,000 7,000 7,000 7,000 7,000 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $65,181 68,545 71,986 75,646 79,635 83,618 DISTRIBUTIONS TO OTHER PARTNERS (38) $48,199 49,581 46,507 50,724 53,370 56,045 DISTRIBUTIONS TO CE GENERATION ($000)(38) $16,981 18,964 25,479 24,923 26,265 27,573 Year Ending December 31, 2005 2006 2007 2008 2009(1) --------- --------- --------- --------- ------- SARANAC PROJECT PERFORMANCE Net Plant Capacity (kW)(19) 240,000 240,000 240,000 240,000 240,000 Availability Factor (%)(20) 89.00% 89.00% 89.00% 89.00% 89.00% Capacity Factor (%)(21) 80.99% 80.99% 80.99% 80.99% 80.99% Energy Sales (MWh)(22) 1,702,700 1,702,700 1,702,700 1,702,700 851,400 Available Generation (MWh)(23) 74,800 74,800 74,800 74,800 37,400 Steam Sales (Mlb)(24) 713,000 713,000 713,000 713,000 356,600 Heat Rate (Btu/kWh)(25) 8,550 8,550 8,550 8,550 8,550 Fuel Consumption (BBtu)(26) 14,648 14,648 14,648 14,648 7,324 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(27) 92.57 96.27 100.90 104.60 109.24 Energy Price ($/MWh)(28) 88.89 92.78 96.83 101.14 105.59 Steam Price ($/Mlb)(29) 4.00 4.16 4.33 4.50 4.68 Natural Gas Price ($/MMBtu)(30) 3.725 3.910 4.101 4.300 4.472 Gas Transportation Cost ($/MMBtu)(31) 1.004 1.005 1.005 1.006 0.994 OPERATING REVENUES ($000) Revenue from Electricity Sales Capacity 22,217 23,105 24,216 25,105 13,109 Energy 157,995 164,925 172,110 179,777 93,849 Steam Revenue 2,855 2,969 3,088 3,211 1,670 Interest Income (32) 385 385 385 385 0 --------- --------- --------- --------- ------- Total Operating Revenues 183,452 191,384 199,799 208,478 108,628 OPERATING EXPENSES ($000)(33) Fuel Expense 54,569 57,266 60,071 62,988 32,751 Fuel Transportation Expense 14,707 14,717 14,726 14,735 7,282 Operation & Maintenance 3,130 3,277 3,431 3,592 1,881 Operator's Fee 2,464 2,531 2,599 2,669 1,371 Repair & Maintenance 6,958 7,146 7,339 7,537 3,870 Water & Chemicals 453 465 478 491 252 Consumables 559 574 589 605 311 State Excise Tax on Steam Revenues (34) 100 104 108 112 58 Insurance 900 924 949 975 501 Administrative & General 1,144 1,175 1,206 1,239 636 Property Taxes 3,016 3,016 3,016 3,016 1,508 Wheeling Charges (35) 7,269 7,632 8,014 8,415 4,418 Letter-of-Credit Fees 321 330 339 179 0 --------- --------- --------- --------- ------- Total Operating Expenses 95,590 99,157 102,865 106,553 54,839 NET OPERATING REVENUES ($000) 87,862 92,227 96,934 101,925 53,789 SENIOR DEBT SERVICE (36) Balance Outstanding (Jan 1) 100,473 74,281 43,177 8,799 0 Principal 26,193 31,104 34,378 8,799 0 Interest 7,420 5,125 2,479 180 0 --------- --------- --------- --------- ------- Total Senior Debt Service 33,613 36,229 36,857 8,979 0 Payments into Base Reserve Fund 0 0 0 (7,000) 0 Base Reserve Fund Balance (37) 7,000 7,000 7,000 0 0 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 87,862 92,227 96,934 108,925 53,789 DISTRIBUTIONS TO OTHER PARTNERS (38) 58,500 62,362 68,496 72,552 17,205 DISTRIBUTIONS TO CE GENERATION ($000)(38) 29,361 29,864 28,438 36,373 36,583
B-63 Exhibit B-4 CE Generation Gas Projects Projected Operating Results Sensitivity C: Reduced Availability
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005 ------- ------- ------- ------- ------- ------- ------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800 Availability Factor (42) 91.0% 91.0% 91.0% 91.0% 91.0% 91.0% 91.0% On-Peak Availability Factor (43) 87.0% 87.0% 87.0% 87.0% 87.0% 87.0% 87.0% Capacity Factor (%)(44) 84.7% 84.7% 84.7% 84.7% 84.7% 79.0% 79.0% Energy Generated (MWh)(42) 370,900 370,900 370,900 370,900 370,900 346,100 346,100 Transmission Losses (MWh)(45) 3,700 3,700 3,700 3,700 3,700 3,500 3,500 Energy Delivered (MWh) 367,200 367,200 367,200 367,200 367,200 342,600 342,600 Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,300 11,300 Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,294 3,294 3,294 3,294 3,294 3,079 3,079 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $155.01 155.01 155.01 155.01 155.01 155.01 155.01 Energy Rate ($/MWh)(50) $30.90 31.70 28.16 33.99 35.23 36.82 40.09 Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11 Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15 Chilling Steam Price ($/Mlb)(52) $1.32 1.33 1.34 1.54 1.59 1.65 1.77 True-up Steam Price ($/Mlb)(52) $0.33 0.33 0.34 0.38 0.40 0.41 0.44 Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67 Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $751 751 751 751 751 751 751 Energy Payment $11,346 11,640 10,340 12,481 12,936 12,615 13,735 Steam Revenue Process Steam $387 397 407 418 428 410 421 Supplemental Steam $96 98 101 103 106 134 137 Chilling Steam $154 155 156 179 185 179 192 True-up Steam $14 15 15 17 17 17 18 ------- ------- ------- ------- ------- ------- ------- Total Operating Revenues $19,748 20,056 18,770 20,949 21,423 21,106 22,254 OPERATING EXPENSES ($000) Natural Gas $7,823 8,103 8,393 8,699 9,006 8,720 9,031 Natural Gas Use/Sales Taxes (54) $615 637 660 684 708 685 710 Natural Gas Service Fees (55) $182 185 187 190 192 195 198 Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599 Major Maintenance (57) $0 3,278 193 0 204 2,322 215 Other Operating Fees/Water (56) $443 455 467 480 493 506 520 Audit, Legal & Finance (56) $762 12 13 13 13 14 14 Insurance (56) $157 161 166 170 175 179 184 Property & Other Taxes (56) $779 800 822 844 867 890 914 Capital Expenditures (56) $179 9 6 23 40 40 40 Wheeling (58) $961 961 961 961 961 959 959 ------- ------- ------- ------- ------- ------- ------- Total Operating Expenses $13,264 16,001 13,306 13,540 14,175 16,067 14,384 NET OPERATING REVENUES ($000) $6,484 4,055 5,464 7,409 7,248 5,039 7,870 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,484 4,055 5,464 7,409 7,248 5,039 7,870 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,484 4,055 5,464 7,409 7,248 5,039 7,870 Year Ending December 31 2006 2007 2008 2009 ------- ------- ------- ------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,800 1,800 1,800 1,800 Availability Factor (42) 91.0% 91.0% 91.0% 91.0% On-Peak Availability Factor (43) 87.0% 87.0% 87.0% 87.0% Capacity Factor (%)(44) 79.0% 79.0% 79.0% 79.0% Energy Generated (MWh)(42) 346,100 346,100 346,100 346,100 Transmission Losses (MWh)(45) 3,500 3,500 3,500 3,500 Energy Delivered (MWh) 342,600 342,600 342,600 342,600 Process Steam Sales (Mlb)(46) 46,200 46,200 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 11,300 11,300 11,300 11,300 Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,079 3,079 3,079 3,079 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 155.01 155.01 155.01 155.01 Energy Rate ($/MWh)(50) 39.91 40.19 43.05 42.04 Process Steam Price ($/Mlb)(51) 9.35 9.63 9.85 10.11 Supplemental Steam Price ($/Mlb)(51) 12.47 12.84 13.14 13.48 Chilling Steam Price ($/Mlb)(52) 1.78 1.80 1.90 1.89 True-up Steam Price ($/Mlb)(52) 0.44 0.45 0.48 0.47 Natural Gas Price ($/MMBtu)(53) 2.77 2.89 2.97 3.08 Gas Transportation Cost ($/MMBtu)(53) 0.27 0.28 0.29 0.30 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 7,000 7,000 Bonus Capacity Payment 751 751 751 751 Energy Payment 13,673 13,769 14,749 14,403 Steam Revenue Process Steam 432 445 455 467 Supplemental Steam 141 145 148 152 Chilling Steam 193 195 207 205 True-up Steam 18 18 19 19 ------- ------- ------- ------- Total Operating Revenues 22,208 22,323 23,329 22,997 OPERATING EXPENSES ($000) Natural Gas 9,351 9,748 10,028 10,382 Natural Gas Use/Sales Taxes (54) 735 766 788 816 Natural Gas Service Fees (55) 200 203 206 209 Operating & Maintenance (56) 1,642 1,687 1,732 1,779 Major Maintenance (57) 221 3,950 233 239 Other Operating Fees/Water (56) 534 548 563 578 Audit, Legal & Finance (56) 14 15 15 16 Insurance (56) 189 194 200 205 Property & Other Taxes (56) 939 964 990 1,017 Capital Expenditures (56) 40 40 40 40 Wheeling (58) 959 959 959 959 ------- ------- ------- ------- Total Operating Expenses 14,824 19,074 15,754 16,240 NET OPERATING REVENUES ($000) 7,384 3,249 7,575 6,757 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 7,384 3,249 7,575 6,757 DISTRIBUTIONS TO CE GENERATION ($000)(59) 7,384 3,249 7,575 6,757
B-64 Exhibit B-4 CE Generation Gas Projects Projected Operating Results Sensitivity C: Reduced Availability
Year Ending December 31 2010 2011 2012 2013 2014 ------- ------- ------- ------- ------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 Availability Factor (42) 91.0% 91.0% 91.0% 91.0% 91.0% On-Peak Availability Factor (43) 87.0% 87.0% 87.0% 87.0% 87.0% Capacity Factor (%)(44) 69.9% 69.9% 69.9% 69.9% 69.9% Energy Generated (MWh)(42) 306,300 306,300 306,300 306,300 306,300 Transmission Losses (MWh)(45) 3,100 3,100 3,100 3,100 3,100 Energy Delivered (MWh) 303,200 303,200 303,200 303,200 303,200 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 14,700 14,700 14,700 14,700 14,700 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,735 2,735 2,735 2,735 2,735 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $155.01 155.01 155.01 155.01 155.01 Energy Rate ($/MWh)(50) $43.48 43.48 43.26 45.70 45.89 Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 Chilling Steam Price ($/Mlb)(52) $1.95 1.96 1.97 2.06 2.09 True-up Steam Price ($/Mlb)(52) $0.49 0.49 0.49 0.52 0.52 Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $751 751 751 751 751 Energy Payment $13,183 13,183 13,116 13,856 13,914 Steam Revenue Process Steam $425 436 448 460 473 Supplemental Steam $203 209 215 220 226 Chilling Steam $187 189 190 199 201 True-up Steam $18 18 18 19 19 ------- ------- ------- ------- ------- Total Operating Revenues $21,767 21,786 21,738 22,505 22,584 OPERATING EXPENSES ($000) Natural Gas $9,548 9,892 10,251 10,623 11,008 Natural Gas Use/Sales Taxes (54) $750 777 806 835 865 Natural Gas Service Fees (55) $211 214 217 220 223 Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 Major Maintenance (57) $245 2,547 259 266 273 Other Operating Fees/Water (56) $594 610 626 643 661 Audit, Legal & Finance (56) $16 17 17 17 18 Insurance (56) $210 216 222 228 234 Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 Capital Expenditures (56) $40 40 40 40 40 Wheeling (58) $956 956 956 956 956 ------- ------- ------- ------- ------- Total Operating Expenses $15,441 18,217 16,422 16,938 17,473 NET OPERATING REVENUES ($000) $6,326 3,569 5,316 5,567 5,111 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,326 3,569 5,316 5,567 5,111 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,326 3,569 5,316 5,567 5,111 Year Ending December 31 2015 2016 2017 2018 ------- ------- ------- ------- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 Availability Factor (42) 91.0% 91.0% 91.0% 91.0% On-Peak Availability Factor (43) 87.0% 87.0% 87.0% 87.0% Capacity Factor (%)(44) 69.9% 69.9% 69.9% 69.9% Energy Generated (MWh)(42) 306,300 306,300 306,300 306,300 Transmission Losses (MWh)(45) 3,100 3,100 3,100 3,100 Energy Delivered (MWh) 303,200 303,200 303,200 303,200 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 14,700 14,700 14,700 14,700 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,735 2,735 2,735 2,735 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 155.01 155.01 155.01 155.01 Energy Rate ($/MWh)(50) 47.57 47.79 49.16 50.31 Process Steam Price ($/Mlb)(51) 11.59 12.20 12.53 12.86 Supplemental Steam Price ($/Mlb)(51) 15.45 16.26 16.71 17.15 Chilling Steam Price ($/Mlb)(52) 2.16 2.18 2.24 2.30 True-up Steam Price ($/Mlb)(52) 0.54 0.55 0.56 0.57 Natural Gas Price ($/MMBtu)(53) 3.62 3.97 4.11 4.25 Gas Transportation Cost ($/MMBtu)(53) 0.35 0.36 0.37 0.38 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 7,000 7,000 Bonus Capacity Payment 751 751 751 751 Energy Payment 14,423 14,490 14,905 15,254 Steam Revenue Process Steam 474 499 512 526 Supplemental Steam 227 239 246 252 Chilling Steam 207 210 216 221 True-up Steam 19 20 20 21 ------- ------- ------- ------- Total Operating Revenues 23,101 23,209 23,650 24,025 OPERATING EXPENSES ($000) Natural Gas 10,858 11,815 12,239 12,652 Natural Gas Use/Sales Taxes (54) 853 929 962 994 Natural Gas Service Fees (55) 226 229 232 235 Operating & Maintenance (56) 2,087 2,144 2,202 2,261 Major Maintenance (57) 0 5,020 296 304 Other Operating Fees/Water (56) 678 697 716 735 Audit, Legal & Finance (56) 18 19 19 20 Insurance (56) 240 247 254 260 Property & Other Taxes (56) 1,193 1,225 1,258 1,292 Capital Expenditures (56) 40 40 40 40 Wheeling (58) 956 956 956 956 ------- ------- ------- ------- Total Operating Expenses 17,149 23,321 19,174 19,749 NET OPERATING REVENUES ($000) 5,952 (112) 4,476 4,276 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 5,952 0 4,476 4,276 DISTRIBUTIONS TO CE GENERATION ($000)(59) 5,952 0 4,476 4,276
B-65 Footnotes to Exhibit B-4 The footnotes to Exhibit B-4 are the same as the footnotes for Exhibit B-1, except: 3. Assumes availability of the Natural Gas Projects is 5 percent less than that assumed in the Base Case. 20. Assumes availability of the Natural Gas Projects is 5 percent less than that assumed in the Base Case. 42. Assumes availability of the Natural Gas Projects is 5 percent less than that assumed in the Base Case. B-66 Exhibit B-5 CE Generation Gas Projects Projected Operating Results Sensitivity D: Yuma Low Gas 1
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005 ------- ---- ---- ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4% Energy Generated (Mwh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100 Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700 Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400 Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900 Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 l40.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 l63.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $30.90 31.70 27.86 30.57 32.73 34.88 38.70 Process Steam Price ($/Mlb)(51) $7.81 7.90 7.99 8.09 8.30 8.51 8.73 Supplemental Steam Price ($/Mlb)(51) $10.42 10.53 10.65 10.79 11.07 11.35 11.64 Chilling Steam Price ($/Mlb)(52) $1.32 1.32 1.33 1.43 1.51 1.59 1.72 True-up Steam Price ($/Mlb)(52) $0.33 0.33 0.33 0.36 0.38 0.40 0.43 Natural Gas Price ($/MMBtu)(53) $2.15 2.15 2.15 2.16 2.24 2.32 2.40 Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $11,971 12,281 10,793 11,843 12,678 12,606 13.986 Steam Revenue Process Steam $387 391 396 401 411 393 403 Supplemental Steam $96 97 98 99 102 135 139 Chilling Steam $154 154 155 166 176 173 187 True-up Steam $13 13 13 14 15 15 16 ------- ------ ------ ------ ------ ------ ------ Total Operating Revenues $20,817 21,132 19,651 20,719 21,578 21,518 22,927 OPERATING EXPENSES ($000) Natural Gas $8,251 8,272 8,292 8,341 8,636 8,364 8,659 Natural Gas Use/Sales Taxes (54) $648 650 652 656 679 657 681 Natural Gas Service Fees (55) $182 185 187 190 192 195 198 Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599 Major Maintenance (57) $183 3,278 193 198 2,262 209 215 Other Operating Fees/Water (56) $443 455 467 480 493 506 520 Audit, Legal & Finance (56) $762 12 13 13 13 14 14 Insurance (56) $157 161 166 170 175 179 184 Property & Other Taxes (56) $779 800 822 844 867 890 914 Capital Expenditures (56) $179 9 6 23 40 40 40 Wheeling (58) $963 963 963 963 963 961 961 ------- ------ ------ ------ ------ ------ ------ Total Operating Expenses $13,910 16,185 13,199 13,354 15,836 13,572 13,985 NET OPERATING REVENUES ($000) $6,907 4,947 6,452 7,365 5,742 7,946 8,942 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,907 4,947 6,452 7,365 5,742 7,946 8,942 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,907 4,947 6,452 7,365 5,742 7,946 8,942 Year Ending December 31 2006 2007 2008 2009 ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,800 1,800 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 83.4% 83.4% 83.4% 83.4% Energy Generated (Mwh)(42) 365,100 365,100 365,100 365,100 Transmission Losses (MWh)(45) 3,700 3,700 3,700 3,700 Energy Delivered (MWh) 361,400 361,400 361,400 361,400 Process Swam Sales (Mlb)(46) 46,200 46,200 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 11,900 11,900 11,900 11,900 Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,248 3,248 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) 39.01 39.32 39.63 39.94 Process Steam Price ($/Mlb)(51) 8.96 9.22 9.43 9.67 Supplemental Steam Price ($/Mlb)(51) 11.95 12.29 12.57 12.90 Chilling Steam Price ($/Mlb)(52) 1.75 1.77 1.79 1.82 True-up Steam Price ($/Mlb)(52) 0.44 0.44 0.45 0.45 Natural Gas Price ($/MMBtu)(53) 2.49 2.60 2.67 2.77 Gas Transportation Cost ($/MMBtu)(53) 0.27 0.28 0.29 0.30 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 7,000 7,000 Bonus Capacity Payment 1,196 1,196 1,196 1,196 Energy Payment 14,098 14,210 14,322 14,434 Steam Revenue Process Steam 414 426 436 447 Supplemental Steam 142 146 150 153 Chilling Steam 190 192 195 198 True-up Steam 16 16 17 17 ------ ------ ------ ------ Total Operating Revenues 23,056 23,186 23,316 23,445 OPERATING EXPENSES ($000) Natural Gas 8,968 9,344 9,614 9,952 Natural Gas Use/Sales Taxes (54) 705 734 756 782 Natural Gas Service Fees (55) 200 203 206 209 Operating & Maintenance (56) 1,642 1,687 1,732 1,779 Major Maintenance (57) 0 3,950 233 239 Other Operating Fees/Water (56) 534 548 563 578 Audit, Legal & Finance (56) 14 15 15 16 Insurance (56) 189 194 200 205 Property & Other Taxes (56) 939 964 990 1,017 Capital Expenditures (56) 40 40 40 40 Wheeling (58) 961 961 961 961 ------ ------ ------ ------ Total Operating Expenses 14,192 18,640 15,310 15,778 NET OPERATING REVENUES ($000) 8,864 4,546 8,006 7,667 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 8,864 4,546 8,006 7,667 DISTRIBUTIONS TO CE GENERATION ($000)(59) 8,864 4,546 8,006 7,667
B-67 Exhibit B-5 CE Generation Gas Projects Projected Operating Results Sensitivity D: Yuma Low Gas 1
Year Ending December 31 2010 2011 2012 2013 2014 ---- ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 l6,300 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 Energy Rate ($MWh)(50) $40.25 40.91 41.57 42.13 42.89 Process Steam Price ($/Mlb)(51) $9.93 10.19 10.46 10.74 11.03 Supplemental Steam Price ($/Mlb)(51) $13.23 13.58 13.95 14.32 14.71 Chilling Steam Price ($/Mlb)(52) $1.84 1.88 1.92 1.95 1.99 True-up Steam Price ($/Mlb)(52) $0.46 0.47 0.48 0.49 0.50 Natural Gas Price ($/MMBtu)(53) $2.87 2.98 3.09 3.20 3.32 Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 Energy Payment $12,876 13,087 13,298 13,509 13,721 Steam Revenue Process Steam $406 417 428 439 451 Supp1ement Steam $216 22l 227 233 240 Chilling Steam $177 181 184 188 192 True-up Steam $15 15 16 16 16 ------- ------ ------ ------ ------ Total Operating Revenues $21,886 22,117 22,349 22,581 22,816 OPERATING EXPENSES ($000) Natural Gas $9,154 9,483 9,827 10,182 10,55l Natural Gas Use/Sales Taxes (54) $719 745 772 800 829 Natural Gas Service Fees (55) $211 214 217 220 223 Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 Major Maintenance (57) $245 2,799 259 266 0 Other Operating Fees/Water (56) $594 610 626 643 661 Audit, Legal & Finance (56) $16 17 17 17 18 Insurance (56) $210 216 222 228 234 Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 Capital Expenditures (56) $40 40 40 40 40 Wheeling (58) $957 957 957 957 957 ------- ------ ------ ------ ------ Total Operating Expenses $15,017 18,029 15,965 16,463 16,708 NET OPERATING REVENUES ($000) $6,869 4,088 6,384 6,118 6,108 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,869 4,088 6,384 6,118 6,108 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,869 4,088 6,384 6,118 6,108 Year Ending December 31 2015 2016 2017 2018 ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 Transmission Losses (MWhx45) 3,200 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00 Bonus Capacity Price($/kW-yr)(49) 163.92 163.92 163.92 163.92 Energy Rate ($MWh)(50) 43.91 44.92 45.94 46.95 Process Steam Price ($/Mlb)(51) 11.07 11.63 11.94 12.26 Supplemental Steam Price ($/Mlb)(51) 14.76 15.51 15.93 16.34 Chilling Steam Price ($/Mlb)(52) 2.04 2.09 2.14 2.19 True-up Steam Price ($/Mlb)(52) 0.51 0.52 0.54 0.55 Natural Gas Price ($/MMBtu)(53) 3.26 3.57 3.70 3.83 Gas Transportation Cost ($/MMBtu)(53) 0.35 0.36 0.37 0.38 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 7,000 7,000 Bonus Capacity Payment 1,196 1,196 1,196 1,196 Energy Payment 14,045 14,370 14,695 15,019 Steam Revenue Process Steam 453 476 489 501 Supp1ement Steam 241 253 260 266 Chilling Steam 196 201 206 211 True-up Steam 17 17 18 18 ------ ------ ------ ------ Total Operating Revenues 23,148 23,513 23,864 24,211 OPERATING EXPENSES ($000) Natural Gas 10,413 11325 11,729 12,124 Natural Gas Use/Sales Taxes (54) 818 890 922 953 Natural Gas Service Fees (55) 226 229 232 235 Operating & Maintenance (56) 2,087 2,144 2,202 2,261 Major Maintenance (57) 4,887 288 296 304 Other Operating Fees/Water (56) 678 697 716 735 Audit, Legal & Finance (56) 18 19 19 20 Insurance (56) 240 247 254 260 Property & Other Taxes (56) 1,193 1,225 1,258 1,292 Capital Expenditures (56) 40 40 40 40 Wheeling (58) 957 957 957 957 ------ ------ ------ ------ Total Operating Expenses 21,557 18,061 18,625 19,181 NET OPERATING REVENUES ($000) 1,591 5,452 5,239 5,030 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 1,591 5,452 5,239 5,030 DISTRIBUTIONS TO CE GENERATION ($000)(59) 1,591 5,452 5,239 5,030
B-68 Footnotes to Exhibit B-5 The footnotes to Exhibit B-5 are the same as the footnotes for Exhibit B-1, except: 50. Assumes prices consistent with the Low Gas 1 case as described in the Henwood Report. 53. Assumes prices consistent with the Low Gas 1 case as described in the Henwood Report. B-69 Exhibit B-6 CE Generation Gas Projects Projected Operating Results Sensitivity E: Yuma Low Gas 2
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005 ------- ---- ---- ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4% Energy Generated (Mwh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100 Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700 Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400 Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900 Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $30.90 31.70 26.47 28.75 30.42 32.09 35.58 Process Steam Price ($/Mlb)(51) $7.81 7.92 8.02 8.13 8.23 8.33 8.54 Supplemental Steam Price ($/Mlb)(51) $10.42 10.56 10.70 10.84 10.97 11.11 11.39 Chilling Steam Price ($/Mlb)(52) $1.32 1.30 1.29 1.37 1.44 1.50 1.63 True-up Steam Price ($/Mlb)(52) $0.33 0.32 0.32 0.34 0.36 0.38 0.41 Natural Gas Price ($/MMBtu)(53) $2.15 2.16 2.17 2.18 2.19 2.19 2.27 Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $11,971 12,281 10,254 11,137 11,784 11,596 12,859 Steam Revenue Process Steam $387 392 397 402 407 385 395 Supplemental Steam $96 97 98 100 101 132 136 Chilling Steam $154 151 150 160 167 163 177 True-up Steam $13 13 13 14 14 14 15 ------- ------ ------ ------ ------ ------ ------ Total Operating Revenues $20,817 21,130 19,108 20,009 20,669 20,486 21,778 OPERATING EXPENSES ($000) Natural Gas $8,251 8,313 8,369 8,424 8,463 7,945 8,227 Natural Gas Use/Sales Taxes (54) $648 653 658 662 665 624 647 Natural Gas Service Fees (55) $182 185 187 190 192 195 198 Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599 Major Maintenance (57) $183 3,278 193 198 2,262 209 215 Other Operating Fees/Water (56) $443 455 467 480 493 506 520 Audit, Legal & Finance (56) $762 12 13 13 13 14 14 Insurance (56) $157 161 166 170 175 179 184 Property & Other Taxes (56) $779 800 822 844 867 890 914 Capital Expenditures (56) $179 9 6 23 40 40 40 Wheeling (58) $963 963 963 963 963 961 961 ------- ------ ------ ------ ------ ------ ------ Total Operating Expenses $13,910 16,229 13,282 13,443 15,649 13,120 13,519 NET OPERATING REVENUES ($000) $6,907 4,901 5,826 6,566 5,020 7,366 8,259 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,907 4,901 5,826 6,566 5,020 7,366 8,259 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,907 4,901 5,826 6,566 5,020 7,366 8,259 Year Ending December 31 2006 2007 2008 2009 ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,800 1,800 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 83.4% 83.4% 83.4% 83.4% Energy Generated(Mwh)(42) 365,100 365,100 365,100 365,100 Transmission Losses (MWh(45) 3,700 3,700 3,700 3,700 Energy Delivered (MWh) 361,400 361,400 361,400 361,400 Process Steam Sales (Mlb)(46) 46,200 46,200 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 11,900 11,900 11,900 11,900 Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,248 3,248 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) 36.16 36.74 37.31 37.89 Process Steam Price ($/Mlb)(51) 8.76 9.01 9.22 9.45 Supplemental Steam Price ($/Mlb)(51) 11.68 12.02 12.29 12.61 Chilling Steam Price ($/Mlb)(52) 1.66 1.69 1.72 1.75 True-up Steam Price ($/Mlb)(52) 0.41 0.42 0.43 0.44 Natural Gas Price ($/MMBtu)(53) 2.35 2.45 2.53 2.62 Gas Transportation Cost ($/MMBtu)(53) 0.27 0.28 0.29 0.30 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 7,000 7,000 Bonus Capacity Payment 1,196 1,196 1,196 1,196 Energy Payment 13,068 13,276 13,485 13,694 Steam Revenue Process Steam 405 416 426 437 Supplemental Steam 139 143 146 150 Chilling Steam 180 184 187 191 True-up Steam 15 16 16 16 ------ ------ ------ ------ Total Operating Revenues 22,003 22,231 22,456 22,684 OPERATING EXPENSES ($000) Natural Gas 8,516 8,877 9,133 9,452 Natural Gas Use/Sales Taxes (54) 669 698 718 743 Natural Gas Service Fees (55) 200 203 206 209 Operating & Maintenance (56) 1,642 1,687 1,732 1,779 Major Maintenance (57) 0 3,950 233 239 Other Operating Fees/Water (56) 534 548 563 578 Audit, Legal & Finance(56) 14 15 15 16 Insurance (56) 189 194 200 205 Property & Other Taxes(56) 939 964 990 1,017 Capital Expenditures (56) 40 40 40 40 Wheeling (58) 961 961 961 961 ------ ------ ------ ------ Total Operating Expenses 13,704 18,137 14,791 15,239 NET OPERATING REVENUES ($000) 8,299 4,094 7,665 7,445 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 8,299 4,094 7,665 7,445 DISTRIBUTIONS TO CE GENERATION ($000)(59) 8,299 4,094 7,665 7,445
B-70 Exhibit B-6 CE Generation Gas Projects Projected Operating Results Sensitivity E: Yuma Low Gas 2
Year Ending December 31 2010 2011 2012 2013 2014 ---- ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 19,900 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $38.47 38.85 39.23 39.60 39.98 Process Steam Price ($/Mlb)(51) $9.70 9.95 10.22 10.49 10.77 Supplemental Steam Price($/Mlb)(51) $12.93 13.27 13.62 13.98 14.36 Chilling Steam Price ($/Mlb)(52) $1.79 1.82 1.84 1.87 1.90 True-up Steam Price ($/Mlb)(52) $0.45 0.45 0.46 0.47 0.48 Natural Gas Price ($/MMBtu)(53) $2.71 2.81 2.92 3.02 3.14 Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 Energy Payment $12,307 12,427 12,548 12,669 12,790 Steam Revenue Process Steam $397 407 418 429 440 Supplement Steam $211 216 222 228 234 Chilling Steam $172 175 177 180 183 True-up Steam $15 15 15 15 16 ------- ------ ------ ------ ----- Total Operating Revenues $21,298 21,436 2l,576 21,717 21,859 OPERATING EXPENSES ($000) Natural Gas $8,696 9,007 9,333 9,671 10,020 Natural Gas Use/Sales Taxes (54) $683 708 733 760 787 Natural Gas Service Fees (55) $211 214 217 220 223 Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 Major Maintenance (57) $245 2,799 259 266 0 Other Operating Fees/Water (56) $594 610 626 643 661 Audit, Legal & Finance (56) $16 17 17 17 18 Insurance (56) $210 216 222 228 234 Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 Capital Expenditures (56) $40 40 40 40 40 Wheeling (58) $957 957 957 957 957 ------- ------ ------ ------ ----- Total Operating Expenses $14,523 17,516 15,432 15,912 l6,135 NET OPERATING REVENUES ($000) $6,775 3,920 6,144 5,805 5,724 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,775 3,920 6,l44 5,805 5,724 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,775 3920 6,144 5,805 5,724 Year Ending December 31 2015 2016 2017 2018 ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) 40.81 41.65 42.48 43.31 Process Steam Price ($/Mlb)(51) 10.81 11.35 11.65 11.95 Supplemental Steam Price($/Mlb)(51) 14.41 15.13 15.54 15.94 Chilling Steam Price ($/Mlb)(52) 1.94 1.99 2.03 2.08 True-up Steam Price ($/Mlb)(52) 0.49 0.50 0.51 0.52 Natural Gas Price ($/MMBtu)(53) 3.08 3.37 3.49 3.61 Gas Transportation Cost ($/MMBtu)(53) 0.35 0.36 0.37 0.38 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 7,000 7,000 Bonus Capacity Payment 1,196 1,196 1,196 1,196 Energy Payment 13,056 13,322 13,589 13,855 Steam Revenue Process Steam 442 464 477 489 Supplement Steam 235 247 253 260 Chilling Steam 187 191 196 200 True-up Steam 16 16 17 17 ------ ------ ------ ------ Total Operating Revenues 22,132 22,436 22,728 23,017 OPERATING EXPENSES ($000) Natural Gas 9,887 10,750 11,137 11,509 Natural Gas Use/Sales Taxes (54) 777 845 875 904 Natural Gas Service Fees(55) 226 229 232 235 Operating & Maintenance (56) 2,087 2,144 2,202 2,261 Major Maintenance (57) 4,887 288 296 304 Other Operating Fees/Water (56) 678 697 716 735 Audit, Legal & Finance(56) 18 19 19 20 Insurance (56) 240 247 254 260 Property & Other Taxes (56) 1,193 1,225 1,258 1,292 Capital Expenditures (56) 40 40 40 40 Wheeling (58) 957 957 957 957 ------ ------ ------ ------ Total Operating Expenses 20,990 17,441 17,986 18,517 NET OPERATING REVENUES ($000) 1,142 4,995 4,742 4,500 CASH AVAILABLE FOR DISTRIBUTIONS ($000) l,142 4,995 4,742 4,500 DISTRIBUTIONS TO CE GENERATION ($000)(59) 1,142 4,995 4,742 4,500
B-71 Footnotes to Exhibit B-6 The footnotes to Exhibit B-6 are the same as the footnotes for Exhibit B-1, except: 50. Assumes prices consistent with the Low Gas 2 case as described in the Henwood Report. 53. Assumes prices consistent with the Low Gas 2 case as described in the Henwood Report. B-72 Exhibit B-7 CE Generation Gas Projects Projected Operating Results Sensitivity F: Yuma SCE Low SRAC
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005 ------- ---- ---- ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4% Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100 Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700 Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400 Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900 Chilling Steam Demand (MIb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBTu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $29.10 31.10 33.00 34.20 35.20 36.20 37.20 Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11 Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15 Chilling Steam Price ($/Mlb)(52) $0.43 0.44 0.45 0.47 0.48 0.49 0.50 True-up Steam Price ($/Mlb)(52) $0.11 0.11 0.11 0.12 0.12 0.12 0.13 Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67 Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $11,273 12,048 12,784 13,249 13,636 13,083 13,444 Steam Revenue Process Steam $387 397 407 418 428 410 421 Supplemental Steam $96 98 101 103 106 141 145 Chilling Steam $50 51 53 54 56 53 55 True-up Steam $4 4 5 5 5 5 5 ------- ------ ------ ------ ------ ------ ------ Total Operating Revenues $20,006 20,794 21,546 22,025 22,427 21,888 22,266 OPERATING EXPENSES ($000) Natural Gas $8,251 8,546 8,852 9,175 9,498 9,198 9,526 Natural Gas Use/Sales Taxes (54) $648 672 696 721 746 723 749 Natural Gas Service Fees (55) $182 185 187 190 192 195 198 Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599 Major Maintenance (57) $183 3,278 193 198 2,262 209 215 Other Operating Fees/Water (56) $443 455 467 480 493 506 520 Audit, Legal & Finance (56) $762 12 13 13 13 14 14 Insurance (56) $157 161 166 170 175 179 184 Property & Other Taxes (56) $779 800 822 844 867 890 914 Capital Expenditures (56) $179 9 6 23 40 40 40 Wheeling (58) $963 963 963 963 963 961 961 ------- ------ ------ ------ ------ ------ ------ Total Operating Expenses $13,910 16,481 13,803 14,253 16,765 14,472 14,920 NET OPERATING REVENUES ($000) $6,096 4,313 7,743 7,772 5,662 7,416 7,346 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,096 4,313 7,743 7,772 5,662 7,416 7,346 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,096 4,313 7,743 7,772 5,662 7,416 7,346 Year Ending December 31 2006 2007 2008 2009 ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,800 1,800 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 83.4% 83.4% 83.4% 83.4% Energy Generated (MWh)(42) 365,100 365,100 365,100 365,100 Transmission Losses (MWh)(45) 3,700 3,700 3,700 3,700 Energy Delivered (MWh) 361,400 361,400 361,400 361,400 Process Steam Sales (Mlb)(46) 46,200 46,200 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 11,900 11,900 11,900 11,900 Chilling Steam Demand (Mlb)(46) 108,700 108,700 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 Fuel Consumption (BBTu)(47) 3,248 3,248 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) 38.30 39.50 40.60 41.80 Process Steam Price ($/Mlb)(51) 9.35 9.63 9.85 10.11 Supplemental Steam Price ($/Mlb)(51) 12.47 12.84 13.14 13.48 Chilling Steam Price ($/Mlb)(52) 0.52 0.53 0.55 0.56 True-up Steam Price ($/Mlb)(52) 0.13 0.13 0.14 0.14 Natural Gas Price ($/MMBtu)(53) 2.77 2.89 2.97 3.08 Gas Transportation Cost ($/MMBtu)(53) 0.27 0.28 0.29 0.30 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 7,000 7,000 Bonus Capacity Payment 1,196 1,196 1,196 1,196 Energy Payment 13,842 14,275 14,673 15,107 Steam Revenue Process Steam 432 445 455 467 Supplemental Steam 148 153 156 160 Chilling Steam 56 58 59 61 True-up Steam 5 5 5 5 ------ ------ ------ ------ Total Operating Revenues 22,679 23,132 23,544 23,996 OPERATING EXPENSES ($000) Natural Gas 9,864 10,283 10,579 10,952 Natural Gas Use/Sales Taxes (54) 775 808 831 861 Natural Gas Service Fees (55) 200 203 206 209 Operating & Maintenance (56) 1,642 1,687 1,732 1,779 Major Maintenance (57) 0 3,950 233 239 Other Operating Fees/Water (56) 534 548 563 578 Audit, Legal & Finance (56) 14 15 15 16 Insurance (56) 189 194 200 205 Property & Other Taxes (56) 939 964 990 1,017 Capital Expenditures (56) 40 40 40 40 Wheeling (58) 961 961 961 961 ------ ------ ------ ------ Total Operating Expenses 15,158 19,653 16,350 16,857 NET OPERATING REVENUES ($000) 7,521 3,479 7,194 7,139 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 7,521 3,479 7,194 7,139 DISTRIBUTIONS TO CE GENERATION ($000)(59) 7,521 3,479 7,194 7,139
B-73 Exhibit B-7 CE Generation Gas Projects Projected Operating Results Sensitivity F: Yuma SCE Low SRAC
Year Ending December 31 2010 2011 2012 2013 2014 ---- ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% Energy Generated (Mwh)(42) 323,100 323,100 323,100 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $43.10 44.30 45.70 47.00 48.40 Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 Chilling Steam Price ($/Mlb)(52) $0.58 0.59 0.61 0.62 0.64 True-up Steam Price ($/Mlb)(52) $0.14 0.15 0.15 0.16 0.16 Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 Energy Payment $13,788 14,172 14,619 15,035 15,483 Steam Revenue Process Steam $425 436 448 460 473 Supplement Steam $226 232 238 244 251 Chilling Steam $55 57 59 60 62 True-up Steam $5 5 5 5 5 ------- ------ ------ ------ ------ Total Operating Revenues $22,695 23,098 23,565 24,000 24,470 OPERATING EXPENSES ($000) Natural Gas $10,075 10,439 10,817 11,209 11,616 Natural Gas Use/Sales Taxes (54) $792 820 850 881 913 Natural Gas Service Fees (55) $211 214 217 220 223 Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 Major Maintenance (57) $245 2,799 259 266 0 Other Operating Fees/Water (56) $594 610 626 643 661 Audit, Legal & Finance (56) $16 17 17 17 18 Insurance (56) $210 216 222 228 234 Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 Capital Expenditures (56) $40 40 40 40 40 Wheeling (58) $957 957 957 957 957 ------- ------ ------ ------ ------ Total Operating Expenses $16,011 19,060 17,033 17,571 17,857 NET OPERATING REVENUES ($000) $6,684 4,038 6,532 6,429 6,613 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,684 4,038 6.532 6,429 6,613 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,684 4,038 6,532 6,429 6,613 Year Ending December 31 2015 2016 2017 2018 ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% Energy Generated (Mwh)(42) 323,100 323,100 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) 49.90 51.25 52.63 54.05 Process Steam Price($/Mlb)(51) 11.59 12.20 12.53 12.86 Supplemental Steam Price ($/Mlb)(51) 15.45 16.26 16.71 17.15 Chilling Steam Price ($/Mlb)(52) 0.66 0.68 0.70 0.71 True-up Steam Price($/Mlb)(52) 0.16 0.17 0.17 0.18 Natural Gas Price ($/MMBtu)(53) 3.62 3.97 4.11 4.25 Gas Transportation Cost ($/MMBtu)(53) 0.35 0.36 0.37 0.38 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 7,000 7,000 Bonus Capacity Payment 1,196 1,196 1,196 1,196 Energy Payment 15,963 16,394 16,837 17,291 Steam Revenue Process Steam 474 499 512 526 Supplement Steam 252 265 272 280 Chilling Steam 63 65 67 69 True-up Steam 5 6 6 6 ------ ------ ------ ------ Total Operating Revenues 24,953 25,425 25,890 26,368 OPERATING EXPENSES ($000) Natural Gas 11,457 12,468 12,915 13,351 Natural Gas Use/Sales Taxes (54) 900 980 1,015 1,049 Natural Gas Service Fees (55) 226 229 232 235 Operating & Maintenance (56) 2,087 2,144 2,202 2,261 Major Maintenance (57) 4,887 288 296 304 Other Operating Fees/Water (56) 678 697 716 735 Audit, Legal & Finance (56) 18 19 19 20 Insurance (56) 240 247 254 260 Property & Other Taxes (56) 1,193 1,225 1,258 1,292 Capital Expenditures (56) 40 40 40 40 Wheeling (58) 957 957 957 957 ------ ------ ------ ------ Total Operating Expenses 22,683 19,294 19,904 20,504 NET OPERATING REVENUES ($000) 2,270 6,131 5,986 5,864 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 2,270 6,131 5,986 5,864 DISTRIBUTIONS TO CE GENERATION ($000)(59) 2,270 6,131 5,986 5,864
B-74 Footnotes to Exhibit B-7 The footnotes to Exhibit B-7 are the same as the footnotes for Exhibit B-1, except: 50. Assumes prices consistent with the SCE Low SRAC case as described in the Henwood Report. 53. Assumes prices consistent with the SCE Low SRAC case as described in the Henwood Report. B-75 Exhibit B-8 CE Generation Gas Projects Projected Operating Results Sensitivity G: Yuma SCE Median SRAC
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005 2006 2007 ------- ---- ---- ---- ---- ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4% 83.4% 83.4% Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100 365,100 365,100 Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700 3,700 3,700 Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400 361,400 361,400 Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900 11,900 11,900 Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $29.90 32.20 34.60 35.90 37.20 38.80 41.10 43.10 44.40 Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11 9.35 9.63 Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15 12.47 12.84 Chilling Steam Price ($/Mlb)(52) $0.43 0.44 0.45 0.47 0.48 0.49 0.50 0.52 0.53 True-up Steam Price ($/Mlb)(52) $0.11 0.11 0.11 0.12 0.12 0.12 0.13 0.13 0.13 Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67 2.77 2.89 Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27 0.27 0.28 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $11,583 12,474 13,404 13,908 14,411 14,022 14,854 15,576 16,046 Steam Revenue Process Steam $387 397 407 418 428 410 421 432 445 Supplemental Steam $96 98 101 103 106 141 145 148 153 Chilling Steam $50 51 53 54 56 53 55 56 58 True-up Steam $4 4 5 5 5 5 5 5 5 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Revenues $20,316 21,220 22,166 22,684 23,202 22,827 23,676 24,413 24,903 OPERATING EXPENSES ($000) Natural Gas $8,251 8,546 8,852 9,175 9,498 9,198 9,526 9,864 10,283 Natural Gas Use/Sales Taxes (54) $648 672 696 721 746 723 749 775 808 Natural Gas Service Fees (55) $182 185 187 190 192 195 198 200 203 Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599 1,642 1,687 Major Maintenance (57) $183 3,278 193 198 2,262 209 215 0 3,950 Other Operating Fees/Water (56) $443 455 467 480 493 506 520 534 548 Audit, Legal & Finance (56) $762 12 13 13 13 14 14 14 15 Insurance (56) $157 161 166 170 175 179 184 189 194 Property & Other Taxes (56) $779 800 822 844 867 890 914 939 964 Capital Expenditures (56) $179 9 6 23 40 40 40 40 40 Wheeling (58) $963 963 963 963 963 961 961 961 961 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Expenses $13,910 16,481 13,803 14,253 16,765 14,472 14,920 15,158 19,653 NET OPERATING REVENUES ($000) $6,406 4,739 8,363 8,431 6,437 8,355 8,756 9,255 5,250 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $6,406 4.739 8,363 8,431 6,437 8,355 8,756 9,255 5,250 DISTRIBUTIONS TO CE GENERATION ($000)(59) $6,406 4,739 8,363 8,431 6,437 8,355 8,756 9,255 5,250 Year Ending December 31 2008 2009 ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 Curtailment Hours (41) 1,800 1.800 Availability Factor (42) 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% Capacity Factor (%)(44) 83.4% 83.4% Energy Generated (MWh)(42) 365,100 365,100 Transmission Losses (MWh)(45) 3,700 3,700 Energy Delivered (MWh) 361,400 361,400 Process Steam Sales (Mlb)(46) 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 11,900 11,900 Chilling Steam Demand (Mlb)(46) 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 Fuel Consumption (BBtu)(47) 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 Energy Rate ($/MWh)(50) 45.90 47.40 Process Steam Price ($/Mlb)(51) 9.85 10.11 Supplemental Steam Price ($/Mlb)(51) 13.14 13.48 Chilling Steam Price ($/Mlb)(52) 0.55 0.56 True-up Steam Price ($/Mlb)(52) 0.14 0.14 Natural Gas Price ($/MMBtu)(53) 2.97 3.08 Gas Transportation Cost ($/MMBtu)(53) 0.29 0.30 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 Bonus Capacity Payment 1,196 1,196 Energy Payment 16,588 17,130 Steam Revenue Process Steam 455 467 Supplemental Steam 156 160 Chilling Steam 59 61 True-up Steam 5 5 ------ ------ Total Operating Revenues 25,459 26,019 OPERATING EXPENSES ($000) Natural Gas 10,579 10,952 Natural Gas Use/Sales Taxes (54) 831 861 Natural Gas Service Fees (55) 206 209 Operating & Maintenance (56) 1,732 1,779 Major Maintenance (57) 233 239 Other Operating Fees/Water (56) 563 578 Audit, Legal & Finance (56) 15 16 Insurance (56) 200 205 Property & Other Taxes (56) 990 1,017 Capital Expenditures (56) 40 40 Wheeling (58) 961 961 ------ ------ Total Operating Expenses 16,350 16,857 NET OPERATING REVENUES ($000) 9,109 9,162 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 9,109 9,162 DISTRIBUTIONS TO CE GENERATION ($000)(59) 9,109 9,162
B-76 Exhibit B-8 CE Generation Gas Projects Projected Operating Results Sensitivity G: Yuma SCE Median SRAC
Year Ending December 31 2010 2011 2012 2013 2014 2015 2016 2017 2018 ---- ---- ---- ---- ---- ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 323,100 323,100 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 319,900 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 16,300 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 2,886 2,886 2.886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $48.90 50.60 42.20 54.00 55.80 57.60 59.16 60.75 62.39 Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 11.59 12.20 12.53 12.86 Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 15.45 16.26 16.71 17.15 Chilling Steam Price ($/Mlb)(52) $0.58 0.59 0.61 0.62 0.64 0.66 0.68 0.70 0.71 True-up Steam Price ($/Mlb)(52) $0.14 0.15 0.15 0.16 0.16 0.16 0.17 0.17 0.18 Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 3.62 3.97 4.11 4.25 Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 0.35 0.36 0.37 0.38 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $15,643 16,187 13,500 17,275 17,850 18,426 18,924 19,435 19,959 Steam Revenue Process Steam $425 436 448 460 473 474 499 512 526 Supplemental Steam $226 232 238 244 251 252 265 272 280 Chilling Steam $55 57 59 60 62 63 65 67 69 True-up Steam $5 5 5 5 5 5 6 6 6 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Revenues $24,550 25,113 22,446 26,240 26,837 27,416 27,955 28,488 29,036 OPERATING EXPENSES ($000) Natural Gas $10,075 10,439 10,817 11,209 11,616 11,457 12,468 12,915 13,351 Natural Gas Use/Sales Taxes (54) $792 820 850 881 913 900 980 1,015 1,049 Natural Gas Service Fees (55) $211 214 217 220 223 226 229 232 235 Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 2,087 2,144 2,202 2,261 Major Maintenance (57) $245 2,799 259 266 0 4,887 288 296 304 Other Operating Fees/Water (56) $594 610 626 643 661 678 697 716 735 Audit, Legal & Finance (56) $16 17 17 17 18 18 19 19 20 Insurance (56) $210 216 222 228 234 240 247 254 260 Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 1,193 1,225 1,258 1,292 Capital Expenditures (56) $40 40 40 40 40 40 40 40 40 Wheeling (58) $957 957 957 957 957 957 957 957 957 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Expenses $16,011 19,060 17,033 17,571 17,857 22,683 19,294 19,904 20,504 NET OPERATING REVENUES ($000) $8,539 6,053 5,413 8,669 8,980 4,733 8,661 8,584 8,532 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $8,539 6,053 5,413 8,669 8,980 4,733 8,661 8,584 8,532 DISTRIBUTIONS TO CE GENERATION ($000)(59) $8,539 6,053 5,413 8,669 8,980 4,733 8,661 8,584 8,532
B-77 Footnotes to Exhibit B-8 The footnotes to Exhibit B-8 are the same as the footnotes for Exhibit B-1, except: 50. Assumes prices consistent with the SCE Median SRAC case as described in the Henwood Report. 53. Assumes prices consistent with the SCE Median SRAC case as described in the Henwood Report. B-78 Exhibit B-9 CE Generation Gas Projects Projected Operating Results Sensitivity H: Yuma SCE High SRAC
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005 2006 2007 ------- ---- ---- ---- ---- ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4% 83.4% 83.4% Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100 365,100 365,100 Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700 3,700 3,700 Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400 361,400 361,400 Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900 11,900 11,900 Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8.830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $32.80 36.00 39.10 41.30 43.60 46.10 48.60 51.60 54.80 Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11 9.35 9.63 Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15 12.47 12.84 Chilling Steam Price ($/Mlb)(52) $0.43 0.44 0.45 0.47 0.48 0.49 0.50 0.52 0.53 True-up Steam Price ($/Mlb)(52) $0.11 0.11 0.11 0.12 0.12 0.12 0.13 0.13 0.13 Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67 2.77 2.89 Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27 0.27 0.28 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $12,707 13,946 15,147 16,000 16,891 16,661 17,564 18,648 19,805 Steam Revenue Process Steam $387 397 407 418 428 410 421 432 445 Supplemental Steam $96 98 101 103 106 141 145 148 153 Chilling Steam $50 51 53 54 56 53 55 56 58 True-up Steam $4 4 5 5 5 5 5 5 5 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Revenues $21,440 22,692 23,909 24,776 25,682 25,466 26,386 27,485 28,662 OPERATING EXPENSES ($000) Natural Gas $8,251 8,546 8,852 9,175 9,498 9,198 9,526 9,864 10,283 Natural Gas Use/Sales Taxes (54) $648 672 696 721 746 723 749 775 808 Natural Gas Service Fees (55) $182 185 187 190 192 195 198 200 203 Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599 1,642 1,687 Major Maintenance (57) $183 3,278 193 198 2,262 209 215 0 3,950 Other Operating Fees/Water (56) $443 455 467 480 493 506 520 534 548 Audit, Legal & Finance (56) $762 12 13 13 13 14 14 14 15 Insurance (56) $157 161 166 170 175 179 184 189 194 Property & Other Taxes (56) $779 800 822 844 867 890 914 939 964 Capital Expenditures (56) $179 9 6 23 40 40 40 40 40 Wheeling (58) $963 963 963 963 963 961 961 961 961 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Expenses $13,910 16,481 13,803 14,253 16,765 14,472 14,920 15,158 19,653 NET OPERATING REVENUES ($000) $7,530 6,211 10,106 10,523 8,917 10,994 11,466 12,327 9,009 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $7,530 6,211 10,106 10,523 8,917 10,994 11,466 12,327 9,009 DISTRIBUTIONS TO CE GENERATION ($000)(59) $7,530 6,211 10,106 10,523 8,917 10,994 11,466 12,327 9,009 Year Ending December 31 2008 2009 ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 Curtailment Hours (41) 1,800 1,800 Availability Factor (42) 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% Capacity Factor (%)(44) 83.4% 83.4% Energy Generated (MWh)(42) 365,100 365,100 Transmission Losses (MWh)(45) 3,700 3,700 Energy Delivered (MWh) 361,400 361,400 Process Steam Sales (Mlb)(46) 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 11,900 11,900 Chilling Steam Demand (Mlb)(46) 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 Fuel Consumption (BBtu)(47) 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 Energy Rate ($/MWh)(50) 58.20 61.90 Process Steam Price ($/Mlb)(51) 9.85 10.11 Supplemental Steam Price ($/Mlb)(51) 13.14 13.48 Chilling Steam Price ($/Mlb)(52) 0.55 0.56 True-up Steam Price ($/Mlb)(52) 0.14 0.14 Natural Gas Price ($/MMBtu)(53) 2.97 3.08 Gas Transportation Cost ($/MMBtu)(53) 0.29 0.30 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 Bonus Capacity Payment 1,196 1,196 Energy Payment 21,033 22,371 Steam Revenue Process Steam 455 467 Supplemental Steam 156 160 Chilling Steam 59 61 True-up Steam 5 5 ------ ------ Total Operating Revenues 29,904 31,260 OPERATING EXPENSES ($000) Natural Gas 10,579 10,952 Natural Gas Use/Sales Taxes (54) 831 861 Natural Gas Service Fees (55) 206 209 Operating & Maintenance (56) 1,732 1,779 Major Maintenance (57) 233 239 Other Operating Fees/Water (56) 563 578 Audit, Legal & Finance (56) 15 16 Insurance (56) 200 205 Property & Other Taxes (56) 990 1,017 Capital Expenditures (56) 40 40 Wheeling (58) 961 961 ------ ------ Total Operating Expenses 16,350 16,857 NET OPERATING REVENUES ($000) 13,554 14,403 CASH AVAILABLE FOR DISTRIBUTIONS ($000) 13,554 14,403 DISTRIBUTIONS TO CE GENERATION ($000)(59) 13,554 14,403
B-79 Exhibit B-9 CE Generation Gas Projects Projected Operating Results Sensitivity H: Yuma SCE High SRAC
Year Ending December 31 2010 2011 2012 2013 2014 2015 2016 2017 2018 ---- ---- ---- ---- ---- ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 323,100 323,100 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 319,900 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40,900 40,900 40,900 40,900 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 16,300 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 2,886 2,886 2,886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $65.90 70.70 76.00 81.60 87.60 94.10 96.64 99.25 101.93 Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 11.59 12.20 12.53 12.86 Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 15.45 16.26 16.71 17.15 Chilling Steam Price ($/Mlb)(52) $0.58 0.59 0.61 0.62 0.64 0.66 0.68 0.70 0.71 True-up Steam Price ($/Mlb)(52) $0.14 0.15 0.15 0.16 0.16 0.16 0.17 0.17 0.18 Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 3.62 3.97 4.11 4.25 Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 0.35 0.36 0.37 0.38 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1.196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $21,081 22,617 24,312 26,104 28,023 30,103 30,915 31,750 32,607 Steam Revenue Process Steam $425 436 448 460 473 474 499 512 526 Supplemental Steam $226 232 238 244 251 252 265 272 280 Chilling Steam $55 57 59 60 62 63 65 67 69 True-up Steam $5 5 5 5 5 5 6 6 6 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Revenues $29,988 31,543 33,258 35,069 37,010 39,093 39,946 40,803 41,684 OPERATING EXPENSES ($000) Natural Gas $10,075 10,439 10,817 11,209 11,616 11,457 12,468 12,915 13,351 Natural Gas Use/Sales Taxes (54) $792 820 850 881 913 900 980 1,015 1,049 Natural Gas Service Fees (55) $211 214 217 220 223 226 229 232 235 Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 2,087 2,144 2,202 2,261 Major Maintenance (57) $245 2,799 259 266 0 4,887 288 296 304 Other Operating Fees/Water (56) $594 610 626 643 661 678 697 716 735 Audit, Legal & Finance (56) $16 17 17 17 18 18 19 19 20 Insurance (56) $210 216 222 228 234 240 247 254 260 Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 1,193 1,225 1,258 1,292 Capital Expenditures (56) $40 40 40 40 40 40 40 40 40 Wheeling (58) $957 957 957 957 957 957 957 957 957 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Expenses $16,011 19,060 17,033 17,571 17,857 22,683 19,294 19,904 20,504 NET OPERATING REVENUES ($000) $13,977 12,483 16,225 17,498 19,153 16,410 20,652 20,899 21,180 CASH AVAILABLE FOR DISTRIBUTIONS ($000) $13,977 12,483 16,225 17,498 19,153 16,410 20,652 20,899 21,180 DISTRIBUTIONS TO CE GENERATION ($000)(59) $13,977 12,483 16,225 17,498 19,153 16,410 20,652 20,899 21,180
B-80 Footnotes to Exhibit B-9 The footnotes to Exhibit B-9 are the same as the footnotes for Exhibit B-1, except: 50. Assumes prices consistent with the SCE High SRAC case as described in the Henwood Report. 53. Assumes prices consistent with the SCE High SRAC case as described in the Henwood Report. B-81 Exhibit B-10 CE Generation Gas Projects Projected Operating Results Sensitivity I: Yuma Breakeven Electricity Price
Year Ending December 31 1999(1) 2000 2001 2002 2003 2004 2005 2006 2007 ------- ---- ---- ---- ---- ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 1,300 1,300 1,300 1,300 1,300 1,800 1,800 1,800 1,800 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 89.3% 89.3% 89.3% 89.3% 89.3% 83.4% 83.4% 83.4% 83.4% Energy Generated (MWh)(42) 391,300 391,300 391,300 391,300 391,300 365,100 365,100 365,100 365,100 Transmission Losses (MWh)(45) 3,900 3,900 3,900 3,900 3,900 3,700 3,700 3,700 3,700 Energy Delivered (MWh) 387,400 387,400 387,400 387,400 387,400 361,400 361,400 361,400 361,400 Process Steam Sales (Mlb)(46) 49,500 49,500 49,500 49,500 49,500 46,200 46,200 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 9,200 9,200 9,200 9,200 9,200 11,900 11,900 11,900 11,900 Chilling Steam Demand (Mlb)(46) 116,500 116,500 116,500 116,500 116,500 108,700 108,700 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 3,474 3,474 3,474 3,474 3,474 3,248 3,248 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $0.00 0.00 0.00 3.40 7.80 11.30 14.40 12.60 14.90 Process Steam Price ($/Mlb)(51) $7.81 8.01 8.22 8.44 8.65 8.88 9.11 9.35 9.63 Supplemental Steam Price ($/Mlb)(51) $10.42 10.68 10.96 11.25 11.54 11.84 12.15 12.47 12.84 Chilling Steam Price ($/Mlb)(52) $0.43 0.44 0.45 0.57 0.72 0.85 0.96 0.92 1.00 True-up Steam Price ($/Mlb)(52) $0.11 0.11 0.11 0.14 0.18 0.21 0.24 0.23 0.25 Natural Gas Price ($/MMBtu)(53) $2.15 2.23 2.31 2.40 2.48 2.57 2.67 2.77 2.89 Gas Transportation Cost ($/MMBtu)(53) $0.23 0.23 0.24 0.25 0.25 0.26 0.27 0.27 0.28 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $0 0 0 1,317 3,022 4,084 5,204 4,554 5,385 Steam Revenue Process Steam $387 397 407 418 428 410 421 432 445 Supplemental Steam $96 98 101 103 106 141 145 148 153 Chilling Steam $50 51 53 67 84 92 104 99 109 True-up Steam $4 4 5 6 7 8 9 8 9 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Revenues $8,733 8,746 8,762 10,107 11,843 12,931 14,079 13,437 14,297 OPERATING EXPENSES ($000) Natural Gas $8,251 8,546 8,852 9,175 9,498 9,198 9,526 9,864 10,283 Natural Gas Use/Sales Taxes (54) $648 672 696 721 746 723 749 775 808 Natural Gas Service Fees (55) $182 185 187 190 192 195 198 200 203 Operating & Maintenance (56) $1,363 1,400 1,438 1,476 1,516 1,557 1,599 1,642 1,687 Major Maintenance (57) $183 3,278 193 198 2,262 209 215 0 3,950 Other Operating Fees/Water (56) $443 455 467 480 493 506 520 534 548 Audit, Legal & Finance (56) $762 12 13 13 13 14 14 14 15 Insurance (56) $157 161 166 170 175 179 184 189 194 Property & Other Taxes (56) $779 800 822 844 867 890 914 939 964 Capital Expenditures (56) $179 9 6 23 40 40 40 40 40 Wheeling (58) $963 963 963 963 963 961 961 961 961 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Expenses $13,910 16,481 13,803 14,253 16,765 14,472 14,920 15,158 19,653 NET OPERATING REVENUES ($000) ($5,177) (7,735) (5,041) (4,146) (4,922) (1,541) (841) (1,721) (5,356) CASH AVAILABLE FOR DISTRIBUTIONS ($000) $0 0 0 0 0 0 0 0 0 DISTRIBUTIONS TO CE GENERATION ($000)(59) $0 0 0 0 0 0 0 0 0 Year Ending December 31 2008 2009 ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 Curtailment Hours (41) 1,800 1,800 Availability Factor (42) 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% Capacity Factor (%)(44) 83.4% 83.4% Energy Generated (MWh)(42) 365,100 365,100 Transmission Losses (MWh)(45) 3,700 3,700 Energy Delivered (MWh) 361,400 361,400 Process Steam Sales (Mlb)(46) 46,200 46,200 Supplemental Steam Sales (Mlb)(46) 11,900 11,900 Chilling Steam Demand (Mlb)(46) 108,700 108,700 Heat Rate (Btu/kWh)(42) 8,830 8,830 Fuel Consumption (BBtu)(47) 3,248 3,248 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) 163.92 163.92 Energy Rate ($/MWh)(50) 9.20 12.90 Process Steam Price ($/Mlb)(51) 9.85 10.11 Supplemental Steam Price ($/Mlb)(51) 13.14 13.48 Chilling Steam Price ($/Mlb)(52) 0.84 0.97 True-up Steam Price ($/Mlb)(52) 0.21 0.24 Natural Gas Price ($/MMBtu)(53) 2.97 3.08 Gas Transportation Cost ($/MMBtu)(53) 0.29 0.30 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment 7,000 7,000 Bonus Capacity Payment 1,196 1,196 Energy Payment 3,325 4,662 Steam Revenue Process Steam 455 467 Supplemental Steam 156 160 Chilling Steam 91 105 True-up Steam 8 9 ------ ------ Total Operating Revenues 12,231 13,599 OPERATING EXPENSES ($000) Natural Gas 10,579 10,952 Natural Gas Use/Sales Taxes (54) 831 861 Natural Gas Service Fees (55) 206 209 Operating & Maintenance (56) 1,732 1,779 Major Maintenance (57) 233 239 Other Operating Fees/Water (56) 563 578 Audit, Legal & Finance (56) 15 16 Insurance (56) 200 205 Property & Other Taxes (56) 990 1,017 Capital Expenditures (56) 40 40 Wheeling (58) 961 961 ------ ------ Total Operating Expenses 16,350 16,857 NET OPERATING REVENUES ($000) (4,119) (3,258) CASH AVAILABLE FOR DISTRIBUTIONS ($000) 0 0 DISTRIBUTIONS TO CE GENERATION ($000)(59) 0 0
B-82 Exhibit B-10 CE Generation Gas Projects Projected Operating Results Sensitivity I: Yuma Breakeven Electricity Price
Year Ending December 31 2010 2011 2012 2013 2014 2015 2016 2017 2018 ---- ---- ---- ---- ---- ---- ---- ---- ---- YUMA PROJECT PERFORMANCE Nameplate Capacity (kW)(39) 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 56,500 Contract Firm Capacity (kW)(40) 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 Curtailment Hours (41) 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 Availability Factor (42) 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% 96.0% On-Peak Availability Factor (43) 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Capacity Factor (%)(44) 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8% Energy Generated (MWh)(42) 323,100 323,100 323,100 323,100 323,100 323,100 323,100 323,100 323,100 Transmission Losses (MWh)(45) 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 Energy Delivered (MWh) 319,900 319,900 319,900 319,900 319,900 319,900 319,900 319,900 319,900 Process Steam Sales (Mlb)(46) 40,900 40.900 40,900 40,900 40,900 40,900 40,900 40,900 40,900 Supplemental Steam Sales (Mlb)(46) 16,300 16,300 16,300 16,300 16,300 16,300 16,300 16,300 16,300 Chilling Steam Demand (Mlb)(46) 96,200 96,200 96,200 96,200 96,200 96,200 96,200 96,200 96,200 Heat Rate (Btu/kWh)(42) 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 8,830 Fuel Consumption (BBtu)(47) 2,886 2,886 2,886 2,886 2,886 2,886 2,886 2,886 2,886 COMMODITY PRICES General Inflation (%)(7) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 Electricity Price Capacity Price ($/kW-yr)(48) $140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 Bonus Capacity Price ($/kW-yr)(49) $163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 163.92 Energy Rate ($/MWh)(50) $22.70 20.80 17.00 21.00 17.20 19.70 19.50 21.80 19.20 Process Steam Price ($/Mlb)(51) $10.38 10.66 10.95 11.25 11.56 11.59 12.20 12.53 12.86 Supplemental Steam Price ($/Mlb)(51) $13.84 14.21 14.60 15.00 15.41 15.45 16.26 16.71 17.15 Chilling Steam Price ($/Mlb)(52) $1.29 1.25 1.14 1.29 1.18 1.28 1.29 1.38 1.32 True-up Steam Price ($/Mlb)(52) $0.32 0.31 0.29 0.32 0.30 0.32 0.32 0.35 0.33 Natural Gas Price ($/MMBtu)(53) $3.19 3.31 3.43 3.56 3.69 3.62 3.97 4.11 4.25 Gas Transportation Cost ($/MMBtu)(53) $0.30 0.31 0.32 0.33 0.34 0.35 0.36 0.37 0.38 OPERATING REVENUES ($000) Revenue from Electricity Sales Firm Capacity Payment $7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 Bonus Capacity Payment $1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 Energy Payment $7,262 6,654 5,438 6,718 5,502 6,302 6,238 6,974 6,142 Steam Revenue Process Steam $425 436 448 460 473 474 499 512 526 Supplemental Steam $226 232 238 244 251 252 265 272 280 Chilling Steam $124 120 110 124 114 123 124 133 127 True-up Steam $11 10 9 11 10 10 11 11 11 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Revenues $16,244 15,648 14,439 15,753 14,546 15,357 15,333 16,098 15,282 OPERATING EXPENSES ($000) Natural Gas $10,075 10,439 10,817 11,209 11,616 11,457 12,468 12,915 13,351 Natural Gas Use/Sales Taxes (54) $792 820 850 881 913 900 980 1,015 1,049 Natural Gas Service Fees (55) $211 214 217 220 223 226 229 232 235 Operating & Maintenance (56) $1,827 1,876 1,927 1,979 2,033 2,087 2,144 2,202 2,261 Major Maintenance (57) $245 2,799 259 266 0 4,887 288 296 304 Other Operating Fees/Water (56) $594 610 626 643 661 678 697 716 735 Audit, Legal & Finance (56) $16 17 17 17 18 18 19 19 20 Insurance (56) $210 216 222 228 234 240 247 254 260 Property & Other Taxes (56) $1,044 1,072 1,101 1,131 1,162 1,193 1,225 1,258 1,292 Capital Expenditures (56) $40 40 40 40 40 40 40 40 40 Wheeling (58) $957 957 957 957 957 957 957 957 957 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Expenses $16,011 19,060 17,033 17,571 17,857 22,683 19,294 19,904 20,504 NET OPERATING REVENUES ($000) $233 (3,412) (2,594) (1,818) (3,311) (7,326) (3,961) (3,806) (5,222) CASH AVAILABLE FOR DISTRIBUTIONS ($000) $233 0 0 0 0 0 0 0 0 DISTRIBUTIONS TO CE GENERATION ($000)(59) $233 0 0 0 0 0 0 0 0
B-83 Footnotes to Exhibit B-10 The footnotes to Exhibit B-10 are the same as the footnotes for Exhibit B-1, except: 50. Assumes prices projected by Fluor Daniel which result in a debt service coverage ratio on the Securities of 1.00 in all years. B-84 APPENDIX C GEOTHERMAL PROJECTS INDEPENDENT ENGINEER'S REPORT CE GENERATION PROJECT ANALYSIS PREPARED FOR CE GENERATION, LLC FEBRUARY 17, 1999 FLUOR DANIEL, INC. IRVINE, CALIFORNIA C-1 TABLE OF CONTENTS 1.0 EXECUTIVE SUMMARY AND CONCLUSIONS .................................. 3 1.1 EXECUTIVE SUMMARY .................................................. 3 1.2 CONCLUSIONS ........................................................ 6 2.0 SCOPE OF SERVICES .................................................. 9 3.0 FACILITIES OVERVIEW ................................................ 10 3.1 GENERAL DESCRIPTION ................................................ 10 3.2 MANAGEMENT AND ORGANIZATION ........................................ 11 3.3 SALTON SEA PROJECTS ................................................ 12 3.4 PARTNERSHIP PROJECTS ............................................... 13 3.5 ROYALTY PROJECTS ................................................... 13 3.6 pH MODIFICATION PROCESS ............................................ 13 4.0 NEW PROJECTS ....................................................... 13 4.1 GENERAL DESCRIPTION -- SALTON SEA UNIT V PROJECT ................... 13 4.2 GENERAL DESCRIPTION -- REGION II BRINE FACILITIES CONSTRUCTION ..... 14 4.3 MATERIALS OF CONSTRUCTION .......................................... 15 4.4 NEW PROJECTS MANAGEMENT ORGANIZATION ............................... 15 4.5 PROJECT SITE GEOTECHNICAL DESCRIPTION .............................. 15 4.6 SCHEDULE ........................................................... 16 4.7 CAPITAL COST ANALYSIS .............................................. 17 5.0 PROJECT OPERATIONS ................................................. 17 6.0 PERMITTING AND ENVIRONMENTAL ....................................... 17 6.1 ENVIRONMENTAL COMPLIANCE ........................................... 17 6.2 APPLICABLE ENVIRONMENTAL PERMIT AND LICENSING REQUIREMENTS ......... 18 6.3 ENVIRONMENTAL REQUIREMENT COMPLIANCE, DEFICIENCIES AND LIMITATIONS ........................................................ 18 7.0 ASSESSMENT OF FINANCIAL PROJECTIONS ................................ 18 7.1 BASE CASE PROJECTION ASSUMPTIONS ................................... 18 C-2 SECTION 1.0 1.0 EXECUTIVE SUMMARY AND CONCLUSIONS 1.1 EXECUTIVE SUMMARY Fluor Daniel, Inc. (Fluor Daniel) prepared an Independent Engineer's report for the Salton Sea Funding Corporation, dated September 23, 1998, in connection with Salton Sea Funding Corporation's Bond Offering Circular (the Salton Sea Project Analysis). The analysis and conclusions contained in that report are incorporated herein, except as hereinafter modified. Specifically, CE Generation, LLC has requested Fluor Daniel to update the Salton Sea Project Analysis to remove references to the Zinc Recovery Project and to report on the construction status of Salton Sea Unit V and the CE Turbo Project (hereinafter the Updated Events). Presented herein is Fluor Daniel's, review and analyses (the Report) of eight operating geothermal power plants (the Existing Projects), and two new geothermal power plants (the New Projects), as listed below. The geothermal resource production facilities (wellheads and related brine delivery system) were not reviewed by Fluor Daniel. o Salton Sea Units I, II, III and IV, including brine modification (pH Modification) and a planned capacity increase via a new Salton Sea Unit V (collectively the Salton Sea Projects). o Vulcan, Del Ranch, Elmore and Leathers, including the Region II Brine Facilities Construction, the CE Turbo Project (collectively the Partnership Projects). o Royalty and other payments received from the Del Ranch, Elmore, and Leathers Projects (the Royalty Projects). The Salton Sea Projects, Partnership Projects and the Royalty Projects are collectively referred to herein as the Projects. NEW PROJECTS -- OVERVIEW Salton Sea Power LLC (Power LLC) is constructing a 49.0 MW net geothermal power plant (Salton Sea Unit V Project) using proven technology designed to produce electrical energy primarily from the Salton Sea Region I injection brine. This brine is currently reinjected and contains over 40 MW of available thermal energy to be used by Salton Sea Unit V. Additional power will be produced utilizing minimal increased brine flows through the existing brine handling facilities located at the Salton Sea Projects. Therefore, Salton Sea Unit V will produce electrical energy by increasing the thermal efficiency of Region I with only a limited increase in the quantity of brine production, as well as providing a consistent supply of brine suitable for the ion exchange zinc recovery process. The Region II Brine Processing Construction will include the installation of modern brine processing facilities to service the total brine flow to be provided to Vulcan and Del Ranch. It is intended that these facilities will be designed with the appropriate technology, developed and proven at the Salton Sea, to provide for reliable steam production for power generation, and a consistent supply of brine suitable for the ion exchange zinc recovery process. CE Turbo LLC is constructing the CE Turbo Project which is designed to provide electrical power output of 10.0 MW net. This power output will result from increased efficiencies in the steam field and brine handling facilities and no new production or injection wells are required. C-3 A summary overview of the current and intended features of the Projects is presented in Table 1-1. TABLE 1-1 OVERVIEW OF THE PROJECTS
FACILITY (1) NET NET OWNERSHIP COMMERCIAL POWER CAPACITY INTEREST OPERATION CONTRACT CONTRACT POWER (MW) (MW) (YEARS) EXPIRATION TYPE PURCHASER -------------- ----------- ------------ ------------ ------------ --------------- SALTON SEA PROJECTS Salton Sea Unit I ....... 10.0 10.0 16 6/2017 Negotiated SCE Salton Sea Unit II ...... 20.0 20.0 8 4/2020 SO4 SCE Salton Sea Unit III ..... 49.8 49.8 9 2/2019 SO4 SCE Salton Sea Unit IV ...... 39.6 39.6 2 5/2026 Negotiated SCE Salton Sea Unit V ....... 49.0 49.0 0 N/A SPOT Zinc Recovery ----- ----- Project and PX Subtotal ............... 168.4 168.4 PARTNERSHIP PROJECTS Elmore .................. 38.0 38.0 10 12/2018 SO4 SCE Del Ranch ............... 38.0 38.0 10 12/2018 SO4 SCE Leathers ................ 38.0 38.0 8 12/2019 SO4 SCE Vulcan .................. 34.0 34.0 12 2/2016 SO4 SCE CE Turbo ................ 10.0 10.0 0 N/A N/A PX ----- ----- Subtotal ............... 158.0 158.0 ===== ===== Total ................... 326.4 326.4
---------- (1) Power Project capacity is a nominal number that varies with operating and reservoir conditions. PROJECT LOCATION The Salton Sea and Partnership Projects are located in Imperial County California in the Salton Sea Area. A map showing the general location of the Projects is provided in Figure 1-1. C-4 FIGURE 1-1 PLANT LOCATION MAP [MAP SHOWING THE GENERAL LOCATION OF THE PROJECTS] GEOTHERMAL PROJECT AGREEMENTS As shown in Table 1-1, the Existing Projects sell power to Southern California Edison Company (SCE) in accordance with power purchase agreements and related agreements for transmission system interconnection. Salton Sea Unit V will sell approximately one-third of its net output to the CalEnergy Minerals LLC Zinc Recovery Project and also sell power through the Power Exchange (PX). CE Turbo will sell all its power through the PX. It is understood that the Salton Sea and Partnership Projects are, and will continue to be, operated by CalEnergy Operating Corporation (CEOC). The Existing Projects have been in commercial operation for numerous years. Construction of a portion of the facilities is being performed under Engineering, Procurement and Construction (EPC) contracts, with completion and cost guarantees. The Salton Sea Unit V, CE Turbo and Region II Brine Processing Construction Projects are being constructed by Stone and Webster Engineering Corporation (S&W) under two separate guaranteed price contracts. GEOTHERMAL PROJECT PARTICIPANTS The Salton Sea Units I, II and III are owned by Salton Sea Power Generation L.P. (SSPG). SSPG and Fish Lake Power Company (FLPC) are owners of the Salton Sea Unit IV Project. Salton Sea C-5 Unit V will be owned by Salton Sea Power L.L.C. (Power LLC). SSPG, SSBP FLPC, and Power LLC are referred to collectively as the "Salton Sea Guarantors". The improvements to the brine processing facility part of the Region II Brine Processing Construction will be owned by certain of the Existing Projects. The CE Turbo Project will be owned by CE Turbo LLC. Agreements were reviewed that indicate that the Salton Sea Royalty Company (the Royalty Guarantor) receives royalties and other payments from Leathers, Elmore, and Del Ranch. SCHEDULE The commercial operation date for Salton Sea Unit V is currently scheduled for mid 2000. The commercial operation dates for the CE Turbo Project and the Region II Brine Processing Construction are currently scheduled for the first half of 2000. 1.2 CONCLUSIONS On the basis of Fluor Daniel's review of the information provided by CE Generation (CEG), and in reliance thereon, Fluor Daniel provides the following opinions: 1.2.1 EXISTING PROJECTS -- OPERATIONS AND PERFORMANCE o The Projects use commercially proven technology and are operated in accordance with recognized electric utility industry practices. o The useful life of the surface facilities are expected to exceed the final maturity date of the debt Securities. o Principal project participants possess the necessary experience to successfully fulfill their project obligations. o Operating plant capacity factors (expected forced and scheduled outages) used in the projections are based on the operating results for the operating years 1995, 1996, 1997 and 1998, and these are felt to be reasonable. For the years 1995 through 1998, selected highlights of the operating history reported by the CEG are as follows: o Revenue increased 83 percent. o Site operating costs decreased from 3.53 cents/net kWh to 1.77 cents/net kWh for the Salton Sea Units I-IV Projects, and from 3.17 cents/net kWh to 2.19 cents/net kWh for the Partnership Projects. For the Existing Projects as a whole, operating costs decreased from 3.28 cents/net kWh to 2.01 cents/net kWh. o Nominal capacity factors in 1998 were maintained at 94.2 percent for the Salton Sea I-IV Projects, 101.4 percent for the Partnership Projects, and 98.2 percent on a combined basis. o The pH Modification technology is proven and reliable, as has been shown by the eight year operating history at Salton Sea Unit II and the two years of operating history of this technology at Salton Sea Units I, III, and IV. The pH Modification program should continue to increase availability and decrease costs consistent with assumptions in the financial projections. o The Existing Projects are expected to continue operations in accordance with all relevant existing permits and environmental laws. 1.2.2 NEW PROJECTS SALTON SEA UNIT V o The technology upon which the Salton Sea Unit V is based, is proven and reliable. The scope of work is within demonstrated capabilities of the principal project participants. The EPC C-6 contract for the Salton Sea Unit V Project provides for a guaranteed completion date. It appears that the completion of the Salton Sea Unit V Project can be achieved within the guaranteed date in the EPC contract. o The pH Modification technology is proven and reliable. Similar technology has been installed and has operated successfully throughout Salton Sea Units I -- IV. As demonstrated by the eight year operating history at Salton Sea Unit II, and the more recent operating history of Salton Sea Units I, III, and IV, the pH Modification program should continue to operate at the same or improved levels of reliability. o Reasonable selections have been made in selecting the EPC Contractor for this work, and in preparing the list of equipment suppliers. Major equipment suppliers approved by Power LLC are recognized as qualified suppliers in the geothermal power industry. o The Salton Sea Unit V Project should meet the guaranteed performance criteria contained in the EPC contracts and should comply with all applicable environmental regulations. o Based upon a review of the EPC contract for the Salton Sea Unit V Project, the capital cost budget appears adequate for the facilities provided under the contract. The guaranteed price in the S&W contract, plus S&W's substantial prior experience with geothermal plants, should mitigate the risk of cost overruns and schedule delays, and should thus adequately protect both the Bondholders and Owners. Power LLC should have adequate Contractor resources available to cover the possibility of performance shortfalls by S&W for the Salton Sea Unit V Project . The contractual Liquidated Damages provisions provided in the EPC contract are typical for securing contractor completion of projects utilizing proven technology such as that utilized on the Salton Sea Unit V Project. o Construction on the Salton Sea V Project has just started with grubbing and site clearing. At this point construction appears to be on schedule. The Permit-to-Construct for this work is also in place. o Based on Fluor Daniel's knowledge of conventional power project financing, Owner's costs, such as administration costs, insurance, financing costs, contingency funds, working capital, etc., estimated by the Power LLC appear to be reasonable. o All discretionary permit approvals have been obtained for construction. o The useful life of the Salton Sea Unit V Project can be expected to exceed the final maturity date of the Securities. REGION II BRINE PROCESSING CONSTRUCTION o The technology upon which brine processing is based has been demonstrated to be proven and reliable. The EPC contract for the Region II Brine Processing Construction provides for a guaranteed completion date. It appears that the completion of the Region II Brine Processing Construction can be achieved within the guaranteed date in the EPC contract. o The pH Modification technology has been demonstrated to be proven and reliable at the Existing Projects. Similar technology has been serving Salton Sea Units I -- V and has a proven operating history. The pH Modification system should increase availability and decrease operating costs and maintenance consistent with assumptions in the financial projections. o Reasonable selections have been made in selecting the EPC Contractor for this work, and in preparing the list of equipment suppliers. Major equipment suppliers approved for this project are recognized as qualified suppliers in the geothermal field. o A review of the EPC contract for the Region II Brine Processing Construction provided confidence that the capital cost budget should be adequate for the facilities provided under the contract. The guaranteed price in the S&W EPC contract, plus S&W's substantial prior C-7 experience with geothermal installations, should mitigate the risk of cost overruns and schedule delays. The contractual Liquidated Damage provisions in the EPC contract are typical for securing contractor completion of projects utilizing proven technology such as that utilized, and should adequately protect both the Bondholders and the Owners. o The Region II Brine Processing Construction should meet the guaranteed performance criteria contained in the EPC contract and should comply with all applicable environmental regulations. o All discretionary permit approvals have been obtained for construction. o Construction on the Region II Brine Processing Project has yet to begin, but is scheduled to begin as planned. A Permit-to-Construct for this work is in place. CE TURBO PROJECT o The CE Turbo Project uses technology which has been demonstrated to be proven and reliable. The scope of work is within demonstrated capabilities of the principal project participants which should make the currently scheduled completion during the first quarter of 2000 achievable. o The EPC Contract for the Region II Brine Processing Construction, which also encompasses the CE Turbo Project provides for a guaranteed completion date. It appears that the completion of the CE Turbo Project can be achieved within the guaranteed date in the EPC contract. o S&W, the EPC contractor for this work, is recognized as an experienced contractor in this field. The major equipment suppliers that have been approved for S&W's selection are recognized as qualified suppliers to the industry. o The CE Turbo Project should meet the guaranteed performance criteria contained in the EPC contract and should comply with all current applicable environmental regulations. o On the basis of the EPC contract reviewed for the CE Turbo Project, the capital cost budget appears adequate for the facilities provided under those contracts. The guaranteed price in the S&W contract, plus S&W's substantial prior experience with geothermal power plants, should mitigate the risk of cost overruns and schedule delays. CE Turbo LLC should have adequate contractor resources available to cover the possibility of performance shortfalls by S&W for the CE Turbo Project. The contractual Liquidated Damages provisions in the EPC contract are typical for securing contractor completion of projects utilizing proven technology such as that utilized in CE Turbo Project, and should adequately protect both the Bondholders and the Owners. o Based on Fluor Daniel's knowledge of conventional power project financing, the Owner's costs, such as administration costs, insurance, financing costs, contingency funds, working capital, etc., estimated by CE Turbo LLC appear to be reasonable. o All required discretionary permit approvals have been obtained for the construction of the CE Turbo Project. o The useful life of the CE Turbo Project can be expected to exceed the final maturity date of the Securities. o Construction on the CE Turbo Project has yet to begin, but is scheduled to begin as planned. The Permit-to-Construct for this work is in place. ENVIRONMENTAL PERMITTING AND LICENSING o The reviewed records show no environmental Notices of Violation for any media (air emissions, wastewater, solid/hazardous waste) have been filed against the Existing Projects in the last two years. C-8 o The Existing Projects appeared to be neat and well maintained. o The H2S abatement systems consist of existing biofilters for Salton Sea Units I, II, III and IV. A review of the preliminary design indicated that sufficient capacity appears to exist to handle any anticipated increase of H2S loads resulting from the operation of Salton Sea Unit V. o The water and brine pond designs appear adequate to minimize or eliminate the potential for water and brine release into the underlying soil and groundwater. o Solid waste handling and disposal appears adequate. o Dust control in the solid waste handling operation should be improved by planned dust handling equipment and dust abatement measures. o All discretionary environmental permit approvals have been received for the proposed new construction. PROJECT AGREEMENTS o Major project agreements (as listed in Attachment 2-1) for the Salton Sea Projects and Partnership Projects, including Power Purchase agreements, EPC contracts, major subcontracts, Zinc Extraction Services Agreement, O&M Services Agreement, and related contracts for transmission system interconnection appear reasonable from a technical perspective and are consistent with the financial projections reviewed herein. FINANCIAL PROJECTIONS o An economic/financial model, presented in Exhibit 1, has been developed by CEG which represents the projected performance of the Salton Sea and Partnership Projects. The assumptions underlying the economic/financial model appear to be reasonable, and the projected operating results reasonably represent the future financial profile of CEG. o Fluor Daniel has confirmed that the input assumptions regarding revenues in the Imperial Valley model are reasonably consistent with the Power Purchase and Royalty documents provided to Fluor Daniel. o Projected operating and maintenance costs and capital expenditures for major maintenance projects appear to be reasonable and representative of the planned operations of the Salton Sea and Partnership Projects. o Financial projections, based on the Base Case assumptions recommended by CEG, appear to be reasonable and indicate that revenues should be adequate to pay operations and maintenance expenses and provide cash flow for debt service and distributions. SECTION 2.0 2.0 SCOPE OF SERVICES On the basis of information and documents provided by CEG, Fluor Daniel, as Independent Engineer, has reviewed certain technical, environmental and economic aspects of the Projects as listed below: o Current status of Existing Projects o Project participants o Plant designs and projected performance o Project capital cost estimates o Operations and maintenance C-9 o Project agreements o Environmental permitting and licensing o Financial projections (Exhibit 1) o Project completion testing Fluor Daniel conducted this analysis, and prepared this report, utilizing reasonable care and skill in applying methods of analysis consistent with normal industry practice. In the preparation of this report and the opinions expressed, Fluor Daniel has made certain assumptions with respect to conditions which may exist, or events which may occur in the future. A listing of assumptions and documentation relied upon by Fluor Daniel in the preparation of this report are provided in Attachment 2-1. The information set forth herein has been obtained from sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness by, and is not construed as a representation by, Fluor Daniel or the Project sponsors. SECTION 3.0 3.0 FACILITIES OVERVIEW 3.1 GENERAL DESCRIPTION The Existing Projects consist of eight operating geothermal power plants near the Salton Sea in the Imperial Valley of Southern California. These plants produce net power generation of approximately 288 MW from high temperature geothermal brines produced by drilling deep production wells into the Salton Sea Known Geothermal Resource Area (SSKGRA). Imperial Valley brines are characterized by heavy concentrations of compounds of silica, zinc, manganese and other metals. Over twenty million pounds of brine per hour are produced and flashed to supply the steam for electric power generation. After the brine is flashed to produce steam, it is reinjected into the subsurface reservoir through separate injection wells constructed for that purpose. As mentioned above, the Salton Sea and Partnership Projects are located in the SSKGRA and are within a central radius of approximately five miles. A representative map showing approximate plant locations is provided in Figure 1-1. Hot brine from the geothermal resource is flashed into high pressure, standard pressure, and low pressure steam which is expanded through steam turbine generators to produce electric power. The steam is condensed and then used for cooling tower make-up. Excess condensate is injected back into the geothermal reservoir. Brine from the steam flash process is further processed to remove solids, or maintain them in solution, and is injected back into the geothermal reservoir. The Existing Projects employ proven geothermal resource flash technology which has been commercially operated worldwide for over 30 years. Plant design and operation are affected by the geothermal resource which, in the SSKGRA, is relatively high in solids content at approximately 250,000 to 300,000 parts per million. Leathers, Elmore, Del Ranch, and Vulcan utilize the crystallizer-reactor-clarifier (CRC) process to control scaling and to precipitate solids. The majority of the solids are disposed of in an appropriately licensed landfill and the remainder are recycled to the crystallizers to promote crystal growth (seeding) to control scaling on vessel walls. Salton Sea Units I, II, III, and IV utilize the pH Modification process to control scaling. This process involves injection of a pH modification agent into the liquid brine resource to maintain solids in solution so that the brine may be injected directly into the reservoir without precipitation and removal of the solids. Implementation of this process as part of the Region II Brine Processing Construction is expected to simplify resource handling in a similar fashion, thus improving availability and reducing costs. Noncondensible gases from the Existing Projects are removed from the condensers for efficient power generation and turbine operation using a combination of steam jet ejectors and vacuum pumps. C-10 Systems for abatement of hydrogen sulfide present in the noncondensible gases are not currently required for the Partnership Projects since ambient hydrogen sulfide concentrations are at acceptable levels. However, hydrogen sulfide abatement systems were installed for Salton Sea Units I, II, III and IV as part of an earlier Salton Sea expansion project. The technology for such abatement systems is proven and reliable. The cooling systems for all operating projects consist of surface condensers and wet mechanical draft cooling towers. Utility systems are provided to support each operating plant. Fire protection systems are also provided, including cooling tower wetdown systems which keep the tower wet during shutdown periods, and fire monitors which are provided at grade around the perimeter of each tower. Standby diesel generators are available to support plant safety systems during shutdowns. Brine is injected into the reservoir by injection pumps after solids processing. Brine ponds are provided at each plant for temporary storage of brine during startup/shutdown periods and for emergency use. 3.2 MANAGEMENT AND ORGANIZATION An Operations Manager is responsible for operations, maintenance, and plant performance of the Existing Projects. The Salton Sea Projects, Vulcan and Del Ranch, and Elmore and Leathers each have a Region Supervisor who is responsible for operations, maintenance, and plant performance. The plant's Control Operators are trained to operate the plants, perform routine lab tests and supervise the Outside Operators. The plant's onsite staff is trained to conduct routine maintenance activities. In support of these Project sites, CEOC provides centralized administrative support, engineering support, maintenance support, and analytical lab support. A Maintenance Supervisor is responsible for the Mechanics as well as the Instrument and Electrical Technicians. When additional manpower is required at the Project sites, the Central Maintenance shop provides the necessary staff. This organization and staffing procedure is typical for these types of plants. Fluor Daniel is of the opinion that the overall operating and maintenance organization is adequate to support operation of the Salton Sea and Partnership Projects and should continue to provide operating and maintenance cost reductions. SAFETY CEOC has an established safety program based on a Corporate Safety Manual and Imperial Valley Site Specific Safety Procedures. These safety procedures appear to be generally consistent with general industry practices. CEOC is staffed with a Safety Manager and two Safety Engineers. All are trained in Safety procedures as well as environmental response, pursuant to stated procedures. The Safety personnel conduct ongoing safety reviews at each of the Project sites and monthly training sessions for all-hands. These sessions are designed to emphasize compliance with current CEOC Safety Procedures in place and to convey new safety procedures and execution methods. CEOC utilizes a "Safe Work Permit" procedure that must be implemented by maintenance and operating personnel prior to starting any work. CEOC also has a plant lockout/tagout procedure for isolating systems for maintenance and personnel protection. All procedures were found to be sound and in line with safety procedures normally found in this type of industry. TRAINING CEOC has a very comprehensive training program, which includes Operator and Maintenance Technician certification. There are five classifications of Operators: Operator 1, 2, and 3, Control Operator, and Senior Operator. Each classification, except Senior Operator, has a Certification C-11 Manual. The manual contents and associated tests have been developed in accordance with CEOC's organizational structure. The certification program includes written tests administered by the CEOC Training Department and a plant walk-through test conducted by the Training Review Board. The CEOC Senior Operator classification was recently implemented, but no certification program is currently in place. A job description and certification testing procedure is being prepared for this new classification In Fluor Daniel's opinion, the program appears to be in line with training programs found in the power industry. OPERATING PROCEDURES Operating Procedures are in place for the Salton Sea and Partnership Projects. They included step-by-step methods for start-up, normal operation, and shutdown of the Projects. Fluor Daniel is of the opinion that the operating procedures are satisfactory. MAINTENANCE PROGRAM Maintenance at each plant is supervised by a Maintenance Supervisor. Most of the routine maintenance is performed in the centralized maintenance shop with specialty maintenance being performed by specialty contractors on a subcontract basis. The Salton Sea and Partnership Projects are using a commercially available Central Maintenance Management System (CMMS) software package, which has reportedly improved management of plant maintenance activities. Since the Salton Sea Projects are using the pH modification process which results in cleaner equipment than the CRC process, these plants are currently on a four-year major turnaround cycle. Major turnarounds are generally scheduled for twelve days and include process valve maintenance, cleaning, and descaling of process pipe and vessels. Mini-outages (three to five days) are scheduled each spring in preparation for the summer peak runs. For the Partnership Projects, major overhaul planning is also performed by Central Maintenance with input from the sites. Major twelve day overhauls are scheduled every two years with mini-outages (three to five days) scheduled each spring in preparation for the summer peak runs. In all plants, specialized maintenance such as turbine overhaul and electrical protective relay calibration is performed by outside contractors. The plants historically operate reliably as a result of these maintenance and overhaul scheduling practices. Fluor Daniel's review of the plants during a site walk-through found the plants to be well maintained. Plant personnel indicated that spare parts were available when required. 3.3 SALTON SEA PROJECTS Salton Sea Units I and II are located adjacent to the Salton Sea; the shoreline has appropriate dikes and levies designed to protect these units from increases in the Salton Sea water level. The dikes appear to be adequately maintained. Salton Sea Unit III and IV are located approximately 0.5 miles from the Salton Sea. Salton Sea Unit I has been in service since 1982. Power generation equipment consists of a 10 MW Fuji steam turbine operating with standard pressure (SP) steam originally produced by CRC technology. This process also produces high pressure (HP) and low pressure (LP) steam. The generation voltage of 13.8 kV is stepped up to 34.5 kV for transmission to Southern California Edison (SCE). Salton Sea Unit II was placed in service in 1990. A total of three steam turbines produce electrical power. Salton Sea Unit II was the original plant to operate on the pH Modification process and has done so successfully for eight years. The Mitsubishi turbine-generator produces electrical power at 4,160 volts which is stepped-up to 13.8 kV; the other generators produce power at 13.8 kV. One transformer steps-up power from these three generators to 92 kV for transmission by the Imperial Irrigation District (IID) to the Rancho Mirage substation for sale to SCE. C-12 Salton Sea Unit III is a 49.8 MW plant with a Mitsubishi turbine that operates on SP and LP steam. The turbine is a 5-stage, dual flow, condensing turbine. Three stages of steam jet air ejectors remove noncondensible gases from the steam. Operational flexibility provided by steam jet air ejector trains are used to respond to varying noncondensible gas content. Commercial operation was declared on February 14, 1989. Power is stepped up to 92 kV for transmission by the IID to the Rancho Mirage substation for sale to SCE. Salton Sea Unit IV is a General Electric steam turbine generator installed next to the Salton Sea Unit III site to provide additional capacity of 39.6 MW. Salton Sea Unit IV's design involved modification of existing steam and brine processing equipment and related systems. All of the steam used is processed through this system. 3.4 PARTNERSHIP PROJECTS The Vulcan Project was commissioned in February 1986. It generates electrical power for transmission to SCE via IID lines. Noncondensible gases are directed to the cooling tower using two stages of steam jet air ejectors and a vacuum pump. Each of these components has at least one spare. A standby diesel generator is available to provide emergency power. Solids precipitated from the CRC process are monitored for metals concentrations and hauled by truck to a permitted landfill. Covered solids storage is provided onsite on a concrete slab for emergency purposes. Electrical power is generated at 14.4 kV and is transmitted to SCE over 92 kV IID lines. The Del Ranch and the Vulcan Projects are connected via an electrical tie-line. The Del Ranch Project achieved commercial operation in October 1988. The plant is very similar to the Vulcan Project. A dual pressure nine-stage Fuji turbine produces electrical power for transmission to SCE via IID. Commercial operation was achieved at the Elmore Project in December 1988 and at the Leathers Project in January 1990. These two plants are identical in all major design respects to the Del Ranch Project, including the main turbine. Three spare turbine rotors and two spare sets of diaphragms are available for the Del Ranch, Elmore, and Leathers Projects. 3.5 ROYALTY PROJECTS Magma receives royalties, fees and other payments ("Royalties") from the Leathers, Del Ranch and Elmore Projects based on a percentage of each project's annual revenue. Total Royalties from these Partnership Projects paid to Magma annually are projected to be $21,766,000 in 1999, stepping down to $9,427,000 in 2000 as revenues from the three Partnership Projects revert to avoided cost pricing. The Royalties from the Leathers, Del Ranch and Elmore Projects are included in the financial projections. 3.6 PH MODIFICATION PROCESS The pH Modification process currently used for Salton Sea Unit I, II, III and IV lowers the pH of the geothermal resource by injection of a pH modification agent into the liquid brine stream. As a result, solids remain in solution rather than precipitate out of solution as in the CRC process previously used at Salton Sea Units I and III, and at the Partnership Projects. Therefore, scaling is minimized and solids in solution can be injected into the reservoir. Certain aspects of the process were a proprietary process developed by Unocal and subsequently licensed to Magma, which was purchased in 1995 by CalEnergy. The pH Modification process has operated successfully since 1990. SECTION 4.0 4.0 NEW PROJECTS 4.1 GENERAL DESCRIPTION -- SALTON SEA UNIT V PROJECT 4.1.1 DESIGN CONSIDERATIONS The Salton Sea Unit V geothermal power plant (49.0 MW net) is being designed to produce electrical energy from the spent brine that would otherwise be reinjected following usage in Salton C-13 Sea Units I -- IV. This brine is currently reinjected at a temperature of approximately 360 degreesF and at the current rate contains over 40 MW of available thermal energy to be used by Salton Sea Unit V. Additional power will be produced utilizing minimal increased brine flows through the existing Salton Sea Units I -- IV brine handling facilities. Therefore, the Salton Sea Unit V Project will produce electrical energy by significantly increasing the thermal efficiency of existing brine usage with only a minor increase in the quantity of brine production. The Salton Sea Unit V Project will include a multiple inlet pressure turbine utilizing standard pressure (SP) steam, low pressure (LP) steam, and very low pressure (VLP) steam, operating at approximately 110/30/10 psig, respectively. The SP steam will be provided from additional production from the existing Region I facilities. The LP and VLP steam will be produced at the Salton Sea Unit V Project by flashing the brine delivered from the Salton Sea Units I -- IV brine processing facilities (producing LP steam) and subsequent flashing of the brine (producing VLP steam). Other equipment necessary for the Salton Sea Unit V Project includes a pH modification agent handling system, wet cooling tower, surface condenser, non-condensable gas system, electrical switchgear, and associated cooling water pumps, condensate pumps, and brine pumps. Auxiliary equipment includes a lube oil system, expanding the existing fire protection system, and plant air. Salton Sea Units I -- IV are using pH Modification of the geothermal brine to prevent precipitation of silica dissolved in the brine during the power production cycle. The Salton Sea Unit V Project will utilize refinements in pH Modification technology. Additional pH modification agent will be injected into the brine prior to flashing/cooling the brine below 360 degreesF. This has been shown to prevent precipitation of silica at the lower temperatures, which would otherwise cause scaling/plugging of brine handling equipment. The brine will then be flashed to produce LP and VLP steam for conversion into electrical power. Just before being delivered to the Zinc Recovery Plant, the remaining brine passes through an atmospheric flash/reactor vessel which removes residual heat and most of the silica. The silica will initially be disposed of in a licensed landfill but may later be marketed to potential consumers such as cement and tire manufacturers. The facilities will produce a significant quantity of steam as part of the brine cooling process. A majority of this steam will normally be utilized by Salton Sea Unit V, with very low pressure steam being used by the Zinc Recovery Project as process heat. 4.2 GENERAL DESCRIPTION -- REGION II BRINE FACILITIES CONSTRUCTION 4.2.1 CE TURBO PROJECT The CE Turbo Project is being designed to produce 10.0 MW net of electrical power output. The CE Turbo Project will use existing unutilized geothermal energy and additional geothermal energy made available through efficiency improvements via the Region II Brine Processing Construction; no new production or injection wells or associated pipelines will be required. The new power generation will be transmitted through IID power lines. The new turbine will be an Atlas Copco Rotoflow design. The system will consist of a turbo-expander, a gearbox, and a generator coupled together in a power delivery train. All auxiliary equipment required to operate the turbine will be included in the package. 4.2.2 REGION II BRINE FACILITIES CONSTRUCTION PROJECT SUMMARY The Region II Brine Processing Construction upgrade project is installing modern brine processing facilities designed to service the total brine flow now provided to Vulcan and Del Ranch. This centralized brine plant will service the total brine demand for both Vulcan and Del Ranch. These Facilities are being designed with technology developed and proven at the Salton Sea Projects, to provide steam production for power generation. Process design and equipment specifications have been developed and are intended to minimize the long term cost of plant operations. The existing C-14 brine gathering system, and upgraded cement lined production and injection systems, should facilitate the conversion to a the new facilities. It is intended that proven existing designs, and equipment where possible, will be used to minimize cost, schedule and project risk. SILICA CONTROL PROCESS The silica control process for this development combines features common to the pH Modification process and the CRC process. This process is designed to be lower in capital cost and in projected operating cost than a traditional CRC process. The pH Modification technology is designed to increase the service interval between shutdowns of its respective equipment. This technology also allows a smaller, more efficient standard pressure brine-steam separator vessel to be used in place of the two SP crystallizers required for the current Region II SP brine flow. Two low pressure crystallizer and atmospheric flash tank trains, a primary clarifier, a secondary clarifier, filter press, and brine booster pump system complete the major equipment. These are traditional CRC components, but upgraded for long term reliability and performance. H2S ABATEMENT The high pressure steam from the turbo-expander will flow through various standard pressure steam components to arrive at the SP Turbine's condenser, where the additional noncondensible gas stream must be removed. An H2S abatement unit will be added downstream of this condenser to ensure the projected air quality standards are met. This unit will be a biofilter type device, similar to the ones used at Salton Sea Units I -- IV. 4.3 MATERIALS OF CONSTRUCTION A review of the design documents and specifications for the mechanical components revealed that the New Projects have specified design requirements typically found in the geothermal industry. In some cases, the specifications and design criteria further defined very specific requirements that are based on the operating history and proven experience with similar equipment that has been in similar service for a number of years. As presented on the reviewed documents, the materials of construction are appropriate for these facilities. 4.4 NEW PROJECTS MANAGEMENT ORGANIZATION Salton Sea Unit V will be managed as part of the Salton Sea Units I, II, III, and IV group of units (Region I). These units are managed by a Region Supervisor and the combined units are operated by three Control Operators and Outside Operators. The operations program includes a safety program, a training program, and operating procedures. Maintenance programs include CMMS, training, and spare parts inventory control. Fluor Daniel considers the overall operating and maintenance organization planned for these new facilities to be adequate to support expanded operations. 4.5 PROJECT SITE GEOTECHNICAL DESCRIPTION The project sites are located in the Salton Trough geologic region. This region is a result of extensive tectonic activity due to three active or potentially active faults in the area. The site area is classified by Uniform Building Code (UBC) as an earthquake zone of 4. The subsurface geologic site conditions typically consist of stiff to firm silty clay at shallow depth. At depth, loose to medium dense silty sand exists with a potential for liquefaction. The silty clay exists with the potential for long term settlements. The depth to groundwater at the site varies, but is in the range of 5 to 6 feet below grade. On the basis of geotechnical reports prepared by Southland Geotechnical, the project sites are believed to be suitable for the proposed new Projects. Foundation designs proposed in the report are similar to designs previously used on other geothermal projects in this area which have operated for numerous years and are believed to be adequate for these facilities. C-15 4.6 SCHEDULE 4.6.1 SALTON SEA UNIT V PROJECT Stone & Webster Engineering Corporation (S&W) was selected as the Contractor to engineer, procure, construct, and startup the Salton Sea Unit V Project and is currently executing this work. S&W is a world-wide EPC power project Contractor with a background in, and experience with geothermal projects. S&W has engineering and construction experience with some of the Existing Projects, including the original design for Salton Sea Unit III and is familiar with the site conditions and resources of the Imperial Valley. Additionally, S&W previously worked for the Salton Sea Funding Corporation as consultant for the existing Bondholders. Belmont Construction (a subsidiary of S&W) is being utilized for the construction phase, having previously performed construction services for Salton Sea Unit IV. The project schedule milestones require: o Notice to Proceed October 13, 1998 o Startup Commissioning March 16, 2000 o Substantial Completion July 12, 2000 Under the EPC contract, S&W guarantees that substantial completion will be attained by July 12, 2000, or S&W will be assessed for delay damages. S&W acknowledged that the procurement, fabrication, delivery and erection of the Turbine Generator is the critical path of the Salton Sea Unit V Project. In support of this understanding they have awarded the Turbine Generator and other critical equipment. The overall schedule duration is approximately 7 months for engineering, 18 months for construction, and 4 months for startup and testing. This schedule provides that the project be substantially complete approximately 6 weeks prior to the guaranteed Substantial Completion milestone. Fluor Daniel has reviewed the current Salton Sea Unit V Project EPC schedule. To date, planned progress has been achieved and it appears that the EPC schedule can be achieved as indicated, subject to customary permitted delays under the contract. S&W has identified and addressed the major project components, allowing for sufficient time and interface to meet the schedule objectives such as tie-ins and support to other facilities. Critical equipment purchases have been made and the deliveries support the current scheduled delivery dates. Construction is also underway with grubbing and grading of the site. Given S&W's qualifications and past experience at the Existing Projects and elsewhere, the EPC project schedule should be achievable. 4.6.2 REGION II BRINE PROCESSING CONSTRUCTION S&W was selected as the contractor to engineer, procure, construct, and startup the CE Turbo Project and Region II Brine Processing Construction, and is currently executing the work. S&W has engineering and construction experience with some of the Existing Projects, including the original design for Salton Sea Unit III and is familiar with the site conditions and resources of the Imperial Valley. Additionally, S&W previously worked for the Salton Sea Funding Corporation as consultant for the existing Bondholders. Belmont Construction (a subsidiary of S&W) is being utilized for the construction phase, having previously performed construction services for Salton Sea Unit IV. The Project Schedule Milestones require: o Notice to Proceed October 13. 1998 o Startup Commissioning November 17, 1999 o Substantial Completion -- Brine Facilities Construction February 22, 2000 o Substantial Completion CE Turbo Project April 13, 2000 C-16 Under its EPC contract, S&W guarantees that substantial completion will be attained by February 22, 2000 for the Brine Facilities Construction and by April 13, 2000 for the CE Turbo Project, or S&W will be assessed for delay damages. S&W has acknowledged that the procurement, fabrication, delivery and erection of the CE Turbo is the critical path of the Region II facilities construction. They have awarded the CE Turbo and other critical equipment. Even though construction has not begun, Fluor Daniel has reviewed the current Region II Construction Schedule and believes that Substantial Completion as planned should be achievable, subject to customary permitted delays under the contract. 4.7 CAPITAL COST ANALYSIS 4.7.1 SALTON SEA UNIT V PROJECT The fixed price of $91.8 million equates to approximately $1,874 per net kilowatt of new installed capacity, which is consistent with the cost of similar geothermal facilities requiring solids removal technology. Currently, S&W is executing the project under a fixed price contract with no change orders having been identified. To date, S&W has invoiced for 22 percent of the fixed price. 4.7.2 REGION II BRINE FACILITIES CONSTRUCTION The fixed price of $49.8 million appears reasonable for this project. Currently, S&W is executing the project under a fixed price contract with no change orders having been identified. To date, S&W has invoiced 15 percent of the fixed price. 4.7.3 CAPITAL IMPROVEMENTS Proceeds from the October 7, 1998 Salton Sea Funding Corporation debt offering and equity will be used to fund certain capital expenditures involving plant and wellfield facilities at Elmore and Leathers. These costs are presented below:
1998 1999 2000 TOTAL ($000'S) ---- ---- ---- -------------- Elmore ............ $9,858 $7,109 0 $16,967 Leathers .......... 0 $ 977 $3,393 $ 4,370 ------ ------ ------ ------- Total ............. $9,858 $8,086 $3,393 $21,337
At Elmore, approximately $9.9 million of the total was used in 1998 for a regularly scheduled plant overhaul and various other capital expenditure items. At Leathers, approximately $2.3 million will be spent in 2000 for an overhaul. The remaining expenditures in that year are for various other plant capital expenditure items. On the basis of past expenditures for this type of similar installations, Fluor Daniel finds these expenditures to be reasonable. The remaining capital expenditure amounts are wellfield-related and are separately analyzed by GeothermEx. SECTION 5.0 5.0 PROJECT OPERATIONS The Salton Sea and Partnership Projects use proven technology and have operated reliably since initiating commercial operation. The most significant operating and maintenance activities for the Salton Sea and Partnership Projects are caused by the geothermal resource which corrodes and deposits solids in the geothermal resource processing systems. These activities were significantly reduced at the Salton Sea Projects with the implementation of the pH Modification program and should be significantly reduced at Vulcan and Del Ranch with the same system. This should result in similar decreases in cost at Vulcan and Del Ranch. C-17 SECTION 6.0 6.0 PERMITTING AND ENVIRONMENTAL 6.1 ENVIRONMENTAL COMPLIANCE Fluor Daniel has conducted a walk through of the Existing Projects in the Imperial Valley. This walk through included an environmental overview of the facilities. Facilities' inspections included Salton Sea Units I -- IV, and the proposed sites for the New Projects. The environmental overview focused on the H2S air emissions abatement systems; water and brine ponds design and operation; stormwater control; solid waste handling and disposal; general noise environment; and the associated solvent extraction sites. The plants appeared neat and well maintained. The H2S abatement systems consisted of existing biofilters for Salton Sea Units I, II, III and IV. A review of the design indicated that there should be sufficient capacity to handle any anticipated increase of H2S loads from Salton Sea Unit V. The water and brine ponds design appeared adequate to minimize or eliminate the potential for water and brine release into the underlying soil and groundwater. The build-up of brine solids in the brine pond and subsequent land disposal should be minimized in the future by enhanced solids retention in the brine injected into the geothermal reservoir by project pH modification features. Stormwater onsite is collected and injected into the geothermal reservoir. Solid waste handling and disposal appear to be adequate. Dust control in the solid waste handling operation should be improved by proposed dust handling equipment and dust abatement measures. The noise environment encountered appears to be comparable to other similar power plant designs. Noise was qualitatively experienced within acceptable OSHA limits near equipment. Excessive noise was not experienced at the nearest residence. The preliminary design of the proposed ion exchange units, central solvent extraction and electrowinning plant appeared feasible and environmentally protective, evidenced by the pilot plant walk-through and review of system process flow diagrams. In reviewing two years worth of available files, Fluor Daniel has found no environmental Notices of Violation for any media (air emissions, wastewater, solid/hazardous waste). 6.2 APPLICABLE ENVIRONMENTAL PERMIT AND LICENSING REQUIREMENTS All Existing Projects and the New Projects have received appropriate regulatory approvals/exemptions in all media (air emissions, stormwater/wastewater, brine injection), and have appropriate solid and hazardous waste transportation and disposal contracts or agreements in place. The New Projects have received the required Imperial County Conditional Use Permits and Imperial County Air Pollution Control District air permits. 6.3 ENVIRONMENTAL REQUIREMENT COMPLIANCE, DEFICIENCIES AND LIMITATIONS It is the opinion of Fluor Daniel that the New Projects have appropriate designs and have or plan to have trained personnel to comply with all environmental laws and regulations, have received all environmental permits and approvals, and have contracts and agreements in place with licensed waste transportation and disposal companies. If operated in accordance with the provided design, and good utility practices the projects should not have any environmental deficiencies or limitations. SECTION 7.0 7.0 ASSESSMENT OF FINANCIAL PROJECTIONS 7.1 BASE CASE PROJECTION ASSUMPTIONS 7.1.1 CONSTRUCTION EXPENDITURES CEG provided what we believe to be reasonable assumptions regarding new capital expenditures to be funded in accordance with the October 7, 1998 issuance of Salton Sea Funding Corporation C-18 securities, including the construction cost of the Salton Sea Unit V Project, the CE Turbo Project, Region II Brine Facilities Construction and the Capital Improvements. As used in the summary, the Project construction costs include certain owner's administration costs, owner's contingency funds and other costs for construction and services not included in the fixed price EPC contracts. These assumptions along with the financing plan, are shown below. USES AND SOURCES OF FUNDS (X$000'S)
-------------------------------------------------------------------------------- 1998 1999 2000 TOTAL -------------------------------------------------------------------------------- Salton Sea Unit V Project 15,983 77,284 13,596 106,863 -------------------------------------------------------------------------------- Zinc Recovery Project 31,779 104,640 43,911 180,330 -------------------------------------------------------------------------------- CE Turbo Project 1,502 8,504 215 10,221 -------------------------------------------------------------------------------- Region II Brine Processing 6,908 39,097 987 46,992 Construction -------------------------------------------------------------------------------- Capital Improvements 10,817 7,127 3,393 21,337 -------------------------------------------------------------------------------- Interest and Financing Cost 9,908 21,305 10,564 41,770 -------------------------------------------------------------------------------- TOTAL USES $76,897 $257,957 $76,666 $407,513 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Bond Proceeds 76,897 208,110 0 285,000 -------------------------------------------------------------------------------- Equity 0 49,847 72,666 122,513 -------------------------------------------------------------------------------- TOTAL SOURCES $76,897 $257,957 $72,666 $407,513 --------------------------------------------------------------------------------
7.1.2 POWER PRODUCTION Existing operations at the Salton Sea consist of eight power plants: Salton Sea Units I, II, III, and IV, Vulcan, Del Ranch, Elmore, and Leathers. These facilities have demonstrated reliable operation in the range of 95-100 percent average plant availability . The assumptions regarding future operations are shown in the table below. The capacity factors for the Existing Projects are shown for 1998. C-19 PROFORMA OPERATING ASSUMPTIONS
----------------------------------------------------------------- NAMEPLATE AVERAGE AVAILABILITY LOCATION CAPACITY (KW) FACTOR (1) ----------------------------------------------------------------- Salton Sea Unit I 10,000 92% ----------------------------------------------------------------- Salton Sea Unit II 20,000 96% ----------------------------------------------------------------- Salton Sea Unit III 49,800 98% ----------------------------------------------------------------- Salton Sea Unit IV 39,650 99% ----------------------------------------------------------------- Leathers 41,000 98% ----------------------------------------------------------------- Elmore 41,000 98% ----------------------------------------------------------------- Vulcan 34,000 98% ----------------------------------------------------------------- Del Ranch 38,000 99% ----------------------------------------------------------------- Salton Sea Unit V 49,000 95% ----------------------------------------------------------------- CE Turbo 10,000 95% ----------------------------------------------------------------- TOTAL 332,450 -----------------------------------------------------------------
---------- (1) For years 2000 through 2004. On the basis of past plant performance, Fluor Daniel finds the capacity factor assumptions used in the financial projections to be reasonable. 7.1.3 REVENUES All of the Existing Projects sell power under contract to Southern California Edison Company. Six of the eight Existing Projects have a 10-year provision for fixed energy pricing at rates that are now considered to be substantially above market. These six Existing Projects have already reached, or by 2000 will reach the expiration of the 10-year fixed energy price period by 2000 causing a drop in project revenue. Pricing for electrical energy beyond these fixed price termination dates will be subject to pricing under the new deregulated wholesale power market in California. The chart showing the forecast of gross revenues for the Projects is shown below. CEG PROJECTED REVENUES -- GEOTHERMAL PROJECTS [LINE CHART SHOWING PROJECTED REVENUES OF THE GEOTHERMAL PROJECTS] C-20 7.1.4 OPERATING EXPENSES CEOC presently operates the Existing Projects under contract to the various ownership entities. As evidenced by the information provided by the CEG, over the last three years operating expenses have been reduced through consolidation of operations. Projected operating costs have been developed in detail by CEOC and appear to be reasonable. A significant annual expense associated with operation of each facility is the payment of royalties for use of the geothermal brine. Under the present ownership arrangement, the majority of royalties paid by each project flow back to the Royalty Guarantor. This impact is captured in the cash flow analysis. 7.1.5 ONGOING CAPITAL EXPENDITURE The CE Generation has prepared a ten-year plan for ongoing geothermal capital expenditures. This plan was reviewed by Fluor Daniel, was determined to be reasonable, and is used as the basis for projecting future capital expenditures in the forecasting model (Exhibit 1). Categories of expenditure include such items as geothermal well drilling, power plant improvements, and power plant overhaul. 7.1.6 ESCALATION All expenses in the financial projection (Exhibit 1) have been escalated at an assumed rate of 2.5 percent. Unless specified otherwise. 7.1.7 CASH FLOW The cash flow model (Exhibit 1) computes cash flow available for distribution. Operating expenditures, capital expenditures, and debt service are then calculated and subtracted from total receipts to determine cash flow available for distribution. C-21 ATTACHMENT 2-1 ASSUMPTIONS, QUALIFICATIONS AND REVIEW DOCUMENTS THIS REPORT WAS PREPARED BY FLUOR DANIEL, INC. EXPRESSLY FOR USE BY CE GENERATION. IT IS FLUOR DANIEL'S UNDERSTANDING THAT THIS REPORT WILL BE INCLUDED IN THE PUBLIC OFFERING MEMORANDUM AND SUBSEQUENT PROSPECTUS FOR THE OFFERING OF THE BONDS, AS DESCRIBED HEREIN. NEITHER FLUOR DANIEL NOR ANY PERSON ACTING IN ITS BEHALF, MAKES ANY WARRANTY, EXPRESS OR IMPLIED, OR ASSUMES ANY LIABILITY WITH RESPECT TO THE USE OF ANY INFORMATION, TECHNOLOGY, ENGINEERING, OR METHODS DISCLOSED IN THIS REPORT. It is believed that the information contained in the Salton Sea Project Analysis is reliable under conditions and subject to the limitations set forth therein. Except only as to the revisions to the Salton Sea Project Analysis required to reflect the Updated Events, the analysis or conclusions contained in that report are incorporated herein. This Report therefore summarizes our work as of September 23, 1998, modified to reflect the Updated Events and information contained in Attachment 2-1, up to the date of the Report. Thus, changed conditions occurring or becoming known after such date could affect the material presented to the extent of such changes. In the preparation of this Report and the opinions contained therein, Fluor Daniel has made certain assumptions with respect to conditions which may exist or events which may occur in the future. While we believe these assumptions to be reasonable for the purpose of this Report, they are dependent upon future events and actual conditions may differ from those assumed. In addition, we have used and relied exclusively upon the information specified in the list of Review documents. Neither CE Generation nor Fluor Daniel Inc. has made an analysis, verified, or rendered an independent judgment of the validity of the information provided by others. While it is believed that the information contained herein will be reliable under the conditions and subject to the limitations set forth herein, neither CE Generation nor Fluor Daniel, Inc. guarantee the accuracy thereof. Further, some assumptions may vary significantly due to unanticipated events and circumstances. To the extent that actual future conditions differ from those assumed herein or provided to us by others, the actual results will vary from those forecast. The principal assumptions and considerations utilized by Fluor Daniel in developing the results and conclusions presented in this report include the following: o Only the power plants and above ground geothermal resource piping and processing facilities were evaluated. The adequacy, reliability, and costs of geothermal resources and wells were assessed by GeothermEx. o The projected interest rates on the Securities, reinvestment rates, cost of arranging the financing and the amortization schedule of the Securities used in the debt service coverage analysis have been provided to Fluor Daniel. o Fluor Daniel's inspection of the existing Salton Sea operations were limited to a visit of personnel on July 24, 1998 and February 9, 1999. o CE Generation provided 1998 financial statements for the CE Generation and other cost accounting information as well as future projections of cost, expenses, prices, and other key assumptions. o Brine quantities and depletion rates were provided by GeothermEx. o The electricity pricing forecast was provided by Henwood Energy Services. o Fluor Daniel has not undertaken an independent review with all regulatory agencies which could under any circumstances have jurisdictions over or interests pertaining to the project. C-22 REVIEW DOCUMENTS
DOCUMENT DATE DOCUMENT ---- -------- 7/18/95 Salton Sea Funding Corporation Confidential Offering Circular 6/17/96 Salton Sea Funding Corporation Confidential Offering Circular 3/31/93 Technology Transfer Agreement -- Units I, II, & III 7/28/98 Second Amended and Restated Waste Disposal Agreement -- Units I, II, III, & IV 11/24/93 Ground Lease -- Units I & II 9/25/90 Plant Connection Agreement -- Unit II 7/20/88 Plant Connection Agreement -- Unit III 3/31/93 Ground Lease -- Units III & IV 7/14/95 Plant Connection Agreement -- Unit IV 6/9/88 Plant Connection Agreement -- Del Ranch, L.P. 3/14/88 Ground Lease -- Del Ranch, L.P. 3/14/88 Technology Transfer Agreement -- Del Ranch, L.P. 6/9/88 Plant Connection Agreement -- Elmore, L.P. 3/14/88 Ground Lease -- Elmore, L.P. 3/14/88 Technology Transfer Agreement -- Elmore, L.P. 9/25/89 Plant Connection Agreement -- Leathers, L.P. 10/26/88 Ground Lease -- Leathers, L.P. 8/15/88 Technology Transfer Agreement -- Leathers, L.P. 12/6/88 Plant Connection Agreement -- Vulcan Power Company 4/14/98 IID Construction Agreement -- Salton Sea Unit V 4/1/98 IID Plant Connection Agreement -- Salton Sea Unit V 4/14/98 IID Transmission Services Agreement -- Salton Sea Unit V 7/30/98 Lump Sum Cost Proposal -- Salton Sea Unit V Project Schedule 9/11/98 Conditional Use Permit G91-0001 -- Region II Power Plant Modification Project 4/98 Geotechnical Report -- Salton Sea Unit V & Zinc Extraction Facilities 8/98 Geotechnical Investigation -- Upgrade To Vulcan Power Plant 8/5/98 Imperial Valley Operating Statistics 8/5/98 Excerpts from 5 Year Operating Plan 8/98 GeothermEx Report -- Assessment of the Resource Supply 8/5/98 BHP Royalty Agreement and Amendment 8/5/98 California Energy Commission, State of California Energy Resources Conservation and Development Commission Clearance/Acknowledgement that the Desert Valley/Salton Sea Unit V Project is not subject to the Commission's jurisdiction. 6/26/98 Conditional Use Permit (#G94-0001) Second Amendment, Granted by Imperial County and Recorded on 6/26/98 to Allow Brine Flow Increase to Accommodate New 49 MW Power Plant Site. 6/25/98 Conditional Use Permit (#G98-0001) Granted by Imperial County and Recorded on 6/25/98 for a New 23 acre, 49 MW Power Plant generating 0.35 Tons Filter Cake per Net Megawatt. 7/22/98 Agreement To Conditional Use Permit (G91-0001) Del Ranch, L.P. -- Region 2 (dated July 22, 1998) 7/22/98 Agreement To Conditional Use Permit (G84-0001) Vulcan/BN Geo. Power CO/CE Turbo LLC -- Region 2 (dated July 22, 1998) 7/1/98 Imperial County Air Pollution Control District, Amended Conditions For Authority To Construct and Permit To Operate #1894C. Amended Conditions Issued 7/1/98. This permit is for amended conditions for construction and operation of the elements in Region I, Unit III.
C-23
DOCUMENT DATE DOCUMENT ---- -------- 9/17/98 Imperial County Air Pollution Control District, Amended Conditions For Authority To Construct and Permit To Operate #1672B. Amended Conditions Issued 9/17/98. This permit is for amended conditions for construction and operation of the elements at the Vulcan Power Plant. 9/17/98 Imperial County Air Pollution Control District, Amended Conditions For Authority To Construct and Permit To Operate #1891E. Amended Conditions Issued 9/17/98. This permit is for amended conditions for construction and operation of the elements at the A. W. Hoch Power Plant. 8/5/98 Imperial County Air Pollution Control District Permit to Construct # 2743 -- Permit to construct Unit V 8/5/98 Imperial County Public Health Department Water System Permit for 1998, Permit Number 637 4/1/96 Laidlaw Environmental Services Contract for Facilities Waste Removal and Disposal Services, dated April 1, 1996, expiring April 1, 2001. Contract NO. 963093. 6/13/96 State of California, Department of Conservation, Division of Oil, Gas, and Geothermal Resources, Unit 3 Permanent Injection Project Approval. 4/1/98 Cal/EPA State Water Resources Control Board, Letters of Receipt and Processing of Notices of Intent (2) to Comply with the General Permit to Discharge Stormwater Associated with Construction Activity, dated April 1, 1998 effective 9/1/98 through 7/1/2000. 9/13/94 California Regional Water Quality control Board, Colorado River Basin, Region 7 Waste Discharge Order (Permit) NO. 94-081for the Injection of Brine and operation of a brine pond and Holding Basin, effective 9/13/94. 8/5/98 Material Safety Data Sheet, Nalco 1387 Scale Inhibitor (phosphonomethylated amine). 9/2/98 Salton Sea Unit V Engineering, Procurement, and Construction Contract 9/11/98 Region II Upgrade Engineering, Procurement, and Construction Contract 8/12/98 Draft Amendments to Power Purchase Agreement 3/31/98 Salton Sea Funding Corp. Securities and Exchange Commission Form 10-Q 12/31/97 Salton Sea Funding Corp. Securities and Exchange Commission Form 10-K 02/10/99 Draft Amended and Restated Zinc Extraction Services Agreement
C-24 [THIS PAGE INTENTIONALLY LEFT BLANK] C-25 EXHIBIT 1 CE GENERATION IMPERIAL VALLEY Projected Operating Results ($'000s) Base Case
1999 2000 2001 2002 2003 2004 --------- --------- --------- --------- --------- ------- RECEIPTS: Revenue $ 216,272 $ 164,994 $ 160,363 $ 171,989 $ 176,884 $181,718 Magma and other revenues 1,000 1,000 1,000 1,000 1,000 1,000 Interest income 5,048 2,264 2,252 2,758 2,603 2,804 -------------------------------------------------------------------------- Total Receipts 222,320 168,258 163,615 175,747 180,487 185,522 OPERATING EXPENDITURES: Royalty Expense (26,313) (14,356) (14,715) (16,236) (16,823) (17,339) Operations (12,095) (11,193) (11,445) (11,458) (11,743) (12,036) Maintenance (4,280) (3,816) (3,505) (3,477) (3,564) (3,653) Machine shop (439) (451) (462) (474) (487) (499) Engineering (326) (599) (617) (634) (650) (665) Well workovers (4,639) (3,496) (3,687) (4,378) (3,055) (1,564) Services, general & administrative (5,757) (5,570) (5,391) (5,718) (5,853) (5,997) Accounting, legal & land (1,317) (1,589) (1,630) (1,682) (1,721) (1,760) Management fees (5,029) (3,377) (3,306) (3,576) (3,641) (3,758) Guaranteed capacity (3,199) (1,333) (1,389) (1,591) (1,782) (1,735) Insurance (2,119) (2,286) (2,457) (2,489) (2,551) (2,613) Property tax (7,561) (5,743) (6,061) (6,049) (5,928) (5,866) IID transmission line fee (5,068) (6,003) (6,007) (6,085) (6,165) (6,252) Magma Expenses/Obligations (1,089) (1,040) (903) (903) (903) (903) Adjustment - Royalties / Fees Paid to Magma 23,783 11,160 11,191 12,469 13,099 13,406 Other 0 (44) (78) (84) (85) (85) -------------------------------------------------------------------------- Total Operating Expenditures (55,448) (49,737) (50,462) (52,366) (51,852) (51,319) CAPITAL EXPENDITURES: Ongoing Capital Expenditures (21,525) (21,159) (17,305) (7,334) (17,779) (15,598) Construction Expenditures (142,812) (23,546) -- -- -- -- -------------------------------------------------------------------------- Total Capital Expenditures (164,337) (44,705) (17,305) (7,334) (17,779) (15,598) FINANCING PROCEEDS: Bond Proceeds 118,681 -- -- -- -- -- Equity Contributions 24,131 23,546 -- -- -- -- -------------------------------------------------------------------------- Total Financing Proceeds 142,812 23,546 -- -- -- -- DEBT SERVICE Project loan interest payments (24,904) (26,473) (30,424) (28,651) (26,667) (24,602) Project loan principal payments (57,836) (25,073) (23,027) (26,465) (26,682) (28,832) -------------------------------------------------------------------------- Total Debt Service (82,740) (51,546) (53,451) (55,115) (53,349) (53,433) CASH AVAILABLE FOR DISTRIBUTION $ 62,608 $ 45,816 $ 42,397 60,931 $ 57,507 $ 65,172
2005 2006 2007 2008 --------- --------- --------- ------- RECEIPTS: Revenue $ 186,591 $ 179,658 $ 177,732 $ 183,985 Magma and other revenues 1,000 1,000 1,000 1,000 Interest income 2,565 2,733 2,586 2,949 ------------------------------------------------ Total Receipts 190,156 183,391 181,318 187,934 OPERATING EXPENDITURES: Royalty Expense (18,602) (17,504) (17,643) (18,469) Operations (12,336) (12,646) (12,963) (13,286) Maintenance (3,744) (3,839) (3,935) (4,034) Machine shop (511) (524) (536) (549) Engineering (680) (697) (714) (731) Well workovers (2,097) (2,080) (2,130) (2,175) Services, general & administrative (6,166) (6,296) (6,451) (6,609) Accounting, legal & land (1,799) (1,840) (1,882) (1,924) Management fees (3,933) (3,924) (3,930) (4,127) Guaranteed capacity (2,028) (1,852) (2,033) (2,029) Insurance (2,679) (2,748) (2,817) (2,887) Property tax (5,778) (5,682) (5,427) (5,280) IID transmission line fee (6,339) (6,429) (6,519) (6,610) Magma Expenses/Obligations (903) (903) (903) (903) Adjustment - Royalties / Fees Paid to Magma 14,685 14,322 14,708 15,395 Other (86) (86) (87) (87) ------------------------------------------------ Total Operating Expenditures (52,997) (52,726) (53,260) (54,305) CAPITAL EXPENDITURES: Ongoing Capital Expenditures (26,092) (14,562) (16,215) (7,609) Construction Expenditures -- -- -- -- ------------------------------------------------ Total Capital Expenditures (26,092) (14,562) (16,215) (7,609) FINANCING PROCEEDS: Bond Proceeds -- -- -- -- Equity Contributions -- -- -- -- ------------------------------------------------ Total Financing Proceeds -- -- -- -- DEBT SERVICE Project loan interest payments (22,037) (20,310) (18,289) (16,257) Project loan principal payments (28,618) (25,916) (25,090) (28,067) ------------------------------------------------ Total Debt Service (50,654) (46,226) (43,378) (44,323) CASH AVAILABLE FOR DISTRIBUTION $ 60,413 $ 69,877 68,464 $ 81,697
C-26 EXHIBIT I CE GENERATION IMPERIAL VALLEY Projected Operating Results ($'000s) Base Case
2009 2010 2011 2012 2013 2014 --------- --------- --------- --------- --------- --------- RECEIPTS: Revenue $ 181,895 $ 185,178 $ 184,499 $ 184,817 $ 190,380 $ 193,049 Magma and other revenues 1,000 1,000 1,000 1,000 1,000 1,000 Interest income 2,655 2,877 2,724 2,884 2,657 3,037 -------------------------------------------------------------------------- Total Receipts 185,550 189,055 188,223 188,701 194,037 197,086 OPERATING EXPENDITURES: Royalty Expense (18,102) (18,524) (18,534) (18,416) (19,433) (19,442) Operations (13,618) (13,958) (14,307) (14,664) (15,031) (15,407) Maintenance (4,133) (4,238) (4,344) (4,453) (4,564) (4,679) Machine shop (562) (574) (587) (602) (616) (631) Engineering (750) (770) (791) (811) (831) (852) Well workovers (256) (1,532) (1,391) (1,000) (3,407) (2,361) Services, general & administrative (6,774) (6,944) (7,117) (7,295) (7,478) (7,664) Accounting, legal & land (1,967) (2,014) (2,061) (2,109) (2,156) (2,208) Management fees (4,062) (4,165) (4,153) (4,163) (4,309) (4,337) Guaranteed capacity (2,127) (2,017) (2,200) (2,039) (2,312) (2,129) Insurance (2,959) (3,033) (3,109) (3,187) (3,267) (3,348) Property tax (5,131) (5,037) (4,885) (4,751) (4,536) (4,275) IID transmission line fee (6,704) (6,797) (6,893) (6,991) (7,089) (7,189) Magma Expenses/Obligations (903) (903) (903) 0 0 0 Adjustment - Royalties / Fees Paid to Magma 15,332 15,486 15,807 15,485 16,553 16,281 Other (88) (89) (89) (90) (91) (92) -------------------------------------------------------------------------- Total Operating Expenditures (52,804) (55,109) (55,556) (55,087) (58,568) (58,332) CAPITAL EXPENDITURES: Ongoing Capital Expenditures (17,666) (10,456) (14,570) (8,944) (18,198) (7,529) Construction Expenditures -- -- -- -- -- -- -------------------------------------------------------------------------- Total Capital Expenditures (17,666) (10,456) (14,570) (8,944) (18,198) (7,529) FINANCING PROCEEDS: Bond Proceeds -- -- -- -- -- -- Equity Contributions -- -- -- -- -- -- -------------------------------------------------------------------------- Total Financing Proceeds -- -- -- -- -- -- DEBT SERVICE Project loan interest payments (14,085) (11,809) (9,758) (8,491) (7,286) (6,140) Project loan principal payments (26,210) (26,741) (19,991) (16,615) (14,665) (17,338) -------------------------------------------------------------------------- Total Debt Service (40,294) (38,551) (29,749) (25,106) (21,951) (23,477) CASH AVAILABLE FOR DISTRIBUTION $ 74,786 $ 84,940 $ 88,348 $ 99,564 $ 95,319 $ 107,747
2015 2016 2017 2018 --------- --------- --------- --------- RECEIPTS: Revenue $ 196,809 $ 196,491 $ 193,806 $ 193,582 Magma and other revenues 1,000 1,000 1,000 1,000 Interest income 3,106 3,045 2,909 2,939 ------------------------------------------------ Total Receipts 200,915 200,536 197,715 197,521 OPERATING EXPENDITURES: Royalty Expense (20,227) (20,616) (20,750) (21,002) Operations (15,792) (16,188) (16,592) (17,008) Maintenance (4,795) (4,915) (5,038) (5,164) Machine shop (647) (663) (681) (699) Engineering (873) (894) (915) (937) Well workovers (2,930) (1,270) (1,627) (980) Services, general & administrative (7,856) (8,053) (8,253) (8,459) Accounting, legal & land (2,259) (2,311) (2,363) (2,419) Management fees (4,427) (4,372) (4,314) (4,344) Guaranteed capacity (2,407) (2,558) (2,560) (2,656) Insurance (3,432) (3,518) (3,606) (3,697) Property tax (3,983) (3,728) (3,339) (2,987) IID transmission line fee (7,290) (7,394) (7,498) (7,604) Magma Expenses/Obligations 0 0 0 0 Adjustment - Royalties / Fees Paid to Magma 17,169 17,427 17,611 18,017 Other (93) (93) (94) (95) ------------------------------------------------ Total Operating Expenditures (59,839) (59,145) (60,019) (60,035) CAPITAL EXPENDITURES: Ongoing Capital Expenditures (6,427) (8,828) (10,036) (8,315) Construction Expenditures -- -- -- -- ------------------------------------------------ Total Capital Expenditures (6,427) (8,828) (10,036) (8,315) FINANCING PROCEEDS: Bond Proceeds -- -- -- -- Equity Contributions -- -- -- -- ------------------------------------------------ Total Financing Proceeds -- -- -- -- DEBT SERVICE Project loan interest payments (4,814) (3,372) (1,859) (559) Project loan principal payments (18,926) (20,371) (19,866) (9,969) ------------------------------------------------ Total Debt Service (23,740) (23,743) (21,725) (10,528) CASH AVAILABLE FOR DISTRIBUTION 110,909 $ 108,820 $ 105,934 $ 118,642
C-27 APPENDIX D THE SOUTHERN CALIFORNIA ELECTRICITY MARKET AND PRICE FORECAST 1999 -- 2018 PREPARED FOR: CE GENERATION, LLC FEBRUARY 11, 1999 PREPARED BY: HENWOOD ENERGY SERVICES, INC. 2710 GATEWAY OAKS WAY, SUITE 300 NORTH SACRAMENTO, CA 95833 D-1 TABLE OF CONTENTS THE SOUTHERN CALIFORNIA ELECTRICITY MARKET AND PRICE FORECAST 1999 -- 2018 TABLE OF CONTENTS
SECTION PAGE ------- ---- EXECUTIVE SUMMARY ........................................... D-4 1 THE U.S. ELECTRIC POWER MARKET .............................. D-6 1.1 INTRODUCTION ................................................ D-6 1.2 FEDERAL LEGISLATIVE AND REGULATORY INITIATIVES .............. D-6 1.2.1 Public Utility Regulatory Policies Act -- 1978 .............. D-6 1.2.2 Energy Policy Act -- 1992 ................................... D-6 1.2.3 FERC Order 888 -- 1996 ...................................... D-6 1.3 CALIFORNIA LEGISLATIVE INITIATIVES .......................... D-7 1.3.1 Assembly Bill 1890 .......................................... D-7 2 THE CALIFORNIA WHOLESALE POWER MARKET ....................... D-8 2.1 THE MARKET 1998 AND BEYOND .................................. D-8 2.1.1 Diversity of Energy Supply .................................. D-8 2.1.2 California Investor Owned Utilities ......................... D-9 2.1.3 Treatment of Qualifying Facilities (QFs) .................... D-9 2.2 CALIFORNIA MUNICIPAL UTILITIES AND AUTHORITIES .............. D-10 2.3 SYSTEM RELIABILITY .......................................... D-10 2.4 PX MARKET ................................................... D-10 2.4.1 PX Prices ................................................... D-10 2.4.2 Short Run Avoided Costs ..................................... D-11 2.5 PX PRICES AS A MEASURE OF AVOIDED COST ...................... D-12 3 PX PRICE FORECAST: KEY ASSUMPTIONS AND METHODOLOGY .......... D-13 3.1 MODELING METHODOLOGY AND TECHNIQUES ......................... D-13 3.2 ASSUMPTIONS REGARDING THE CALIFORNIA MARKET TRANSITION PERIOD ..................................................... D-13 3.3 KEY ASSUMPTIONS FOR MODELING CALIFORNIA MARKET .............. D-14 3.3.1 Forecast Horizon ............................................ D-14 3.3.2 Market Structure ............................................ D-14 3.3.3 Existing Resource Base ...................................... D-14 3.3.4 Resource Retirements ........................................ D-14 3.3.5 Generic Resource Additions .................................. D-14 3.3.6 Loads ....................................................... D-15 3.3.7 Load Shape .................................................. D-15 3.3.8 Load Growth ................................................. D-15 3.3.9 Inflation ................................................... D-15 3.3.10 Fuel Prices ................................................. D-15 3.3.11 Operations & Maintenance .................................... D-17 3.3.12 Property Taxes .............................................. D-17 3.3.13 Insurance ................................................... D-17 3.3.14 Other Costs ................................................. D-17
D-2
SECTION PAGE ------- ---- 3.4 WSCC TRANSMISSION SYSTEM CONFIGURATION ........................................... D-17 3.5 HYDRO POWER ...................................................................... D-18 3.5.1 Median Year Case ................................................................. D-18 3.5.2 Transactions ..................................................................... D-19 4 PX PRICE FORECAST: RESULTS ....................................................... D-20 4.1 BASE CASE 1999-2018 .............................................................. D-20 4.2 SENSITIVITY CASES ................................................................ D-21 4.2.1 Low Gas 1 Case ................................................................... D-21 4.2.2 Low Gas 2 Case ................................................................... D-21 5 THE POWER PROJECTS AND THE CALIFORNIA MARKET ..................................... D-22 5.1 MARKET ANALYSIS RESULTS .......................................................... D-22 5.2 PX PRICES AND THE MARKET POSITION OF THE POWER PROJECTS .......................... D-24 6 THE CALIFORNIA GREEN POWER MARKET AND ITS IMPLICATIONS FOR THE POWER PROJECTS .......................................................... D-26 6.1 CEC RENEWABLE RESOURCE FUNDING ................................................... D-26 6.2 EXISTING RENEWABLE RESOURCE ACCOUNT .............................................. D-26 6.3 NEW RENEWABLE RESOURCE ACCOUNT ................................................... D-27 6.4 EMERGING RENEWABLES ACCOUNT ...................................................... D-28 6.5 CONSUMER-SIDE INCENTIVES ......................................................... D-28 6.6 DISCUSSION OF GREEN POWER MARKET BENEFITS ........................................ D-28 LIST OF TABLES Table 2-1 1996 Net System Power (Electric Generation) ...................................... D-9 Table 2-2 Monthly Average California PX Prices -- April 1998 to January 1999 ($/MWh) ....... D-11 Table 2-3 SCE and SDG&E Annual Average Short-Run Avoided Costs of Energy ................... D-12 Table 3-1 Generic Resource Characteristics (1996 dollars) .................................. D-15 Table 4-1 Base Case PX Price Forecast 1999 -- 2018, $/MWh................................... D-20 Table 4-2 PX Prices Under Low Gas Case 1 ................................................... D-21 Table 4-3 PX Prices Under Low Gas Case 2 ................................................... D-21 Table 5-1 Average Operating Costs by Plant Type in the WSCC from Prosym Model Simulation in 2005 ......................................................................... D-22 Table 5-2 PX Price Frequency Analysis in Southern California Transmission Area, 2005 ....... D-25 Table 6-1 AB 1890 Accounts -- Total Funding Allocations by Technology, $Millions ........... D-26 Table 6-2 Existing Renewable Resource Account Allocations by Tier, $Millions................ D-27 Table 6-3 New Renewable Resource Account Allocations by Year, $Millions .................... D-27 LIST OF FIGURES Figure 2-1 California PX Daily Prices -- High, Low and Average .............................. D-12 Figure 3-1 WSCC Transmission System Configuration ........................................... D-18 Figure 5-1 PX Prices and Project Operating Costs, Units I to IV ............................. D-23 Figure 5-2 PX Prices and Project Operating Costs, Other Units ............................... D-23 Figure 5-3 PX Prices and New Power Project Operating Costs .................................. D-24 Figure 5-4 PX Prices and Yuma Operating Costs ............................................... D-24 LIST OF APPENDICES A SCE SRAC FORECAST ................................................................ D-30
D-3 EXECUTIVE SUMMARY BACKGROUND CE GENERATION, LLC ("CEG") will issue securities to finance, among other things, two new geothermal power plants -- Salton Sea Unit V and the CE Turbo Project(the "New Power Projects"), which will have a combined net generation capacity of 59 MW. The New Power Projects are located in the Salton Sea area of California. The financing will encompass further investment in eight existing geothermal units which sell power to Southern California Edison under Standard Offer contracts authorized by the California Public Utilities Commission (the "CPUC"). In addition, the financing includes a 50 MW gas-fired project, "Yuma", in Yuma Arizona, which sells power to San Diego Gas and Electric under a Standard Offer contract. The New Power Projects, the Existing Projects and Yuma together comprise the "Power Projects". The financing requires an in-depth assessment of the regulatory issues and electric energy markets in California including information on the structure and operation of the California market and an assessment of the competitive position of the Power Projects in the market. Henwood Energy Services, Inc (HESI) has developed an independent assessment of (i) the wholesale electricity market in California for the 20 year period 1999 through 2018; (ii) the competitive position of the Power Projects in the California market, and; (iii) the outlook for renewable energy in the emerging Green Power market. This assessment is presented in both quantitative and qualitative fashion as listed below: 1. A brief description of the California wholesale electricity market. 2. The key assumptions used in assessing the market and as inputs into the HESI Electric Market Simulation System. 3. Forecasts of average electricity prices in the California market and the methodology to develop them. HESI used its proprietary Electric Market Simulation System (EMSS) to produce the forecasts of market clearing prices. The base case scenario was developed using assumptions developed and tested by HESI. Two low gas price scenarios were developed to assess the Power Projects' sensitivity to market prices. 4. A specific competitive assessment of the Power Projects on a stand-alone basis using revenue and variable cost estimates generated by HESI. 5. An assessment of the Power Projects within the context of the competitive market and how the Power Projects compare with other generators. 6. An assessment of the Green Power and renewable energy markets. 7. An analysis of the changes to Qualifying Facility (QF) payments, the transition formula for calculating such payments, and forecasts of the payments for the Power Projects. Based on these analyses, our report contains the following conclusions: 1. Our Base Case forecast indicates that the Southern California annual Power Exchange (PX) market clearing price (MCP) will increase from $28.3/MWh in 1999 to $50.3/MWh by 2018 in nominal dollars -- which translates into an average annual rate of increase of 3.1 percent over that period. 2. We expect all of the Power Projects to be low cost producers in all years of the study. The annual average operating cost of the Power Projects in 2005 is $17.5/MWh (excluding Yuma). In fact, about 66 percent of the electricity produced in the WSCC in 2005 -- the first year of full competition -- is generated from units with higher costs, a strong indication that the Power Projects will be dispatched as baseload. The new units, Salton Sea Unit V and the CE Turbo Project, are even better positioned with operating costs of $10.0 and $9.3 per MWh respectively. Of all the generation in the region, only hydroelectric generators have lower operating costs. D-4 3. The annual average operating costs of the Power Projects, in $/MWh, are below the annual average PX prices. In fact, the Power Projects' operating costs are close to the off-peak PX price in 1999 through 2002 and significantly below that in all years thereafter. 4. The low-cost relationship between PX prices and the Power Projects' operating costs also prevails with the Low Gas Price sensitivity cases. In these cases, operating costs are also well below the PX prices. The range of annual average PX prices in the Low Gas Case 1 is $27.9/MWh in 2000 to $47.0/MWh in 2018. 5. A significant finding of the study is that Salton Sea Unit V and the CE Turbo Project will have operating costs lower than all other generator types, except hydro, and will be extremely well-positioned to be dispatched any hour in the year. The operating costs of these units are about $18.5 to $20/MWh lower than PX prices in 2000 and 2001. The difference increases to $30/MWh by 2005 and to nearly $40/MWh by 2018. The margin is so significant it is extremely unlikely that any new significant capacity with lower operating costs will be built. The Yuma plant appears very cost competitive compared to HESI estimates of natural gas cogeneration. Yuma operating costs are about $9.0/MWh below power market prices in 2000 and $15 to $17/MWh below forecast PX prices in all years after 2005. 6. We also find that the PX price will be greater than or equal to $20.3/MWh in 96 percent of all hours in 2005. This means that the Power Projects, with an average operating cost of $17.5/MWh, will be below the PX price in each of those hours and will be dispatched accordingly. 7. The transition of short--run avoided cost determination to competitively determined pricing, while subject to regulatory and market dynamics, is expected to be complete by the beginning of 2000. We forecast the Southern California Edison SRAC to be $30.3/MWh in 1999 and $31.1/MWh in 2000, on an annual average basis. SRAC prices for QF sales to San Diego Gas and Electric are estimated at $30.9/MWh in 1999 and $31.7/MWh in 2000. 8. In addition to being low cost producers, the Power Projects have the added competitive advantage of being a renewable and environmentally preferred (or "green") energy resource. o Surveys indicate that 40 to 70 percent of California residential consumers are willing to pay a 5 to 15 percent premium for green power products. Current retail premiums for green power products range from 0.7 to 3.1 cents per kWh. o California is a world leader in the promotion and development of clean renewable energy and its energy consumers are environmentally aware. While the traditional power utilities are cutting back on renewable expenditures, the State of California has established a $543 million fund to subsidize existing and new sources of renewable energy. HESI's analysis of the disbursement criteria and delivery mechanisms, as well as CalEnergy's own demonstrated expertise in acquiring such funds, all suggest that the Power Projects will derive substantial benefits from generating clean and renewable energy. D-5 SECTION 1.0 THE U.S. ELECTRIC POWER MARKET 1.1 INTRODUCTION The U.S. electric power industry is undergoing a profound transformation. The industry is evolving from a vertically integrated and cost-regulated monopoly to one that is market-based with competitive prices. The transition began with the passing of the Public Utility Regulatory Policies Act (PURPA) in 1978, which made it possible for non-utility generators to enter the wholesale power market. As a result, non-utility capacity additions grew 54 percent from 1990 to 1996 while utility capacity additions during the same period grew only 2 percent. The deregulation process is likely to continue at the state level far into the next decade. 1.2 FEDERAL LEGISLATIVE AND REGULATORY INITIATIVES This section briefly discusses the major federal legislation and regulation that established a framework for electric power industry deregulation and set the stage for further legislative initiatives at the state level. 1.2.1 PUBLIC UTILITY REGULATORY POLICIES ACT -- 1978 PURPA is one of five bills signed into law on November 9, 1978, as part of the National Energy Act. It is the only one remaining in force. Enacted to combat the "energy crisis," and the perceived shortage of petroleum and natural gas, PURPA requires utilities to buy power from non-utility generating facilities that use renewable energy sources or "cogeneration," i.e. the use of steam both for heat and to generate electricity. The Act stipulates that electric utilities must interconnect with and buy, at the utilities' avoided cost, the capacity and energy offered by any non-utility facility ("Qualifying Facility") meeting certain ownership, operating and efficiency criteria established by the Federal Energy Regulatory Commission (FERC). 1.2.2 ENERGY POLICY ACT -- 1992 The Energy Policy Act of 1992 (EPACT) opened access to transmission networks and exempted certain non-utilities from the restrictions of the Public Utility Holding Company Act of 1935 (PUHCA). EPACT therefore has made it even easier for non-utility generators to enter the wholesale market for electricity. The Act also created a new category of power producers, called exempt wholesale generators (EWGs). By exempting them from PUHCA regulation, the law eliminated a major barrier for utility-affiliated and nonaffiliated power producers wanting to compete to build new non-rate-based power plants. EWGs differ from PURPA QFs in two ways. First, they are not required to meet PURPA's utility ownership, cogeneration or renewable fuels limitations. Second, utilities are not required to purchase power from EWGs. In addition to giving EWGs and QFs access to distant wholesale markets, EPACT provides transmission-dependent utilities the ability to shop for wholesale power supplies, thus releasing them -- mostly municipals and rural cooperatives -- from their dependency on surrounding investor-owned utilities for wholesale power requirements. The transmission provisions of EPACT have led to a nationwide open-access electric power transmission grid for wholesale transactions. 1.2.3 FERC ORDER 888 -- 1996 With the passage of EPACT, Congress opened the door to wholesale competition in the electric utility industry by authorizing FERC to establish regulations to provide open access to the nation's transmission system. FERC's subsequent rules, issued in April 1996 as Order 888, is designed to D-6 increase wholesale competition in the nation's transmission system, remedy undue discrimination in transmission, and establish standards for stranded cost recovery. A companion ruling, Order 889, requires utilities to establish electronic systems to share information about available transmission capacity. 1.3 CALIFORNIA LEGISLATIVE INITIATIVES 1.3.1 ASSEMBLY BILL 1890 The legislation that introduced electric power deregulation in California is Assembly Bill 1890, which achieves a number of goals, including: o An immediate 10 percent rate reduction for residential and small commercial users. o A new power market structure with an Oversight Board (OB), an Independent System Operator (ISO) and a PX. o Limits the amount of costs (e.g. stranded assets) that are recoverable in the transition to a deregulated market. o Preserves public programs supporting energy efficiency, research & development and low-income households. o Provides approximately $540 million in subsidies to support renewable energy programs, including geothermal power generation, such as the Power Projects. D-7 SECTION 2.0 THE CALIFORNIA WHOLESALE POWER MARKET In September 1996, the California legislature passed Assembly Bill 1890 ("AB 1890") that deregulated parts of the electric power business in California. The California market, originally scheduled to begin on January 1, 1998, was delayed to March 31, 1998. At that time, the PX and ISO began operation. AB 1890 permits a fully competitive electric generation market to phase in over a four-year transition period between January 1998 and March 2002 (the "Transition"). At the end of the Transition period, most of the protections afforded California's investor owned-utilities (IOUs) for past uneconomic investments and power contracts will be removed. It is anticipated that, eventually, municipal utilities will also permit their retail customers to enter into direct supply agreements with competitive power suppliers. 2.1 THE MARKET 1998 AND BEYOND With deregulation, a steadily increasing percentage of customers will be allowed to shop for power in an open market. Customers will have direct access to generators. No longer restricted to buying power only from their local utility company, they can freely select the power arrangement that suits their preferences. On March 31, 1998, the PX began operating the day-ahead energy market, a wholesale market-clearing auction into which PX participants bid energy supply and demand for each of the next day's 24 hours. On the same date, the ISO took control of the electric grid, and began operating a complementary set of competitive auctions. The ISO relies on these auctions to manage transmission line congestion, to procure a portion of the needed ancillary services (for reliability purposes), and to balance physical generation with load in real time. During the Transition, utilities are afforded the opportunity to recover certain "stranded costs" for generation-related investments. These costs had been previously authorized by the CPUC for inclusion in rates, but are not likely to be recoverable through the prices that emerge in the competitive market. The mechanism for this cost recovery is an unavoidable Competition Transition Charge (CTC) assessed against all customers served by the distribution system of California IOUs. 2.1.1 Market Size California's energy market is very large, with a non-coincident peak energy demand of 51,280 MW(1) in 1996 and total energy consumption of 245,900 GWh. The average retail cost of electricity is 9.4 cents/kWh (1996 $), with total electric revenue accounting for over $20 billion. Peak demand for electricity is forecast to reach 68,100 megawatts by 2015 -- a growth rate of 1.5 percent per year between 1996 and 2015. California's three largest IOU's -- PG&E, SCE, and SDG&E account for 188,470 GWh, or approximately 77 percent, of California's statewide energy consumption. 2.1.1 DIVERSITY OF ENERGY SUPPLY During the 1970s, over two-thirds of California's electricity was generated from oil and natural gas. This decade, however, California has developed a more diverse resource mix of electricity generation. As Table 2-1 shows, over half of the state's 258,801 gigawatt-hours of electricity production is now met with non-fossil fuel sources. Further, over 11 percent of power generation is fueled by renewable energy, mainly geothermal, small hydro and biomass (but excluding large hydro). California leads in developing new generation technologies. It has 40 percent of the world's geothermal power plants, 30 percent of the installed wind capacity and 90 percent of the world's solar generation. The state also leads the nation in the amount of electricity supplied by non-utility generators. ---------- (1) "Electricity Report," California Energy Commission, August 1997. D-8 Table 2-1 also shows that just over 32 percent of electricity generation is supplied by natural gas. Because of its cheap price and clean-burning characteristics, natural gas has become California's fuel of choice, particularly for electricity generation. Demand for natural gas in 1990 exceeded 2,025 trillion cubic feet and one-third of California's electrical energy is generated by natural gas. According to the California Energy Commission, natural gas will account for 38 percent of energy used for power generation by 2009. TABLE 2-1 1996 NET SYSTEM POWER (ELECTRIC GENERATION)
FUEL TYPE GIGAWATT-HOURS PERCENT ------------------------------- ---------------- ---------- Coal * ...................... 40,283 15.6% Large Hydro * ............... 64,958 25.1% Natural Gas * ............... 84,110 32.5% Nuclear ..................... 39,753 15.4% Other(Oil, Diesel) .......... 693 0.3% Biomass & Waste ............. 5,848 2.3% Geothermal .................. 13,541 5.2% Small Hydro ................. 5,767 2.2% Solar ....................... 807 0.3% Wind ........................ 3,041 1.2% ------ ---- Total ....................... 258,801 100% ======= ====
---------- * Includes out of state imports. Source: California Energy Facts, California Energy Commission Natural gas pipeline capacity into California stood at about 8 BCF/day in 1996. Between 1990 and 1996, interstate pipeline capacity into California increased by 65 percent. The major sources of new capacity during this period were the Mojave, El Paso and Tuscarora pipelines.(2) 2.1.2 CALIFORNIA INVESTOR OWNED UTILITIES As California's utility market moves toward free competition, over 17,800 MW of generating assets owned by IOUs have been sold, or will be in the near future. However, despite this divestiture of generation resources, the IOUs are expected to retain ownership and control of substantial nuclear, QF, and hydropower generation in California and jointly owned thermal coal-fired generation outside of California. The IOUs also buy and sell power from each other, as well as engage in transactions with other utilities in California and the surrounding Western states. Each has assumed responsibility for matching load and resources to maintain frequency, and matching scheduled and actual flows at the tie points by which utilities are connected to other power producers. Because of their obligation to serve within their service territories, they also developed generation and demand forecasts, operated generating plants, and entered into long-term procurement contracts for the fuel used to generate electricity. They also participated in short- and long-term bilateral contracts for electric power in order to meet changes in demand and demand growth, respectively. 2.1.3 TREATMENT OF QUALIFYING FACILITIES (QFS) Qualifying Facilities are currently compensated under a Transition Formula -- the Short Run Avoid Cost (SRAC) -- that in its current form is tied directly to changes in the price of natural gas. ---------- (2) Deliverability on the Interstate Natural Gas Pipeline System, Energy Information Administration, May 1998. D-9 However, this relationship is not likely to persist much longer. The CPUC, which has the regulatory authority to determine SRAC, in Decision 96-12-028, stated its intention to change the formula to one based on the PX price once certain conditions are satisfied. These conditions are that the PX is functioning properly and that either the IOUs have divested 90 percent of their gas-fired fossil generation, or the fossil-fired generation units owned directly or indirectly by the IOUs are recovering all of their going forward costs from PX based prices. HESI believes these conditions will be met by the beginning of 2000. 2.2 CALIFORNIA MUNICIPAL UTILITIES AND AUTHORITIES While it is anticipated that municipal utilities and other governmental authorities will participate in the PX and ISO, there is no regulatory requirement for them to do so. The largest municipal utilities are the Los Angeles Department of Water and Power (LADWP) and the Sacramento Municipal Utility District (SMUD), which in combination own or control over 15,000 MW of generating resources. To date, they have not announced plans regarding their participation nor have they submitted their transmission resources to ISO control. The Imperial Irrigation District has also not as yet announced plans to turn-over its transmission system to ISO control. 2.3 SYSTEM RELIABILITY The ISO is the entity responsible for the security and operating reliability of the statewide electric grid. In this function, the ISO will adhere to the North American Electric Reliability Council (NERC) and Western Systems Coordinating Council (WSCC) standards for reliable operation. In the near term, the new market is designed to accommodate this centralized, third-party control structure through the combined use of two mechanisms. One is the ISO-conducted, competitive auction for eligible ancillary services, such as operating (spinning and non-spinning) reserve, replacement reserve, and regulation capacity that can be controlled electronically by the ISO. The other mechanism available to the ISO for procurement of generating services is the use of long-term contracts with generating facilities that are designated as "reliability must-run" facilities. As with the ancillary service auction, the ISO will use reliability must-run contracts to obtain operating reserve, replacement reserve, "black start" capability, voltage support, and regulation capacity. The prices established in these must-run contracts are unrelated to PX market prices. Instead, they are based on the actual costs of the generating units under contract. Most of the IOU-owned generators in California were declared must-run by their owners. The ISO will examine each must-run contract during the Transition and retain those required for system reliability. The ISO's use of must-run contracts through the Transition period was authorized by AB 1890. Service procured under must-run contracts will be replaced by those procured competitively after the end of the AB 1890-specified Transition period. 2.4 PX MARKET The PX is responsible for managing the transactions for all power auctioned through, and purchased by, market participants except those bound by contract. It was mandated by AB 1890 and set-up as a private, non-profit corporation subject to regulation by FERC. The different auctions include: the Day-ahead Market, Hour-ahead Market, Real-time Market, and an Ancillary Services Market. The day-ahead market is the most forward-looking of the scheduled markets, and is the largest in terms of total volume. It will give participants the opportunity to buy and sell energy for each hour of the 24-hour trading day on a day-ahead basis. The hour-ahead market is also a forward-looking, scheduled market, but its scale is much smaller in terms of both ahead-time and total volume. It will give participants the opportunity to adjust their schedules two hours before the hour of operation. D-10 The real-time market is dramatically different from the scheduled day-ahead and hour-ahead markets, in that it is not forward-looking. Rather, it seeks to balance the real-time differences actually experienced between scheduled and metered values for load and generation. 2.4.1 PX PRICES Actual monthly average California PX prices are shown in Table 2-2 below. While monthly average prices reveal some of the variation in power prices that occurred in 1998, a truer depiction of the actual variability in prices day to day, and even within a day, are displayed in Figure 2-1. The Figure shows actual high, low and average prices in the California PX day-ahead market throughout 1998 and for the first two weeks of January 1999. The average daily price is highlighted in bold and the high/low range for the day is depicted by the length of the gray-shaded vertical line. TABLE 2-2 MONTHLY AVERAGE CALIFORNIA PX PRICES -- APRIL 1998 TO JANUARY 1999 ($/MWH)
AVERAGE AVERAGE MONTH ON-PEAK AVERAGE OFF-PEAK ALL HOURS ----- ------- ---------------- --------- April, 1998 ........... 26.84 18.55 22.60 May ................... 17.37 6.92 11.49 June .................. 16.97 7.43 12.09 July .................. 40.61 24.39 32.42 August ................ 54.27 27.38 39.53 September ............. 42.18 26.19 34.01 October ............... 30.81 22.91 26.65 November .............. 29.45 22.50 25.74 December .............. 33.50 24.87 29.13 January, 1999 ......... 24.78 17.81 20.96
---------- Note: On-peak is defined as the weekday hours between the 7:00 A.M. and 11:00 P.M. Off-peak consists of the hours between 11:00 P.M. and 7:00 A.M. on weekdays and all hours during weekends and holidays. 2.4.2 SHORT RUN AVOIDED COSTS All QFs are compensated on the basis of the SRAC of the IOU purchasing the power. The Power Projects' QFs currently receive payment under the SRAC "Transition Formula" for Southern California Edison (SCE) and San Diego Gas and Electric (SDG&E). This "formulaic" SRAC is a linear function of the price of natural gas as measured at the "California Border". Table 2-3 presents a forecast of the annual average SRAC price, as computed pursuant to the existing SRAC Transition Formula for SCE and SDG&E. The gas prices (southern California border prices) used to make this calculation are the same as the gas prices used in the HESI model to produce the forecast of PX prices. D-11 FIGURE 2-1 CALIFORNIA PX DAILY PRICES -- HIGH, LOW AND AVERAGE [GRAPH SHOWING CALIFORNIA PX PRICES DURING APRIL THROUGH DECEMBER PERIOD] TABLE 2-3 SCE AND SDG&E ANNUAL AVERAGE SHORT-RUN AVOIDED COSTS OF ENERGY
PRICE OF GAS SCE AVOIDED SDG&E AVOIDED YEAR ($/MMBTU) COST ($/MWH) COST ($/MWH) ---- --------- ------------ ------------ 1999 ......... 2.30 30.3 30.9 2000 ......... 2.38 31.2 31.7 2001 ......... 2.46 32.0 32.4
---------- Note: The SRAC prices shown are weighted averages with the weights based on the number of hours in each "time-of use" period. While the SRAC is projected through 2001, we believe PX pricing will replace SRAC pricing as early as the start of 2000. SCE's 1995 forecast of avoided costs of energy is included in Appendix A for comparison purposes, containing low, medium, and high forecasts. 2.5 PX PRICES AS A MEASURE OF AVOIDED COST The SRAC Transition Formula is expected to be in effect until several conditions are met. One is the divestiture by California IOUs of their California fossil-fired generation, a process expected to be completed in the next twelve months for all major utilities. The other is a determination by the CPUC that the PX market is "functioning properly." Currently PX operations are being gradually phased in. Once complete, the CPUC will likely wait at least several more months before determining the PX is functioning properly, a determination which could be subject to several months of regulatory delay. However, if PX market prices are substantially below transition SRAC prices, utilities will be motivated to seek a change in SRAC pricing through the CPUC more quickly. PX trading prices through June 1998 were substantially lower than SRAC payments, a situation that was reversed in July. HESI's market price forecasting supports the notion that the trend of annual average PX prices being lower than SRAC will likely continue through the Transition years (1999-2001) of California restructuring. Given the above considerations, the change from Transition Formula to PX pricing should occur at the beginning of Year 2000. D-12 SECTION 3.0 PX PRICE FORECAST: KEY ASSUMPTIONS AND METHODOLOGY 3.1 MODELING METHODOLOGY AND TECHNIQUES To develop a forecast of PX market clearing prices for the Southern California Transmission Area, simulation of the entire Western Systems Coordinating Council (WSCC) electrical system was required. Such a simulation requires a vast amount of data regarding power plants, fuel prices, transmission capability and constraints, and customer demands. HESI utilizes its proprietary Electric Market Simulation System (EMSS) and its MULTISYM (Trade Mark) production cost model to simulate the operation of the WSCC. EMSS is a sophisticated application of relational database technology, which operates in conjunction with a state-of-the-art, multi-area, chronological, production simulation model. It is used to manage the tens of thousands of individual data points necessary to properly characterize the WSCC electric system for the forecast. The types of data managed by the EMSS database include the data necessary to correctly consider the configuration of the regional transmission system. This includes: o individual power plant characteristics; o transmission line interconnections, ratings, losses, and wheeling rates; o forecasts of resource additions and fuel costs; and o forecasts of loads for each utility in the region. MULTISYM (Trade Mark) simulates the operation of the individual generators, utilities and control areas (also referred to as transmission areas) within the region, taking into consideration various system and operational constraints. Output from the simulation is generated in hourly, station-level detail and provided in database format. This data may then be aggregated and sorted for any level of aggregation required by the user. 3.2 ASSUMPTIONS REGARDING THE CALIFORNIA MARKET TRANSITION PERIOD It is assumed during the Transition period that the market will consist of a limited number of generators that will be required to operate competitively in the market. AB 1890-mandated regulatory Must-Take generation and regulatory Must-Run contracts provide for the continuation of capacity payments through Transition. Must-Take includes power from QF resources -- including the Existing Power Projects -- nuclear units, and existing purchase power agreements that have minimum-take provisions, is not subject to competition and will be scheduled with the ISO on a must-take basis. Must-Run contracts are between IOU generators and the ISO for the purposes of system reliability and provide a capacity payment to the owners during all, or part, of the Transition. Must-Take units owned by municipal and public power agencies are assumed to continue operating as they did in the past. Other Must-Take units, like QFs, will continue to operate under existing contracts. Units identified on the ISO's must-run list will end up with one of three types of Must-Run contracts -- A, B, or C. This study assumes that most Must-Run contracts will be Must-Run "B" which allows the generators to cover its fixed costs of operation through the ISO's payment. Those units that do not sign the "B" contract and remain on an "A" contract will generally be those that are must-run or follow load, like hydroelectric. There will be few Must-Run "C" contracts which dedicate the units to the ISO in exchange for full cost recovery but do not allow the unit to bid independently into the market. The ISO has the right to terminate any must-run contract it deems unnecessary with a 90 day notice. Since a majority of the generating units both inside and outside of California will generally continue to bid to the PX just above their variable cost of production until the end of the AB 1890 D-13 specified Transition period, we assume that the PX closely resembles a variable cost pool in the near term. At the end of the Transition period, fixed costs will also be recovered through the PX. Thus, a relatively small number of units will be exposed to full competition during the Transition period. We have forecasted the Must-Run contracts to impact the market through the end of 2001 by putting downward pressure on PX prices. The Must-Run contract payments cover much of the generators' costs by allowing fixed costs to be recovered through the ISO. Thus, generators will not require higher PX prices to recover their fixed costs. When the contracts terminate during, or at the end of, the Transition period, all generators will be required to recover their costs through normal, competitive trading activities. The model takes into account the phasing out of the Must Run contracts in the Transition period, resulting in an increase in PX prices. 3.3 KEY ASSUMPTIONS FOR MODELING CALIFORNIA MARKET 3.3.1 FORECAST HORIZON The forecast period covers a twenty-year period beginning January 1,1999 and ending December 31, 2018. 3.3.2 MARKET STRUCTURE It is assumed that all generators in the WSCC, except a few in California that were not declared Must Run, receive some payment for capacity through 2001, the end of the Transition period specified in AB 1890. From 2002 through 2018 there are no capacity payments to the California generators. We assume non-California generators will continue to operate with regulated tariffs and capacity payments from 2002 through 2004. We believe the market will become fully competitive by 2005 and, from that point forward, all generators will need to recover capacity costs through the market. 3.3.3 EXISTING RESOURCE BASE All existing generation units within the WSCC are included in the analysis. HESI's database contains information regarding all such units and their performance characteristics. This data has been updated to reflect the most recent filings made by utilities regarding their resources. Much of this data was taken from the "OE-411" and is current as of January 1, 1997. Generation resource data were also supplemented by a review of specific utility resource plan filings and reports generated by state agencies. Existing resources are assumed to continue operating through the forecast horizon, except for those resources that have specific retirement dates or assumed retirements. 3.3.4 RESOURCE RETIREMENTS We have conservatively estimated the retirements to be only those publicly announced, except in the case of the nuclear units. Recent CPUC decisions on rate recovery allow California utilities to recover investments in nuclear plants on an accelerated schedule. Investments in Diablo Canyon and Palo Verde will therefore be fully recovered by the end of 2001 and San Onofre by the end of 2003. After this special rate treatment period ends, these plants must compete individually. All costs will have to be recovered in the competitive energy market. HESI believes that Diablo Canyon and San Onofre will not be competitive in the new environment and so will be shut down shortly after their investments are recovered, in 2001 and 2003 respectively. Palo Verde is assumed to operate throughout the forecast period. 3.3.5 GENERIC RESOURCE ADDITIONS HESI believes that gas-fired combined cycle units (CC) and gas-fired combustion turbines (CT) will be added as needed to meet the projected increase in customer demand over the forecast period. HESI's analysis assumes that generation resources will be added over the forecast period in a 3 CC MWs to 1 CT MW ratio for all trans-areas. D-14 Table 3-1 lists the cost and performance assumptions for these resources. TABLE 3-1 GENERIC RESOURCE CHARACTERISTICS (1996 DOLLARS)
COMBUSTION COMBINED UNIT CHARACTERISTIC TURBINE CYCLE ------------------- ------- ----- Capacity (MW) ......................... 120 240 Heat Rate (Btu/kWh) ................... 11,000 7,100 Fixed O&M ($/kW- year) ................ 3.00 10.00 Variable O&M (dollars/MWh) ............ 4.00 2.00 Forced Outage Rate (%) ................ 0.00 2.00 Maintenance Outage Rate (%) ........... 4.00 4.00 Capital Cost ($/kW) ................... 300.00 500.00 Cost of Money (%) ..................... 10% 10% Capital Amort. Period (years) ......... 15 15
3.3.6 LOADS HESI is using the latest available data to project future customer demand and energy requirements. This data was filed electronically by the utilities with the Federal Energy Regulatory Commission (FERC) early in 1997, and represents each utility's most recent recorded historic loads and their most recent load forecast data. HESI has used data approved by the California Energy Commission in its 1996 Electricity Report for the California utilities. 3.3.7 LOAD SHAPE The load shape is based on recent historic load data filed with the FERC by utilities which reflects their complete hourly loads over calendar years 1993 through 1996. HESI has used these load shapes to create a load shape consistent with the load forecasts provided by utilities. These "synthetic" load shapes are used to project the shapes of future utility loads based on the load growth data described in section below. 3.3.8 LOAD GROWTH Based on the load forecasts filed with the FERC in 1996 under Form 714 and on more recent information filed to state regulatory agencies, including California ER96, peak demand and energy requirements for the entire WSCC are expected to both grow at less than 2 percent per year through the study. 3.3.9 INFLATION General inflation drives a number of cost elements that underlie power market prices including Operations and Maintenance (O&M) costs, the cost of new resource additions, and is combined with expectations of real escalation to result in future fuel prices. For this study inflation was assumed to be 2.5 percent. 3.3.10 FUEL PRICES There are two principal fuels that drive electricity prices in the WSCC region -- natural gas and coal. NATURAL GAS The natural gas price forecast utilized in this study was developed based on the price of gas futures contracts for the 1999 period and estimates of gas transportation costs associated with moving gas from the relevant gas basin to the power plant. Each power plant in EMSS is assigned a fuel group. Each fuel group is comprised of two components: a commodity price and a gas transportation price. D-15 Gas Commodity Prices Gas Commodity prices are tied to the San Juan basin in the southwest and to the AECO C Hub in Canada, the two main gas-producing basins in the WSCC region. The price of a series of gas futures contracts for gas delivered to the San Juan Basin was used as the basis for the study's southwest gas basin price. Gas basin prices at the AECO C Hub were based on forward gas futures at Henry Hub plus the price of a financial swap tying Henry Hub prices to the AECO C Hub. Although generators within the WSCC often use gas from more than one of these basins, it is assumed that only one gas basin will set the key marginal gas price for each generator. Each gas basin is mapped to generation regions within the WSCC as discussed below: San Juan This basin is assumed to be the dominant gas basin supply generating stations in the New Mexico, southern Nevada, Arizona, and California. Additional pipeline and Local Distribution Company (LDC) charges must be added to the San Juan price to yield the delivered price of gas to each generating unit. Alberta This basin is assumed to supply generating stations within Alberta; the same gas price is also applied to generators in British Columbia. Alberta gas is also assumed to supply electric generators located in the following states: Washington, Oregon, Idaho, Montana, Wyoming, Utah, and Northern Nevada. Again, gas transportation costs are added to yield the gas prices to generators in those states. Gas Transport Prices Pipeline transportation costs are added to basin prices to determine Citygate gas prices. The gas transportation price is a combination of gas pipeline charges and the cost to move gas across a gas LDC. In many areas, Citygate prices are the relevant marginal gas costs used by electric generators to "dispatch" their electric systems, either because the generation owners receive service directly from pipelines or pay only nominal additional charges to an LDC. In other areas, additional charges for intrastate or LDC transportation must be added to yield the dispatch price of gas. These costs are based on the difference in historic Citygate and basin prices. Additionally, the monthly price profile of the referenced basin's natural gas futures contract is used to approximate the seasonality of the gas transportation price. Local Distribution Company Charges For those generators with gas delivered by an LDC, additional charges must be added. These charges were again estimated using data developed from relevant regulatory filings and other publicly available company information. The key generators receiving LDC gas service are California's electric generators. The LDC charges for each of these were estimated using 1996 charges. These charges were assumed to remain flat in nominal terms through the study horizon, based on data that has been published by the California Energy Commission. HESI assumes the utilities will not continue their current practice of recognizing only a small portion of their total transportation costs in their dispatch decisions; rather, the utilities will likely recognize their average transportation cost in each dispatch decision, or run the risk of substantial under-recovery of their transportation costs. Total Gas Costs The total cost of gas for each "gas price region" within the WSCC is developed by combining the above costs to yield a forecast of delivered gas prices. COAL HESI bases its coal prices on historic power plant specific coal price data extracted from the "Form 423's" utilities regularly file with the FERC. The Form 423 data include historic consumption D-16 as well as both spot and average (transportation and so-called fixed fees included) prices. Given the competitive nature of fuel supply markets and the current pricing of coal relative to gas, HESI expects no coal price escalation through the forecast period. HESI used spot coal prices to simulate the economic operation of coal plants. Spot prices are historically about 77 percent of average prices. 3.3.11 OPERATIONS & MAINTENANCE Power plant specific non-fuel O&M costs are reported by utilities in annual reports to the FERC in a number of separate accounts. HESI averages these data for the 1991 through 1995 time periods (normalized for constant year dollars) to develop average starting O&M costs. The amounts in these various accounts are then allocated between fixed and variable O&M. To derive a unit's fixed O&M cost, the total O&M cost is decreased by the variable O&M cost component. Both fixed and variable O&M costs are assumed to escalate with inflation. 3.3.12 PROPERTY TAXES Property taxes are set by local jurisdiction and so vary throughout the WSCC. In California they are 1.09 percent of remaining generation station book value. In other jurisdictions, the rates range from 0.4 percent to approximately 4 percent. For purposes of establishing the property tax component of going forward costs, jurisdictional tax rates will be used. 3.3.13 INSURANCE Insurance is calculated as 0.2 percent of the remaining, undepreciated book value of the power plant. 3.3.14 OTHER COSTS In addition to fuel costs, a power plant operator experiences other costs associated with the on-going business of producing power. These costs include O&M, property taxes and insurance. For the most part, these costs can be avoided if a facility is "mothballed" or retired, and thus are included in power plant bids when performing competitive market analysis. 3.4 WSCC TRANSMISSION SYSTEM CONFIGURATION In order to perform a study of the Southern California market prices likely to result from the PX, the operation of the transmission system in the entire WSCC region must be modeled. The transmission system configuration for this study is shown in Figure 3-1. This characterization reflects the zones proposed by the California IOUs in their PX applications to FERC. D-17 FIGURE 3-1 WSCC TRANSMISSION SYSTEM CONFIGURATION [GRAPHIC SHOWING WSCC TRANSMISSION SYSTEM CONFIGURATION] 3.5 HYDRO POWER 3.5.1 MEDIAN YEAR CASE HESI utilized average or median hydro conditions depending on the WSCC sub-region and the data available. The sources for these data follow. PACIFIC NORTHWEST (PNW) HYDRO DATA The hydroelectric generation in the PNW accounts for almost half of the hydro generation in the entire WSCC. HESI used the Bonneville Power Administration's (BPA) 1996 Pacific Northwest Loads and Resources Study to update hydroelectric data in the PNW. HESI calculated monthly capacity and energy values for each hydroelectric station in the PNW based on this data, choosing the median conditions from a recorded database of 50 years. HYDRO DATA FOR OTHER REGIONS Hydro data for the other regions come from a number of sources and are updated periodically by HESI. The WSCC Coordinated Bulk Power Supply Program document was used for the majority of the plant capacity data for plants outside the Northwest. This document is the WSCC's response to the Department of Energy's Form OE-411. It includes summer and winter capacity ratings for all of the existing hydro and thermal resources in the WSCC. The McGraw Hill Electrical World Directory of Electric Utilities (The "Bluebook") was the source of hydro plant energy data in a number of the WSCC regions. D-18 3.5.2 TRANSACTIONS HESI incorporates known firm, contracted power transactions into its model, as reported by the WSCC in the annual FERC Form OE-411 Filing. The transactions are reflected in the load requirements of the buying and selling utilities, in transactions between regions, and by adjusting the transmission capacity. Any remaining transmission capacity is used to facilitate additional power transactions between regions. D-19 SECTION 4 PX PRICE FORECAST: RESULTS The following sections summarize the model results from the Base Case and the two Low Gas price sensitivity cases. Gas prices are sensitized due to the fact that gas-burning generators will continue to be marginal cost producers and therefore a major influence on the PX price. Any additional baseload capacity, including the New Power Projects, would be low cost producers and price takers. Additional intermediate capacity will need to be flexible enough to accommodate hourly load fluctuations. The gas-fired combined-cycle and combustion turbines are the most flexible technologies to meet these needs cost-effectively. The role of these units and the impact of gas prices in setting the PX prices will increase over time making gas the ideal input to vary for sensitivity. To test this sensitivity two gas price downside cases are developed as described in the sections below. 4.1 BASE CASE 1999-2018 The Base Case annual average PX price forecast for the Southern California transmission area is presented in Table 4-1. Annual average PX prices decrease at an annual average of 0.18 percent per year from 1999 through 2001. This is the Transition period during which most market players bid selling prices into the market which reflect their short run marginal fuel costs. During this period, most IOU-owned generators receive payments for capacity from the ISO Must Run contracts, if in California, or through traditional tariffs, if outside of California. The capacity payments cease for most ISO-contracted Must Run generators by the end of 2001. After the AB 1890 Transition period ends in March 2002, the power pool should cease to behave as a marginal cost pool. We believe California generators will begin to recover some, though not all, of their fixed costs through their sales through the PX. However, they will continue to compete with out-of-state generators that continue to receive capacity payments through their regulated rates and may continue to bid as if the PX was a marginal cost pool. This change is reflected in the average PX price increasing from $28.16/MWh in 2001 to $33.99/MWh in 2002. TABLE 4-1 BASE CASE PX PRICE FORECAST 1999 -- 2018, $/MWH
ANNUAL AVERAGE AVERAGE AVERAGE OFF-PEAK ON-PEAK YEAR MCP $/MWH MCP $/MWH MCP $/MWH ---- --------- --------- --------- 1999 28.31 23.18 33.94 2000 28.19 23.49 33.42 2001 28.16 22.71 34.16 2002 33.99 26.73 41.98 2003 35.23 27.79 43.43 2004 36.82 28.80 45.65 2005 40.09 30.97 50.14 2006 39.91 31.02 49.68 2007 40.19 31.02 50.30 2008 43.05 32.17 55.02 2009 42.04 31.77 53.35 2010 43.48 33.03 54.99 2011 43.48 33.08 54.93 2012 43.26 33.10 54.45 2013 45.70 34.37 58.18 2014 45.89 34.95 57.93 2015 47.57 35.87 60.46 2016 47.79 35.67 61.12 2017 49.16 36.78 62.79 2018 50.31 37.19 64.75
D-20 From 2002 to 2005, California generators are exposed to the competitive market, but their out-of-state competitors continue to receive capacity payments. The average PX price increases at an annual average rate of 5.7 percent during this period. HESI assumes that the entire WSCC will be competitive starting in 2005 and that the bidding behavior of generators reflects their efforts to recover fixed costs through sales to the PX. The PX price increases from $40.09/MWh in 2005 to $50.31/MWh by 2018 -- an average rate of increase of 1.8% per year, which is less than the assumed rate of inflation. 4.2 SENSITIVITY CASES 4.2.1 LOW GAS 1 CASE In the Low Gas Case 1, the inflation rate is set at zero, thereby keeping the gas price flat relative to the Base Case. The gas price decreases each year to the point it is 10 percent below the Base Case. It was held at a constant 10 percent below the Base Case gas price in all remaining years of the analysis. This low gas scenario, while unlikely, could occur if there was an oversupply of gas, for which there was no market, followed by a lengthy period of recovery and market demand. A total of 6 simulations, representing the sample years listed in Table 4-2, were run to calculate the annual average PX prices for those years (intervening years can be interpolated). TABLE 4-2 PX PRICES UNDER LOW GAS CASE 1
BASE CASE LOW GAS 1 ANNUAL AVE ANNUAL AVE PERCENT BELOW BASE SAMPLE YEAR MCP $/MWH MCP $/MWH CASE PRICE ----------- --------- --------- ---------- 2000 28.19 27.92 1.0 2001 28.16 27.86 1.1 2005 40.09 38.70 3.5 2010 43.48 40.25 7.4 2014 45.89 42.89 6.5 2018 50.31 46.95 6.7
4.2.2 LOW GAS 2 CASE In the Low Gas Case 2, the Base Case gas price forecast is reduced by three percent each year from 1999 through 2004, so that by 2004 the gas price is 15 percent below the Base Case forecast gas price. The Low Gas 2 gas price is then held at a constant 15 percent below the Base Case gas price for the remaining years of the analysis. This scenario also requires an oversupply of gas or a dramatic decline in demand followed by a lengthy period of recovery. A total of 6 simulations, representing the sample years listed in Table 4-3, were run to calculate the annual average PX prices for those years. TABLE 4-3 PX PRICES UNDER LOW GAS CASE 2
BASE CASE LOW GAS 2 ANNUAL AVE ANNUAL AVE PERCENT BELOW BASE SAMPLE YEAR MCP $/MWH MCP $/MWH CASE PRICES ----------- --------- --------- ----------- 2000 28.19 27.23 3.4 2001 28.16 26.47 6.0 2005 40.09 35.58 11.0 2010 43.48 38.47 12.0 2014 45.89 39.98 13.0 2018 50.31 43.31 14.0
D-21 SECTION 5 THE POWER PROJECTS AND THE CALIFORNIA MARKET 5.1 MARKET ANALYSIS RESULTS This section presents an analysis of the Power Projects and their position in the competitive California market and consists of two sets of comparisons: 1) a comparison of unit operating cost estimates provided by CEG and operating costs of other types of generation; 2) a comparison of Power Project operating costs and forecasted PX prices. The latter set of comparisons were performed using the Base Case and two Low Gas price cases. We expect all of the Power Projects to be low cost producers in all years of the study. Table 5-1 lists the average operating costs projected in 2005 for several categories of generators in the WSCC region including the Power Projects. We selected the year 2005 for this analysis as it is the first year in which we assumed a fully competitive market. The average operating cost of the Power Projects in 2005 is $17.50/MWh -- which makes them low cost producers. In fact, about 66 percent of the electricity produced in the WSCC in 2005 is generated from units with higher costs, a strong indication that the Power Projects will be dispatched as baseload. The new units, Salton Sea Unit V and the CE Turbo Project, are even better positioned at $10.00 and $9.30 per MWh respectively. Of all the generation in the region, only hydroelectric generators have lower operating costs. TABLE 5-1 AVERAGE OPERATING COSTS BY PLANT TYPE IN THE WSCC FROM PROSYM MODEL SIMULATION IN 20051
ELECTRICITY AVERAGE OPERATING PLANT TYPE GENERATION (GWH) COST ($/MWH)2 ---------- ---------------- ------------- Internal Combustion Engines ......... 62 62.22 Gas Turbine ......................... 26,177 39.94 Geothermal (3)....................... 18,890 37.49 Gas/Cogeneration .................... 21,917 26.85 Gas/Combined Cycle .................. 151,804 25.41 YUMA COGENERATION ................... 351 23.70 Other Renewables (4)................. 6,737 23.29 Steam Plants ........................ 335,527 18.21 THE POWER PROJECTS (5)............... 2,879 17.50 Nuclear ............................. 35,885 13.33 Wind ................................ 3,435 10.45 SALTON SEA UNIT V (5)................ 421 10.00 CE Turbo Project (5)................. 82 9.30 Hydroelectric ....................... 246,434 4.91(7) Total ............................... 846,867(8)
---------- [1] The table displays operating cost by plant-type for various plant categories in the Prosym simulation results. The values shown are for the simulation year 2005 and are stated in nominal dollars. These values reflect expenses for fuel and variable operation and maintenance only. They do not include costs associated with fixed operation and maintenance, the inclusion of which would increase overall costs for some plants substantially. For example, inclusion of fixed operation and maintenance in the nuclear category would increase the cost reported in the Table from $13.33/MWh to $34.00 /MWh. In as much as it is presently unclear what portion of fixed costs will be recovered in the competitive market and under what conditions, the Table should be viewed as a conservative representation of the operational costs of these plants. [2] Cost based on fuel and variable O&M in nominal dollars. [3] The operating costs of the Geothermal category reflect the fact that many of the utility-owned geothermal facilities have long term steam contracts with steam suppliers. In the case of the Power Projects, the steam supply and facility owners are all Guarantors. [4] Includes solar, biomass, and other renewables. [5] Based on weighted facility operating cost (includes fuel, variable O&M and fixed O&M) and consists of Salton Sea Units 1-5, Elmore, Leathers, Del Ranch, Vulcan, and CE Turbo Project. Source: IPP Co. [6] Cost based on average aggregated operating expenses of hydroelectric facilities in the WSCC as reported to FERC on FERC Form 1. [7] The generation totals in bold are not included in the total, but are included in the total geothermal production. They are listed here to provide relative scale to the market. D-22 Operating Costs of the Power Projects, in $/MWh, are compared to the Base Case annual average PX prices in the figures below. All units have operating costs below the annual average PX price, with the exception of the Leathers unit, which has an operating cost above the annual average PX price in the first year. This occurrence is because 1) Leathers is still in the S04 fixed price energy period, and 2) certain costs such as geothermal royalties are directly linked to revenues. In fact, all of the Power Projects' operating costs are close to the off-peak PX price in 1999 through 2002 and significantly below that in all years thereafter. FIGURE 5-1 PX PRICES AND PROJECT OPERATING COSTS, UNITS I TO IV [LINE CHART SHOWING PX PRICES AND OPERATING COSTS FOR UNITS I TO IV] FIGURE 5-2 PX PRICES AND PROJECT OPERATING COSTS, OTHER UNITS [LINE CHART SHOWING PX PRICES AND OPERATING COSTS FOR OTHER UNITS] D-23 FIGURE 5-3 PX PRICES AND NEW POWER PROJECT OPERATING COSTS [LINE CHART SHOWING PX PRICES AND OPERATING COSTS FOR NEW PROJECTS] FIGURE 5-4 PX PRICES AND YUMA OPERATING COSTS [LINE CHART SHOWING PX PRICES AND OPERATING COSTS FOR YUMA PROJECT] Most important is the comparison between the PX prices and the New Power Projects, Salton Sea Unit V and CE Turbo Project as shown in Figure 5-3. These units are about $20/MWh lower than the PX prices in 2000 and 2001, a difference that increases to $30/MWh in 2005 and to nearly $40/MWh by 2018. The margin is so significant it is extremely unlikely that any new generators with lower operating costs will be built. It is very unlikely that any significant hydro generation capacity, even with lower operating costs, due to siting and licensing difficulties. Thus, we conclude that the New Power Projects will have operating costs lower than all other generator types, except hydro, and will be extremely well-positioned to be dispatched any hour in the year. The differential between PX prices and operating costs is perpetuated in the Low Gas Price Cases -- namely, operating costs are well below the PX prices. PX prices in the Low Gas Case 1 range between $27.92/MWh in 2000 to $46.95/MWh in 2018. In Low Gas Case 2, forecast PX prices range from $27.23/MWh in 2000 to $43.31/MWh by 2018. 5.2 PX PRICES AND THE MARKET POSITION OF THE POWER PROJECTS For an additional perspective of the relative position of the Power Projects in the market, a table summarizing the frequency of PX prices (Marginal Prices) is developed. This approach captures more D-24 of the hour by hour price variability than the preceding results. First, the hourly PX price results from the Base Case year 2005 are ranked from highest to lowest. From this, the frequency of price levels (i.e. the percentage of hours in which the price is at, or above, a given level) is developed. The analysis for 2005 indicates that in 96 percent of the hours the PX price is greater than, or equal to, $20.30/MWh. This means that the Power Projects, with an average operating cost of $17.50/MWh will be below the PX price 96 percent of the time. TABLE 5-2 PX PRICE FREQUENCY ANALYSIS IN SOUTHERN CALIFORNIA TRANSMISSION AREA, 2005
MINIMUM% OF PX PRICE TIME $/MWH ---- ----- 70 28.73 75 25.65 80 24.12 85 23.15 90 21.73 95 20.68 96 20.30
D-25 SECTION 6 THE CALIFORNIA GREEN POWER MARKET AND ITS IMPLICATIONS FOR THE POWER PROJECTS The sweeping regulatory changes initiated by Federal and California regulators present significant opportunities for providers of electricity from renewable energy sources. HESI believes a number of emerging market factors bode well for the most efficient renewable energy projects in general including the Existing Projects and the New Power Projects in particular. These factors are listed and discussed below. First, however, this section presents a brief summary of the renewable funding programs. 6.1 CEC RENEWABLE RESOURCE FUNDING AB 1890 established a $540 million fund to promote and develop renewable energy projects and directed the CEC to administer and distribute the funds. In response, the CEC established four separate accounts to deliver these funds over the period January 1, 1998 to January 1, 2002. Each account has been allocated a fixed percentage of the total fund and a different distribution mechanism is used for each account. The four accounts and the amount of funds allocated to each are shown in Table 6-1. TABLE 6-1 AB 1890 ACCOUNTS -- TOTAL FUNDING ALLOCATIONS BY TECHNOLOGY, $MILLIONS
TECHNOLOGY $MILLIONS ---------- --------- Existing Technologies .......... 243 New Technologies ............... 162 Emerging Technologies .......... 54 Consumer-Side .................. 81 Total .......................... 540
Source: Policy Report on AB 1890 Renewables Funding, Report to the Legislature, California Energy Commission, March 1998. The "existing" and "new" categories are the most important, accounting for 75% of the total fund disbursement. Further, these accounts are applicable to the majority of active or economically feasible renewable energy projects in California, including the New and Existing Projects. An existing technology refers to a facility that started operation prior to September 23, 1996 and a new technology means a facility that started generation on or after September 26, 1996 but before January 1, 2002. Existing facilities that are substantially refurbished on or after September 23, 1996 can apply for funding from the new technology category. However, the non-refurbished portion of the facility cannot exceed 20% of the refurbished facility's total value. The "emerging" category is restricted to projects using small wind turbines of 10 kW or less, fuel cell technology and solar power -- both photovoltaic and solar thermal. A total of $54 million has been allocated to the emerging technology account -- $10.5 million of which became available on March 20 on a first-come, first-served basis. The consumer-side account is designed to promote customer participation in the renewable energy market. This fund has been allocated $81 million in total, which in turn is divided between two sub-accounts: a customer credit account; which has been most of the consumer-side funds, and secondly, a consumer information account. 6.2 EXISTING RENEWABLE RESOURCE ACCOUNT The Existing Renewable Resource Account was designed to help maintain existing renewable technologies during the first four years of the electric industry restructuring. The total amount of funds allocated to the existing renewable account is $243 million, which is divided among three tiers. D-26 Existing technologies are assigned to a tier according to their cost characteristics and potential for further cost efficiencies. Tier 1 contains biomass and solar thermal technologies and is allocated 25% of the total existing renewable account. Wind generation is placed in Tier 2 and is allocated 13% of the total. Tier 3 is allocated 7% of the existing renewable fund total and consists of geothermal, small hydro, digester gas, and municipal solid waste and landfill gas technologies. TABLE 6-2 EXISTING RENEWABLE RESOURCE ACCOUNT ALLOCATIONS BY TIER, $MILLIONS
TIER 3 -- TIER 1- BIOMASS, TIER 2 -- GEOTHERMAL, SMALL SOLAR, THERMAL WIND HYDRO, OTHERS TOTAL -------------- ---- ------------- ----- $ 135 $ 70.2 $ 37.8 $243
Source: Policy Report on AB 1890 Renewables Funding, Report to the Legislature, California Energy Commission, March 1998, page ES-8. The amount of funds available annually to each tier declines over the four year period. The CEC expects renewable generation facilities to become more cost efficient and therefore more competitive as the unregulated market evolves. The subsidy is distributed monthly to renewable energy suppliers through a cents per kWh payment. However, the payment is based on the lowest of three possible calculations: the difference between a target price and the market clearing price (the SRAC specific to each IOU is used as a proxy for the market clearing price at present), a pre-determined cents per kWh price cap, and a funds adjusted price (the adjustment ensures that the amount disbursed does not exceed the amount of funds available). The CEC designated target price and price cap for existing technology tier 3 geothermal facilities are 3.0 and 1.0 cents per kWh, respectively. Thus the Existing Projects benefit from these subsidies on a cent per kWh basis to the extent that the SRAC is below 3 cents per kWh. SRAC prices applicable to Southern California Edison have recently been in the 2.7 to 3.1 per kWh range. 6.3 NEW RENEWABLE RESOURCE ACCOUNT The New Renewable Resources Account contains $162 million to support new renewable electricity generation projects. According to the AB 1890 legislation, "new" in this context means a renewable energy facility located in California that became operational on or after September 23, 1996, but prior to January 1, 2002. As Table 6-3 shows, the proportion of total funds devoted to new technologies increases from $32.4 million in 1998 to $48.6 million by 2001. TABLE 6-3 NEW RENEWABLE RESOURCE ACCOUNT ALLOCATIONS BY YEAR, $MILLIONS
1998 1999 2000 2001 TOTAL ---- ---- ---- ---- ----- New Renewables .......... $ 32.4 $ 37.8 $ 43.2 $ 48.6 $162
Source: Policy Report on AB 1890 Renewables Funding, Report to the Legislature, California Energy Commission, March 1998, page 33. The full $162 million allocated to new renewable energy technologies was disbursed in a single auction held in July of this year. Auction participants were required to submit "bids" -- a cents per kWh subsidy -and an estimate of project generation over a 5 year period (however, acceptable bids were capped at 1.5 cents per kWh). The fund was then allocated from lowest to highest bidder until it was exhausted. Winners will receive a payment for renewable electric generation produced and sold in the first five years of project operation. The New Power Projects were awarded $31.3 million in this auction, one of the largest subsidies granted by the CEC. This subsidy directly and positively impacts the ability of the New Power D-27 Projects to produce competitively priced power. HESI also notes that the award is a strong indication that the New Power Projects are among the lowest unit cost producers of new renewable energy in California. 6.4 EMERGING RENEWABLES ACCOUNT The purpose of the emerging renewable subsidy or Buy-Down Program is to reduce the cost to consumers of certain renewable energy generation equipment. Four types of renewable power generation are eligible for these funds: small wind turbines of 10 kilowatts or less, fuel cells that convert renewable fuels such as methane gas into electricity, and solar power -- both photovoltaic (PV) and solar thermal. The first $10.5 million of the total $54 million allocated to this fund became available March 20, 1998 from the CEC on a first-come, first-served basis. 6.5 CONSUMER-SIDE INCENTIVES The consumer-side account is designed to promote customer participation in the renewable energy market. This account was allocated $81 million, or 15% of the total fund. These funds in turn have been allocated to two sub-accounts, a customer credit account, which has most of the allotted funds, and secondly, to a consumer information account. The customer credit account provides "credits" to consumers who purchase CEC-registered renewable power that satisfy certain eligibility criteria. Through this program, residential and small commercial customers' electricity bill who purchase renewable energy will automatically be credited up to 1.5 cents for every kilowatt-hour of renewable electricity they consume up to the total fund amount of $75.6 million. Funds for customer credits were distributed in early 1998. For at least the first two years, payments to some customers have a ceiling of $1,000 per year per customer. This program directly reduces the retail cost of renewable energy and thus makes power produced by the New Power Projects more attractive to customers who otherwise would not have purchased renewable-based power. The $5.4 million consumer information account is to fund a renewable energy public information program. The objective of the program is to help build a viable customer-driver market for renewable energy through consumer education. 6.6 DISCUSSION OF GREEN POWER MARKET BENEFITS The New Power Projects can earn the market clearing price by selling power directly into the PX. However, an alternative marketing strategy exists -- tapping into the retail market by selling directly to green power marketers. Based on our analysis, we believe this option may reap additional benefits for the New Power Projects. This section of the report discusses the potential benefits to the New Power Projects from participation in the California green power energy market. Surveys consistently show that 40 to 70 percent of California residential customers are willing to pay a 5 to 15 percent premium for green power products.(1)(3) Current retail premiums for green power products range from about 0.7 to 3.1 cents per kWh, depending upon the percentage of renewable energy contained in the resource mix. Assuming that 50 percent of the New Power Projects' output is sold into the green power market and that 2.5 cents per kWh can be obtained from such sales, assumptions we believe to be reasonable, the New Power Projects would earn additional revenue of approximately $6.5 million a year. ---------- (3) See, for example a summary of customer survey results in "Selling Green Power in California: Product, Industry, and Market Trends," by Ryan H. Wiser and Steven J. Pickle, Ernest Orlando LawrenceBerkeley National Laboratory, University of California, Berkeley, California, May 1998, page 5. D-28 A study by the Lawrence Berkeley Laboratory2(4) estimates that between 25 to 60 thousand households will have switched to a green power energy source by the end of 1998.(3) However, expectations among renewable energy marketers are much higher. In proceedings before the California Energy Commission, marketers suggested that the number of customers switching to a renewable energy source could reach as high as 175,000 households within the first twelve months. The study also suggests that a combination of rising consumer demand for renewable energy and a scarcity of renewable energy projects will result in a higher renewable energy price premium in the near future. This situation is likely to continue until higher cost renewable projects are developed and eventually brought on-line. While California possesses a large amount of renewable generation, the significant majority of it is either tied up in long term contracts with the IOUs or is owned outright by them and thus not available to the green power market in the near term. Consequently, the short-term supply of non-utility renewable energy available to marketers is very small -- perhaps no more than 200 MW.(4) Because of this situation, new renewable resource projects that can offer competitively priced power, such as the New Power Projects, will likely be in a position to capture a significant portion of the rising premiums that are excepted in the near future. Further, the improved market position of low cost renewable energy providers is also likely to be reflected in more attractive contract terms. According to the Lawrence Berkeley Laboratory report, the majority of green power marketers expect contracts of one to five years to become the standard within 5 years.(5) Contracts with existing renewable energy providers are, in contrast, generally two years at a maximum. In conclusion, the California green power market can potentially provide significant additional benefits to the New Power Projects above and beyond the proven financial return these plants can earn dealing through the PX market. CEG has indicated to HESI that while it intends to fully exploit the green power market, none of the anticipated benefits discussed in this section have been reflected in its analysis. ---------- (4) The Ernest Orlando Lawrence Berkeley National Laboratory (Berkeley Lab) is a multi-program national research facility operated by the University of California for the Department of Energy (DOE). Its fundamental mission is to provide national scientific leadership and technological innovation in support of DOE's objectives. Founded in 1931, it is the oldest of the national laboratories. The Laboratory specializes in research related to technology and the environment, such as advanced materials science, life sciences, energy efficiency and energy supply, and nuclear physics. The Berkeley Lab has been awardednine Nobel prizes in the fields of physics and chemistry for this research. (5) IBID, page 5. (6) IBID, page 26. In comparison, the CEC estimates about 500 MW. See "Policy Report on AB 1890 Renewables Funding:Report to the Legislature," 1997. (7) IBID, page 27. D-29 APPENDIX A SCE SRAC FORECAST SCE'S SRAC FORECAST FOR 1995 THROUGH 2015 CENTS/KWH
YEAR LOW MEDIAN HIGH ---- --- ------ ---- 1995 .......... 2.41 2.41 2.41 1996 .......... 2.48 2.51 2.54 1997 .......... 2.55 2.60 2.68 1998 .......... 2.72 2.83 2.97 1999 .......... 2.91 2.99 3.28 2000 .......... 3.11 3.22 3.60 2001 .......... 3.30 3.46 3.91 2002 .......... 3.42 3.59 4.13 2003 .......... 3.52 3.72 4.36 2004 .......... 3.62 3.88 4.61 2005 .......... 3.72 4.11 4.86 2006 .......... 3.83 4.31 5.16 2007 .......... 3.95 4.44 5.48 2008 .......... 4.06 4.59 5.82 2009 .......... 4.18 4.74 6.19 2010 .......... 4.31 4.89 6.59 2011 .......... 4.43 5.06 7.07 2012 .......... 4.57 5.22 7.60 2013 .......... 4.70 5.40 8.16 2014 .......... 4.84 5.58 8.76 2015 .......... 4.99 5.76 9.41
D-30 APPENDIX E ASSESSMENT OF THE RESOURCE SUPPLYING GEOTHERMAL FACILITIES AT SALTON SEA, CALIFORNIA FOR CE GENERATION, LLC OMAHA, NEBRASKA BY GEOTHERMEX, INC. RICHMOND, CALIFORNIA FEBRUARY 1999 E-1 EXECUTIVE SUMMARY Introduction Presented herein are the review and analyses (the "Report") by GeothermEx, Inc. ("GeothermEx") of the long-term resource sufficiency of the Salton Sea Known Geothermal Resource Area (the "Salton Sea Field") to supply geothermal resource to existing and proposed power plants and a proposed zinc recovery facility. CalEnergy Company, Inc. ("CECI"), has established CE Generation, LLC ("CEG") to issue notes and bonds to investors which are supported by revenue produced by the power plants which are as follows: o Salton Sea Guarantors: Salton Sea Units I, II, III and IV ("Salton Sea Projects"), including the construction of Salton Sea Unit V; o Partnership Guarantors: partnership interests in the Vulcan, Del Ranch (Hoch), Elmore and Leathers Projects (the "Partnership Projects"), including certain royalty and other payments; and o Royalty Guarantor: Royalty interests paid by the Royalty Projects consisting of three of the Partnership Projects. Affiliates of CEG are constructing two additional power facilities at the Salton Sea: 1) Unit V, a 49 MW (net) facility; and 2) the CE Turbo Project, a 10 MW (net) facility. A third project, a zinc recovery facility, is being constructed by a CECI affiliate. Collectively, these are the "New Projects." GeothermEx has prepared this report as an independent resource consultant for CEG and for future potential bondholders. Scope of Work and Assumptions GeothermEx has reviewed the behavior of the wells and resource supplying the existing geothermal power plants in the Salton Sea Field, located in Imperial County, California. Well locations are shown in figure 1. The purposes of this report are: 1) to assess the long-term resource sufficiency and suitability for supplying the existing plants and the proposed additional facilities mentioned above and 2) to assess the reasonableness of the projected workover and wellfield capital budget for the program. In the preparation of this report and the opinions expressed, GeothermEx has made certain assumptions about conditions which may exist or events which may occur in the future. The principal assumptions and considerations made and the database used by GeothermEx in developing the results and conclusions presented in this report are described below. GeothermEx has provided several due-diligence evaluations for the Salton Sea Projects and the Partnership Projects. These have included evaluations prepared in 1995 and 1998 in support of the first and third bond offerings of Salton Sea Funding Corporation ("Funding Corporation"). As such, GeothermEx holds a large amount of information on the Salton Sea wells, which has been presented in numerous technical reports in the past. For the current study, CEG provided updated production and injection histories from the California Division of Oil, Gas, and Geothermal Resources (CDOGGR), new chemical analyses, information on the drilling and logging of recent wells, and budget information for future wellfield expenditures. Together, all of this information constitutes the database used in the present study. Reports that have formed a significant part of GeothermEx's current evaluation are included in the document list in section 5. GeothermEx has independently reviewed and relied upon data from the Salton Sea Field supplied by CEG, in addition to other data mentioned above. In our opinion, the data is reliable and accurate, based on our extensive knowledge of the resource and the history of operations at the Salton Sea Field. E-2 Conclusions Based upon our review and the considerations and assumptions set forth above, we have reached the following conclusions: o The Salton Sea Field is highly productive and wells have historically behaved favorably with minimal flow rate or pressure declines. o The proposed Unit V will utilize the heat energy in reinjection brine which is presently separated from the steam supplying Units I -- IV. The nominal additional production fluid needed for Salton Sea Unit V will be supplied from existing wellhead capacity. o The nominal additional production fluid needed for the CE Turbo Project can be supplied by spare capacity at existing wells. In addition, a new production well is planned and budgeted for drilling in 1999. o Numerical simulation studies undertaken to date forecast acceptable well behavior for the existing and planned level of power generation and zinc recovery. Well behavior has historically been consistent with results predicted by earlier simulation models; therefore, future well behavior is expected to be adequate to support the Salton Sea, Partnership and New Projects. o The recoverable geothermal energy reserves from the reservoir are more than sufficient to support existing projects and the planned additional increments of capacity resulting in a total capacity of 326.4 MW. We estimate that 1,200 MW of reserves are available within the portion of the Salton Sea Field dedicated to the Salton Sea, Partnership and New Projects. o The recoverable reserves of geothermal energy will not be affected by either the planned capacity expansion or the zinc recovery project. o In unescalated dollars, CEG's projected budget through 2020 includes $70.4 million for wellfield capital (new wells, re-drills, and tie-ins) and $38.4 million for well workovers. The budget for wellfield costs is reasonable and should allow the CEG facilities to achieve the forecasted levels of electrical generation and zinc production. 1. OVERVIEW AND DESCRIPTION OF THE SALTON SEA GEOTHERMAL FIELD 1.1 DEVELOPMENT HISTORY AND PRESENT STATUS CEG and its subsidiaries own and operate eight geothermal power plants and propose to develop two additional power plants in the Salton Sea Field. The plant names, capacities and start-up dates are listed below.
PLANT NAME CAPACITY (NET MW) START-UP DATE ---------- ----------------- ------------- Vulcan 34.0 1986 Del Ranch (Hoch) 38.0 1989 Elmore 38.0 1989 Leathers 38.0 1990 Unit I 10.0 1982 Unit II 20.0 1990 Unit III 49.8 1989 Unit IV 39.6 1996 Unit V 49.0 2000(planned) CE Turbo Project 10.0 2000(planned) ----- Total 326.4
E-3 1.2 NEW PLANTS Salton Sea Unit V is scheduled to start-up in 2000, concurrently with a facility to recover zinc from the geothermal brine. The CE Turbo Project is scheduled for start-up in mid-2000. The third of the New Projects is the 30,000-metric-tonne zinc recovery facility. Satellite process facilities will be located at four existing power plant facilities: Leathers, Elmore, Vulcan/Hoch and the Region 1 (Units I -- V) brine processing facility. These sites will be connected by pipelines to the central processing facility, which will process the solution from the satellite plants into a final marketable product of metallic zinc. 2. WELL BEHAVIOR 2.1 HISTORICAL A total of about 130 production or injection wells have been drilled within the Salton Sea field to date. Production and injection histories were obtained from the archives of the CDOGGR, which receives monthly average flow rate (or injection rate), wellhead pressure and wellhead temperature from the field operators. GeothermEx has adjusted the production and injection rates from the CDOGGR archives to reflect actual steam usage rates as reported by the CEG facilities. To the best of our knowledge, this information represents the most consistent and complete production and injection database available. There are 31 active production wells in the Salton Sea field with an average capacity of 9 MW per well, which exceeds the US industry average. The plants are often operated at higher levels than their net capacity ratings, and many of the wells are routinely operated in a throttled condition that does not draw on their full capacity. Both the production and injection wells have been worked over periodically because of scaling and corrosion. In general, these workovers have helped to maintain the productivity and injectivity of the wells; however, as in most geothermal projects, it has been necessary to redrill some wells because of mechanical problems which sometimes occur during a workover operation, or because of other mechanical damage. Despite the need for workovers and/or redrills, the project wells have behaved very favorably to date. Flow rate declines have been small, and many wells have excess capacity. In May 1996, output from the field was increased when new wells were brought on line to supply Unit IV. As shown in figure 2, production and injection rates have been relatively stable since then. 2.2 ANTICIPATED WELL AND FIELD BEHAVIOR It will be shown in the following chapter of this report that the recoverable geothermal energy reserves are more than sufficient to support the existing projects and the New Projects. While it is a necessary condition, adequacy of geothermal reserves by itself does not guarantee commercial success of a geothermal project. Future behavior of the field, in general, and the wells, in particular, will dictate how much of these reserves can be economically recovered. As mentioned above, the wells have behaved very favorably to date, and CEG is using numerical modeling to forecast and optimize future well and field behavior under various operating scenarios. GeothermEx independently developed a numerical simulation model of the Salton Sea field in 1997and 1998, and CEG independently developed a numerical simulation of the Salton Sea Field in 1998. These models are used to evaluate future well and reservoir behavior in response to production and injection under specified scenarios, including the modification of injection well locations to optimize zinc recovery, and the additional production required to supply Unit V and the CE Turbo project. CEG developed and utilizes its model as a reservoir management tool, to maximize both power production and zinc recovery from the field. The CEG model incorporates the most recent production and injection data, as well as current development and operational plans. The results of E-4 both modeling efforts indicate that the existing and planned production facilities can be supported by the existing wells (maintained as needed) and by those budgeted wells which may be drilled in the near future. 3. RECOVERABLE GEOTHERMAL ENERGY RESERVES This study confirms that there are sufficient geothermal energy reserves to support the existing projects and the New Projects. For calculating the reserves, the area under consideration includes the acreage dedicated to Units I -- V, and the Vulcan, Del Ranch (Hoch), Elmore and Leathers units. This is referred to herein as the "Subject Area". The first step in making a volumetric reserve estimate is to calculate the heat energy in place within the subject area using the subsurface temperature distribution. The volume considered is an irregular block confined by the downward vertical projections of the boundaries of the subject area between elevations of -1,500 feet and -6,500 feet (msl). The volume of reservoir considered is also limited by temperature constraints; the minimum acceptable temperature used herein is 380 degreesF. Certain assumptions were then made regarding the recoverability of the heat-in-place, the efficiency of converting heat energy to electrical energy, and the annual plant capacity factor. The methodology is described in detail below. Reserves in a geothermal area can be expressed as the maximum electric power plant capacity that can be supplied commercially for 30 years. Volumetric calculation of reserves requires estimation of four parameters: 1. Gross thermal energy in place (H, Btu); 2. Fraction of the gross in-place thermal energy that can be recovered commercially (recovery factor, R); 3. Fraction of recoverable thermal energy that can be converted to electrical energy (conversion efficiency, E); and 4. Power plant load factor (F). Using the above-defined quantities, the maximum sustainable power plant capacity is expressed as: H o R o E MW = 1.11 x 10-12 --------- F (1) where MW= average gross MWe over 30 years. We can calculate the gross heat in place as: H = (Cvr + Cvb) V (T -- To) (2) where Cvr = volumetric specific heat of rock (Btu/ft3/degreesF) Cvb = volumetric specific heat of brine (Btu/ft3/degreesF) V = reservoir bulk volume (ft3), T = average reservoir temperature (degreesF), and To = a reference or base temperature (degreesF). Within the Subject Area, the volume of rock with temperatures exceeding 380 degreesF (parameter V in equation 2 above) was calculated to be 1.26 x 10(12) cubic feet. Average temperature (T) was estimated to be 522 degreesF on the basis of the subsurface temperature distribution. In equation (2), Cvr = Pr Cr (1-- o NS) (3), and Cvb = Pf Cf - o NS (4), where Pf = bulk density of reservoir fluid, E-5 = 60 lbs/ft(3) Cf = specific heat capacity of reservoir brine, = 0.85 Btu/lb/ degreesF, P = reservoir porosity, = 20%; Pr = bulk density of rock matrix, = 168 lbs/ft3; Cr = specific heat capacity of rock matrix, = 0.255 Btu/lb/ degreesF; and NS = net sand fraction = 0.35. Using the above estimates of the various parameters, the heat in place (H) is calculated for the subject area using equation 2: H = 5.84 x 10(13) (522 -- To) Btu for the subject area. (5). Now the parameters R (recovery factor), E (conversion efficiency) and F (power plant capacity factor) need to be estimated to complete the calculation of gross MW available for 30 years. We assume a conversion efficiency of 15%, which is typical for power plants like those presently in operation at Salton Sea, and a capacity factor of 85%. The recovery factor (R) cannot be readily estimated as it depends critically on the degree of heterogeneity in the reservoir, whereas the model used for volumetric reserve estimation is assumed to be homogeneous. For the purpose of volumetric reserve estimation, the following approach was considered to estimate an approximate value for R. In this case, R is estimated to be 0.35, based on the reasonable assumptions that: (a) 35% of the reservoir bulk volume is permeable because the average sand fraction in the Salton Sea reservoir is 35%; (b) there is no in-situ boiling; and (c) the injected water can cool the entire porous and permeable volume (sand layers) of the reservoir (including the sand grains) to T0 (here assumed to be the temperature of the power plant waste water, or 225 degreesF). We have conservatively assumed essentially no heat recovery from shale for our single-phase heat extraction model. This assumption is balanced to some degree by assuming that there is 100% sweep of all sand layers by injection water. Our analysis is that 30-year energy reserves of 1,200 MW were calculated for the subject area. A total capacity of 267.4 MW has been installed to date and another 59 additional MW (Salton Sea Unit V and the CE Turbo Project) are planned, resulting in a total capacity of 326.4 MW. Accordingly, our analysis indicates that the energy reserves are more than sufficient to support the existing and planned facilities within the subject property. 4. REVIEW OF FUTURE WELLFIELD COSTS CEG's estimate of projected wellfield costs includes two components. The first component is wellfield capital, which comprises new production wells, new injection wells, and tie-ins for these wells (that is, connections from the wellheads to the gathering system pipelines). The second component is workovers (that is, repairs of existing wells to correct such problems as wellbore scaling or casing damage). Figure 3 shows the projected annual expenditures for these components through the year 2020. The dollar values in figure 3 and in the following discussion are in unescalated 1998 dollars. The total projected budget for wellfield costs from 1999 to 2020 is $108.8 million, of which $70.4 million is for wellfield capital and $38.4 million is for workovers. Wellfield costs are expected to be higher in the first three years (through 2001), reflecting the planned drilling of several new production wells with titanium casing and several new injection wells. Workover costs are also E-6 somewhat higher in the first few years, reflecting continuing repairs to older wells with carbon steel casing that are being gradually replaced by new wells. The titanium casing in the new production wells is less prone to wellbore scaling, and the injection water after start-up of the zinc extraction facilities is expected to have less entrained solids, which should extend the lives of the injection wells. For these reasons, annual workover expenditures after the first few years of the project life are expected to be lower. GeothermEx agrees with this conclusion. New production wells with titanium casing are expected to cost about $4 million each. New injection wells are expected to cost somewhat less (about $2.5 million each) because they do not require titanium casing. A re-drill (that is, a well drilled to a new down-hole location from an existing wellhead) is expected to cost about $0.8 million. The number, timing, and location of new wells during the project life will depend on field performance. However, the projected budget contains sufficient funds for roughly 10 new producers, 10 new injectors, and 8 re-drills, including the costs of tie-ins for these wells. In GeothermEx's opinion, the budget amounts are reasonable estimates for the forecasted levels of electrical generation and zinc production over the next 20 years. 5. DOCUMENT LIST ADA International Consulting, Ltd., "TETRAD Version 12.0 User's Manual." Calgary, Alberta, Canada. Reservoir simulation software. California Division of Oil, Gas, and Geothermal Resources, "Monthly Reports of Geothermal Operations." Production and injection statistics for Salton Sea wells. CE Generation, LLC -- maps of existing and proposed well locations in Salton Sea Field -- recent production and injection statistics for Salton Sea wells -- database of chemical analyses from Salton Sea wells -- input deck for CEG's numerical simulation of Salton Sea Field using TETRAD software -- Imperial Valley Capital Expenditures by Year (budget forecast of wellfield costs) GeothermEx (1995), "Assessment of the Geothermal Resource Underlying Geothermal Power Projects, Salton Sea Geothermal Field, California." Report prepared for Salton Sea Funding Corporation, Omaha, Nebraska. GeothermEx (1998), "Assessment of the Resource Supplying Geothermal Facilities at Salton Sea, California." Report prepared for Salton Sea Funding Corporation, Omaha, Nebraska. E-7 [MAP OF THE SALTON SEA GEOTHERMAL AREA] E-8 [LINE CHART SHOWING HISTORICAL PRODUCTION RATE] [LINE CHART SHOWING HISTORICAL INJECTION RATE] E-9 FIGURE 3. PROJECTED EXPENDITURES FOR WELLFIELD CAPITAL AND WORKOVERS AT CE GENERATION'S GEOTHERMAL FACILITIES AT SALTON SEA, CALIFORNIA [BAR GRAPH SHOWING PROJECTED EXPENDITURES FOR WELLFIELD CAPITAL AND WORKOVERS] E-10 ADDRESS OF EXCHANGE AGENT: CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION 101 CALIFORNIA STREET, NO. 2725 SAN FRANCISCO, CALIFORNIA 94111 TELEPHONE: (415) 954-9508 FAX: (415) 693-8850 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS CE Generation, LLC, a Delaware limited liability company, is empowered by Section 18-108 of the Delaware Limited Liability Company Act, subject to the procedures and limitations stated therein, to indemnify any person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding in which such person is made a party by reason of his being or having been a director, officer, employee or agent of CE Generation, LLC. The statute provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any agreement, vote of members or disinterested directors or otherwise. The limited liability company operating agreement of CE Generation, LLC provides for indemnification of the managers, officers and directors of CE Generation, LLC to the full extent permitted by the Delaware Limited Liability Company Act. MidAmerican Energy Holdings Company maintains an insurance policy providing for indemnification of the officers and directors of its subsidiaries against liabilities and expenses incurred by any of them in certain stated proceedings and under stated conditions. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- -------------------------------------------------------------------------------------- 3.1* Certificate of Formation of CE Generation, LLC 3.2* Limited Liability Company Operating Agreement of CE Generation, LLC 4.1* Indenture, dated as of March 2, 1999, by and between CE Generation, LLC and Chase Manhattan Bank and Trust Company, National Association 4.2* Form of First Supplemental Indenture to be entered into by and between CE Generation, LLC and Chase Manhattan Bank and Trust Company, National Association, Trustee 4.3* Purchase Agreement, dated February 24, 1999, by and among CE Generation, LLC, Credit Suisse First Boston Corporation and Lehman Brothers, Inc. 4.4* Exchange and Registration Rights Agreement, dated as of March 2, 1999, by and among CE Generation, LLC, Credit Suisse First Boston Corporation and Lehman Brothers, Inc. 4.5* Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of March 2, 1999, by and among CE Generation, LLC, the banks named therein and Credit Suisse First Boston, as Agent 4.6* Deposit and Disbursement Agreement, dated as of March 2, 1999, by and among CE Generation, LLC, Magma Power Company, Salton Sea Power Company, Falcon Seaboard Resources, Inc., Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company, California Energy Development Corporation, CE Texas Energy LLC and Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent and Depositary Bank
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EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- --------------------------------------------------------------------------------------- 4.7* Intercreditor Agreement, dated as of March 2, 1999, by and among CE Generation, LLC, Magma Power Company, Salton Sea Power Company, Falcon Seaboard Resources, Inc., Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company, California Energy Development Corporation, CE Texas Energy LLC, Credit Suisse First Boston and Chase Manhattan Bank and Trust Company, National Association, as Trustee, Collateral Agent and Depositary Bank 4.8* Assignment and Security Agreement, dated as of March 2, 1999, by and among Magma Power Company, Salton Sea Power Company, Falcon Seaboard Resources, Inc., Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company, California Energy Development Corporation, CE Texas Energy LLC, Credit Suisse First Boston and Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent 4.9* Assignment and Security Agreement, dated as of March 2, 1999, by and between CE Generation, LLC and Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent 4.10* Pledge Agreement (SSPC Stock), dated as of March 2, 1999, by Magma Power Company in favor of Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent 4.11* Pledge Agreement (FSRI Stock and CEDC Stock), dated as of March 2, 1999, by CE Generation, LLC in favor of Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent 4.12* Securities Account Control Agreement, dated as of March 2, 1999, by and among CE Generation, LLC, Magma Power Company, Salton Sea Power Company, Falcon Seaboard Resources, Inc., Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company, California Energy Development Corporation, CE Texas Energy LLC, Credit Suisse First Boston and Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent and Depositary Bank 5.1 Opinion of Latham & Watkins regarding the validity of the new Securities 10.1 Trust Indenture, dated as of July 21, 1995, between Chemical Trust Company of California and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(a) to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.2 First Supplemental Indenture, dated as of October 18, 1995, between Chemical Trust Company of California and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(b) to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.3 Second Supplemental Indenture, dated as of July 20, 1996, between Chemical Trust Company of California and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(c) to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated July 2, 1996, 333-07527) 10.4 Third Supplemental Indenture, dated as of July 29, 1996, between Chemical Trust Company of California and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(d) to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated July 2, 1996, 333-07527)
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EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- ---------------------------------------------------------------------------------------------- 10.5 Fourth Supplemental Indenture, dated as of October 13, 1998, between Chase Manhattan Bank and Trust Company, National Association, and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(e) to Salton Sea Funding Corporation's Form 10-K/A dated March 27, 1999) 10.6 Fifth Supplemental Indenture, dated as of February 16, 1999, between Chase Manhattan Bank and Trust Company, National Association, and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(f) to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated June 29, 1999, 333-79581) 10.7 Sixth Supplemental Indenture, dated as of June 29, 1999, between Chase Manhattan Bank and Trust Company, National Association, and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(g) to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated June 29, 1999, 333-79581) 10.8 Amended and Restated Salton Sea Guarantors Credit Agreement, dated as of October 13, 1998, by and among Salton Sea Power Generation L.P., Salton Sea Brine Processing L.P., Salton Sea Power, L.L.C. and Fish Lake Power Company (incorporated by reference to Exhibit 4.12 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated June 29, 1999, 333-79581) 10.9 Second Amended and Restated Partnership Guarantors Credit Agreement, dated as of October 13, 1998, by and among CalEnergy Operating Corporation, Vulcan Power Company, Conejo Energy Company, Niguel Energy Company, San Felipe Energy Company, BN Geothermal Inc., Del Ranch, L.P., Elmore, L.P., Leathers, L.P., Vulcan/BN Geothermal Power Company, CalEnergy Minerals LLC, CE Turbo LLC and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.19 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated June 29, 1999, 333-79581) 10.10 Amended and Restated Deposit and Disbursement Agreement, dated as of October 13, 1998, by and among Salton Sea Funding Corporation, Salton Sea Power Generation L.P., Salton Sea Brine Processing L.P., Salton Sea Power, L.L.C., Fish Lake Power Company, CalEnergy Operating Corporation, Vulcan Power Company, Conejo Energy Company, Niguel Energy Company, San Felipe Energy Company, BN Geothermal Inc., Del Ranch, L.P., Elmore, L.P., Leathers, L.P., Vulcan/BN Geothermal Power Company, CalEnergy Minerals LLC, CE Turbo LLC, and Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent and Depositary Agent (incorporated by reference to Exhibit 4.14 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated June 29, 1999, 333-79581) 10.11 Amendment and Restatement, dated as of September 30, 1994, of the Loan Agreement, dated as of December 29, 1992, by and among Saranac Power Partners, L.P., County of Clinton Industrial Development Agency, North Country Gas Pipeline Corporation, the financial institutions party thereto, Credit Suisse First Boston and General Electric Capital Corporation 10.12 Amended and Restated Security Deposit Agreement, dated as of October 7, 1994, among Saranac Power Partners, L.P., Credit Suisse, General Electric Capital Corporation, TPC Saranac Partner One, Inc., TPC Saranac Partner Two, Inc., and The Fuji Bank and Trust Company 10.13 Installment Sale Agreement, dated as of December 29, 1992, by and between County of Clinton Industrial Development Agency and Saranac Power Partners, L.P.
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EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- ------------------------------------------------------------------------------------- 10.14 Second Amended and Restated Agreement of Limited Partnership of Saranac Power Partners, L.P., dated as of May 13, 1994, by and among Saranac Energy Company, Inc., TPC Saranac Partner One, Inc. and TPC Saranac Partner Two, Inc., as amended by the First Amendment to Second Amended and Restated Agreement of Limited Partnership of Saranac Power Partners, L.P., by and among Saranac Energy Company, Inc., TPC Partner One, Inc., TPC Saranac Partner Two, Inc. and General Electric Capital Corporation (incorporated by reference to Exhibit 10.2 to CalEnergy Company, Inc.'s Form 10-Q for the quarterly period ended September 30, 1996) 10.15 Amended and Restated Term Loan Agreement, dated as of December 30, 1988, among Kansallis-Osake-Pankki, Credit Suisse and Power Resources, Inc., Amendment No. 1 to Amended and Restated Term Loan Agreement, dated as of March 1, 1989, among Kansallis-Osake-Pankki, Credit Suisse and Power Resources, Inc., Amendment No. 2 to Amended and Restated Term Loan Agreement, dated as of April 28, 1989, among Kansallis-Osake-Pankki, Credit Suisse and Power Resources, Inc., Amendment No. 3 to Amended and Restated Term Loan Agreement, dated as of June 1, 1990, among Kansallis-Osake-Pankki, Credit Suisse and Power Resources, Inc., Amendment No. 4 to Amended and Restated Term Loan Agreement, dated as of April 15, 1991, among Kansallis-Osake-Pankki, Credit Suisse and Power Resources, Inc., and Amendment No. 5 to Amended and Restated Term Loan Agreement, dated as of June 29, 1995, among Kansallis-Osake-Pankki, Credit Suisse, the other lenders named therein and Power Resources, Inc. 10.16 Contract for the Purchase and Sale of Electric Power from the Salton Sea Geothermal Facility, dated May 9, 1987, between Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.4 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.17 Amendment No. 1 to Contract for the Purchase and Sale of Electric Power from the Salton Sea Geothermal Facility, dated March 30, 1993, between Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.5 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.18 Amendment No. 2 to Contract for the Purchase and Sale of Electric Power from the Salton Sea Geothermal Facility, dated November 29, 1994, between Southern California Edison Company and Salton Sea Power Generation L.P. (incorporated by reference to Exhibit 10.6 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.19 Contract for the Purchase and Sale of Electric Power, dated April 16, 1985, between Southern California Edison Company and Westmoreland Geothermal Associates (incorporated by reference to Exhibit 10.7 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.20 Amendment No. 1 to Contract for the Purchase and Sale of Electric Power, dated December 18, 1987, between Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.8 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.21 Power Purchase Contract, dated April 16, 1985, between Southern California Edison Company and Union Oil Company of California (incorporated by reference to Exhibit 10.9 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538)
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EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- ------------------------------------------------------------------------------------------- 10.22 Power Purchase Contract, dated November 19, 1994, between Southern California Edison Company, Salton Sea Power Generation L.P. and Fish Lake Power Company (incorporated by reference to Exhibit 10.10 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.23 Long Term Power Purchase Contract, dated March 1, 1984, as amended, between Southern California Edison Company and Vulcan/BN Geothermal Power Company, as successor to Magma Electric Company (incorporated by reference to Exhibit 10.26 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated July 2, 1996, 333-07527) 10.24 Long Term Power Purchase Contract, dated June 15, 1984, as amended, between Southern California Edison Company and Elmore, L.P., as successor to Magma Electric Company (incorporated by reference to Exhibit 10.31 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated July 2, 1996, 333-07527) 10.25 Long Term Power Purchase Contract, dated August 16, 1985, as amended, between Southern California Edison Company and Leathers, L.P., as successor to Imperial Energy Corporation (incorporated by reference to Exhibit 10.36 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated July 2, 1996, 333-07527) 10.26 Long Term Power Purchase Contract, dated February 22, 1974, as amended, between Southern California Edison Company and Del Ranch, L.P., as successor to Magma Electric Company (incorporated by reference to Exhibit 10.41 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated July 2, 1996, 333-07527) 10.27 Amended and Restated Power Sales Agreement, dated as of November 1, 1988, by and between CalEnergy Minerals LLC and Salton Sea Power L.L.C. 10.28 Agreement between New York State Electric & Gas Corporation and Saranac Energy Company, Inc., dated as of April 27, 1987 and Amendment No. 1 to Power Purchase Agreement between New York State Electric & Gas Corporation and Saranac Energy Company, Inc. dated August 29, 1991 (incorporated by reference to Exhibit 10.1 to CalEnergy Company, Inc.'s Form 10-Q for the quarterly period ended September 30, 1996) 10.29 Amendment No. 2 to Power Purchase Agreement between New York State Electric & Gas Corporation and Saranac Energy Company, Inc. dated February 24, 1994 10.30 (Power Purchase) Agreement, dated July 30, 1986, between Falcon Seaboard Oil Company and Texas Utilities Electric Company, First Amendment to (Power Purchase) Agreement, dated December 23, 1986, between Falcon Seaboard Oil Company and Texas Utilities Electric Company, and Second Amendment to (Power Purchase) Agreement, dated May 27, 1988, between Falcon Seaboard Oil Company and Texas Utilities Electric Company 10.31 Standard Offer Number 2 for Power Purchase with a Firm Capacity Qualifying Facility effective June 13, 1990 between San Diego Gas & Electric Company and Bonneville Pacific Corporation (incorporated by reference to Exhibit 10.42 to CalEnergy Company, Inc.'s Form 10-K for the fiscal year ended December 31, 1993) 10.32 Amendment No. 1 to Standard Offer Number 2 for Power Purchase with a Firm Capacity Qualifying Facility dated September 25, 1990 between San Diego Gas & Electric Company and Bonneville Pacific Corporation (incorporated by reference to Exhibit 10.43 to CalEnergy Company, Inc.'s Form 10-K for the fiscal year ended December 31, 1993)
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EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- ------------------------------------------------------------------------------------------- 10.33 Ground Lease, dated as of November 24, 1993, by and between Imperial Irrigation District, Salton Sea Power Generation L.P. and Salton Sea Brine Processing L.P., and First Amendment to Ground Lease, dated as of December 15, 1993, by and between Imperial Irrigation District, Salton Sea Power Generation L.P. and Salton Sea Brine Processing L.P. 10.34 Ground Lease, dated as of March 31, 1993, by and between Magma Land Company I, Salton Sea Power Generation L.P. and Salton Sea Brine Processing L.P. 10.35 Ground Lease, dated as of October 26, 1988, by and between Magma Power Company and Leathers, L.P., and Clarification and Amendment, dated as of June 17, 1996, between Magma Power Company and Leathers, L.P. 10.36 Ground Lease, dated as of March 14, 1988, by and between Magma Power Company and Del Ranch, Ltd., and Clarification and Amendment, dated as of June 17, 1996, between Magma Power Company and Del Ranch L.P. 10.37 Ground Lease, dated as of March 14, 1988, by and between Magma Power Company and Elmore, Ltd., and Clarification and Amendment, dated as of June 17, 1996, by and between Magma Power Company and Elmore, L.P. 10.38 Ground Lease, dated as of October 13, 1998, by and between Imperial Magma and Salton Sea Power L.L.C. 10.39 Easement Grant Deed and Agreement Regarding Rights for Geothermal Development, dated as of March 14, 1988, by and between Magma Power Company and Del Ranch, Ltd. (incorporated by reference to Exhibit 10.58 to Magma Power Company's Form 10-K for the fiscal year ended December 31, 1987) 10.40 Easement Grant Deed and Agreement Regarding Rights for Geothermal Development, dated as of August 15, 1988, by and between Magma Power Company and Leathers, L.P. (incorporated by reference to Magma Power Company's Form 10-K for the fiscal year ended December 31, 1988) 10.41 Easement Grant Deed and Agreement Regarding Rights for Geothermal Development, dated as of March 14, 1988, by and between Magma Power Company and Elmore, Ltd. (incorporated by reference to Exhibit 10.59 to Magma Power Company's Form 10-K for the fiscal year ended December 31, 1988) 10.42 Lease Agreement, dated as of November 21, 1986, between Fina Oil and Chemical Company and Power Resources, Inc., and First Amendment to Lease Agreement, dated as of December 29, 1986, between Fina Oil and Chemical Company and Power Resources, Inc. 10.43 Salton Sea Unit 5 Engineering, Procurement, and Construction Contract, dated September 2, 1998, between Salton Sea Power L.L.C. and Stone & Webster Engineering Corporation 10.44 Administrative Services Agreement, dated as of March 3, 1999, by and between CalEnergy Company, Inc. and CE Generation, LLC 10.45 Fuel Management Services Agreement between El Paso Energy Marketing Company and CE Generation, LLC 10.46 Power Marketing Services Agreement between El Paso Power Services Company and CE Generation, LLC 10.47 Equity Purchase Agreement, dated as of February 21, 1999, by and between CalEnergy Company, Inc. and El Paso Power Holding Company
II-6
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- --------------------------------------------------------------------------------------- 10.48 Equity Commitment Agreement, dated as of March 3, 1999, among CalEnergy Company, Inc. and El Paso Power Holding Company 12.1* Computation of Ratio of Earnings to Fixed Charges 23.1* Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1) 23.2 Consent of Deloitte & Touche LLP 23.3* Consent of Fluor Daniel, Inc. 23.4* Consent of R.W. Beck, Inc. 23.5* Consent of Henwood Energy Services, Inc. 23.6* Consent of GeothermEx, Inc. 23.7 Consent of C.C. Pace Consulting L.L.C. 25.1* Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939 of Chase Manhattan Bank and Trust Company, National Association 27.1* Financial Data Schedule 99.1* Form of Letter of Transmittal to tender unregistered 7.416% Senior Secured Bonds Due December 15, 2018 of CE Generation, LLC 99.2* Form of Letter to Registered Holders and DTC Participants from CE Generation, LLC regarding the exchange offer 99.3* Form of Instruction to Registered Holder or DTC Participant from Beneficial Owner of 7.416% Senior Secured Bonds Due December 15, 2018 of CE Generation, LLC 99.4* Form of Letter to Clients from Registered Holder or DTC Participant regarding the exchange offer 99.5* Form of Notice of Guaranteed Delivery
---------- * Filed as an exhibit to CE Generation, LLC's Registration Statement filed with the Securities and Exchange Commission on October 22, 1999. (b) Financial Statement Schedules Financial statement schedules are not included because the required information is inapplicable or is presented in the financial statements or the notes to the financial statements. ITEM 22. UNDERTAKINGS The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. The undersigned registrant hereby undertakes as follows: prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the application form. The undersigned registrant hereby undertakes that every prospectus (i) that is filed pursuant to the immediately preceding paragraph or (ii) that purports to meet the requirements of Section l0(a)(3) II-7 of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment will be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of the issue. The undersigned registrant hereby undertakes to file an application of the purpose of determining the eligibility of the trustee to act under subsection (a) of section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Securities and Exchange Commission under section305(b)(2) of the Trust Indenture Act. II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on November 29, 1999. CE GENERATION, LLC By: /s/ Douglas L. Anderson -------------------------------- Name: Douglas L. Anderson Title: Vice President and General Counsel Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 has been signed by the following persons in the capacities, as of the dates and in the cities and states indicated.
SIGNATURE TITLE DATE CITY AND STATE ------------------------- --------------------- ------------------- --------------- * President and Chief November 29, 1999 Omaha, ------------------ Operating Officer; Nebraska Robert S. Silberman Director * Vice President and November 29, 1999 Omaha, ------------------ Treasurer Nebraska Brian K. Hankel /s/ Douglas L. Anderson Vice President and November 29, 1999 Omaha, ------------------ General Counsel; Nebraska Douglas L. Anderson Director * Vice President and November 29, 1999 Omaha, ------------------ Commercial Officer Nebraska Richard P. Johnston * Director November 29, 1999 Omaha, ------------------ Nebraska Patrick J. Goodman * Director November 29, 1999 Omaha, ------------------ Nebraska Larry Kellerman * Director November 29, 1999 Omaha, ------------------ Nebraska John L. Harrison * Director November 29, 1999 Omaha, ------------------ Nebraska Steven M. Pike
* By /s/ Douglas L. Anderson ---------------------- Attorney-In-Fact II-9 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- -------------------------------------------------------------------------------------- 3.1* Certificate of Formation of CE Generation, LLC 3.2* Limited Liability Company Operating Agreement of CE Generation, LLC 4.1* Indenture, dated as of March 2, 1999, by and between CE Generation, LLC and Chase Manhattan Bank and Trust Company, National Association 4.2* Form of First Supplemental Indenture to be entered into by and between CE Generation, LLC and Chase Manhattan Bank and Trust Company, National Association, Trustee 4.3* Purchase Agreement, dated February 24, 1999, by and among CE Generation, LLC, Credit Suisse First Boston Corporation and Lehman Brothers, Inc. 4.4* Exchange and Registration Rights Agreement, dated as of March 2, 1999, by and among CE Generation, LLC, Credit Suisse First Boston Corporation and Lehman Brothers, Inc. 4.5* Debt Service Reserve Letter of Credit and Reimbursement Agreement, dated as of March 2, 1999, by and among CE Generation, LLC, the banks named therein and Credit Suisse First Boston, as Agent 4.6* Deposit and Disbursement Agreement, dated as of March 2, 1999, by and among CE Generation, LLC, Magma Power Company, Salton Sea Power Company, Falcon Seaboard Resources, Inc., Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company, California Energy Development Corporation, CE Texas Energy LLC and Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent and Depositary Bank 4.7* Intercreditor Agreement, dated as of March 2, 1999, by and among CE Generation, LLC, Magma Power Company, Salton Sea Power Company, Falcon Seaboard Resources, Inc., Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company, California Energy Development Corporation, CE Texas Energy LLC, Credit Suisse First Boston and Chase Manhattan Bank and Trust Company, National Association, as Trustee, Collateral Agent and Depositary Bank 4.8* Assignment and Security Agreement, dated as of March 2, 1999, by and among Magma Power Company, Salton Sea Power Company, Falcon Seaboard Resources, Inc., Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company, California Energy Development Corporation, CE Texas Energy LLC, Credit Suisse First Boston and Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent 4.9* Assignment and Security Agreement, dated as of March 2, 1999, by and between CE Generation, LLC and Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent 4.10* Pledge Agreement (SSPC Stock), dated as of March 2, 1999, by Magma Power Company in favor of Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent 4.11* Pledge Agreement (FSRI Stock and CEDC Stock), dated as of March 2, 1999, by CE Generation, LLC in favor of Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- ---------------------------------------------------------------------------------------- 4.12* Securities Account Control Agreement, dated as of March 2, 1999, by and among CE Generation, LLC, Magma Power Company, Salton Sea Power Company, Falcon Seaboard Resources, Inc., Falcon Seaboard Power Corporation, Falcon Seaboard Oil Company, California Energy Development Corporation, CE Texas Energy LLC, Credit Suisse First Boston and Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent and Depositary Bank 5.1 Opinion of Latham & Watkins regarding the validity of the new Securities 10.1 Trust Indenture, dated as of July 21, 1995, between Chemical Trust Company of California and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(a) to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.2 First Supplemental Indenture, dated as of October 18, 1995, between Chemical Trust Company of California and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(b) to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.3 Second Supplemental Indenture, dated as of July 20, 1996, between Chemical Trust Company of California and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(c) to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated July 2, 1996, 333-07527) 10.4 Third Supplemental Indenture, dated as of July 29, 1996, between Chemical Trust Company of California and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(d) to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated July 2, 1996, 333-07527) 10.5 Fourth Supplemental Indenture, dated as of October 13, 1998, between Chase Manhattan Bank and Trust Company, National Association, and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(e) to Salton Sea Funding Corporation's Form 10-K/A dated March 27, 1999) 10.6 Fifth Supplemental Indenture, dated as of February 16, 1999, between Chase Manhattan Bank and Trust Company, National Association, and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(f) to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated June 29, 1999, 333-79581) 10.7 Sixth Supplemental Indenture, dated as of June 29, 1999, between Chase Manhattan Bank and Trust Company, National Association, and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.1(g) to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated June 29, 1999, 333-79581) 10.8 Amended and Restated Salton Sea Guarantors Credit Agreement, dated as of October 13, 1998, by and among Salton Sea Power Generation L.P., Salton Sea Brine Processing L.P., Salton Sea Power, L.L.C. and Fish Lake Power Company (incorporated by reference to Exhibit 4.12 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated June 29, 1999, 333-79581) 10.9 Second Amended and Restated Partnership Guarantors Credit Agreement, dated as of October 13, 1998, by and among CalEnergy Operating Corporation, Vulcan Power Company, Conejo Energy Company, Niguel Energy Company, San Felipe Energy Company, BN Geothermal Inc., Del Ranch, L.P., Elmore, L.P., Leathers, L.P., Vulcan/BN Geothermal Power Company, CalEnergy Minerals LLC, CE Turbo LLC and Salton Sea Funding Corporation (incorporated by reference to Exhibit 4.19 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated June 29, 1999, 333-79581)
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- ---------------------------------------------------------------------------------------------- 10.10 Amended and Restated Deposit and Disbursement Agreement, dated as of October 13, 1998, by and among Salton Sea Funding Corporation, Salton Sea Power Generation L.P., Salton Sea Brine Processing L.P., Salton Sea Power, L.L.C., Fish Lake Power Company, CalEnergy Operating Corporation, Vulcan Power Company, Conejo Energy Company, Niguel Energy Company, San Felipe Energy Company, BN Geothermal Inc., Del Ranch, L.P., Elmore, L.P., Leathers, L.P., Vulcan/BN Geothermal Power Company, CalEnergy Minerals LLC, CE Turbo LLC, and Chase Manhattan Bank and Trust Company, National Association, as Collateral Agent and Depositary Agent (incorporated by reference to Exhibit 4.14 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated June 29, 1999, 333-79581) 10.11 Amendment and Restatement, dated as of September 30, 1994, of the Loan Agreement, dated as of December 29, 1992, by and among Saranac Power Partners, L.P., County of Clinton Industrial Development Agency, North Country Gas Pipeline Corporation, the financial institutions party thereto, Credit Suisse First Boston and General Electric Capital Corporation 10.12 Amended and Restated Security Deposit Agreement, dated as of October 7, 1994, among Saranac Power Partners, L.P., Credit Suisse, General Electric Capital Corporation, TPC Saranac Partner One, Inc., TPC Saranac Partner Two, Inc., and The Fuji Bank and Trust Company 10.13 Installment Sale Agreement, dated as of December 29, 1992, by and between County of Clinton Industrial Development Agency and Saranac Power Partners, L.P. 10.14 Second Amended and Restated Agreement of Limited Partnership of Saranac Power Partners, L.P., dated as of May 13, 1994, by and among Saranac Energy Company, Inc., TPC Saranac Partner One, Inc. and TPC Saranac Partner Two, Inc., as amended by the First Amendment to Second Amended and Restated Agreement of Limited Partnership of Saranac Power Partners, L.P., by and among Saranac Energy Company, Inc., TPC Partner One, Inc., TPC Saranac Partner Two, Inc. and General Electric Capital Corporation (incorporated by reference to Exhibit 10.2 to CalEnergy Company, Inc.'s Form 10-Q for the quarterly period ended September 30, 1996) 10.15 Amended and Restated Term Loan Agreement, dated as of December 30, 1988, among Kansallis-Osake-Pankki, Credit Suisse and Power Resources, Inc., Amendment No. 1 to Amended and Restated Term Loan Agreement, dated as of March 1, 1989, among Kansallis-Osake-Pankki, Credit Suisse and Power Resources, Inc., Amendment No. 2 to Amended and Restated Term Loan Agreement, dated as of April 28, 1989, among Kansallis-Osake-Pankki, Credit Suisse and Power Resources, Inc., Amendment No. 3 to Amended and Restated Term Loan Agreement, dated as of June 1, 1990, among Kansallis-Osake-Pankki, Credit Suisse and Power Resources, Inc., Amendment No. 4 to Amended and Restated Term Loan Agreement, dated as of April 15, 1991, among Kansallis-Osake-Pankki, Credit Suisse and Power Resources, Inc., and Amendment No. 5 to Amended and Restated Term Loan Agreement, dated as of June 29, 1995, among Kansallis-Osake-Pankki, Credit Suisse, the other lenders named therein and Power Resources, Inc. 10.16 Contract for the Purchase and Sale of Electric Power from the Salton Sea Geothermal Facility, dated May 9, 1987, between Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.4 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538)
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- ------------------------------------------------------------------------------------------ 10.17 Amendment No. 1 to Contract for the Purchase and Sale of Electric Power from the Salton Sea Geothermal Facility, dated March 30, 1993, between Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.5 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.18 Amendment No. 2 to Contract for the Purchase and Sale of Electric Power from the Salton Sea Geothermal Facility, dated November 29, 1994, between Southern California Edison Company and Salton Sea Power Generation L.P. (incorporated by reference to Exhibit 10.6 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.19 Contract for the Purchase and Sale of Electric Power, dated April 16, 1985, between Southern California Edison Company and Westmoreland Geothermal Associates (incorporated by reference to Exhibit 10.7 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.20 Amendment No. 1 to Contract for the Purchase and Sale of Electric Power, dated December 18, 1987, between Southern California Edison Company and Earth Energy, Inc. (incorporated by reference to Exhibit 10.8 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.21 Power Purchase Contract, dated April 16, 1985, between Southern California Edison Company and Union Oil Company of California (incorporated by reference to Exhibit 10.9 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.22 Power Purchase Contract, dated November 19, 1994, between Southern California Edison Company, Salton Sea Power Generation L.P. and Fish Lake Power Company (incorporated by reference to Exhibit 10.10 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated August 9, 1995, 33-95538) 10.23 Long Term Power Purchase Contract, dated March 1, 1984, as amended, between Southern California Edison Company and Vulcan/BN Geothermal Power Company, as successor to Magma Electric Company (incorporated by reference to Exhibit 10.26 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated July 2, 1996, 333-07527) 10.24 Long Term Power Purchase Contract, dated June 15, 1984, as amended, between Southern California Edison Company and Elmore, L.P., as successor to Magma Electric Company (incorporated by reference to Exhibit 10.31 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated July 2, 1996, 333-07527) 10.25 Long Term Power Purchase Contract, dated August 16, 1985, as amended, between Southern California Edison Company and Leathers, L.P., as successor to Imperial Energy Corporation (incorporated by reference to Exhibit 10.36 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated July 2, 1996, 333-07527) 10.26 Long Term Power Purchase Contract, dated February 22, 1974, as amended, between Southern California Edison Company and Del Ranch, L.P., as successor to Magma Electric Company (incorporated by reference to Exhibit 10.41 to Salton Sea Funding Corporation's Registration Statement on Form S-4 dated July 2, 1996, 333-07527) 10.27 Amended and Restated Power Sales Agreement, dated as of November 1, 1988, by and between CalEnergy Minerals LLC and Salton Sea Power L.L.C.
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- ------------------------------------------------------------------------------------------- 10.28 Agreement between New York State Electric & Gas Corporation and Saranac Energy Company, Inc., dated as of April 27, 1987 and Amendment No. 1 to Power Purchase Agreement between New York State Electric & Gas Corporation and Saranac Energy Company, Inc. dated August 29, 1991 (incorporated by reference to Exhibit 10.1 to CalEnergy Company, Inc.'s Form 10-Q for the quarterly period ended September 30, 1996) 10.29 Amendment No. 2 to Power Purchase Agreement between New York State Electric & Gas Corporation and Saranac Energy Company, Inc. dated February 24, 1994 10.30 (Power Purchase) Agreement, dated July 30, 1986, between Falcon Seaboard Oil Company and Texas Utilities Electric Company, First Amendment to (Power Purchase) Agreement, dated December 23, 1986, between Falcon Seaboard Oil Company and Texas Utilities Electric Company, and Second Amendment to (Power Purchase) Agreement, dated May 27, 1988, between Falcon Seaboard Oil Company and Texas Utilities Electric Company 10.31 Standard Offer Number 2 for Power Purchase with a Firm Capacity Qualifying Facility effective June 13, 1990 between San Diego Gas & Electric Company and Bonneville Pacific Corporation (incorporated by reference to Exhibit 10.42 to CalEnergy Company, Inc.'s Form 10-K for the fiscal year ended December 31, 1993) 10.32 Amendment No. 1 to Standard Offer Number 2 for Power Purchase with a Firm Capacity Qualifying Facility dated September 25, 1990 between San Diego Gas & Electric Company and Bonneville Pacific Corporation (incorporated by reference to Exhibit 10.43 to CalEnergy Company, Inc.'s Form 10-K for the fiscal year ended December 31, 1993) 10.33 Ground Lease, dated as of November 24, 1993, by and between Imperial Irrigation District, Salton Sea Power Generation L.P. and Salton Sea Brine Processing L.P., and First Amendment to Ground Lease, dated as of December 15, 1993, by and between Imperial Irrigation District, Salton Sea Power Generation L.P. and Salton Sea Brine Processing L.P. 10.34 Ground Lease, dated as of March 31, 1993, by and between Magma Land Company I, Salton Sea Power Generation L.P. and Salton Sea Brine Processing L.P. 10.35 Ground Lease, dated as of October 26, 1988, by and between Magma Power Company and Leathers, L.P., and Clarification and Amendment, dated as of June 17, 1996, between Magma Power Company and Leathers, L.P. 10.36 Ground Lease, dated as of March 14, 1988, by and between Magma Power Company and Del Ranch, Ltd., and Clarification and Amendment, dated as of June 17, 1996, between Magma Power Company and Del Ranch L.P. 10.37 Ground Lease, dated as of March 14, 1988, by and between Magma Power Company and Elmore, Ltd., and Clarification and Amendment, dated as of June 17, 1996, by and between Magma Power Company and Elmore, L.P. 10.38 Ground Lease, dated as of October 13, 1998, by and between Imperial Magma and Salton Sea Power L.L.C. 10.39 Easement Grant Deed and Agreement Regarding Rights for Geothermal Development, dated as of March 14, 1988, by and between Magma Power Company and Del Ranch, Ltd. (incorporated by reference to Exhibit 10.58 to Magma Power Company's Form 10-K for the fiscal year ended December 31, 1987)
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- --------------------------------------------------------------------------------------- 10.40 Easement Grant Deed and Agreement Regarding Rights for Geothermal Development, dated as of August 15, 1988, by and between Magma Power Company and Leathers, L.P. (incorporated by reference to Magma Power Company's Form 10-K for the fiscal year ended December 31, 1988) 10.41 Easement Grant Deed and Agreement Regarding Rights for Geothermal Development, dated as of March 14, 1988, by and between Magma Power Company and Elmore, Ltd. (incorporated by reference to Exhibit 10.59 to Magma Power Company's Form 10-K for the fiscal year ended December 31, 1988) 10.42 Lease Agreement, dated as of November 21, 1986, between Fina Oil and Chemical Company and Power Resources, Inc., and First Amendment to Lease Agreement, dated as of December 29, 1986, between Fina Oil and Chemical Company and Power Resources, Inc. 10.43 Salton Sea Unit 5 Engineering, Procurement, and Construction Contract, dated September 2, 1998, between Salton Sea Power L.L.C. and Stone & Webster Engineering Corporation 10.44 Administrative Services Agreement, dated as of March 3, 1999, by and between CalEnergy Company, Inc. and CE Generation, LLC 10.45 Fuel Management Services Agreement between El Paso Energy Marketing Company and CE Generation, LLC 10.46 Power Marketing Services Agreement between El Paso Power Services Company and CE Generation, LLC 10.47 Equity Purchase Agreement, dated as of February 21, 1999, by and between CalEnergy Company, Inc. and El Paso Power Holding Company 10.48 Equity Commitment Agreement, dated as of March 3, 1999, among CalEnergy Company, Inc. and El Paso Power Holding Company 12.1* Computation of Ratio of Earnings to Fixed Charges 23.1* Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1) 23.2 Consent of Deloitte & Touche LLP 23.3* Consent of Fluor Daniel, Inc. 23.4* Consent of R.W. Beck, Inc. 23.5* Consent of Henwood Energy Services, Inc. 23.6* Consent of GeothermEx, Inc. 23.7 Consent of C.C. Pace Consulting L.L.C. 25.1* Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939 of Chase Manhattan Bank and Trust Company, National Association 27.1* Financial Data Schedule 99.1* Form of Letter of Transmittal to tender unregistered 7.416% Senior Secured Bonds Due December 15, 2018 of CE Generation, LLC 99.2* Form of Letter to Registered Holders and DTC Participants from CE Generation, LLC regarding the exchange offer
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------------- ------------------------------------------------------------------------------------- 99.3* Form of Instruction to Registered Holder or DTC Participant from Beneficial Owner of 7.416% Senior Secured Bonds Due December 15, 2018 of CE Generation, LLC 99.4* Form of Letter to Clients from Registered Holder or DTC Participant regarding the exchange offer 99.5* Form of Notice of Guaranteed Delivery
---------- * Filed as an exhibit to CE Generation, LLC's Registration Statement filed with the Securities and Exchange Commission on October 22, 1999. EX-5.1 2 OPINION OF LATHAM & WATKINS [Latham & Watkins Letterhead] --------- November 29, 1999 EXHIBIT 5.1 CE Generation, LLC 302 South 36th Street, Suite 400 Omaha, Nebraska 68131 Re: Registration Statement on Form S-4; $400,000,000 Aggregate Principal Amount of Senior Secured Bonds ------------------------------ Ladies and Gentlemen: In connection with the registration of $400,000,000 7.416% Senior Secured Bonds Due December 15, 2018 (the "Securities") by CE Generation, a Delaware limited liability company (the "Registrant"), under the Securities Act of 1933, as amended (the "Act"), on Form S-4 filed with the Securities and Exchange Commission (the "Commission") on October 22, 1999, as amended by Amendment No. 1 thereto filed with the Securities and Exchange Commission on November 29, 1999 (the "Registration Statement"), you have requested our opinion with respect to the matters set forth below. In our capacity as your special counsel in connection with such registration, we are familiar with the proceedings taken by the Registrant in connection with the authorization and issuance of the Securities. In addition, we have made such legal and factual examinations and inquiries, including an examination of originals or copies certified or otherwise identified to our satisfaction of such documents, corporate records and instruments, as we have deemed necessary or appropriate for purposes of this opinion. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. CE Generation, LLC Page 2 We are opining herein as to the effect on the subject transaction only of the internal laws of the State of New York and the Limited Liability Company Act of the State of Delaware, including statutory and reported decisional law thereunder, and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or, in the case of Delaware, any other laws, or as to any matters of municipal law or the laws of any local agencies within any state. Capitalized terms used herein without definition have the meanings ascribed to them in the Registration Statement. Subject to the foregoing and the other matters set forth herein, it is our opinion that as of the date hereof: The Securities have been duly authorized by all necessary limited liability company action of the Registrant, and when executed, authenticated and delivered by or on behalf of the Registrant will constitute legally valid and binding obligations of the Registrant, enforceable against the Registration in accordance with their terms. The opinions rendered in the preceding paragraph relating to the enforceability of the Securities are subject to the following exceptions, limitations and qualifications: (i) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors; and (ii) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or law, and the discretion of the court before which any proceeding therefor may be brought. We have not been requested to express, and with your knowledge and consent do not render, any opinion as to the applicability to the obligations of the Companies under the Indenture and the Securities of Section 548 of the United States Bankruptcy Code or applicable state law (including, without limitation, Article 10 of the New York Debtor and Creditor Law) relating to fraudulent transfers and obligations. To the extent that the obligations of the Registrant under the Indenture may be dependent upon such matters, we assume for purposes of this opinion that the Trustee is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; that the Trustee is duly qualified to engage in the activities contemplated by the Indenture; that the Indenture has been duly authorized, executed and delivered by the Trustee and constitutes the legally valid, binding and enforceable obligation of the Trustee enforceable against the Trustee in accordance with its terms; that the Trustee is in compliance, generally and with respect to acting as a trustee under the Indenture, with all applicable laws and regulations; and that the Trustee has the requisite organizational and legal power and authority to perform its obligations under the Indenture. CE Generation, LLC Page 3 We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm contained under the heading "Legal Matters" in the Prospectus. Very truly yours, /s/ Latham & Watkins EX-10.11 3 AMENDED AND RESTATED LOAN AGREEMENT (SARANAC) AMENDMENT AND RESTATEMENT, dated as of September 30, 1994, of the LOAN AGREEMENT, dated as of December 29, 1992, by and among (i) SARANAC POWER PARTNERS, L.P., a Delaware limited partnership (the "Partnership"), (ii) solely for purposes of consenting to the execution and delivery of this Amendment and Restatement and making the representations and warranties as to itself and the North Country Project set forth in Section 5, NORTH COUNTRY GAS PIPELINE CORPORATION, a New York corporation ("North country"), (iii) COUNTY OF CLINTON INDUSTRIAL DEVELOPMENT AGENCY, a public benefit corporation of the State of New York (the "IDA"; together with the Partnership, the "Borrowers"), (iv) the financial institutions parties hereto from time to time (the "Lenders"). (v) Credit Suisse, ABN-AMRO Bank, N.V., National Westminster Bank PLC and The Fuji Bank, Limited, New York Branch, as co-agents (collectively in such capacity, the "Co-Agents"), (vi) The Sumitomo Bank, Limited, as lead manager (in such capacity, the "Lead Manager"), (vii) Credit Suisse ("CS"), as agent for the Lenders (in such capacity, the "Agent") and (viii) GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("GE Capital"), as issuer of the Letters of Credit (as defined in Appendix A) hereunder (in such capacity, the "Letter of Credit Issuer") and as Surety Bond Arranger (as defined in Appendix A) hereunder (in such capacity, the "Surety Bond Arranger"). W I T N E S S E T H : WHEREAS, unless otherwise defined herein, all terms used herein that are defined in Appendix A shall have the meanings therein assigned to such terms; WHEREAS, in order to finance the costs of developing, constructing and equipping the Facility, pursuant to the Resolution, the IDA borrowed IDA Development Loans and IDA Building Loans and, as evidence of such Loans, the IDA, together with the Partnership, issued to the Lenders the IDA Development Loan Notes and the IDA Building Loan Notes; WHEREAS, in order to finance the costs of developing, constructing and equipping the Pipeline, pursuant to the Resolution, the IDA borrowed IDA (North Country) Development Loans and IDA (North Country) Building Loans and, as evidence of such Loans, the IDA, together with the Partnership and North country, issued to the Lenders the IDA (North Country) Development Loan Notes and the IDA (North Country) Building Loan Notes; WHEREAS, in order to finance the additional costs of developing the Project, the Partnership borrowed Partnership Development Loans and, as evidence of such Loans, the Partnership issued to the Lenders the Partnership Development Loan Notes; Amendment and Restatement of Loan Agreement 2 WHEREAS, subject to and upon the terms and conditions set forth herein, on the Second Capital Contribution Date, (i) the IDA Development Loan Notes and the IDA Building Loan Notes will be amended, restated and issued in the forms of the IDA Development Term Notes and the IDA Building Term Notes, respectively, (ii) to the extent the Partnership Development Loans are not repaid in full on the Second Capital Contribution Date, the Partnership Development Loan Notes will be amended and restated in the form of the Partnership Term Note, and (iii) the IDA (North Country) Development Loans and the IDA (North Country) Building Loans will be repaid in full; WHEREAS, the parties to the Original Loan Agreement desire to amend and restate the Original Loan Agreement and Appendix A thereto in their entirety and, among other things, desire to add the new Agent and the Co-Agents as parties hereto; NOW, THEREFORE, it is agreed: SECTION 1 DEFINITIONS (a) All terms defined in this Agreement or in Appendix A shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto. (b) As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined in Appendix A and accounting terms partly defined in Appendix A to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, appendix, schedule and exhibit references are to this Agreement unless otherwise specified. (d) References to agreements defined herein or in Appendix A shall include such agreements as they may be amended, supplemented or otherwise modified from time to time in accordance with the provisions of the Basic Documents. (e) Terms defined in this Agreement or in Appendix A by reference to any other agreement, document or instrument shall have the meanings assigned to them in such agreement, document or instrument, whether or not such agreement, document or instrument is then in effect, Amendment and Restatement of Loan Agreement 3 SECTION 2 AMOUNTS AND TERMS OF TERM LOANS 2.1 Term Loans. (a) subject to and upon the terms and conditions set forth herein, each Construction Lender severally agrees to convert a portion (determined in accordance with the Notice of Term Loan Conversion) of its Construction Loans into Term Loans (collectively, the "Term Loans") to the Borrowers on the Second Capital Contribution Date in an aggregate amount equal to the amount specified in the Notice of Term Loan Conversion. (b) Concurrently with the conversion of the Construction Loans into Term Loans and the occurrence of the Transfer Effective Date (as defined in the Assignment and Acceptance, dated as of the date hereof, between GE Capital and the other Lenders), each Lender will be deemed to have made a Term Loan to the Borrowers in a principal amount equal to the amount set forth opposite such Lender's name on Schedule 8. 2.2 Term Notes. Simultaneously with the conversion of the outstanding Construction Loans of each Construction Lender into Term Loans of such Construction Lender in accordance with Section 2.1 hereof and Section 2.7 of the original Loan Agreement and Applicable Law, the Borrowers shall amend and restate and the IDA shall issue the IDA (Partnership) Construction Notes (as defined in the Original Loan Agreement) of such Construction Lender and, to the extent the Partnership Development Loans are converted into Term Loans in accordance with Section 2.1 hereof and Section 2.7 of the Original Loan Agreement, amend and restate the Partnership Development Loan Note of such Construction Lender and deliver to each Lender amended and restated promissory notes evidencing such amendments and restatements as follows: (a) the converted IDA Building Loans of such Construction Leader shall be evidenced by a promissory note of the Borrowers substantially in the form of Exhibit A-1 (collectively, the "IDA Building Term Notes"); (b) the converted IDA Development Loans of such Construction Lender shall be evidenced by a promissory note of the Borrowers substantially in the form of Exhibit A-2 (collectively, the "IDA Development Term Notes"); and (c) to the extent the Partnership Development Loans of such Construction Lender are converted into Term Loans, the converted Partnership Development Loans shall be evidenced by promissory notes of the Partnership substantially in the form of Exhibit A-3 (collectively, the "Partnership Term Notes"; together with the IDA Building Term Notes and the IDA Development Term Notes, the "Term Notes"). The Term Notes of each Lender shall have appropriate insertions and be payable to the order of such Lender. Each Term Note shall Amendment and Restatement of Loan Agreement 4 (i) be dated the second Capital Contribution Date, (ii) in the case of the IDA Building Term Notes and the IDA Development Term Notes, subject to Section 11.8(a), represent the joint and several obligations of the Partnership and the IDA to pay the principal amount of the Term Loan made by such Lender as an amendment and restatement of such IDA (Partnership) Construction Notes (as defined in the Original Loan Agreement) and, in the case of the Partnership Term Notes, represent the obligation of the Partnership to pay the principal amount of the Term Loan made by such Lender as an amendment and restatement of such Partnership Development Loan Note, (iii) be payable in consecutive quarterly installments of principal on each Installment Payment Date in the amounts set forth on Schedule 11, (iv) provide for the payment of interest for the period from the date thereof until paid in full on the unpaid principal amount thereof from time to time outstanding in accordance with Section 4.3 and. (v) be entitled to the benefit of this Agreement and the Collateral Security Documents. Promptly following the receipt by each Construction Lender of (i) Term Notes in accordance with this Section 2.2 and (ii) an amount in cash equal to the excess of (A) the aggregate outstanding principal amount of the Construction Loans made by such Lender over (B) the principal amount of the Term Notes delivered to such Construction Lender, such construction Lender shall mark the Construction Notes held by such Construction Lender "Cancelled" and shall return such Construction Notes to the Borrowers and North Country. Each Lender is hereby authorized to record the date, Type and amount of each IDA Building Loan, IDA Development Loan, or Partnership Development Loan, as the case may be, converted from a Construction Loan into a Term Loan by such Construction Lender or purchased by such Lender from a Construction Lender, the date and amount of each payment or prepayment of principal of the Term Loans made by any of the Borrowers, the date of each conversion of one Type of Term Loan into another Type of Term Loan and, in the case of a Eurodollar Loan, the Eurodollar Interest Period and the interest rate with respect thereto, on the schedules annexed to and constituting a part of the Term Notes held by such Lender, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided, that the failure by any Lender to make any such recordation shall not limit or otherwise affect the Obligations of any of the Borrowers. 2.3 Interest Rate Options. (a) Subject to Section 2.3(b), the Partnership may elect from time to time to convert Term Loans maintained as Eurodollar Loans into Base Rate Loans by notifying the Agent prior to 12:00 Noon, New York City time, at least two Business Days prior to the proposed conversion date, provided, that any such conversion of Eurodollar Loans shall only be made on the last day of the then current Eurodollar Interest Period with respect thereto. The Partnership may elect from time to time to convert Term Loans maintained as Base Rate Loans into Eurodollar Loans by notifying the Agent in writing prior to 12:00 Amendment and Restatement of Loan Agreement 5 Noon, New York City time, at least three Working Days prior to the proposed conversion date. (b) Unless the Agent and the Lenders shall otherwise agree, the Term Loans to be made on the Second Capital Contribution Date shall be Base Rate Loans and three Working Days thereafter such Term Loans shall be converted to Eurodollar Loans with a Eurodollar Interest Period ending on December 31, 1994. Thereafter, all Term Loans shall be maintained as Eurodollar Loans and the Eurodollar Interest Period for all such Loans shall be three months. 2.4 Partnership and North Country as Authorized Agents. Pursuant to and in accordance with the provisions of the Installment Sale Agreements, each of the Partnership and North Country has been appointed the exclusive agent of the IDA to develop, design, engineer, acquire, construct, finance, test, start-up, complete, operate and maintain the Project and the North Country Project, as the case may be. The IDA authorizes the Partnership or North Country, as agents of the IDA, to convert the Construction Loans to Term Loans hereunder, and, pursuant to the Original Loan Agreement, authorized the Partnership and North Country, as agents of the IDA, to borrow the Loans thereunder, deliver Notices of Borrowing and apply the proceeds of the Loans as provided therein or otherwise in accordance with the Installment Sale Agreements, without giving notice to or obtaining the consent of the IDA, and the IDA agrees to be bound by all such actions, subject to the provisions of Section 11.8(a) and the Installment Sale Agreements. SECTION 3 LETTERS OF CREDIT AND REIMBURSEMENT OBLIGATIONS IN CONNECTION WITH SURETY BOND ARRANGEMENTS 3.1 Letter of Credit Commitment. (a) (i) Pursuant to the Original Loan Agreement, the Letter of Credit Issuer executed and delivered (i) a certain stand-by letter of credit for the account of the Partnership in favor of the Royal Bank of Canada ("Royal Bank"), in the stated amount of $12,000,000 and with an expiry date of October 31, 1995 (the "Existing Gas Supplier LOC"), to secure the obligations of the Partnership to "Royal Bank under the Gas Supplier LOC heretofore issued by Royal Bank to the Gas Supplier and (ii) the Power Purchase Letter of Credit. (ii) Subject to and upon the terms and conditions set forth herein, the Letter of Credit Issuer agrees to execute and deliver certain additional stand-by letters of credit, including any Backup Extension of Credit referred to in Section 3.12 and renewals of the Power Purchase Letter of Credit and the Existing Gas Supplier LOC for the account of the Partnership to secure the payment of the Partnership's obligations under the Project Amendment and Restatement of Loan Agreement 6 Contracts listed on Schedule 2, including the Partnership's obligation to reimburse any Gas Supplier LOC Issuer for any drawings in respect of a Gas Supplier LOC (such additional letters of credit and Backup Extensions of Credit, together with the Existing Gas Supplier LOC and the Power Purchase Letter of Credit collectively are referred to herein as the "Project Letters of Credit"). (b) The Partnership shall request the Letter of Credit Issuer to issue, and the Letter of Credit Issuer shall, on the Second Capital Contribution Date, issue the Senior Debt Service Reserve "A" Letter of Credit to the Agent, for the ratable benefit of the Secured Parties (as defined in the Amended and Restated Security Deposit Agreement) (other than the SECI Term Lender). (c) On the date of any withdrawal of cash from the Base Reserve Equity Account to make equity distributions to the GE Capital Limited Partner as required pursuant to the Amended and Restated Partnership Agreement, the Partnership shall request the Letter of Credit Issuer to issue, and the Letter of Credit Issuer shall issue on such date, the Senior Debt Service Reserve "B" Letter of Credit (the Senior Debt Service Reserve "B" Letter of Credit, together with the Project Letters of Credit and the Senior Debt Service Reserve "A" Letter of Credit, collectively are referred to herein as the "Letters of Credit") to the Agent, for the ratable benefit of the Lenders and the Swap Counterparty, in the stated amount calculated pursuant thereto. (d) At any time during the Term Loan Period, (i) the sum of the aggregate stated amount of (x) the Project Letters of Credit and (y) the Senior Debt Service Reserve "A" Letter of Credit shall not exceed $27,100,000 (such amount to be in addition to the aggregate amount of the Term Loans then outstanding), (ii) the sum of the aggregate stated amount of the Project Letters of Credit shall not exceed $20,500,000 and (iii) the stated amount of the Senior Debt Service Reserve "A" Letter of Credit shall not exceed $6,600,000. 3.2 Project Letters of Credit. Each Project Letter of Credit shall (i) be denominated in Dollars (except in the case of Project Letters of Credit designated to be in Canadian dollars or as, otherwise agreed by the Letter of Credit Issuer), (ii) provide for the payment of a sight draft when presented for honor thereunder in accordance with the terms thereof, (iii) be governed by the laws of the State of New York, except any Project Letter of Credit designated to be in Canadian dollars, which shall be governed solely by the Uniform Customs and Practice for Documentary Credit (1993 Revision), International Chamber of Commerce Publication No. 500, (iv) be in such form requested by the Partnership as shall be required pursuant to the terms of the Project Contract to which such Project Letter of Credit relates, or, to the extent no form is specified prior to the date hereof, Amendment and Restatement of Loan Agreement 7 shall otherwise be in form reasonably acceptable to the Letter of Credit Issuer and (v) expire on a date certain, which date shall be the earlier of (A) the date on which such Project Letter of Credit is no longer required pursuant to the terms of the Project Contract to which such Project Letter of Credit relates and (B) the Distribution Date on which the last Level 1 Distribution is scheduled to be distributed. 3.3 Procedure for Opening Letter of Credit; Participatinq Interests. (a) At least ten Business Days prior to the proposed issuance of a Project Letter of Credit, the Partnership shall provide to the Letter of Credit Issuer a written request and a form of Project Letter of Credit therefor. Such request shall set forth the proposed issuance date of such Project Letter of Credit (which shall be a Business Day) and the stated amount of such Project Letter of Credit. The Partnership shall also provide such other certificates, documents and other papers and information as the Letter of Credit Issuer may reasonably request. Upon receipt of such request from the Partnership, the Letter of Credit Issuer will promptly, but in no event later than three Business Days following receipt of such request, notify each Lender that is a Letter of Credit Participant (as defined below) thereof. Upon such receipt, the Letter of Credit Issuer will process such form of Project Letter of Credit and the other certificates, documents and other papers delivered to the Letter of Credit Issuer in connection therewith in accordance with its customary procedures and, subject to the terms and conditions hereof, shall promptly open such Project Letter of Credit (but in no event shall the Letter of Credit Issuer be required to open any Project Letter of credit earlier than three Business Days after receipt by the Letter of Credit Issuer of the request relating thereto) by issuing the original Of such Project Letter of Credit to the beneficiary identified to the Letter of Credit Issuer in the Partnership's request to the Letter of Credit Issuer and furnishing a copy thereof to the Partnership. (b) If the Letter of Credit Issuer sends a written request to the Lenders to participate in the Letters of Credit, and each Lender, in its sole discretion, agrees in writing to so participate, the Letter of Credit Issuer agrees to allot and does allot, to itself and each participating Lender (each, a "Letter of Credit Parcicipant"), and each Letter of Credit Participant severally and irrevocably agrees to take and does take in such Letter of Credit, a participating interest in a percentage equal to such Letter of Credit Participant's Commitment Percentage. 3.4 Reimbursements and other Payments by the Partnership. (a) Except as otherwise provided in Section 3.12 with respect to the Gas Supplier LOC (if the Gas Supplier LOC is not issued by the Letter of Credit Issuer) or any Backup Extension of Credit, the Partnership agrees to pay to the Letter of Credit Issuer and the Letter of Credit Participants the 8 aggregate amount of any drawing under any Letter of Credit made by the beneficiary of such Letter of Credit in accordance with the provisions of this section and the provisions of the Amended and Restated Security Deposit Agreement. Any such payment in respect of any Project Letter of Credit (other than the Power Purchase Letter of Credit) shall be due and payable in full on the first Installment Payment Date to occur on or after the related Drawing Date, provided that to the extent that cash is available in the Revenue Account on any Monthly Transfer Date occurring on or after such Drawing Date but prior to such next Installment Payment Date pursuant to and in accordance with 4.2(b) of the Amended and Restated Security Deposit Agreement to reimburse the Letter of Credit Issuer for or any' such drawing, the Partnership shall prepay such reimbursement obligation in an amount equal to the amount of such available cash on each such Monthly Transfer Date. Any such payment in respect of the Power Purchase Letter of Credit shall be due and payable in full on the related Drawing Date. Any such payment in respect of the Senior Debt Service Reserve "A" Letter of Credit shall be due and payable in full on the first Monthly Transfer Date to occur on or after the related Drawing Date and on which cash is available in the Revenue Account, after application of the cash therein in accordance with Sections 4.1 and 4.2(a) and (b) of the Amended and Restated Security Deposit Agreement, to make such payment, provided that in no event shall such payment be made later than the earlier of the Term Loan Maturity Date and the date of acceleration of the other Obligations pursuant to Section 9. Any such payment in respect of the Senior Debt Service Reserve "B" Letter of Credit shall, subject to Section 3.4(d), be due and payable in full on the first Monthly Transfer Date to occur on or after the related Drawing Date. (b) Interest will accrue on the unreimbursed amount of any drawings made under a Letter of Credit from the date of such drawing until repayment in full by the Partnership at a rate equal to the Prime Rate plus 5% per annum. Interest on reimbursement obligations in respect of each Letter of Credit (other than the Power Purchase Letter of Credit) shall be due and payable on each Monthly Transfer Date after the related Drawing Date. Interest on reimbursement obligations in respect of the Power Purchase Letter of Credit shall be payable upon demand. (c) The Partnership shall discharge all obligations with respect to any amount available to be drawn under the Letters of Credit on the Distribution Date on which the last Level 1 Distribution is scheduled to be distributed. The Partnership's obligations in respect of any amount available to be drawn under the Letters of Credit may be so discharged by (i) paying or prepaying any amount due or to become due by the Partnership to the beneficiaries under the Letters of Credit, (ii) if the Letter of Credit Issuer and the Letter of Credit Participants so agree, providing the Letter of Credit Issuer and the Letter of Credit Participants with cash collateral, pursuant Amendment and Restatement of Loan Agreement 9 to documentation in form and substance satisfactory to the Letter of Credit Issuer and the Letter of Credit Participants, in an amount equal to the aggregate undrawn face amount of the Letters of Credit or (iii) causing the termination of the Letters of Credit. (d) Notwithstanding anything to the contrary contained herein or in any other Loan Document, until the other Obligations shall have been paid in full, the reimbursement and interest payment obligations of the Partnership in respect of the senior Debt Service Reserve "B" Letter of Credit shall be payable solely from Project Revenues and other revenues of the Partnership derived and to be derived from the lease, sale or other disposition of the Project when and to the extent that such Project Revenues and other revenues are available after payments in respect of the other obligations which are then due and owing have been made; provided that nothing contained herein shall limit or be construed to limit the Letter of Credit Issuer's right to receive payments in respect of the Senior Debt Service Reserve "B" Letter of Credit pursuant to Section 4.2 of the Amended and Restated Security Deposit Agreement. 3.5 Letter of Credit Fees. (a) The Partnership agrees to pay an initial fee and a reservation fee, in each case solely with respect to each Project Letter of Credit, to the Letter of Credit Issuer as specified in the Letter Agreement. In Addition, the Partnership agrees to pay to the Agent for the account of the Letter of Credit Issuer and the Letter of Credit Participants, solely with respect to each Project Letter of Credit issued and outstanding, a letter of credit fee equal to the rate set forth in the Letter Agreement on the amount available to be drawn under such Project Letter of Credit. The fees described in this paragraph (a) collectively are referred to herein as the "Letter of Credit Fees". (b) Letter of Credit Fees with respect to any Project Letter of Credit shall be payable quarterly in arrears, commencing on the first Interest Payment Date to occur after the issuance of such Project Letter of Credit. 3.6 Payments by Lenders Upon Unreimbursed Drawings. The Letter of Credit Issuer will notify each Letter of Credit Participant promptly of any drawing under a Letter of Credit and, in the case of the Power Purchase Letter of Credit, that any drawing under such Letter of Credit has not promptly been reimbursed by the Partnership pursuant to Section 3.4. Upon its receipt of any such notice, each Letter of Credit Participant will transfer to the Letter of Credit Issuer, in immediately available funds, an amount equal to such Letter of Credit Participant's Commitment Percentage of the amount of the drawing. 3.7 Obligations Absolute. The obligations of the Partnership under this Agreement in respect of the Letters of Amendment and Restatement of Loan Agreement 10 Credit and the Surety Bond Arrangements shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances: (a) any lack of validity or enforceability of the Surety Bond Arrangements or any Letter of Credit or any agreement or instrument related thereto; (b) any amendment or waiver of or any consent to departure from the terms of the Surety Bond Arrangements or any Letter of Credit; provided, that any such amendment of the terms of any Letter of Credit shall have been effectuated in accordance with section 11; (c) the existence of, any claim, set-off, defense or other rights which the Partnership may have at any time against any beneficiary or any transferee of the Surety Bond Arrangements or any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Letter of Credit Issuer; the Agent, the Letter of Credit Participants, the Surety Bond Arranger or any other Person, whether in connection with the Surety Bond Arrangements or such Letter of Credit, this Agreement, any other Basic Document or any agreement or instrument related thereto, the transactions contemplated herein, or any unrelated transaction; (d) any statement or any other document presented under any Letter of Credit or the Surety Bond proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (e) payment by the Letter of Credit Issuer or the Surety Bond Issuer under any Letter of Credit or the Surety Bond, respectively, against presentation of a draft or certificate or notice that does not comply with the terms of such Letter of Credit or Surety Bond; and (f) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing; provided, that the Letter of Credit Issuer acted in good faith and used due care in the examination of any draft or certificate presented under any Letter of Credit in ascertaining whether on its face it appeared to comply with the terms of such Letter of Credit. 3.8 Indemification. The Partnership hereby indemnifies and holds harmless the Letter of Credit Issuer, the Letter of Credit Participants and the Surety Bond Arranger from Amendment and Restatement of Loan Agreement 11 and against any and all claims, damages, losses, liabilities, reasonable costs and expenses whatsoever which the Letter of Credit Issuer, any Letter of Credit Participant or the Surety Bond Arranger may incur (or which may be claimed against the Letter of Credit Issuer, any Letter of Credit Participant or the Surety Bond Arranger by any Person) by reason of or in connection with the execution and delivery or transfer of, or payment or failure to pay under, any Letter of Credit or the Surety Bond Arrangements; provided, that the Partnership shall not be required to indemnify the Letter of Credit Issuer, any Letter of Credit Participant or the Surety Bond Arranger for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by the failure of the Letter of Credit Issuer or the Surety Bond Arranger to act in good faith or, in the case of the Letter of Credit Issuer, to use due care in the examination of any draft or certificate presented under any Letter of Credit in ascertaining whether on its face it appeared to comply with the terms of such Letter of Credit. Nothing in this section 3.8 is intended to limit the reimbursement obligations of the Partnership contained herein. 3.9 Liability of the Letter of Credit Issuer, the Letter of Credit Participants and the Surety Bond Arranger. The Partnership assumes all risks of the acts or omissions of the beneficiary and any transferee of any Letter of Credit with respect to its use of such Letter of Credit or of the Surety Bond with respect to its use of the Surety Bond. None of the Agent, the Letter of Credit Issuer, any other Letter of Credit Participant or the Surety Bond Arranger or any of their respective officers or directors shall be liable or responsible for: (a) the use which may be made of any Letter of Credit or the Surety Bond for any acts or omissions of the beneficiary and any transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Letter of Credit Issuer, the Surety Bond Issuer or the Surety Bond Arranger against presentation of documents which do not comply with the terms of any Letter of Credit or the Surety Bond, including failure of any documents to bear any reference or adequate reference to such Letter of Credit or the Surety Bond; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of credit or the Surety Bond, except only that the Partnership shall have a claim against the Letter of credit Issuer or the Surety Bond Arranger and the Letter of Credit Issuer and the Surety Bond Arranger shall be liable to the Partnership, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Partnership which the Partnership proves were caused by the failure of the Letter of Credit Issuer or the Surety Bond Issuer to act in good faith or, in the case of the Letter of Credit Issuer, to use due care in the examination of any draft or certificate presented under any Letter of Credit in Amendment and Restatement of Loan Agreement 12 ascertaining whether on its face it appeared to comply with the terms of such Letter of Credit. In furtherance and not in limitation of the foregoing, the Letter of Credit Issuer and the Surety Bond Arranger may accept documents that appear on their face to be in order, without responsibility for further investigation. 3.10 Assignments. (a) No Letter of Credit Participant's participation in any Letter of Credit or any of its rights or duties hereunder shall be subdivided, assigned or transferred (other than in connection with a transfer of part or all of such Letter of Credit Participant's Term Notes in accordance with Section 11.7), without the prior written consent of the Letter of Credit Issuer, which consent will not be unreasonably withheld. Such consent may be given or withheld without the consent or agreement of any other Letter of Credit Participant. Notwithstanding the foregoing, a Letter of Credit Participant may participate its interest in any Letter of Credit without obtaining the prior written consent of the Letter of credit Issuer. (b) The Letter of Credit Issuer may assign it rights and obligations in respect of any Project Letter of Credit to any entity that is rated "AA" or better by Standard & Poor's Corporation or the equivalent by any nationally recognized rating agency and is acceptable to the beneficiary thereof pursuant to the terms of the Project Contract to which such Project Letter of Credit relates. 3.11 Participations. Each Letter of Credit Participant's obligation to make payments to the Letter of Credit Issuer upon any drawing of a Letter of Credit thereon shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (a) any set-off, counterclaim, recoupment, defense or other right which such Letter of Credit Participant may have against the Letter of Credit Issuer, the Borrowers or any other Person for any reason whatsoever; (b) the occurrence or continuance of a Default or an Event of Default; (c) any adverse change in the condition (financial or otherwise) of the Borrowers; (d) any breach of this Agreement by the Borrowers or any other Letter of Credit Participant; or (e) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 3.12 Reimbursements and Other Payments by the Partnership in Respect of Gas Supplier LOC. In the event that the (i) Gas Supplier LOC Issuer is a Person other than the Letter of Credit Issuer and (ii) the Letter of Credit Issuer has reimbursed the Gas Supplier LOC Issuer pursuant to a drawing under a Project Letter of Credit (each such Project Letter of Credit or other extension of credit the proceeds of which are used to make such reimbursement, as amended, supplemented or otherwise modified from time to time, a "Backup Extension of Amendment and Restatement of Loan Agreement 13 Credit"), the Partnership agrees to pay to the Agent for the account of the Letter of Credit Issuer and the Letter of Credit Participants an amount equal to the aggregate amount of any drawings under the Gas Supplier LOC in respect of which the Letter of Credit Issuer has so reimbursed the Gas Supplier LOC Issuer in accordance with the provisions of this Section and the provisions of the Amended and Restated Security Deposit Agreement. Any such payment shall be due and payable in full on the first Installment Payment Date to occur on or after the date on which the Letter of Credit Issuer has so reimbursed the Gas Supplier LOC Issuer, provided that to the extent that cash is avaliable in the Revenue Account on any Monthly Transfer Date occurring on or after such reimbursement date but prior to such next Installment Payment Date pursuant to and in accordance with Section 4.2(b) of the Amended and Restated Security Deposit Agreement to reimburse the Letter of Credit Issuer for any such extension of credit, the Partnership shall prepay such reimbursement obligation in an amount equal to the amount of such available cash on each such Monthly Transfer Date. Interest will accrue on any Backup Extension of Credit from the date of the making of such extension of credit until repayment in full by the Partnership at a rate equal to the Prime Rate plus 5% per annum. Any such interest accruing pursuant to the immediately preceding sentence shall be due and payable on each Monthly Transfer Date after the related reimbursement date. The Partnership shall also cause the discharge of all obligations with respect to any amount available to be drawn under any such Gas Supplier LOC and Backup Extension of Credit on the Distribution Date on which the last scheduled Level 1 Distribution is to be distributed. The Partnership may so discharge any such obligations in respect of any amount available to be drawn under such Backup Extension of Credit by (i) paying or prepaying any amount due or to become due to the beneficiaries under such Backup Extension of Credit, (ii) if the Letter of Credit Issuer and the Letter of Credit Participants so agree, securing such Backup Extension of Credit with cash collateral pursuant to documentation in form and substance satisfactory to the Letter of Credit Issuer and the Letter of Credit Participants, in an amount equal to the aggregate undrawn face amount of such Backup Extension of Credit or (iii) causing the termination of such Backup Extension of Credit. 3.13 Fee for Gas Supplier LOC Arrangements. The Partnership agrees to pay all fees and expenses of the Gas Supplier LOC Issuer in connection with the issuance of the Gas Supplier LOC and all fees and expenses of the Letter of Credit Issuer in connection with the issuance of any Backup Extension of Credit. 3.14 Payments by Lenders Upon Unreimbursed Drawings. The Letter of Credit Issuer will notify each Letter of Credit Participant promptly of any drawing under the Gas Supplier LOC. Upon its receipt of any such notice, each Letter of Credit Amendment and Restatement of Loan Agreement 14 Participant, will transfer or to the Letter of Credit Issuer, in immediately available funds, an amount equal to such Letter of Credit Participant's Commitment Percentage of the amount of such drawing. 3.15 Obligations Absolute. The provisions of Sections 3.7, 3.8, 3.9, 3.10 and 3.11 shall apply mutatis mutandis to the Gas Supplier LOC and any Backup Extension of Credit and the obligations of the Partnership in respect of the Gas Supplier LOC and any Backup Extension of Credit. 3.16 Replacement of Letter of Credit Issuer. If, at any time, the Letter of Credit Issuer fails to maintain a Standard & Poor's credit rating of "A" or better, the Partnership shall cause such Letter of Credit Issuer to be replaced by a financial institution with a Standard & Poor's credit rating of "A" or better which is acceptable to the beneficiary of each Letter of Credit then issued and outstanding. Such replacement shall be accomplished by the successor Letter of Credit Issuer issuing to each beneficiary of a Letter of Credit then issued and outstanding a replacement Letter of Credit in exchange therefor. Each such replacement Letter of Credit shall be substantially in the form of the Letter of Credit being replaced and shall otherwise conform to the requirements hereof. Each replaced Letter of Credit shall be promptly returned to the issuer thereof and marked "canceled". Concurrently with any such replacement, the existing Letter of Credit Issuer and the replacement Letter of Credit Issuer shall execute and deliver such documents as may be necessary to provide for the assignment to such replacement Letter of Credit Issuer, of all rights and obligations of the existing Letter of Credit Issuer hereunder and under the other Loan Documents. 3.17 Surety Bond Arrangements Commitment. At the request of the Partnership, and subject to the terms and conditions hereof, the Surety Bond Arranger agrees to enter into the Surety Bond Arrangements on or prior to the Second Capital Contribution Date. 3.18 Reimbursements and Other Payments by the Partnership in Respect Of Surety Bond Arrangements. (a) The Partnership agrees to reimburse the Surety Bond Arranger (the "Surety Bond Arrangements Reimbursement Obligation") for the aggregate amount of each payment required to be made by the Surety Bond Arranger to the Surety Bond Issuer in connection with the Surety Bond (each such payment, a "Surety Bond Arranger Payment") in accordance with the provisions of this Section, the Surety Bond Arrangements Cash Collateral Agreement and the SECI Term Loan Agreement. Any such reimbursement payment shall, subject to Section 3.18(d), be due and payable in full on the date on which the Surety Bond Arranger makes the related Surety Bond Arranger Payment. Amendment and Restatement of Loan Agreement 15 (b) Interest will accrue on the unreimbursed amount of any Surety Bond Arranger Payment from the date on which such payment is made until reimbursement in full by the Partnership at a rate equal to the Prime Rate plus 5% per annum. Interest on each Surety Bond Arrangements Reimbursement Obligation shall be Payable on demand. (c) The Partnership shall cause all obligations of the Surety Bond Arranger under the Surety Bond Arrangements to be discharged on the earlier of (i) the date on which both surety bonds constituting the Surety Bond shall have been released, (ii) the date on which the other Obligations shall have become due and payable (whether at stated maturity, by acceleration or otherwise) and (iii) September 30, 1999. The Partnership may cause such discharge by (i) paying or prepaying any amount due or to become due by the Surety Bond Arranger to the Surety Bond Issuer under the Surety Bond Arrangements, (ii) if the Surety Bond Arranger so agrees, providing the Surety Bond Arranger with cash collateral pursuant to documentation in form and substance satisfactory to the Surety Bond Arranger, in an amount equal to the aggregate amount of the obligations of the Surety Bond Arranger under the Surety Bond Arrangements or (iii) causing the termination of the Surety Bond Arrangements. (d) Notwithstanding anything to the contrary contained herein, until the other obligations (other than obligations in respect of the senior Debt Service Reserve "B" Letter of Credit) shall have been paid in full, all Surety Bond Arrangements Reimbursement Obligations shall be payable only first, from the Surety Bond Arrangements Collateral, and second, from capital contributions to be made for such purpose by SECI to the Partnership pursuant to (i) the SECI Term Loan Agreement or the Partnership Agreement and (ii) Section 7.24 of this Agreement; provided that nothing contained herein shall limit or be construed to limit the Surety Bond Arranger's right to receive payments in respect of expenses pursuant to Sections 4.1(a) and 4.2(a) of the Amended and Restated Security Deposit Agreement. 3.19 Cost of Issuance of Surety Bond; Surety Bond Arranger Fee. (a) The parties hereto recognize and agree that the cost of issuing the Surety Bond was paid as a Certified Construction Cost with the proceeds of the last Construction Loan borrowing under the Original Loan Agreement. (b) The Partnership agrees to pay to the Surety Bond Arranger a utilization fee equal to the rate set forth in the Letter Agreement on the amount of the Surety Bond (the "Surety Bond Arranger Fee"). Such Surety Bond Arranger Fee shall be payable quarterly in arrears, commencing on the first Interest Payment Date to occur after the issuance of the Surety Bond. Amendment and Restatement of Loan Agreement 16 SECTION 4 PROVISIONS RELATING TO ALL EXTENSIONS OF CREDIT; FEES AND PAYMENTS 4.1 Agency Fees. The Partnership agrees to pay to the Agent an administrative agent's fee on October 7, 1994, and annually, in advance, on each anniversary of the date hereof (the "Agency Fee") in an amount equal to $100,000 per annum. 4.2 Prepayments and Repayments. (a) (i) If the Required Lenders have delivered a notice in writing to the Partnership declaring that an Event of Loss had occurred, the respective Borrowers parties thereto (1) shall prepay in full the unpaid principal amount of the then outstanding Term Notes, together with accrued interest thereon to the date of prepayment and the Breakage Amount thereon and all other amounts due and owing in respect of the Term Loans, (2) shall satisfy its obligations in respect of the Letters of Credit by (x) paying or prepaying any amount due or to become due by the Partnership to the beneficiaries under the Letters of Credit, (y) if the Letter of Credit Participants and the Letter of Credit Issuer so agree, providing the Letter of Credit Participants and the Letter of Credit Issuer with cash collateral, pursuant to documentation in form and substance satisfactory to the Letter of Credit Participants and the Letter of Credit Issuer, in an amount equal to the aggregate undrawn face amount of the Letters of Credit or (z) causing the termination of the Letters of Credit and (3) shall satisfy its obligations in respect of the Surety Bond Arrangements by (x) paying or prepaying any amount due or to become due by the Surety Bond Arranger to the Surety Bond Issuer under the Surety Bond Arrangements, (y) if the Surety Bond Arranger so agrees, providing the Surety Bond Arranger with cash collateral, pursuant to documentation in form and substance satisfactory to the Surety Bond Arranger, in an amount equal to the aggregate amount of the obligations of the Surety Bond Arranger under the Surety Bond Arrangements or (z) causing the termination of the Surety Bond Arrangements, and shall pay any unpaid Letter of Credit Fees and other fees accrued hereunder to the date of prepayment, on the earlier of (I) the date occurring 90 days after the date of receipt of such notice from the Required Lenders and (II) the date on which insurance proceeds are received with respect to such Event of Loss. (ii) If (A) the Debt Service Coverage Ratio as of the end of any six consecutive Measurement Periods is less than 1.20 to 1.00 or (B) if an Event of Default has occurred and is continuing, any amount in the Senior Debt Service Coverage Account shall be applied to the prepayment of the principal amount of the Term Loans in the inverse order of maturity, plus the Breakage Amount thereon and all other amounts due and owing in respect of the Term Loans. (b) The Borrowers may, from time to time, prepay the Term Loans, in whole or in part, together with interest thereon Amendment and Restatement of Loan Agreement 17 to the date of prepayment, plus any amounts payable pursuant to Section 4.10 and the Breakage Amount thereon. Optional prepayments pursuant to this Section 4.2(b) shall be made upon at least two Working Days' prior written irrevocable notice by the Partnership to the Agent, specifying the date and amount of such prepayment. If any such notice is given, the Borrowers will make the prepayment specified therein and such prepayment shall be due and payable on the date specified therein, together with interest accrued thereon to the date of prepayment, plus any amounts payable pursuant to Section 4.10 and the Breakage Amount thereon. Optional prepayments shall be applied to the prepayment of the principal amount of the Term Loans in the inverse order of maturity. (c) (i) The Partnership's obligations in respect of the Letters of Credit may be satisfied by (x) paying or prepaying any amount due or to become due by the Partnership to the beneficiaries under the Letters of Credit, (y) if the Letter of Credit Participants and the Letter of Credit Issuer so agree, providing the Letter of Credit Participants and the Letter of Credit Issuer with cash collateral, pursuant to documentation in form and substance satisfactory to the Letter of Credit Participants and the Letter of Credit Issuer, in an amount equal to the aggregate undrawn face amount of the Letters of Credit or (z) causing the termination of the Letters of Credit. (ii) The Partnership's obligations in respect of the Surety Bond Arrangements may be satisfied by (x) paying or prepaying any amount due or to become due by the Partnership to the Surety Bond Issuer under the Surety Bond Arrangements, (y) if the Surety Bond Arranger so agrees, providing the Surety Bond Arranger with cash collateral, pursuant to documentation in form and substance satisfactory to the Surety Bond Arranger, in an amount equal to the aggregate amount the obligations of the Surety Bond Arranger under of the Surety Bond Arrangements or (z) causing the termination of the Surety Bond Arrangements. (d) Upon prepayment in full, (i) the Letter of Credit Commitment and all other terms and provisions of this Agreement shall terminate (other than any terms and provisions hereof which by their express terms survive the termination of this Agreement) and (ii) the Agent shall deliver to the Borrowers, at the Partnership's expense, such documents reasonably requested by the Borrowers to evidence the release of the Lenders' Liens on the Collateral pursuant to the Collateral Security Documents. (e) Payments and prepayments made pursuant to this Section 4.2 may not be reborrowed. (f) Except as otherwise provided herein, payments and prepayments of the Term Loans shall be applied to installments of principal of the Term Loans, pro rata, in the inverse order of maturity. Amendment and Restatement of Loan Agreement 18 4.3 Interest Rates and Payment Dates. (a) (i) The Term Loans that are Eurodollar Loans shall bear interest for each Eurodollar Interest Period on the unpaid principal amount thereof at the Interest Rate set forth in clause (a) of the definition thereof. (ii) The Term Loans that are Base Rate Loans shall bear interest on the unpaid principal amount thereof at the Interest Rate set forth in clause (b) of the definition thereof. (b) If all or a portion of the principal amount of any Term Loan made hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such Term Loan, if a Eurodollar Loan, shall be converted to a Base Rate Loan at the end of the Eurodollar Interest Period therefor. If all or a portion of the principal amount of any Term Loan made hereunder or any other amount due and payable hereunder shall be paid when due (whether at the stated maturity, by acceleration or otherwise), such Term Loan or other amount shall bear interest at a rate per annum which is 2% above the rate which would otherwise be applicable pursuant to Section 4.3 from the date of such non-payment until paid in full (as well after as before judgment). (c) Interest on the aggregate unpaid principal amount of the Term Loans shall be payable in arrears on each Interest Payment Date. 4.4 Interest Rate Conversions. Any Eurodollar Loan will be continued as such upon the expiration of the Eurodollar Interest Period with respect thereto; provided that no Eurodollar Loan will be continued as such when any Default or Event of Default has occurred and is continuing, but shall automatically be converted to a Base Rate Loan on the last day of the Eurodollar Interest Period with respect thereto. The Eurodollar Interest Period for any such continued Eurodollar Loan shall be of the same duration as the Eurodollar Interest Period of the Eurodollar Loan so continued, unless otherwise specified by the Partnership as provided in the definition of Eurodollar Interest Period in Appendix A; provided, that the Eurodollar Interest Period commencing at the end of the first Eurodollar Interest Period applicable to the Term Loans shall be three months. 4.5 Pro Rata Treatment and Payment Dates. (a) Each borrowing by the Borrowers from the Lenders, each payment (including each prepayment) by the Borrowers on account of the principal of and interest on the Notes and on account of any Letter of Credit Fee hereunder, shall be made pro rata according to the respective Commitment Percentages of the Lenders and the respective Letter of Credit Commitment Percentages of the Letter of Credit Participants, as the case may be. Except in respect of the Surety Bond Arrangements Reimbursement Obligations, all Amendment and Restatement of Loan Agreement 19 payments (including prepayments) due hereunder or under the Notes on account of principal, interest, fees, and any other obligation incurred hereunder shall be paid to the Agent by wire or electronic transfer for deposit to the credit of its account no. 904996002, Loan Department Clearing, at Credit Suisse, Tower 49, 12 East 49th Street, New York, New York, 10017 ABA Number: 026009179, or such other account as the Agent may from time to time specify to the Partnership, in freely transferable Dollars and in immediately available funds without set-off or counterclaim. The Agent shall distribute such payments to the Lenders, the Letter of Credit Issuer, and the Letter of Credit Participants, as the case may be, promptly upon receipt in like funds as received. All payments (including prepayments) due hereunder on account of the Surety Bond Arrangements Reimbursement Obligations, interest thereon, and fees and other amounts in respect thereof shall be paid to the Surety Bond Arranger by wire or electronic transfer as specified in the Surety Bond Arrangements Cash Collateral Agreement, in freely transferable Dollars and in immediately available funds without set-off or counterclaim. No such payment, however, shall be deemed to be a waiver of any claims the Borrowers may assert against the Agent, the Lenders, the Letter of Credit Issuer, the Letter of Credit Participants or the Surety Bond Arranger. All payments hereunder shall he made without any presentment of the Notes to the Borrowers, but upon payment in full of the Notes, the holders thereof shall cancel them and return them to the Borrowers. (b) If any payment hereunder (other than payments on Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on Eurodollar Loans becomes due and payable on a day other than a Working Day, the maturity thereof shall be extended to the next succeeding Working Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Working Day. 4.6 Inability to Determine Eurodollar Rate. In the event that the Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate applicable for any Eurodollar Interest Period with respect to (a) Base Rate Loans that the Partnership has requested be converted to Eurodollar Loans, or (b) the continuation of Eurodollar Loans beyond the expiration of the then current Eurodollar Interest Period therefor, the Agent shall give notice of such event to the Partnership within 30 days following the date of such notice by the Agent, the Agent Amendment and Restatement of Loan Agreement 20 (after consultation with each Lender) and the Partnership shall enter into negotiations in good faith with a view to agreeing on an alternative basis acceptable to the Partnership and the Lenders for determining the interest rate (the "Substitute Eurodollar Rate") which shall be applicable during such Eurodollar Interest Period for the Eurodollar Loans to which such Eurodollar Interest Period applies and which shall reflect the cost to the Lenders of funding such Eurodollar Loans for such Eurodollar Interest Period from alternate sources plus the Applicable Margin applicable to Eurodollar Loans. If, at the expiration of 30 days from the giving of such notice by the Agent, (i) the Agent and the Partnership have agreed to such Substitute Eurodollar Rate, such Substitute Eurodollar Rate shall take effect with respect to such Eurodollar Interest Period from the beginning of such Eurodollar Interest Period, or (ii) the Agent and the Partnership have not agreed to a Substitute Eurodollar Rate, (x) any Loans that were to have been converted to Eurodollar Loans shall be continued as Base Rate Loans and (y) any outstanding Eurodollar Loans shall be converted, on the last day of the then current Eurodollar Interest Period therefor, to Base Rate Loans. Until such notice has been withdrawn by the Agent, no Base Rate Loans shall be converted to Eurodollar Loans pursuant to Section 2.3(a). 4.7 Computation of Interest and Fees. (a) Interest in respect of Eurodollar Loans shall be calculated on the basis of a 360-day year for the actual days elapsed (including the first but excluding the last day). Interest in respect of Base Rate Loans, and all fees hereunder, shall be calculated on the basis of a 365 (or 366, as the case may be) day year for the actual days elapsed (including the first but excluding the last day). (b) The Agent shall as soon as practicable notify the Partnership and the Lenders of each determination of a Eurodollar Rate and a Base Rate. (c) Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrowers and the Lenders in the absence of manifest error. 4.8 Illegality. Notwithstanding any other provision herein, if any change in any Applicable Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Term Loans at the Eurodollar Rate as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make or maintain Term Loans at the Eurodollar Rate, shall forthwith be cancelled, and (b) such Lender's Term Loans then outstanding at the Eurodollar Rate, if any, shall bear interest at the Base Rate. If any such conversion occurs on a day other than the last day of a Eurodollar Interest Period, the Amendment and Restatement of Loan Agreement 21 Partnership shall pay to such Lender such amounts, if any, as may be required pursuant to Section 4.10. 4.9 Applicable Law. (a) In the event that any change in any Applicable Law or interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note or any Loan bearing interest at the Eurodollar Rate made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for taxes covered by Section 4.11 and changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities of or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, or maintaining Eurodollar Loans or to reduce any amount receivable hereunder in respect thereof then, in any such case, the Partnership shall promptly pay such Lender, within five Business Days of demand therefor, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Partnership, through the Agent, of the event by reason of which it has become so entitled; provided, that the failure of such Lender to so notify the Partnership shall not act as a waiver of the right of such Lender to receive such additional amounts when such Lender provides the required notice to the Partnership. A certificate as to any additional amounts payable pursuant to this Section submitted by such Lender, through the Agent, to the Partnership shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Term Notes and all other amounts payable hereunder. (b) In the event that any Lender shall have determined that any change in any Applicable Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any Amendment and Restatement of Loan Agreement 22 request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Partnership (with a copy to the Agent) of a written request therefor, the Partnership shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. A certificate as to any additional amounts payable pursuant to this Section submitted by such Lender, through the Agent, to the Partnership shall be conclusive in the absence of manifest error. 4.10 Indemnity. The Partnership agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (i) default by the Borrowers in making a borrowing of Term Loans after the Partnership has given a notice requesting the same in accordance with the provisions of the Original Loan Agreement or (ii) the making of a prepayment of a Term Loan on a day which is not the last day of a Eurodollar Interest Period with respect thereto, including, without limitation, any such loss or expense arising from the reemployment of funds obtained by it for the then current Eurodollar Interest Period or from fees payable to terminate the deposits from which such funds were obtained. Each Lender agrees to use reasonable efforts to minimize any such loss or expense. This covenant shall survive the termination of this Agreement and the payment of the Term Notes and all other amounts payable hereunder and the expiration of the Letters of Credit. 4.11 Taxes. (a) All payments made by the Borrowers under this Agreement, the Notes or the Letters of Credit or in respect of the Surety Bond Arrangements Reimbursement Obligations shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings and all liabilities with respect thereto, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding, in the case of the Agent, the Letter of Credit Issuer, the Surety Bond Arranger and the Lenders, taxes imposed on or measured by net income, overall gross receipts, or capital of the Agent, the Letter of Credit Issuer, the Surety Bond Arranger or any Lender or any franchise tax imposed in lieu thereof as a result of a present or former connection between the jurisdiction of the government or taxing authority imposing such tax and the Agent, the Letter of Credit Issuer, the Surety Bond Arranger or such Lender (excluding Amendment and Restatement of Loan Agreement 23 a connection arising solely from the Agent, the Letter of Credit Issuer, the Surety Bond Arranger or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement, the Notes, the Letters of Credit or the Surety Bond Arrangements) or any political subdivision or taxing authority thereof or therein (all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions, liabilities and withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any amounts payable to the Agent, the Letter of Credit Issuer, the Surety Bond Arranger or any Lender hereunder or under the Notes or the Letters of Credit, the amounts so payable to the Agent, the Letter of Credit Issuer, the Surety Bond Arranger or such Lender shall be increased to the extent necessary to yield to the Agent, the Letter of Credit Issuer, the Surety Bond Arranger or such Lender (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. Whenever any Taxes are payable by the Borrowers, as promptly as possible thereafter the Borrowers shall send to the Agent, the Letter of Credit Issuer, the Surety Bond Arranger and the Lenders affected thereby a certified copy of an original official receipt received by the Borrowers showing payment thereof. If the Borrowers fail to pay any Taxes when due to the appropriate taxing authority or fail to remit to the Agent, the Letter of Credit Issuer, the Surety Bond Arranger and the Lenders affected thereby the required receipts or other required documentary evidence, the Partnership shall indemnify the Agent, the Letter of Credit Issuer, the Surety Bond Arranger and the Lenders affected thereby for any incremental taxes, interest or penalties that may become payable by the Agent, the Letter of Credit Issuer, the Surety Bond Arranger or such Lenders as a result of any such failure. This indemnification payment shall be made promptly following written demand by the Agent, the Letter of Credit Issuer, the Surety Bond Arranger or such Lenders affected thereby (as the case may be). This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder and the expiration of the Letters of Credit and the Surety Bond Arrangements. (b) Each Lender that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Borrowers and the Agent (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each such Lender also agrees to deliver to the Borrowers and the Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrowers, and such Amendment and Restatement of Loan Agreement 24 extensions or renewals thereof as may reasonably be requested by the Borrowers or the Agent unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Borrowers and the Agent. Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. SECTION 5 REPRESENTATIONS AND WARRANTIES In order to induce the Agent and the Lenders to enter into this Agreement and to make the Term Loans, to induce the Letter of Credit Issuer to enter into this Agreement and to issue the Letters of Credit and to induce the Surety Bond Arranger to enter into this Agreement and the Surety Bond Arrangements, (a) each of the Partnership, North Country (as to itself or with respect the North Country Project only) and SECI represents and warrants to the Agent, the Lenders, the Letter of Credit Issuer and the Surety Bond Arranger under Sections 5.1 through 5.31 and (b) the IDA represents and warrants to such Persons solely under Section 5.32, that: 5.1 Financial Statements; Base Case Pro Forma Financial Statements. (a) The balance sheet of the Partnership as of June 30, 1994, heretofore furnished to the Agent and certified by a Responsible Officer of SECI General, is complete and correct in all material respects and fairly presents the financial condition of the Partnership on such date, in conformity with GAAP applied on a consistent basis. All liabilities, direct and contingent, of the Partnership on such date required to be disclosed pursuant to GAAP are disclosed on such balance sheet. (b) The balance sheet of SECI as of June 30, 1994, heretofore furnished to the Agent and certified by a Responsible Officer of SECI is complete and correct in all material respects and fairly presents the financial condition of SECI as of such date, in conformity with GAAP applied on a consistent basis. All liabilities, direct and contingent, of SECI on such date required to be disclosed pursuant to GAAP are disclosed on such balance sheet. (c) The balance sheet of North Country as of June 30, 1994, heretofore furnished to the Agent and certified by a Responsible Officer of North Country, is complete and correct in Amendment and Restatement of Loan Agreement 25 all material respects and fairly presents the financial condition of North Country on such date, in conformity with GAAP applied on a consistent basis. All liabilities, direct and contingent, of North Country on such date required to be disclosed pursuant to GAAP are disclosed in such balance sheet. (d) Since October 31, 1992, no Material Adverse Effect has occurred and on the initial Borrowing Date no additional Indebtedness (except as permitted under Section 8.2 of the Original Loan Agreement) had been incurred by the Partnership, North Country or SECI other than, in respect of SECI, the SECI Term Loan and, in respect of North Country, its obligations to the Partnership in connection with the Pipeline Construction Contract. (e) The pro forma financial model and projections of the Partnership (together, the "Base Case Pro Forma Financial Statements") for the period starting on the Date of Commercial Operation and ending fifteen years thereafter, copies of which have been delivered to the Agent, disclose all material assumptions made in formulating the Base Case Pro Forma Financial Statements, including technical standards of the Project (including the North Country Project), schedule of values, operating management plan, estimates of annual budgeted operating expenses and assumptions with respect to general economic, financial and market conditions, and are based on an operating plan approved by the Partnership, copies of which plan have been delivered to the Agent. The most recently delivered Base Case Pro Forma Financial Statements represent, in the best judgment, made in good faith, of the Partnership, reasonable projections based on reasonable assumptions. The Partnership is not aware of any fact in existence not disclosed in writing to the Agent and the Lenders which could reasonably be expected to result in any material change in any of the Base Case Pro Forma Financial Statements. The Base Case Pro Forma Financial Statements were prepared in good faith on the basis of sound financial planning practice. (f) The amounts set forth in the Construction Budget are sufficient to pay the costs of constructing the Project in accordance with the Construction Contract. The amounts set forth in the Construction Budget for contingencies do not include any amounts payable by the Partnership or North Country in respect of Certified Construction Costs (including Certified Construction Costs in respect of change orders entered into prior to the Construction Loan Closing Date) due and payable prior to the Construction Loan Closing Date. 5.2 Corporate Existence and Business. (a) The Partnership is a limited partnership duly organized and validly existing and in good standing under the laws of the State of Delaware. The Partnership is duly qualified to do business under the laws of each jurisdiction in which the conduct of its Amendment and Restatement of Loan Agreement 26 business or the ownership, lease or operation of property so requires except where the failure to so qualify would not have a Material Adverse Effect. The Certificate of Limited Partnership of the Partnership has been duly filed in the office of the Secretary of State of Delaware and no other filing, recording, publishing or other act is necessary or appropriate in connection with the existence or the business of the Partnership except those which have been duly made or performed. Prior to the Conformed Agreement Date, the Partnership engaged in no business other than the development of the Project, and the negotiation, execution, delivery and performance of the Basic Documents to which it is a party and the Partnership had no obligations or liabilities other than those directly related to the conduct of such business. Since the Conformed Agreement Date, the Partnership has engaged, and from and after the date hereof, the Partnership is and will be engaged solely in the business of constructing, owning and operating the Project and owning the stock of North Country. (b) SECI is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its incorporation. SECI is duly qualified to do business and is in good standing under the laws of each jurisdiction in which the conduct of its business or the ownership, lease or operation of property so requires except where any such failure would not have a Material Adverse Effect. SECI is the sole general partner of the Partnership and is engaged solely in the business of being the general partner of the Partnership. (c) North Country is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its incorporation. North Country is duly qualified to do business and is in good standing under the laws of each jurisdiction in which the conduct of its business or ownership, lease or operation of property so requires except where any such failure would not have a Material Adverse Effect. (d) The only partners of the Partnership on the date of the execution and delivery of this Agreement are SECI, as the sole general partner and as a limited partner, and TPC One, TPC Two and GE Capital, as limited partners. (e) The Partnership's only Subsidiary is North Country. SECI's only direct Subsidiary is the Partnership and its only indirect Subsidiary is North Country. North Country has no Subsidiaries. 5.3 Compliance with Law. Each of SECI, the Partnership, North Country and the Project is in compliance with all Requirements of Law applicable to it. 5.4 Power and Authorization; Enforceable Obligations. (a) The Partnership has full power and authority and the legal Amendment and Restatement of Loan Agreement 27 right (subject to the receipt of the approvals referred to in section 5.5) to construct, own and operate the Project, to conduct its business as now conducted and as proposed to be conducted by it, to execute, deliver and perform this Agreement, the Notes, and the other Basic Documents to which it is or is to become a party, to take all action as may be necessary to complete the transactions contemplated hereunder and thereunder, to grant the liens and security interests provided for in the Collateral Security Documents to which it is a party and to borrow hereunder. The Partnership has taken all necessary partnership and legal action to authorize the borrowings hereunder on the terms and conditions of this Agreement, the Notes and the other Basic Documents to which it is a party, to grant the liens and security interests provided for in the Collateral Security Documents to which it is a party and to authorize the execution, delivery and performance of this Agreement, the Notes, and the other Basic Documents to which it is a party or is to become a party. No consent or authorization of, filing with, or other act by or in respect of any other Person, that has not been made, obtained or complied with, is required in connection with the borrowings hereunder or with the execution, delivery or performance by the Partnership or the validity or enforceability as to the Partnership of this Agreement, the Notes, or the other Basic Documents except the Governmental Approvals referred to in Section 5.5 and other consents and approvals referred to in Schedule 3. Each of this Agreement and the other Basic Documents to which the Partnership is a party has been duly executed and delivered by the Partnership and, assuming the due authorization and delivery hereof and thereof by the other parties hereto and thereto, constitutes, and each of the Notes and the other Basic Documents to which the Partnership is to become a party will upon execution and delivery thereof by the Partnership and, assuming due authorization thereof, by the other parties thereto (if any) constitute, a legal, valid and binding obligation of the Partnership enforceable against the Partnership in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity (whether such enforcement is sought in a proceeding at law or in equity). None of the Project Contracts to which the Partnership is a party has been amended or modified since the Construction Loan Closing Date, except in accordance with Section 8.6, and all such Project Contracts are in full force and effect. (b) SECI has full power and authority and the legal right to own its properties and to conduct its business as now conducted and proposed to be conducted by it (subject to receipt of the approvals referred to in Section 5.5), to execute, deliver and perform the Basic Documents to which it is or is to become a party and to take all action as may be necessary to complete the transactions contemplated thereunder. SECI has Amendment and Restatement of Loan Agreement 28 taken all necessary corporate action to authorize the execution, delivery and performance of the Basic Documents to which it is or is to become a party. No consent or authorization of, filing with, or other act by or in respect of any other Person (including any stockholder of SECI), that has not been made, obtained or complied with is required in connection with the execution, delivery or performance by SECI or the validity or enforceability as to the Operator of the Basic Documents to which it is a party or is to become a party except the Governmental Approvals referred to in Section 5.5 and other consents and approvals referred to in Schedule 3. Each of the Basic Documents to which SECI is a party has been duly executed and delivered by SECI and, assuming the due authorization, execution and delivery thereof by the other parties thereto, constitutes, and each of the other Basic Documents to which SECI is to become a party will upon execution and delivery thereof by SECI and, assuming due authorization thereof, by the other parties thereto (if any) constitute, a legal, valid and binding obligation of SECI enforceable against SECI in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity (whether such enforcement is sought in a proceeding at law or in equity). (c) The Partnership Agreement has been duly authorized, executed and delivered by SECI and, assuming the due authorization and delivery hereof and thereof by the other parties hereto and thereto, constitutes a valid and legally binding obligation of SECI enforceable against SECI in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity (whether such enforcement is sought in a proceeding at law or in equity). (d) North Country has full power and authority and the legal right (subject to the receipt of the approvals referred to in Section 5.5) to construct, own and operate the North Country Project, to conduct its business as now conducted and as proposed to be conducted by it, to execute, deliver and perform this Agreement and the other Basic Documents to which it is or is to become a party, and to take all action as may be necessary to complete the transactions contemplated hereunder and thereunder. North Country has taken all necessary corporate and legal action to authorize the execution, delivery and performance of this Agreement and the other Basic Documents to which it is a party or is to become a party. No consent or authorization of, filing with, or other act by or in respect of any other Person, that has not been made, obtained or complied with, is required in connection with the execution, delivery or performance by North Country or the validity or enforceability as to North Country of this Agreement or the other Basic Documents except the Amendment and Restatement of Loan Agreement 29 Governmental Approvals referred to in Section 5.5 and other consents and approvals referred to in Schedule 3. Each of this Agreement and the other Basic Documents to which North Country is a party has been duly executed and delivered by North Country and, assuming the due authorization and delivery hereof and thereof by the other parties hereto and thereto, constitutes, and each of the other Basic Documents to which North Country is to become a party will upon execution and delivery thereof by North Country and, assuming due authorization thereof, by the other parties thereto (if any) constitute, a legal, valid and binding obligation of North Country enforceable against North Country in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity (whether such enforcement is sought in a proceeding at law or in equity). None of the Project Contracts to which North Country is a party has been amended or modified since the Construction Loan Closing Date, except in accordance with Section 8.6, and all such Project Contracts are in full force and effect. 5.5 Governmental Approvals and Other Consents and Approvals. (a) Except as set forth on Schedule 3 (with respect to items (i), (ii) and (iii) below) and Schedule 4 (with respect to item (iv) below), no Governmental Approvals or other consents or approvals are required in connection with (i) the participation by the Partnership, SECI General or North Country in the transactions contemplated by this Agreement and the other Basic Documents, (ii) the acquisition, construction, use, ownership, maintenance or operation of the Project in accordance with the applicable provisions of the Basic Documents and in compliance with all Applicable Laws, (iii) the validity and enforceability against the Partnership, SECI General or North Country, as the case may be, of the Basic Documents to which it is a party, and (iv) the grant by the Partnership of the Liens created pursuant to the Collateral Security Documents and the validity, perfection and enforceability thereof and the exercise by the Agent, the Lenders and the Surety Bond Arranger of their respective rights and remedies thereunder (except any Governmental Approvals or other consents or approvals applicable to the Agent, any Lender or the Surety Bond Arranger other than as a result of its participation in the transactions contemplated herein). (b) To the best knowledge of the Partnership, SECI General and North Country after due inquiry, no Governmental Approvals (except as set forth on Schedule 3 and except with respect to Governmental Approvals required to be obtained by NYSEG or Georgia-Pacific with respect to the NYSEG Gas Agreement or the Georgia-Pacific Gas Agreement, as to which no representation or warranty is made) or other consents or approvals (other than those already obtained or that are obtainable in due course and will be obtained when necessary) are Amendment and Restatement of Loan Agreement 30 required in connection with that validity and enforceability of the Basic Documents (other than the Loan Documents) against each party thereto (other than the Partnership, SECI General or North Country, as the case may be) and the performance by such party of the Basic Documents. (c) No Governmental Approvals are required in connection with the participation by the Agent, the Lenders, the Letter of Credit Issuer or the Surety Bond Arranger in the transactions contemplated by this Agreement and the other Basic Documents to which any of them is a party. (d) Except as otherwise indicated in Part A of Schedule 3, each of the Governmental Approvals and other consents and approvals listed on Part A of Schedule 3 has been duly obtained or made, is in full force and effect and not subject to any statutory period of appeal and is not currently under appeal or judicial review or, to the best knowledge of the Partnership and North Country, governmental or other review. None of the Governmental Approvals and other consents and approvals listed on Part B of Schedule 3 is required to be obtained prior to the date hereof. Neither the Partnership nor North Country has reason to believe, after due inquiry, that any of the Governmental Approvals and other consents and approvals listed on Part B of Schedule 3 cannot or will not be obtained or made in the normal course of business as and when required and in accordance with the date set forth on Part B of Schedule 3 for obtaining such actions or consents. 5.6 No Legal Bar. The execution, delivery and performance of this Agreement, the Notes and the other Basic Documents as contemplated in accordance with the terms thereof, the borrowings by the Borrowers hereunder and the use of the proceeds thereof (i) will not violate (x) any Requirement of Law or any Contractual Obligation of the Partnership, SECI or North Country that relates to construction, ownership, operation or maintenance of the Project or the North Country Project, as the case may be or (y) any other Requirement of Law as to which any such violations, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect and (ii) will not result in, or require, the creation or imposition of any Lien or any of the properties or revenues of the Partnership, SECI or North Country pursuant to any Requirement of Law or Contractual Obligation, except for Loan Agreement Permitted Liens. 5.7 No Proceeding or Litigation. Except as set forth on Schedule 10, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Partnership and North Country, after due inquiry, threatened against or affecting the Partnership, SECI (other than relating to the SECI Loan Documents) or North Country or against or affecting any of their respective Amendment and Restatement of Loan Agreement 31 properties, rights, revenues or assets, or the Project or the North Country Project, as the case may be, or which could result in a rescission, termination or suspension of any Governmental Approval, consent or approval referred to in Section 5.5 or could have a Material Adverse Effect. 5.8 No Default, Event of Default or Event of Loss. None of the Partnership, SECI (other than relating to the SECI Loan Documents) or North Country is in default under or with respect to any Contractual Obligation, including without limitation any Basic Document, other than defaults which individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. No notice of default has been given to the Partnership, SECI or North Country under any of the Basic Documents. Other than with respect to certain defaults of the Contractor under the Construction Contract arising out of the circumstances previously disclosed to the Agent and the Lenders in a letter, dated September 27, 1994, from the Partnership to the Contractor, to the best knowledge of the Partnership and North Country after due inquiry, no other party to a Basic Document is in default thereunder. No Default or Event of Default has occurred and is continuing and no Event of Loss has occurred. 5.9 Ownership of Property; Liens. The IDA has been granted fee title to the Site and the Pipeline Properties, and the Mortgages constitute a Lien upon the Site, in each case free and clear of all Liens except Loan Agreement Permitted Liens. Each of the IDA (with respect to the Project), the Partnership, SECI and North Country has good title to all property purportedly owned or used by it free and clear of all Liens other than Loan Agreement Permitted Liens. No mortgage or financing statement or other instrument or recordation covering all or any part of the Collateral which has been executed by, or with the permission of, the Partnership, the IDA, SECI or North Country is on file in any recording office, except such as has been filed in favor of the Agent for the benefit of the Lenders or as evidence of Loan Agreement Permitted Liens. The IDA has all rights purported to be given to it under any easements, leases and other title instruments described in the title insurance policy referred to in Section 6.1(i), subject only to the Liens specified therein and other Loan Agreement Permitted Liens, and the IDA's rights thereunder are not subject to any contest or challenge and are encumbered only by the Mortgages As a perfected Lien and other Loan Agreement Permitted Liens. All such easements, leases and other title instruments are valid and subsisting in full force and effect. The IDA is not in default under any such easement, lease or title instrument, and no event has occurred which, with the giving of notice or the passage of time, or both, would constitute a default thereunder. 5.10 Taxes. (a) SECI has filed or caused to be filed all tax returns which are required to be filed by it or the Amendment and Restatement of Loan Agreement 32 Partnership, and has paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessments made against it or the Partnership, or any of its or the Partnership's property and all other taxes, fees or other charges imposed on it or any of its or the Partnership's property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of SECI or the Partnership, as the case may be, and to the extent non-payment thereof could not be reasonably expected to impair the value of the security granted under the Collateral Security Documents); no tax Lien has been filed, and, to the knowledge of SECI or the Partnership no claim is being asserted, with respect to any such tax, fee or other charge. (b) North Country has filed or caused to be filed all tax returns which are required to be filed by it and has paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of North Country and to the extent non-payment thereof could not be reasonably expected to impair the value of the security granted under the Collateral Security Documents); no tax Lien has been filed, and, to the knowledge of North Country no claim is being asserted, with respect to any such tax, fee or other charge. (c) Except for (i) transfer taxes and registration, recordation and other miscellaneous fees payable in connection with the recordation or assignment of the Mortgages, if any, and the filing of financing statements required to perfect the Agent's rights under the Collateral Security Documents, all of which taxes and fees have been paid in full by or on behalf of the Partnership on or before the Construction Loan Closing Date (except with respect to any recordation fees and other miscellaneous fees payable in connection with the assignment by the Original Agent to the Agent, of its right, title and interest in and to the Collateral Security Documents, which fees will have been paid in full by or on behalf of the Partnership on or before the Second Capital Contribution Date), and (ii) income, capital, any receipts or franchise taxes imposed with respect to the Agent or Lender by the jurisdiction in which the Agent or any Lender is organized, in which an office of the Agent or such Lender is located or in which the Project is located or any political subdivision or taxing authority thereof or therein, neither the execution and delivery of this Agreement, the Notes or any other Basic Document, nor the consummation of any of the transactions contemplated hereby or thereby, will result in any tax, levy, Amendment and Restatement of Loan Agreement 33 impost, duty, charge or withholding imposed by the United States or any agency or taxing authority thereof, or by any state of the United States or any political subdivision or taxing authority thereof or therein, on or with respect to such execution, delivery or consummation, or upon or with respect to the Agent or any Lender. 5.11 Regulation U. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect or for any purpose which violates the provisions of the Regulations of such Board of Governors. If requested by any Lender or Agent, the Borrowers will furnish to the Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. 5.12 ERISA. No Reportable Event has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. The present value of all accrued benefits under each Single Employer Plan maintained by the Partnership, North Country or any Commonly Controlled Entity (based on those assumptions used to fund the Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits. Neither the Partnership, North Country nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan, and neither the Partnership, North Country nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Partnership, North Country or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA) or insolvent (within the meaning of Section 4241 of ERISA), The present value (determined using actuarial and other assumptions which are reasonable in respect of the benefits provided and the employees participating) of the liability of the Partnership, North Country and each Commonly Controlled Entity for post-retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(l) Of ERISA) does not, in the aggregate, exceed the assets under all such Plans allocable to such benefits. 5.13 Investment Company Act. None of the Partnership, SECI or North Country is an "investment company" or a company "controlled" by an "investment company" or an "investment Amendment and Restatement of Loan Agreement 34 adviser", within the meaning of the Investment Company Act of 1940, as amended. 5.14 Collateral Security Documents. The Collateral Security Documents are effective to create, in favor of the Agent for the benefit of the Lenders, legal, valid and enforceable liens on and security interests in all right, title, estate and interest of the IDA or the Partnership, as the case may be, in and to the Collateral and all necessary and appropriate recordings, including those shown on Schedule 4, and filings have been or will be duly effected in all appropriate public offices so that the liens and security interests created by each of the Collateral Security Documents to which the Partnership is a party constitute or will constitute perfected liens on and prior perfected security interests in all right, title, estate and interest of the Partnership in and to the Collateral described therein, prior and superior to all other Liens, existing or future, except Loan Agreement Permitted Liens described in clauses (ii), (iv), (v) and (vi) of the definition thereof. The recordings, filings and other actions shown on Schedule 4 are all the recordings, filings and other actions necessary and appropriate to establish, protect and perfect the Agent's lien on and security interest in the right, title, estate and interest of the Partnership in and to the Collateral. Notwithstanding the foregoing, neither the Partnership, SECI nor North Country makes any representation or warranty with respect to the Tomen Guarantee. 5.15 Full Disclosure. No representation, warranty or other statement made by the Partnership, SECI or North Country in any Basic Document or in any certificate, written statement other document furnished to the Agent, any Lender or the Independent Engineer by or on behalf of the Partnership, SECI or North Country, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. There is no fact known to the Partnership or North Country, whether related to Governmental Approvals, Basic Documents, or Project Participants or otherwise, that has not been disclosed in writing to the Agent prior to the Construction Loan Closing Date that has had a Material Adverse Effect or which could reasonably be expected to have a Material Adverse Effect. 5.16 Project Contracts and North Country Gas Agreements. (a) To the best knowledge of the Partnership after due inquiry, each of the Project Contracts constitutes the legal, valid and binding obligation of each of the parties thereto, and is enforceable against each such party in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity. Except as set forth on Schedule 3, to the Amendment and Restatement of Loan Agreement 35 best knowledge of the Partnership after due inquiry, all Governmental Approvals and other consents or approvals required in connection with the execution, delivery and performance of each of the Project Contracts by the parties thereto (other than the Partnership, SECI General and/or North Country) have been duly obtained or made and are not subject to any statutory period of appeal and are not currently under appeal or judicial review or, to the best knowledge of the Partnership, governmental or other review. (b) To the best knowledge of North Country after due inquiry, each of the North Country Gas Agreements constitutes the legal, valid and binding obligation of each of the parties thereto, and is enforceable against each such party in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity. 5.17 Property Rights, Utilities, Etc. (a) All utility services, means of transportation, facilities, other materials and easements that can reasonably be expected to be necessary for the construction of the Project and for the operation of the Project in accordance with the obligations of the Partnership under the Power Purchase Agreement and the Steam Supply Agreement, if any (including, without limitation, gas, electrical, water and sewage services and facilities), are or will be available to the Project and, to the extent appropriate, arrangements have been made to provide such services, means of transportation, facilities, other materials and easements to the Project. (b) The easements described in Schedule 7 and the easements granted to the Borrowers and North Country pursuant to the Project Contracts, if any, are the only easements necessary for the Partnership and North Country to perform their respective obligations under the Project Contracts. 5.18 Compliance with Building Codes, Zoning Laws, Etc. The Project, as contemplated by the Basic Documents, is capable of being constructed, maintained and operated in compliance with all applicable zoning, environmental protection, use and building codes, laws, regulations and ordinances. Neither the Partnership nor North Country has any knowledge, after due inquiry, of any violations of any laws, ordinances, codes, requirements or orders of any Governmental Authority affecting the Project which could have a Material Adverse Effect. 5.19 Principal Place of Business, Etc. (a) The principal place of business and chief executive office of the Partnership and the office where the Partnership keeps its records concerning the Project and all contracts relating thereto, is located at Five Post Oak Park, Houston, Texas 77027. Amendment and Rest& of Loan Agreement 36 (b) The principal place of business and chief executive office of North Country and the office where North Country keeps its records concerning the Project and all contracts relating thereto, is located at Five Post Oak Park, Houston, Texas 77027. 5.20 Description of Property. The description of the Site set forth in Schedule 1 is true and accurate in all respects, and is adequate for the purpose of establishing, preserving, protecting and perfecting the interests and rights, and the priority of the Liens (subject only to Loan Agreement Permitted Liens), intended to be created and provided in such property by the Mortgages. 5.21 Public Utility Status. a) Neither the Partnership nor North Country is a "holding company", or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such quoted terms are defined in PUHCA. (b) Neither the Agent nor any Lender will, solely by reason of (i) the ownership of the Facility or the operation thereof by the Partnership, (ii) the making of the Loans hereunder or under the Original Loan Agreement, (iii) the securing of the Loans by Liens on the Collateral, or (iv) any other transaction contemplated by this Agreement or any of the other Basic Documents, be deemed by any Governmental Authority having jurisdiction to be, or be subject to regulation as, an "electric utility", "electric corporation", "electrical company", "gas utility", "public utility" or a "public utility holding company" under any existing law, rule or regulation of any Governmental Authority; and neither the Agent nor any Lender will, solely by reason of the Agent's or such Lender's ownership or operation of the Facility upon the exercise of remedies under the Collateral Security Documents, be deemed by any Governmental Authority having jurisdiction to be subject to financial, organizational or rate regulation as an "electric company", "public utility" or a "public utility holding company" under any existing law, rule or regulation of any Governmental Authority. (c) Neither the Agent nor any Lender will, solely by reason of (i) the ownership of the North Country Project or the operation thereof by North Country, (ii) the making of the Loans hereunder or under the Original Loan Agreement, or (iii) any other transaction contemplated by this Agreement or any of the other Basic Documents, be deemed by any Governmental Authority having jurisdiction to be, or be subject to regulation as, an "electric utility", "electric corporation", "electrical company", "gas utility", "public utility" or a "public utility holding company" under any existing law, rule or regulation of any Governmental Authority. Amendment and Restatement of Loan Agreement 37 (d) The Facility is a Qualifying Facility and as such is not considered to be an "electric utility company" under PUHCA and, therefore, is exempt from regulation as an "electric utility company" by the Securities and Exchange Commission under Section 2(a) of PUHCA; and the FERC Order is in full force and effect and is not the subject of any pending or, to the Partnership's knowledge, threatened appeal or administrative or judicial proceedings. 5.22 Sufficiency of Basic Documents. The services to be performed, the materials to be supplied and the leasehold and other property interests, easements and other rights granted pursuant to the Basic Documents comprise substantially all of the services, materials, property interests and rights required for the acquisition, development, construction, installation, completion, operation and maintenance of the Project in accordance with all Applicable Laws and the Basic Documents and as contemplated by the Base Case Pro Forma Financial Statements and the other information referred to in Section 5.15 except for services, materials and property to be purchased or acquired in the ordinary course of business and which can reasonably be expected to be commercially available at commercially reasonable prices as and where needed. 5.23 Sufficiency of Access. The Partnership and North Country have adequate ingress and egress from the Site and the Pipeline Properties, as the case may be, for any reasonable purpose in connection with the construction, operation and maintenance of the Facility or the Pipeline, as the case may be. 5.24 Representations and Warranties. The representations and warranties of the Partnership and North Country contained in the Basic Documents other than this Agreement were true and correct as of the Construction Loan Closing Date, and, as of the date of any subsequent borrowing and the date hereof, true and correct except as to which any such failure, individually or collectively, could not reasonably be expected to have a Material Adverse Effect. Each of the Partnership and North Country hereby confirms each such representation and warranty with the same effect as if set forth in full herein. 5.25 Locations of Site and Pipeline Properties. Neither the Site nor the Pipeline Properties lies within an area identified by the Secretary of Housing and Urban Development as an area having special flood hazards. 5.26 Environmental Matters. (a) Except as disclosed in the Environmental Audit and, in the case of paragraph (i) below, as set forth on Schedule 10: (i) no proceeding is pending, no notice, notification, demand, request for information, citation, summons or order Amendment and Restatement of Loan Agreement 38 has been issued, no complaint has been filed, no penalty has been assessed, and no investigation or review is pending or, to the Partnership's knowledge, threatened by any Governmental Authority or other Person: (x) with respect to any violation of any Relevant Environmental Law in connection with the property, operations or conduct of business of the Partnership or the Project; or (y) with respect to any failure to have any Governmental Approval relating to Hazardous Materials or compliance with any Relevant Environmental Law required in connection with the property, operations or conduct of the business of the Partnership or the Project; or (z) with respect to any generation, treatment, storage, discharge, recycling, transportation or disposal or release, of any Hazardous Material generated by the operations or business or located on, under or at any property of the Partnership or the Project. (ii) none of the Partnership or SECI or any of the businesses conducted by either of them, or, to the best knowledge of the Partnership and SECI, after due inquiry, any other Person has placed, held, located or released any Hazardous Material on, under or at any property now or previously owned or leased by the Partnership (including the Project) in such quantities or conditions so as to cause a threatened release and/or to require removal or other response or remedial action which has not yet been taken, and none of such properties been used by the Partnership, or any other Person, as a dump site or, in violation of any Relevant Environmental Law, relating to use as a treatment disposal or storage site (whether permanent or temporary) for any Hazardous Material; (iii) there are no underground storage tanks which have been used to store or have contained any Hazardous Material, active or abandoned at any property now or previously owned or leased by the Partnership (including the Facility and the Site); (iv) no Hazardous Material has been released at, on or under any property previously owned or leased by the Partnership (including the Facility and the Site) in such quantities or conditions so as to require removal or other response or remedial action which has not yet been taken; and Amendent and Restatement of Loan Agreement 39 (v) no Hazardous Material is present in a reportable or threshold planning quantity, where such a quantity would, under any Relevant Environmental Law, require removal or response or remedial action at, on or under any property now or previously owned by the Partnership (including the Facility and the Site). (b) None of the Partnership, SECI or any business conducted by either of them has transported or arranged for the transportation and/or disposal (directly or indirectly) of any Hazardous Material to or at any location which is listed or proposed for listing under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Comprehensive Environment Response, Compensation and Liability System ("CERCLIS") or any similar state list or which is the subject of federal, state or local enforcement actions or other investigations. (c) No property now or previously owned or leased by the Partnership (including the Facility and the Site) is listed or, to the knowledge of the Partnership or SECI, proposed for listing on the National Priorities List promulgated pursuant to CERCLA or CERCLIS, or any similar state list of sites requiring investigation or clean-up. (d) There are no environmental Liens on any property owned or leased by the Partnership (including the Facility and the Site) and none of the Partnership or SECI has received any written notice of any actions taken by any Governmental Authority which could subject any of such properties to such Liens. (e) Notwithstanding the foregoing, the disclosure, if any, in any Environmental Audit of any fact or circumstance which would render any of the foregoing representations untrue shall not otherwise relieve the Partnership of its obligations under Sections 7.8, 7.12 and 7.19. 5.27 North Country Environmental Matters. (a) Except as disclosed in the Environmental Audit: (i) no proceeding is pending, no notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed, and no investigation or review is pending or, to the Partnership's or North Country's knowledge, threatened by any Governmental Authority or other Person: (x) with respect to any violation of any Relevant Environmental Law in connection with the property, operations or conduct of business of North Country or the North Country Project; or Amendment and Restatement of Loan Agreement 40 (y) with respect to any failure to have any Governmental Approval relating to Hazardous Materials or compliance with any Relevant Environmental Law required in connection with the property, operations or conduct of the business of North Country or the North Country Project; or (z) with respect to any generation, treatment, storage, discharge, recycling, transportion or disposal or release, of any Hazardous Material generated by the operations or business or located on, under or at any property of North Country or the North Country Project. (ii) neither North Country nor the business conducted by it, or, to the best knowledge of North Country, after due inquiry, any other Person has placed, held, located or released any Hazardous Material on, under or at any property now or previously owned or leased by North Country (including the North Country Project) in such quantities or conditions so as to cause a threatened release and/or to require removal or other response or remedial action which has not yet been taken, and none of such properties has been used by the Partnership or North Country, or any other Person, as a dump site or, in violation of any Relevant Environmental Law, relating to use as a treatment disposal or storage site (whether permanent of temporary) for any Hazardous Material; (iii) there are no underground storage tanks which have been used to store or have contained any Hazardous Material, active or abandoned at any property now or previously owned or leased by North Country (including the Pipeline and the Pipeline Properties); (iv) no Hazardous Material has been released at, on or under any property previously owned or leased by the Partnership or North Country (including the Pipeline and the Pipeline Properties) in such quantities or conditions so as to require removal or other response or remedial action which has not yet been taken; and (v) no Hazardous Material is present in a reportable or threshold planning quantity, where such a quantity would, under any Relevant Environmental Law, require removal or response or remedial action at, on or under any property now or previously owned by the Partnership or North Country (including the Pipeline and the Pipeline Properties). (b) Neither North Country nor any business conducted by it has transported or arranged for the transportation and/or Amendment and Restatement of Loan Agreement 41 disposal (directly or indirectly) of any Hazardous Material to or at any location which is listed or proposed for listing under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Comprehensive Environment Response, Compensation and Liability System ("CERCLIS") or any similar state list or which is the subject of federal, state or local enforcement actions or other investigations. (c) No property now or previously owned or leased by the Partnership or North Country (including the Pipeline and the Pipeline Properties) is listed or, to the knowledge of the Partnership or North Country, proposed for listing on the National Priorities List promulgated pursuant to CERCLA or CERCLIS, or any similar state list of sites requiring investigation or clean-up. (d) There are no environmental Liens on any property owned or leased by the Partnership or North Country (including the Pipeline and the Pipeline Properties) and neither the Partnership nor North Country has received any written notice of any actions taken by any Governmental Authority which could subject any of such properties to such Liens. (e) Notwithstanding the foregoing, the disclosure, if any, in any Environmental Audit of any fact or circumstance which would render any of the foregoing representations untrue shall not otherwise relieve the Partnership or North Country of its obligations under Sections 7.8, 7.12 and 7.19. 5.28 Completion of Project. Substantial Completion of the Facility and the Pipeline will occur on or prior to the Second Capital Contribution Date. None of the Partnership, SECI or North Country has any reason to believe that (a) Certified Construction Costs will exceed amounts budgeted therefor in the Construction Budget, or, if different from the Construction Budget, the Completion Budget, or (b) the Project, as completed in accordance with the Basic Documents, will not (x) comply fully with all Applicable Laws and all Governmental Approvals required in respect of the Project, or (y) perform in accordance with the Base Case Pro Forma Financial Statements and Plans and Specifications. 5.29 Gas Supply. The Gas Arrangements are sufficient to ensure that sufficient natural gas will be delivered to the Facility to permit the operation of the Project in accordance with the Base Case Pro Forma Financial Statements for a period of at least 15 years from the Date of Commercial Operation. 5.30 Intellectual Property. No licenses, trademarks, patents or agreements with respect to the usage of technology (other than any thereof which have been obtained and are in full force and effect and have been assigned to the Agent) are necessary for the construction, ownership, operation and Amendment and Restatement of Loan Agreement 42 maintenance of the Project. Each of the Partnership and North Country owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted that are material to the condition (financial or other), business, or operations of the Partnership (the "Intellectual Property"). No claim has been asserted and is pending by any Person with respect to the use of any such Intellectual Property in connection with the Project, or challenging or questioning the validity or effectiveness of any such Intellectual Property and none of the Partnership, SECI or North Country knows of any valid basis for any such claim. The use of such Intellectual Property by the Partnership or North Country does not infringe on the rights of any Person. 5.31 Labor Matters. There are no strikes or other organized labor disputes pending or, to the best of the Partnership's, SECI's and North Country's knowledge after due inquiry, threatened against the Partnership, North Country, or any Project Participant. All payments due from the Partnership, SECI or North Country, or for which a claim may be made against the Partnership, SECI or North Country on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Partnership, SECI or North Country, 5.32 Representations and Warranties of the IDA. The IDA represents and warrants that: (a) (i) It is duly organized and validly existing as a public benefit corporation of the State of New York with full power and authority to consummate the transactions contemplated hereby, and to execute the Basic Documents to which it is party and to perform its obligations thereunder and hereunder, including the making of any and all payments as provided therein and herein, and (ii) with the execption of the Basic Documents to which it is a party, there is not and will not be any contract or other obligation providing for or requiring the IDA to convey the IDA's interest in the Project or any estate or interest therein to any Person; (b) Except as set forth on Schedule 10, there are no actions, suits or proceedings pending or, to the best knowledge of the IDA, threatened against or affecting the IDA or the Project, or involving the validity or enforceability of the Resolution, this Agreement, the Pilot Agreement, the Installment Sale Agreement or any of the other Basic Documents to which it is a party; and the IDA is not in default with respect to any order, writ, judgment, decree or demand of any court or any Governmental Authority; (c) the consummation of the transactions contemplated by the Resolution and the performance of the IDA's obligations under this Agreeemnt, the Installment Sale Amendment and Restatement of Loan Agreement 43 Agreement, the Pilot Agreement or any of the other Basic Documents to which it is a party will not result in any breach of, or constitute a default under, or require any consent under any Applicable Law or Contractual Obligation to which the IDA is a party or by which it or its properties are bound or affected; (d) Except for the IDA Documents and contracts entered into by the Partnership or North Country as agent of the IDA, the IDA has not made any Contractual Obligation or arrangement of any kind in connection with the Project, other than any arrangement made with the Partnership, North Country or the Lenders; (e) The IDA has duly adopted the Resolution and has duly authorized the execution and delivery of this Agreement, the Pilot Agreement, the Pilot Mortgage, the Installment Sale Agreement and all of the other Basic Documents to which it is a party, and has taken all actions necessary or appropriate to carry out the same, and when executed and delivered, such documents will constitute legal and validly binding obligations of the IDA, enforceable in accordance with their respective terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity (whether such enforcement is sought in a proceeding at law or in equity). (f) The IDA makes no representation or warranty on behalf of the Partnership or North Country, or as to the correctness or completeness of any representation or warranty made by the Partnership or North Country in any of the Basic Documents to which the Partnership or North Country is a party. SECTION 6 CONDITIONS PRECEDENT 6.1 Conditions to the Term Loans. The obligations of the Lenders to make the Term Loans and the obligation of the Surety Bond Arranger to enter into the Surety Bond Arrangements shall be subject to the fulfillement to the satisfaction of the Agent, unless otherwise specified, of the following conditions on or prior to the making of the Term Loans and the entering into of the Surety Bond Arrangements, as the case may be: (a) Agreement; Term Notes; Note Pledge Agreement; Notice of Term Loan Conversion. The Agent shall have received a counterpart of this Agreement for each Lender, duly executed and delivered by the Borrowers and North Country. The Agent shall have received on behalf of each Lender (i) an IDA Building Term Note executed by the Amendment and Restatement of Loan Agreement 44 Borrowers, (ii) an IDA Development Term Note executed by the Borrowers and (iii) a Partnership Term Note executed by the Partnership, in each case with appropriate insertions. The Agent shall have received a counterpart of the Note Pledge Agreement, duly executed and delivered by the Partnership, together with the pledged note described therein. The Original Agent shall have received the Notice of Term Loan Conversion. (b) Basic Documents. The Basic Documents shall be in full force and effect, and none of such agreements shall have been amended, or any term or provision thereof waived, except in accordance with the provisions of Section 8.6. (c) Representations and Warranties. The representations and warranties made by the Partnership, the IDA, SECI, North Country, SECI Holdings or FSPC herein, in the Original Loan Agreement or in any other Basic Document to which it is a party, or which are contained in any certificate, document, financial or other statement furnished by the Partnership, SECI, North Country, SECI Holdings or FSPC hereunder or thereunder or in connection herewith or therewith, shall be true and correct in all material respects on and as of such Borrowing Date, except to the extent that such representations and warranties relate solely to an earlier date (in which case such representations or warranties shall have been true and correct as of such earlier date), unless the circumstances that made any such representation false or misleading at the time when made shall no longer be continuing and the existence of such circumstances has not had a Material Adverse Effect. (d) No Default, Event of Default or Event of Loss. No Default or Event of Default shall have occurred and be continuing on such Borrowing Date, or after giving effect to the Loans to be made on such Borrowing Date. No Event of Loss shall have occurred. (e) No Material Adverse Effect. There shall have been no Material Adverse Effect since the Construction Loan Closing Date, and no other event (including, without limitation, a material adverse change in the financial condition, business or operations of any Project Participant) shall have occurred since the Construction Loan Closing Date which might reasonably be expected to have a Material Adverse Effect. (f) Capital Contributions. Each of GE Capital, TPC One and TPC Two shall have made the capital contributions required to be made by it on the Second Capital Contribution Date pursuant to the Capital Contribution Agreement. Amendment and Restatement of Loan Agreement 45 (g) Documents Delivered under Capital Contribution Agreement. The Agent shall have received a copy of each of the documents delivered to GE Capital under Section 2(c) of the Capital Contribution Agreement. Each of the legal opinions delivered pursuant to such Section shall have also been addressed to the Agent, the Lenders, the Letter of Credit Issuer, the Swap Counterparty and the Surety Bond Arranger. (h) Perfection of Liens and Security Interests. All filings, recordings and other actions that are necessary or desirable in order to establish, protect, preserve and perfect the Lenders' lien on and perfected security interest in all right, title, estate and interest of the Partnership or the IDA, as the case may be, in and to all Collateral covered by the Collateral Security Documents, prior and superior to all other Liens, existing or future, except Loan Agreement Permitted Liens, shall have been duly made or taken by the Partnership and all fees, taxes and other charges relating to such filings and recordings and other actions shall have been paid by the Partnership, or filings for exemptions therefrom shall have been made. (i) Title Insurance; Survey; Payment of Premium. The Agent shall have received (i) policies of title insurance issued by the Title Company, in form and substance reasonably satisfactory to the Required Lenders, with such endorsements and affirmative coverage as GE Capital and the Required Lenders may reasonably request, (A) insuring the Agent, for the benefit of the Lenders, the Letter of Credit Issuer and the Swap Counterparty, in the amount of $231,850,000, that the Mortgages constitute a valid mortgage lien on the Site, and the access, utility and interconnection easements, subject only to Loan Agreement Permitted Liens, and (B) providing full coverage against all mechanics' and materialmen's liens, and (ii) a survey of the Site, by a licensed surveyor reasonably satisfactory to the Agent and the Title Company, certified to the Agent and the Title Company and showing no state of facts unsatisfactory to the Agent. Such policies shall be dated the date of the recording of the assignment of the Mortgages from the Original Agent to CS and shall recite such assignment together with the recording information with respect thereto. The Agent shall also have received evidence that the premiums in respect of such policies of title insurance have been paid by or on behalf of the Partnership. (j) Authorizing Actions. All partnership, corporate and other proceedings in connection with the transactions contemplated by this Agreement and the other Basic Documents, and all documents and instruments incident thereto shall be reasonably satisfactory in form and substance to the Agent and its counsel; and the Agent and Amendment and Restatement of Loan Agreement 46 its counsel shall have received such counterpart originals or certified or other copies of all such documents and instruments and of all records of partnership and corporate proceedings in connection with such transactions, and such incumbency and signature certificates of officers of the Partnership, SECI and North Country, as the Agent or its counsel may reasonably request, together with certificates of good standing and payment of franchise taxes in the jurisdiction of each such Person's organization. (k) Gas Arrangements. The Agent shall have received, with a copy for each Lender, a certificate of the Partnership certifying as to such matters relating to the Gas Arrangements as the Co-Agents shall have reasonably requested. (l) Surety Bond Arrangements. The Surety Bond Arranger shall have received a counterpart of the Surety Bond Arrangements Cash Collateral Agreement, duly executed and delivered by the Partnership, the cash collateral referred to therein shall have been deposited in the account provided for therein or other arrangements therefor, satisfactory to the Surety Bond Arranger shall have been made and the Surety Bond Arranger shall have received counterparts of the Second Amendment to the SECI Term Loan Agreement, dated as of the date hereof, executed by the SECI Term Lender and SECI. SECTION 7 AFFIRMATIVE COVENANTS Each of the Partnership and SECI (with respect to Section 7.2(b) only) agrees that, so long as the Letter of Credit Commitment remains in effect, any Note or any Letter of Credit remains outstanding and unpaid, any Surety Bond Arrangements remain in effect, any Obligations are owing to the Agent or any Lender hereunder or under the Collateral Security Documents or any obligations in respect of the Surety Bond Arrangements Reimbursement Obligations or the Surety Bond are owing to the Surety Bond Arranger hereunder, the Partnership shall, and shall cause North Country (as to itself or with respect to the North Country Project only) to: 7.1 Completion of Project; Reports. (a) Cause the Project and the North Country Project, as the case may be, to be constructed and completed in compliance with Applicable Law and the terms of the Construction Contract. (b) Provide the Independent Engineer and the Agent with a copy of each report furnished by the Contractor to the Partnership or North Country pursuant to the Construction Contract, and respond, and cause the Contractor to respond, in a timely manner, to the independent Engineer's inquiries regarding Amendment and Restatement of Loan Agreement 47 the Contractor's performance of its work under the Construction Contract. 7.2 Conduct of Business, Maintenance of Existence, Etc. (a) In the case of the Partnership, at all times (i) engage solely in the business of developing, constructing, owning and operating the Project, (ii) preserve and maintain in full force and effect its existence under the laws of the jurisdiction of its organization, its qualification to do business in each jurisdiction in which the conduct of its business requires such qualification except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect, and all of its rights, privileges and franchises necessary for the construction, ownership and operation of the Project, and (iii) obtain and maintain in full force and effect all Governmental Approvals and other consents and approvals required at any time in connection with the construction, ownership, operation or maintenance of the Project. (b) In the case of SECI, engage solely in (i) the business of being the sole general partner and a limited partner of the Partnership, (ii) activities permitted pursuant to the SECI Term Loan Agreement and (iii) the performance of the Partnership's obligations pursuant to the Basic Documents; and preserve and maintain its existence as a corporation under the laws of the State of Delaware and its qualification to do business in the State of New York and in each other jurisdiction in which the conduct of its business requires such qualification. (c) In the case of North Country, at all times (i) engage solely in the business of developing, constructing, owning and operating the North Country Project, (ii) preserve and maintain in full force and effect its existence under the laws of the jurisdiction of its organization, its qualification to do business in each jurisdiction in which the conduct of its business requires such qualification except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect, and all of its rights, privileges and franchises necessary for the construction, ownership and operation of the North Country Project, and (iii) obtain and maintain in full force and effect all Governmental Approvals and other consents and approvals required at any time in connection with the construction, ownership, operation or maintenance of the North Country Project. 7.3 Payment of Obligations. (a) Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all of its indebtedness and other obligations of whatever nature under the Basic Documents. (b) Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, all of its Indebtedness and other obligations of whatever nature (other than Amendment and Restatement of Loan Agreement 48 under the Basic Documents) except where any such failure could not reasonably be expected to have a Material Adverse Effect in the sole discretion of the Required Lenders. 7.4 Performance Under Other Agreements. Duly perform and observe all of the covenants, agreements and conditions on its part to be performed and observed hereunder and under the Notes and the Collateral Security Documents to which it is or is to become a party, and duly perform and observe in all respects all of the covenants, agreements and conditions on its part to be performed and observed under the other Basic Documents to which it is or is to become a party except where any such failure could not reasonably be expected to have a Material Adverse Effect in the sole discretion of the Required Lenders; and diligently enforce all of its rights under each Assigned Contract to which it is or is to become a party unless the failure to enforce such rights could not reasonably be expected to have a material adverse effect on its rights or remedies as a whole under such Assigned Contract; provided, however, that testing standards or other criteria or procedures for performance testing under the Construction Contract shall not be established without the prior written consent of the Agent and the Required Lenders. 7.5 Partnership Insurance Coverage. In the case of the Partnership: (a) Without limiting any of the other obligations or liabilities of the Partnership under this Agreement, at all times carry and maintain or cause to be carried and maintained at its own expense such insurance as is customarily maintained by constructors, owners, operators, and lessees of electric generating facilities and in all events shall carry and maintain at least the minimum insurance coverage set forth in this Section 7.5. All insurance carried pursuant to this Section 7.5 shall be with such insurers, in such amounts and in such form and with deductibles or self insured retentions as shall be reasonably satisfactory to the Agent. (b) Maintain or cause to be maintained all-risk property and boiler and machinery insurance, covering physical loss or damage to the Project, the interconnection facilities, including fire and extended coverage, collapse, earthquake, flood and comprehensive boiler and machinery (including electrical malfunction and mechanical breakdown). Such insurance shall cover each and every component of the Project and the interconnection facilities. The all risk property and boiler and machinery coverage shall not contain an exclusion for resultant damage caused by faulty workmanship, design or materials. Coverage shall be written on a replacement cost basis and in an amount acceptable to the Agent, but in no event less than the replacement cost of the Project; sublimits of not less than $100,000,000 are acceptable for loss or damage due to flood or earthquake. Such policy shall contain a valid agreed amount Amendment and Restatement of Loan Agreement 49 endorsement waiving any coinsurance penalty. The policy may be subject to deductibles not to exceed $100,000 per occurrence, except that the deductible for the gas and steam turbines may not exceed $250,000. In the event that the Partnership is unable to obtain the $250,000 deductible specified with respect to the steam and gas turbines and/or the 30 day business interruption deductible, the Partnership shall obtain a letter from an independent insurance broker acceptable to the GE Capital Limited Partner and the Partnership stating that such deductibles are not available. In such case the Partnership shall be permitted to increase the deductible applicable to the steam and gas turbine up to $500,000 and up to 45 days with respect to business interruption deductible until such time as the $250,000 deductible and 30 day deductible again become available. At the time when, and to the extent that, the sum of (i) the principal of and interest on the Loans, (ii) the face amount of Letters of Credit, (iii) the principal of and interest on the SECI Term Loan and (iv) the Stipulated Redemption Value (which includes the amount necessary to prepay the Term Loans) exceeds the limits of coverage under the property and boiler and machinery policy specified in this Section 7.5(b), the Partnership shall include as a part of this policy or procure a special policy known as a "Lender's Single Interest Excess of Loss Coverage" or "Stipulated Loss Coverage" covering all the perils provided by the property and boiler and machinery policy. Such policy shall provide limits equal to the difference between (A) the sum of the amounts specified in clause (i), (ii), (iii) and (iv) of the immediately preceding sentence and (B) the property and boiler and machinery limits, or as may be mutually agreed between the Partnership and the Agent. The insured and loss payee under this "Lender's Single Interest Excess of Loss Coverage" or "Stipulated Loss Coverage" policy shall be the Agent. (c) As an extension of Section 7.5(b) or as a separate policy, maintain or cause to be maintained business interruption insurance in an amount equal to 12 months projected net operating revenues of the Partnership and contingent business interruption insurance in an amount equal to 12 months projected net operating revenues of the Partnership. This extension or separate policy shall include coverage for (i) business interruption arising from loss or damage to the Project, including a service interruption endorsement with a limit of $5,000,000 and a deductible period of not more than 72 hours and (ii) contingent business interruption arising from damage to the property and equipment of customers of the Project, which is not covered by the insurance specified in Section 7.5(b). Such customers shall include but not be limited to the purchasers of thermal energy. This extension or separate policy shall also include coverage for expediting expenses and extra expense with a sublimit of $1,000,000. This extension or separate policy shall have a deductible not to exceed 30 days' business interruption, except for expediting expenses and extra expense, which deductible shall not exceed $100,000. Amendment and Restatement of Loan Agreement 50 (d) Maintain comprehensive (or commercial) general liability insurance written on an occurrence basis (with the exception of products/completed operations which may be written on a claims made form) and with a combined single limit of not less than $1,000,000. In the event the Partnership elects to insure such coverage on a claims made basis, the general liability policy shall be endorsed to provide that the production, sale and distribution of steam and electricity shall be deemed to be a premises/operations hazard and covered by such policy on an occurrence form. Such coverage shall include premises/operations, explosion, collapse and underground hazards, broad form contractual, independent contractors, products/completed operations, broad form property damage and personal injury. In the event general aggregate applies, such policy or limits shall be written on a project specific basis naming the Partnership and the Operator as the insured and the Agent as an additional insured and shall apply solely to the construction, use, operation and maintenance of the Project. (e) Maintain (i) Workers Compensation insurance with statutory limits and (ii) employers liability insurance coverage with limits of not less than $1,000,000 including occupational disease coverage. (f) Maintain comprehensive (or business) automobile liability insurance for owned (if any), leased, non-owned and hired vehicles with combined single limits of not less than $250,000. (g) Maintain excess (or umbrella) liability insurance written on an occurrence basis (with the exception of products/completed operations which may be written on a claims made form) and providing coverage limits in excess of the insurance required to be maintained pursuant to Sections 7.5(d), (e)(ii) and (f). In the event the Partnership elects to insure such coverage on a claims made basis, the general liability policy shall be endorsed to provide that the production, sale and distribution of steam and electricity shall be deemed to be a premises/operations hazard and covered by such policy on an occurrence form. The limits of such insurance and such excess insurance (or umbrella) coverage, when combined, shall be not less than $25,000,000. In the event a general aggregate applies, such policy or limits shall be written on a project specific basis naming the Partnership as the insured and the Agent as an additiona1 insured and shall apply solely to the construction, use, operation and maintenance of the Project. (h) Maintain such insurance as the Partnership is required to maintain pursuant to the provisions of any other Basic Document. (i) Cause (i) the Contractor to obtain and maintain in full force and effect the insurance referred to in items (A), Amendment and Restatement of Loan Agreement 51 (B), (C), (D) and (E) below and (ii) the Operator to obtain and maintain in full force and effect the insurance referred to in clauses (C) and (D) below: (A) Performance and payment bonds which cover all payment, performance, material and other obligations of the Contractor and all subcontractors under the Construction Contract including the Performance and Payment Bond. The performance and payment bonds shall at all times be in an amount acceptable to the Agent. Each such bond shall cover the faithful performance of the Construction Contract or the applicable subcontract. Such bonds shall name the Partnership and the Agent as dual obligees and shall be written by surety companies and shall otherwise be in such form as is acceptable to the Agent. (B) Comprehensive general liability insurance written on an occurrence basis and with a combined single limit of not less than $1,000,000. Such coverage shall include premises/operations, explosion, collapse and underground hazard, broad form contractual, products/completed operations, independent contractors, broad form property damage and personal injury. (C) (x) Workers compensation insurance written with statutory limits including an USL&H endorsement (if necessary) and (y) employer's liability insurance coverage in an amount not less than $1,000,000. The employer's liability coverage shall not contain an occupational disease exclusion. (D) Comprehensive automobile liability insurance for all owned, non-owned and hired vehicles written in an amount not less than $500,000. (E) Excess (or umbrella) liability insurance providing coverage limits in excess of the insurance required to be maintained pursuant to clauses (B), (C)(y) and (D) above. The limits of such insurance and such excess insurance (or umbrella) coverage, when combined, shall not be less than $25,000,000. (j) Cause the insurance carried in accordance with this Section 7.5 to be endorsed as follows: (i) the Partnership shall be the named insured and the Agent shall be an additional named insured with respect to insurance maintained pursuant to Sections 7.5(b) and (c) and the Agent and the Lenders shall be additional insureds with respect to insurance maintained pursuant to Sections 7.5(d), (f), (g) and (h) and clauses (B), (D) and (E) of Section 7.5(i); Amendment and Restatement of Loan Agreement 52 (ii) with respect to Sections 7.5(b) and (c), the interest of the Agent as lender shall not be invalidated by any action or inaction of the Partnership or any other Person and of any breach or violation by the Partnership or any other Person of any warranties, declarations or conditions in such policies; (iii) the insurer thereunder shall waive all rights of subrogation against the Agent, any right of setoff or counterclaim and any other right to deduction, whether by attachment or otherwise; (iv) such insurance shall be primary without right of contribution of any other insurance carried by or on behalf of the Agent with respect to its interest as such in the Project; (v) if such insurance is canceled for any reason whatsoever, including nonpayment of premium, or any changes are initiated by carrier which reduces the limits or form which affects the interest of the Agent, such cancellation or change shall not be effective as to the Agent for 60 days, except for nonpayment of premium which shall be 10 days, after receipt by the Agent of written notice sent by registered mail from such insurer of such cancellation or change; (vi) any insurance carried in accordance with Section 7.5(d), (f) or (g), or clause (B), (D) or (E) of Section 7.5(i) shall be endorsed to provide that, inasmuch as the policy is written to cover more than one insured, all terms, conditions, insuring agreements and endorsements, with the exception of limits of liability, shall operate in the same manner as if there were a separate policy covering each insured; and (vii) any insurance carried in accordance with Section 7.5(b) or (c) shall include a standard Lender's loss payable endorsement in favor of the Agent and shall name the Agent as sole loss payee. Deductibles or self insured retentions shall be subject to approval by the Agent. (k) Deliver to the Agent a certificate executed by the insurer or its duly authorized agent evidencing the continuance of such insurance policy (and, upon request, a certified copy of such insurance policy). (1) Cause to be deposited in the Insurance and Condemnation Proceeds Account for application in accordance with the Security Deposit Agreement all payments pursuant to Sections 7.5(b) and (c) received by the Agent or the Partnership from any insurer with respect to loss or damage to the Project or other Collateral within one Business Day of receipt thereof. Amendment and Restatement of Loan Agreement 53 (m) concurrently with the furnishing of all certificates referred to in Section 7.5, furnish the Agent with an opinion of an independent insurance broker acceptable to the Agent stating that all premiums then due have been paid and that, in the opinion of such broker the insurance then carried and maintained is in accordance with this Section 7.5. Furthermore, upon their first knowledge, cause each insurer or such broker to advise the Agent promptly in writing of any default in the payment of any premiums or any other act or omission on the part of the Partnership or the Contractor which might invalidate or render unenforceable, in whole or part, any insurance provided hereunder. The Agent may at its sole option obtain such insurance if not provided by the Partnership and in such event the Partnership shall reimburse the Agent upon demand for the cost thereof. (n) Notwithstanding anything to the contrary herein, no provision of this Section 7.5 or any provision of any other Basic Document shall impose on the Agent any duty or obligation to verify the existence or adequacy of the insurance coverage maintained by the Partnership, nor shall the Agent be responsible for any representations or warranties made by or on behalf of the Partnership to any insurance company or underwriter. 7.6 North Country Insurance Coverage. In the case of North Country: (a) Without limiting any of the other obligations or liabilities of North Country under this Agreement, at all times carry and maintain or cause to be carried and maintained at its own expense such insurance as is customarily maintained by constructors, owners, operators, and lessees of natural gas pipelines and in all events shall carry and maintain at least the minimum insurance coverage set forth in this Section 7.6. All insurance carried pursuant to this Section 7.6 shall be with such insurers, in such amounts and in such form and with deductibles or self insured retentions as shall be reasonably satisfactory to the Agent. (b) Maintain or cause to be maintained all-risk property and machinery insurance, covering physical loss or damage to the North Country Project, including fire and extended coverage, collapse, earthquake, flood and comprehensive machinery (including mechanical breakdown). Such insurance shall cover each and every component of the North Country Project and the interconnection facilities. The all-risk property and machinery coverage shall not contain an exclusion for resultant damage caused by faulty workmanship, design or materials. Coverage shall be written on a replacement cost basis and in an amount acceptable to the Agent, but in no event less than the replacement cost of the North Country Project. Such policy shall contain a valid agreed amount endorsement waiving any coinsurance penalty. The policy may be subject to deductibles not to exceed Amendment and Restatement of Loan Agreement 54 $100,000 per occurrence. North Country shall include as a part of this policy or procure a special policy known as a "Lender's Single Interest Excess of Loss Coverage" or "Stipulated Loss Coverage" covering all the perils provided by the property and boiler and machinery policy. Such policy shall provide limits as may be mutually agreed among the Partnership, North Country and the Agent. The insured and loss payee under this "Lender's Single Interest Excess of Loss Coverage" or "Stipulated Loss Coverage" policy shall be the Agent. (c) As an extension of Section 7.6(b) or as a separate policy, maintain or cause to be maintained business interruption insurance in an amount equal to 12 months projected net operating revenues of North Country and contingent business interruption insurance in an amount equal to 12 months projected net operating revenues of North Country. This extension or separate policy shall include coverage for (i) business interruption arising from loss or damage to the North Country Project, including a service interruption endorsement with a limit of $5,000,000 and a deductible period of not more than 72 hours and (ii) contingent business interruption arising from damage to the Facility and the property and equipment of customers of the North Country Project, which is not covered by the insurance specified in Section 7.6(b). This extension or separate policy shall also include coverage for expediting expenses and extra expense with a sublimit of $1,000,000. This extension or separate policy shall have a deductible not to exceed 30 days' business interruption, except for expediting expenses and extra expense, which deductible shall not exceed $100,000. (d) Maintain comprehensive (or commercial) general liability insurance written on an occurrence basis (with the exception of products/completed operations which may be written on a claims made form) and with a combined single limit of not less than $1,000,000. In the event North Country elects to insure such coverage on a claims made basis, the general liability policy shall be endorsed to provide that the production, sale and distribution of steam and electricity shall be deemed to be a premises/operations hazard and covered by such policy on an occurrence form. Such coverage shall include premises/operations, explosion, collapse and underground hazards, broad form contractual, independent contractors, products/completed operations, broad form property damage and personal injury. In the event a general aggregate applies, such policy or limits shall be written on a project specific basis naming North Country as the insured and the Agent as an additional insured and shall apply solely to the construction, use, operation and maintenance of the North Country Project. (e) Maintain (i) Workers Compensation insurance with statutory limits and (ii) employers liability insurance coverage with limits of not less than $1,000,000 including occupational disease coverage. Amendment and Restatement of Loan Agreement 55 (f) Maintain comprehensive (or business) automobile liability insurance for owned (if any), leased, non-owned and hired vehicles with combined single limits of not less than $250,000. (g) Maintain excess (or umbrella) liability insurance written on an occurrence basis (with the exception of products/completed operations which may be written on a claims form) and providing coverage limits in excess of the insurance required to be maintained pursuant to Sections 7.6(d), (e)(ii) and (f). In the event North Country elects to insure such coverage on a claims made basis, the general liability policy shall be endorsed to provide that the production, sale and distribution of steam and electricity shall be deemed to be a premises/operations hazard and covered by such policy on an occurrence form. The limits of such insurance and such excess insurance (or umbrella) coverage, when combined, shall be not less than $25,000,000. In the event a general aggregate applies, such policy or limits shall be written on a project specific basis naming North Country as the insured and the Agent as an additional insured and shall apply solely to the construction, use, operation and maintenance of the North Country Project. (h) Maintain such insurance as North Country is required to maintain pursuant to the provisions of any other Basic Document. (i) Cause (i) the Contractor to obtain and maintain in full force and effect the insurance referred to in items (A), (B), (C), (D) and (E) below and (ii) obtain and maintain in full force and effect the insurance referred to in clauses (C) and (D) below: (A) Performance and payment bonds which cover all payment, performance, material and other obligations of the Contractor and all subcontractors under the Construction Contract including the Performance and Payment Bond. The performance and payment bonds shall at all times be in an amount acceptable to the Agent. Each such bond shall cover the faithful performance of the Construction Contract or the applicable subcontract. Such bonds shall name North Country and the Agent as dual obligees and shall be written by surety companies and shall otherwise be in such form as is acceptable to the Agent. (B) Comprehensive general liability insurance written on an occurrence basis and with a combined single limit of not less than $1,000,000. Such coverage shall include premises/operations, explosion, collapse and underground hazard, broad form contractual, products/completed operations, independent contractors, broad form property damage and personal injury. Amendment and Restatement of Loan Agreement 56 (C)(x) Workers compensation insurance written with statutory limits including an USL&H endorsement (if necessary) and (y) employer's liability insurance coverage in an amount not less than $1,000,000. The employer's liability coverage shall not contain an occupational disease exclusion. (D) Comprehensive automobile liability insurance for all owned, non-owned and hired vehicles written in an amount not less than $500,000. (E) Excess (or umbrella) liability insurance providing coverage limits in excess of the insurance required to be maintained pursuant to clauses (B), (C)(y) and (D) above. The limits of such insurance and such excess insurance (or umbrella) coverage, when combined, shall not be less than $25,000,000. (j) Cause the insurance carried in accordance with this Sectin 7.6 to be endorsed as follows: (i) North Country shall be the named insured and the Agent shall be an additional named insured with respect to insurance maintained pursuant to Sections 7.6(b) and (c) and the Agent and the Lenders shall be additional insureds with respect to insurance maintained pursuant to Sections 7.6(d), (f), (g) and (h) and clauses (B), (D) and (E) of Section 7.6(i); (ii) with respect to Sections 7.6 (b) and (c), the interest of the Agent as lender shall not be invalidated by any action or inaction of North Country or any other Person and of any breach or violation by North Country or any other Person of any warranties, declarations or conditions in such policies; (iii) the insurer thereunder shall waive all rights of subrogation against the Agent, any right of setoff or counterclaim and any other right to deduction, whether by attachment or otherwise; (iv) such insurance shall be primary without right of contribution of any other insurance carried by or on behalf of the Agent with respect to its interest as such in the North Country Project; (v) if such insurance is canceled for any reason whatsoever, including nonpayment of premium, or any changes are initiated by carrier which reduces the limits or form which affects the interest of the Agent, such cancellation or change shall not be effective as to the Agent for 60 days, except for nonpayment of premium which shall be 10 days, after receipt by the Agent of written notice sent by Amendment and Restatement of Loan Agreement 57 registered mail from such insurer of such cancellation or change; (vi) any insurance carried in accordance with Section 7.6(d), (f) or (g), or clause (B), (D), or (E) of Section 7.6(i) shall be endorsed to provide that, inasmuch as the policy is written to cover more than one insured, all terms, conditions, insuring agreements and endorsements, with the exception of limits of liability, shall operate in the same manner as if there were a separate policy covering each insured; and (vii) any insurance carried in accordance with Section 7.6(b) or (c), shall include a standard Lender's lost payable endorsement in favor of the Agent and shall name the Agent as sole loss payee. Deductibles or self insured retentions shall be subject to approval by the Agent. (k) Deliver to the Agent a certificate executed by the insurer or its duly authorized agent evidencing the continuance of such insurance policy (and, upon request, a certified copy of such insurance policy). (l) Cause to be deposited in the North Country Insurance and Condemnation Proceeds Account for application in accordance with the Security Deposit Agreement all payments pursuant to Sections 7.6(b) or (c) received by the Agent or North Country from any insurer with respect to loss or damage to the North Country Project or other Collateral within one Business Day of receipt thereof. (m) Concurrently with the furnishing of all certificates referred to in Section 7.6, furnish the Agent with an opinion of an independent insurance broker acceptable to the Agent stating that all premiums then due have been paid and that, in the opinion of such broker the insurance then carried and maintained is in accordance with this Section 7.6. Furthermore, upon their first knowledge, cause each insurer or such broker to advise the Agent promptly in writing of any default in the payment of any premiums or any other act or omission on the part of North Country or the Contractor which might invalidate or render unenforceable, in whole or part, any insurance provided hereunder. The Agent may at its sole option obtain such insurance if not provided by North Country and in such event North Country shall reimburse the Agent upon demand for the cost thereof. (n) Notwithstanding anything to the contrary herein, no provision of this Section 7.6 or any provision of any other Basic Document shall impose on the Agent any duty or obligation to verify the existence or adequacy of the insurance coverage maintained by North Country, nor shall the Agent be responsible Amendment and Restatement of Loan Agreement 58 for any representations or warranties made by or on behalf of North Country to any insurance company or underwriter. 7.7 Inspection of Property; Change Orders; Books and Records; the Independent Engineer; Discussions. (a) (i) Keep proper books of records and accounts in which full, true and correct entries shall be made of all of its transactions in accordance with sound accounting practice. Permit the Agent, the Independent Engineer and other consultants (at the expense of each of the Partnership and North Country, based on invoices for the actual costs thereof) and the Lenders (at their own expense) to visit the Project and the North Country Project and the other properties of each of the Partnership and North Country during regular business hours after reasonable notice. The Agent and each Lender agrees that it will not, in the course of any such visit, interfere in the construction, operation or maintenance of the Project. Each of the Partnership and North Country authorizes the Agent and each Lender to disclose to any agent or consultant any and all information in its possession concerning the Project or the Site in connection with such agent's or consultant's evaluation of the Project or visit to the Project. (ii) Provide access by the Agent, the Independent Engineer and other consultants engaged by the Agent to (i) all Plans and Specifications (including, without limitation, data relating to design changes in the Project or the North Country Project, as the case may be), (ii) quality control data and performance test data, (iii) invoices relating to construction progress and to services to be performed and materials to be supplied on a cost reimbursement basis, and invoices relied on by the Contractor in verifying construction progress, (iv) contracts relating to the engineering of, the procurement of services, equipment, supplies or other materials for, or the construction of, the Project or the North Country Project, as the case may be, and (v) all other data relating to the Project or the North Country Project, as the case may be, and construction progress as may be reasonably requested by the Independent Engineer or other consultant. Permit representatives of the Agent, the Independent Engineer or other consultant to examine its books of records and accounts and to discuss its affairs, finances and accounts with its principal officers, engineers and independent accountants, all at such reasonable times during business hours and at such intervals as the Agent, the Independent Engineer or other consultant may request. Permit the Agent, the Independent Engineer or other consultants to monitor, witness and appraise the Work (including without limitation test procedures and performance testing), review and audit the records specified in clauses (iii) and (v) above which relate to the costs specified in clauses (iii) and (v) above. At all times cause an accurate and complete set of the Plans and Specifications to be maintained at the Project and the North Country Project, as the case may be. Amendment and Restatement of Loan Agreement 59 (b) At least once each calendar month, notify the Independent Engineer of any change made to the Plans and Specifications (which has been presented to the Partnership or North Country) since the last such notice and meet with the Independent Engineer (and the Agent, should the Agent so request) to discuss such changes; provided, that, subject to Section 8.18, neither the Partnership nor North Country shall enter into any agreement to modify or change the Plans and Specifications as the result of or in conjunction with any final settlement of the Construction Contract without the prior written consent of the Agent which consent will not be unreasonably withheld. The Partnership shall consider such changes to the Plans and Specifications as the Agent may, subject to Section 8.18, on or prior to the completion of the engineering work under the Construction Contract, reasonably request. (c) Notwithstanding anything to the contrary herein or in any other Basic Document, no act or omission of the Agent or the Independent Engineer shall in any way affect the obligations of the Partnership or North Country, the Contractor or any other Person under any contract relating to the Construction Contract, be deemed to be the acceptance of any defective work performed by the Contractor or any other Person under the Construction Contract or be deemed to be a waiver of any rights against the Contractor or any other Person under the Construction Contract or otherwise. (d) Give timely notice of, and permit the Agent, the Independent Engineer, the other consultants or any representatives thereof as the Agent, the Independent Engineer or such consultant may reasonably request to attend, all Project or North Country Project progress review meetings held by the Partnership or North Country or its agents or representatives, and any and all performance tests of the Project or the North Country Project, as the case may be, or any component thereof (whether any such test is to be conducted on or off the Site or the Pipeline Properties). 7.8 Compliance with Laws. Comply with all Requirements of Law, and from time to time obtain and comply with all Governmental Approvals as shall now or hereafter be necessary under all Applicable Laws, in connection with the construction, ownership, operation or maintenance of the Project and the North Country Project, as the case may be, or the making and performance by the Partnership or North Country, as the case may be, of any of the Basic Documents to which it is a party, except any thereof the failure with which to comply or of which to obtain would not, in the sole discretion of the Required Lenders, reasonably be expected to have a Material Adverse Effect. 7.9 Financial Statements. Furnish or cause to be furnished to the Agent: Amendment and Restatement of Loan Agreement 60 (a) as soon as available, but in any event within 120 days after the end of each fiscal year of each Reporting Participant (other than Falcon), a copy of the balance sheet of such Reporting Participant as of the end of such fiscal year and the related statements of income, retained earnings (or partners' capital) and changes in cash flows of such Reporting Participant for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, certified without qualification or exception as to the scope of its audit by independent public accountants of national standing reasonably acceptable to the Agent; and (b) as soon as available, but in any event within 60 days after the end of each quarterly period of each fiscal year (other than the last quarterly period of each such fiscal year) of each Reporting Participant (other than Falcon), the unaudited balance sheet of such Reporting Participant as of the end of such quarterly period and the related unaudited statements of income and retained earnings (or partners' capital) and changes in cash flows of such Reporting Participant for such quarterly period and for the portion of the fiscal year then ended, setting forth in each case in comparative form the figures for the previous period, certified by a Responsible Officer of such Reporting Participant (subject to normal year-end audit adjustments). All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except for changes approved or required by the independent public accountants certifying such statements and disclosed therein). 7.10 Certificates; Operating Budgets; Other Information. Furnish or cause to be furnished to the Agent: (a) concurrently with the delivery of the financial statements of the Partnership and North Country referred to in Section 7.9(a), a certificate of the independent public accountants which certified such financial statements stating that in making the examination necessary for the audit thereof no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements of the Partnership and North Country referred to in Sections 7.9(a) and 7.9(b), a certificate of a Responsible Officer of the Partnership, in the case of financial statements of the Partnership, or North Country, in the case of financial statements of North Country, stating that, to the best of such Responsible Officer's knowledge after due inquiry, each of the Partnership and SECI General, or North Country, as the case may be, during Amendment and Restatement of Loan Agreement 61 the period covered by such financial statements, has observed and performed all of its covenants and other agreements hereunder, and satisfied every condition, contained in this Agreement and the other Basic Documents to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default hereunder at any time during such period or on the date of such certificate and no knowledge of any default or event which with the giving of notice or the lapse of time or both would constitute a default under any of the other Basic Documents at any time during such period or on the date of such certificate (or, if any such Default or Event of Default or default or event shall have occurred, a statement setting forth the nature thereof and the steps being taken by the Partnership or North Country to remedy the same); (c) promptly after the same are sent, copies of all financial statements and reports (other than with respect to Falcon) which the Partnership sends to its Partners and which North Country sends to its shareholders; (d) promptly after the filing thereof, the "Annual Returns" (Form 5500 series) and attachments filed annually with the Internal Revenue Service with respect to each Single Employer Plan, if any, of the Partnership and North Country; (e) with respect to any Single Employer Plan adopted or amended by the Partnership, SECI, North Country or any Commonly Controlled Entity on or after the first Borrowing Date, any determination letters received from the Internal Revenue Service with respect to the qualification of such Plan, as initially adopted or amended under Section 401(a) of the Code; (f) promptly after delivery or receipt thereof, a copy of each material notice, demand or other communication delivered or received by the Partnership or North Country pursuant to any Basic Document (including, without limitation, a copy of all engineer's reports furnished by the Partnership to NYSEG pursuant to Part 2 of Exhibit B of the Power Purchase Agreement), except any such communications which the Partnership may deliver to its Partners pursuant to the Amended and Restated Partnership Agreement which are in the ordinary course of business and which are not otherwise required to be delivered to the Agent and the Lenders hereunder; (g) copies of each Governmental Approval or other consent or approval obtained or made by the Partnership or North Country, or obtained or made by the Contractor and Amendment and Restatement of Loan Agreement 62 delivered to the Partnership or North Country pursuant to the Construction Contract; (h) in the case of the Partnership: (i) on or prior to November 1 of each year commencing after the date of Substantial Completion, submit to the Agent, with a copy for each Lender, the proposed operating budget of the Partnership for the next succeeding year. Such proposed operating budget shall be substantially in the form of Exhibit B (with any deviations from such form indicated by the Partnership) (the "Partnership Operating Budget") and shall include, in each case, on a cash basis a budget for such operating year specifying on a monthly basis for such operating year the principal items of (x) revenue anticipated to be received in respect of the Facility, including, without limitation, the estimated energy and steam sales, rates and revenues pursuant to the Steam Supply Agreement and the estimated power sales, rates and revenues pursuant to the Power Purchase Agreement and (y) costs and expenses anticipated to be incurred in connection with the operation, maintenance and administration of the Facility, including, without limitation, taxes, premiums for insurance policies required to be maintained pursuant to this Agreement and any fees and expenses payable to Agent or any Lender pursuant to the Loan Documents, together with a manpower forecast and periodic inspection, maintenance and repair schedule and any other items necessary to calculate "Operating Income" in the proposed Partnership Operating Budget and (z) a revised estimate (and related schedule) of costs to be incurred by the Partnership in respect of major maintenance items during the next six year period. Such proposed Partnership Operating Budget shall be accompanied by (A) a forecasted Partnership Operating Budget for the next succeeding operating year specifying, in the same format, on an annual basis the items described in clauses (x), (y) and (z) above for each such operating year, (B) a discussion of any significant changes from the approved Partnership Operating Budget for the previous year, (C) a discussion of any anticipated changes to the terms and conditions, coverages, policies or carriers of the insurance described in Section 7.5, (D) a discussion of whether the funding of the Maintenance Reserve Account then contemplated by the Amended and Restated Security Deposit Agreement will be sufficient to pay costs of all forecasted major maintenance items and, if not, a proposed schedule of increases in such funding, and (E) a discussion of any contemplated changes to agreements or elections Amendment and Restatement of Loan Agreement 63 covering the supply and transmission of fuel to the Facility and the other Assigned Contracts; (ii) such Partnership Operating Budget shall be subject to the written approval of the Required Lenders (which approval shall not be unreasonably withheld or delayed). In the event the Required Lenders disapprove the proposed Partnership Operating Budget the Agent shall indicate objections thereto in writing to the Partnership and the Partnership shall revise the proposed Partnership Operating Budget to reflect the revisions proposed by the Required Lenders or, if the Partnership disagrees with the Required Lenders' objections, the item(s) in dispute shall be submitted to, and resolved by, a mutually agreeable independent engineering firm of national standing; (iii) if, for any reason, the Partnership Operating Budget shall not have been approved by the Required Lenders on or prior to the commencement of the applicable operating year, the Partnership Operating Budget for the prior operating year shall remain in effect, with such adjustments thereto as shall be required in respect of (x) any increase in fuel prices, (y) all contractual payment requirements then binding on the Partnership, and (z) an increase of 5% of all Project Expenses other than as provided under the foregoing clauses (x) and (y). Upon any subsequent approval of the proposed Partnership Operating Budget, such Partnership Operating Budget shall become effective for such operating year; and (iv) during the operating year, the Partnership shall promptly advise the Agent of any circumstance that, in the reasonable judgment of the Partnership, makes necessary or advisable any revision to the effective Partnership Operating Budget (including, without limitation, any allocation of savings in one item of the Partnership Operating Budget to other items thereof) and shall promptly furnish to the Agent, with copies to the Lenders, all information reasonably requested by the Agent or any Lender in connection with its review of the proposed revision. The Agent shall approve or disapprove such proposed revision in accordance with the procedures outlined in paragraph (ii) above. No such revision to the Partnership Operating Budget may be made without such required approval; provided, however, that the Partnership may allocate savings in one such item to other items in the Partnership Operating Budget up to ten percent (10%) of the item from which the allocation is made; and provided, further, that no item in the Partnership Operating Budget may be increased as a result of the Amendment and Restatement of Loan Agreement 64 allocation of savings by an amount greater than ten percent (10%) of the original amount of such item. During the existence of any emergency or event of force majeure affecting the Facility, the Partnership may in good faith take such actions as may be reasonably required by such emergency or event of force majeure; provided, that the Partnership shall promptly notify the Agent of such actions and any effect such actions may have had on the amounts allocated in the Partnership Operating Budget and shall promptly consider in good faith any further reallocations in the Partnership Operating Budget which may be recommended in writing by the Agent; (i) in the case of North Country: (i) on or prior to November 1 of each year commencing after the date of Substantial Completion, submit to the Agent, with a copy for each Lender, proposed operating budget of North Country for the next succeeding year. Such proposed operating budget shall be substantially in the form of Exhibit C (with any deviations from such form indicated by North Country) (the "North Country Operating Budget") and shall include, in each case, on a cash basis a budget for such operating year specifying on a monthly basis for such operating year the principal items of (x) revenue anticipated to be received in respect of the North Country Project, including, without limitation, the estimated gas sales, rates and revenues pursuant to the North Country Gas Agreements and (y) costs and expenses anticipated to be incurred in connection with the operation, maintenance and administration of the North Country Project, including, without limitation, taxes, premiums for insurance policies required to be maintained pursuant to this Agreement and any fees and expenses payable to the Agent or any Lender pursuant to the Loan Documents, together with a manpower forecast and periodic inspection, maintenance and repair schedule and any other items necessary to calculate "Operating Income" in the proposed North Country Operating Budget and (z) a revised estimate (and related schedule) of costs to be incurred by North Country in respect of major maintenance times during the next six year period. Such proposed North Country Operating Budget shall be accompanied by (A) a forecasted North Country Operating Budget for the next succeeding operating year specifying, in the same format, on an annual basis the items described in clauses (x), (y) and (z) above for each such operating year, (B) a discussion of any significant changes from the approved North Country Operating Budget for the previous year, (C) a discussion of any anticipated Amendment and Restatement of Loan Agreement 65 changes to the terms and conditions, coverages, policies or carriers of the insurance described in Section 7.6 and (D) a discussion of the costs of maintaining the Pipeline; (ii) such North Country Operating Budget shall be subject to the written approval of the Required Lenders (which approval shall not be unreasonably withheld or delayed). In the event the Required Lenders disapprove the proposed North Country Operating Budget, the Agent shall indicate objections thereto in writing to North Country. North Country shall revise the proposed North Country Operating Budget to reflect the revisions proposed by the Required Lenders or, if North Country disagrees with the Required Lenders' objections, the item(s) in dispute shall be submitted to, and resolved by, a mutually agreeable independent engineering firm of national standing; (iii) if, for any reason, the North Country Operating Budget shall not have been approved by the Required Lenders on or prior to the commencement of the applicable operating year, the North Country Operating Budget for the prior operating year shall remain in effect, with such adjustments thereto as shall be required in respect of (x) all contractual payment requirements then binding on North Country, and (y) an increase of 5% of all North Country Project Expenses other than as provided under the foregoing clause (x). Upon any subsequent approval of the proposed North Country Operating Budget, such North Country Operating Budget shall become effective for such operating year; and (iv) during the operating year, North Country shall promptly advise the Agent of any circumstance that, in the reasonable judgment of North Country, makes necessary or advisable any revision to the effective North Country Operating Budget (including, without limitation, any allocation of savings in one item of the North Country Operating Budget to other items thereof) and shall promptly furnish to the Agent, with copies to the Lenders, all information reasonably requested by the Agent or any Lender in connection with its review of the proposed revision. The Agent shall approve or disapprove such proposed revision in accordance with the procedures outlined in paragraph (ii) above. No such revision to the North Country Operating Budget may be made without such required approval; provided, however, that North Country may allocate savings in one such item to other items in the North Country Operating Budget up to ten percent (10%) of the item from which the allocation is made; and Amendment and Restatement of Loan Agreement 66 provided, further, that no item in the North Country Operating Budget may be increased as a result of the allocation of savings by an amount greater than ten percent (10%) of the original amount of such item. During the existence of any emergency or event of force majeure affecting the North Country Project, North Country may in good faith take such actions as may be reasonably required by such emergency or event of force majeure; provided, that North Country shall promptly notify the Agent of such actions and any effect such actions may have had on the amounts allocated in the North Country Operating Budget and shall promptly consider in good faith any further reallocations in the North Country Operating Budget which may be recommended in writing by the Agent; (j) no later than the 10th Business Day of each month, an operating report providing the information set forth on Schedule 9; and (k) promptly, such additional financial and other information with respect to the Reporting Participants or the Project or the North Country Project, as the case may be, as the Required Lenders may from time to time reasonably request. 7.11 Taxes. Pay and discharge all taxes (or payments in lieu of taxes under the Pilot Agreements), assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property (including payments under the respective Pilot Agreements) prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien upon the property of the Partnership or North Country, provided, that, if no Event of Default shall have occurred and be continuing, and if an Event of Default shall have occurred and be continuing with the prior written consent of the Required Lenders, the Partnership or North Country, as the case may be, may contest in good faith the validity or amount of any such tax, assessment, charge, levy or claim by proper proceedings timely instituted, and may permit the taxes, assessments, charges, levies or claims so contested to remain unpaid during the period of such contest if: (a) the Partnership or North Country, as the case may be, diligently prosecutes such contest, (b) the Partnership or North Country, as the case may be, sets aside on its books adequate reserves with respect to the contested items, (c) during the period of such contest the enforcement of any contested item is effectively stayed, and (d) the outcome of which, if adversely determined, could not reasonably be expected to have a Material Adverse Effect. Promptly pay or cause to be paid any valid, final judgment enforcing any such tax, assessment, charge, levy or claim and cause the same to be satisfied of record. Amendment and Restatement of Loan Agreement 67 7.12 Maintenance of Property. (a) In the case of the Partnership, at its expense, keep the Facility in good working order and condition and make all repairs, replacements and renewals with respect thereto and additions and betterments thereto which are necessary for the Facility to operate in compliance with the terms of the Basic Documents (except where any failure could not, in the determination of the Required Lenders, reasonably be expected to have a Material Adverse Effect), and in compliance with all Applicable Laws affecting the Project (except where any failure could not, in the determination of the Required Lenders, reasonably be expected to have a Material Adverse Effect), and to ensure enforceability of remedies under insurance policies. (b) In the case of North Country, at its expense, keep the Pipeline in good working order and condition and make all repairs, replacements and renewals with respect thereto and additions and betterments thereto which are necessary for the Pipeline to operate in compliance with the terms of the Basic Documents (expect where any failure could not, in the determination of the Required Lenders, reasonably be expected to have a Material Adverse Effect), and in compliance with all Applicable Laws affecting the North Country Project (except where any failure could not, in the determination of the Required Lenders, reasonably be expected to have a Material Adverse Effect), and to ensure enforceability of remedies under insurance policies. 7.13 Notices. Promptly (with respect to the North Country Project, in the case of North Country, and with respect to the Project, in the case of the Partnership) (and, in any event, within five days) upon obtaining knowledge of any of the following, give notice to the Agent: (a) of the occurrence of any Default or Event of Default; (b) of any default or event of default under any Assigned Contract; (c) of any litigation, investigation or proceeding which may exist at any time between the Partnership or North Country and any Governmental Authority, including, without limitation, any litigation, investigation or proceeding to revoke or modify the FERC Order or any other license or Governmental Approval required for the ownership or operation of the Project or the North Country Project, as the case may be; (d) of any litigation or proceeding affecting the Partnership or North Country in which the amount involved is $100,000 or more or in which injunctive or similar relief is sought; Amendment and Restatement of Loan Agreement 68 (e) of the following events, as soon as possible and in any event within 30 days after the Partnership or North Country knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, or (ii) the institution of proceedings or the taking or expected taking of any other action by PBGC; the Partnership or North Country to terminate, withdraw, or partially withdraw from any Plan, or (iii) the reorganization or insolvency of any Multiemployer Plan, and, in addition to such notice, deliver to the Agent whichever of the following may be applicable: (A) a certificate of a Responsible Officer of the Partnership or North Country, as the case may be, setting forth details as to such Reportable Event and the action that the Partnership or North Country, as the case may be, proposes to take with respect thereto, together with a copy of any notice of such Reportable Event that may be required to be filed with PBGC, or (B) any notice delivered by PBGC evidencing its intent to institute such proceedings or any notice to PBGC that such Plan is to be terminated, or (C) any notice of the reorganization or insolvency of a Multiemployer Plan received by the Partnership or North Country; (f) of any Material Adverse Effect or any event which could reasonably be expected to result in a Material Adverse Effect; (g) of any loss or damage to the Project or the North Country Project, as the case may be, or the Collateral in excess of $100,000; (h) of any material delays for any reason in construction of the Project or the North Country Project, as the case may be, and of any unscheduled shutdown or material reduction in operation, in each case for a period in excess of 24 hours; (i) of any event or condition which would change any matter represented to in Section 5.5, 5.26 (in the case of the Partnership), 5.27 (in the case of North Country) or 5.28; (j) of the execution and delivery of any Additional Contract; (k) of any event constituting force majeure under any of the Basic Documents or any claim by any party to any Basic Document alleging that a force majeure event thereunder has occurred; (l) of any litigation, investigation or proceeding affecting any Project Participant other than the Partnership Amendment and Restatement of Loan Agreement 69 or North Country which if adversely determined could reasonably be expected to have a Material Adverse Effect; (m) of any litigation or proceeding relating to environmental matters concerning the Partnership, the Project or North Country or the North Country Project (including receipt by Partnership or North Country of any notice of any proceeding involving a Relevant Environmental Law or any discharge of Hazardous Materials); (n) of any assertion by any Governmental Authority or any written assertion by any other Person that the work on the Project or the North Country Project does not comply with any Applicable Law; (o) of any material delays for any reason in the delivery of materials or equipment to be supplied under the Construction Contract; (p) of any stop-work order; (q) of any actual, proposed or threatened cessation or suspension in the work at the Project or the North Country Project for any reason by the Contractor for a period in excess of 48 hours; and (r) of any Change Order or requested or required change in the Plans and Specifications. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of the Partnership or North Country, as the case may be, setting forth details of the occurrence referred to therein and stating what action the Partnership or North Country, as the case may be, proposes to take with respect thereto and, with respect to a notice given pursuant to clause (j), shall be accompanied by a copy of the Additional Contract. For all purposes of clause (e) of this Section, the Partnership and North Country shall be deemed to have all knowledge or knowledge of all facts attributable to the administrator of such Plan. 7.14 Assignments of Additional Contracts and Rights; Maintenance of Liens of the Collateral Security Documents; Future Mortgages. The Partnership shall: (a) within 30 Business Days after the execution and delivery of any Additional Contract, execute and deliver to the Agent an assignment, in form and substance satisfactory to the Agent, with respect to such Additional Contract and (unless the Agent shall have agreed, after receipt of a written request from the Partnership, that no such consent is required) cause the other party or parties to such Additional Contract, to execute and deliver to the Agent a Amendment and Restatement of Loan Agreement 70 consent with respect to such assignment and, if requested by the Agent, an opinion, in form and substance acceptable to the Agent, of counsel to each party thereto in respect of the validity and enforceability of such Additional Contract; (b) promptly upon the request of the Agent, and at the Partnership's expense, execute and deliver, or cause the execution and delivery of, and thereafter register, file or record in each appropriate governmental office, any document or instrument supplemental to or confirmatory of the Collateral Security Documents or otherwise deemed by the Agent to be necessary or desirable for the creation or perfection of the liens and security interests purported to be created by the Collateral Security Documents or to protect the Borrowers' title in and to any of the Collateral; and (c) if the Borrowers shall at any time acquire any real property or leasehold or other interests therein not covered by the Mortgages, within 15 Business Days after such acquisition (or on the first Borrowing Date, if such acquisition occurred prior thereto) execute, deliver and record supplements to the Mortgages, reasonably satisfactory in form and substance to the Agent, subjecting such real property or leasehold or other interests to the lien and security interest created by the Mortgages. 7.15 Employee Plans. For each Plan adopted by the Partnership or North Country, as the case may be, (a) use its best efforts to seek and receive determination letters from the Internal Revenue Service to the effect that such Plan is qualified within the meaning of Section 401(a) of the Code; and (b) from and after the date of adoption of any Plan, cause such Plan to be qualified within the meaning of Section 401(a) of the Code and to be administered in all material respects in accordance with the requirements of ERISA and Section 401(a) of the Code. 7.16 Management Letters. Promptly deliver to the Agent a copy of each report delivered to the Partnership or North Country, as the case may be, by its independent public accountants in connection with any annual or interim audit of its books, including, without limitation, any letters or reports addressed to the Partnership or any of its officers relating to internal controls, adequacy of records or the like. 7.17 Easements. Submit to the Agent for the Agent's approval, which shall not be unreasonably withheld, copies of all prospective easements, licenses, restrictive covenants or other similar agreements affecting the Site or the Pipeline Properties, as the case may be (including all reciprocal easement agreements with parties interested in the Site or with parties interested in Amendment and Restatement of Loan Agreement 71 adjacent property), prior to their execution, together with a drawing or survey showing the location thereof. 7.18 Storage. Cause all materials owned or controlled by or for the account of the Borrowers and supplied for, or intended to be utilized in, the construction, operation or maintenance of the Project or the North Country Project, as the case may be, but not affixed to or incorporated into the Project or the North Country Project, as the case may be, to be suitably stored in accordance with all Relevant Environmental Laws with adequate safeguards to prevent loss, theft, damage or commingling with other materials. 7.19 Hazardous Materials. (a) Provide such information as is reasonably requested by the Agent about all Hazardous Materials and the storage, handling or disposal thereof which may exist at the Site or the Pipeline Properties, as the case may be, and which are involved in the Project or the North Country Project, as the case may be. (b) Retain only those third-party independent contractors who are properly licensed by each applicable Governmental Authority and any other applicable licensing authority to provide the services they are retained to perform. (c) Comply with all Relevant Environmental Laws in connection with the generation, management, handling, labeling, containing, treatment, storage, transportation, or disposal of or reporting or notification in connection with Hazardous Materials at the Site or the Pipeline Properties, as the case may be, or which are used in connection with the Project or the North Country Project, as the case may be, including without limitation, proper and complete preparation of any required manifests, maintenance of material safety data sheets, preparation of a hazardous materials business plan if required by Relevant Environmental Law, and maintenance of safe working conditions. Establish a regular schedule for transfer of all Hazardous Materials off the Site or the Pipeline Properties, as the case may be, as soon as practicable after its generation and, in any event, each of the Partnership and North Country shall not allow any Hazardous Material to be maintained at the Site or the Pipeline Properties, as the case may be, for a period exceeding that permitted by any Relevant Environmental Law. Monitor the disposition of all Hazardous Material from the Project or the North Country Project, as the case may be, by contractors engaged by or on behalf of the Partnership and North Country in connection with the storage, transportation and disposal thereof. (d) Defend, indemnify and hold harmless the Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or Amendment and Restatement of Loan Agreement 72 otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under any Relevant Environmental Laws applicable to the operations of the Partnership, the Project or the Site or North Country, the North Country Project or the Pipeline Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, environmental audits, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. This indemnity shall continue in full force and effect regardless of the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. 7.20 Swap Agreement. On or prior to the Second Capital Contribution Date, enter into the Second Swap Agreement in substantially the form of Exhibit D. 7.21 Substitute Steam Host. If, at any time, the Required Lenders shall determine, in their reasonable judgment, that (i) the Steam Host will cease for any reason to purchase steam from the Facility in sufficient quantities so as to maintain the Facility's status as a Qualifying Facility and the Partnership shall not have undertaken an alternative to the sale of the thermal output of the Facility to the Steam Host, which the Required Lenders shall have determined, in their reasonable judgment, to be a viable and not economically disadvantageous means to preserve the Facility's status as a Qualifying Facility and (ii) such failure to purchase steam will occur at any time during which the Letter of Credit Commitment is in effect, any Note or Letter of Credit remains outstanding and unpaid, any Surety Bond Arrangements remain in effect, any Obligations are owing to the Agent or any Lender or any Surety Bond Arrangements Reimbursement Obligations are owing to the Surety Bond Issuer under the Loan Documents, provide to the Agent, as soon as possible but in any event within 60 days after receipt by the Partnership of written notice from the Agent to such effect, an Alternative Steam Plan, and shall cause the substitute facility and the permits relating thereto described in such Alternative Steam Plan to be developed, constructed, implemented and obtained within fifteen (15) days of the milestones specified as "critical path milestones" in the timetable described in clause (x) of the definition of Alternative Steam Plan in Appendix A, and shall cause such substitute facility to be constructed and completed and become operational in compliance with Applicable Law and the Alternative Steam Plan by no later than the date one year after the written notice from the Agent referred to above or, if the FERC shall have granted an exemption from the requirement that the Facility be a Qualifying Facility, such longer period not later than the date of the expiration of such exemption, so long Amendment and Restatement of Loan Agreement 73 as during such period NYSEG shall have taken no action to terminate the Power Purchase Agreement. 7.22 Deposits to Reserve Accounts. (a) On each Monthly Transfer Date (as defined in the Amended and Restated Security Deposit Agreement) in the case of the Partnership, provide for the deposit of the Major Maintenance Required Contribution into the Major Maintenance Reserve Account. (b) On each Distribution Date, until the sum of (i) the amount on deposit in the Base Reserve Debt Account and (ii) the amount available to be drawn under the Base Reserve Letter of Credit, if any, shall be equal to or greater than the Base Reserve Amount, there shall be deposited in the Base Reserve Debt Account an amount equal to 23.7% of the Distributable Cash otherwise distributable to each Other Partner on such Distribution Date in accordance with the Amended and Restated Partnership Agreement and the Amended and Restated Security Deposit Agreement. In the event of any (i) withdrawal from the Base Reserve Debt Account (other than withdrawals of income or gain in excess of the Base Reserve Amount) or (ii) drawing under the Base Reserve Letter of Credit, on each Distribution Date, until the Base Reserve Debt Account shall have been replenished by the amount of such withdrawal or the stated amount of the Base Reserve Letter of Credit shall have been reinstated by the amount of such drawing, as the case may be, there shall be deposited in the Base Reserve Debt Account an amount equal to 100% of the Distributable Cash distributable to each Partner on such Distribution Date in accordance with the Amended and Restated Partnership Agreement and the Amended and Restated Security Deposit Agreement. (c) In the event that the Debt Service Coverage Ratio for any Measurement Period shall be less than 1.20 to 1.00, 100% of the Distributable Cash otherwise distributable to each Partner in accordance with the Amended and Restated Partnership Agreement and the Amended and Restated Security Deposit Agreement in respect of each of the three Distribution Dates immediately after the end of such Measurement Period shall not be distributed to such Partner on such Distribution Dates but shall instead be transferred to and retained in the Senior Debt Service Coverage Account and applied in the manner set forth in the Amended and Restated Security Deposit Agreement. (d) Commencing with the first Distribution Date occurring on or after the date twelve years after the Date of Commercial Operation and until the amount on deposit in the Project Letters of Credit Reserve Account is equal to or greater than the Project Letters of Credit Required Balance as of such Distribution Date, the amount of Distributable Cash to be distributed to each Other Partner pursuant to Section 4.3(b) of the Amended and Restated Partnership Agreement in respect of such Distribution Date that corresponds to each such Other Partner's Amendment and Restatement of Loan Agreement 74 allocable share of the Project Letters of Credit Required Contribution (determined by multiplying the Project Letters of Credit Required Contribution by the percentage interest of each Other Partner in such Distributable Cash) shall not be distributed to each such Other Partner on such Distribution Date but shall instead be transferred to and retained in the Project Letters of Credit Reserve Account and applied as provided in the Amended and Restated Security Deposit Agreement. (e) During the period from the including the date of occurrence of a Steam Host Event to but excluding the date on which the Agent shall have delivered the written notice to the Security Agent described in Section 4.15(a) of the Amended and Restated Security Deposit Agreement, 100% of the Distributable Cash otherwise distributable to each Partner in accordance with the Amended and Restated Partnership Agreement and the Amended and Restated Security Deposit Agreement in respect of each Distribution Date following the occurrence of such Steam Host Event shall not be distributed to such Partner on such Distribution Date but shall instead be transferred to and retained in the Steam Reserve Account and applied in the manner set forth in the Amended and Restated Security Deposit Agreement. 7.23 Notices under Gas Arrangements. In the case of the Partnership, no later than November 1, 1994, in conjunction with the Gas Supplier, if necessary provide any notice required by the Gas Transportation Agreement to ensure the transportation of natural gas to the Facility for a period commencing on the Date of Commercial Operation and extending at least through the fifteenth anniversary of the Date of Commercial Operation. 7.24 Reimbursement of Surety Bond Arranger. Upon receipt of any capital contribution from SECI pursuant to (i) Section 2.5 of the SECI Term Loan Agreement or (ii) Section 8.6 of the Partnership Agreement, apply such capital contribution to reimburse the Surety Bond Arranger pursuant to Section 3.18 or deposit such capital contribution into the Cash Collateral Account under the Surety Bond Arrangements Cash Collateral Agreement pursuant to Section 5(b) of such Agreement. 7.25 Air Permit. (a) The Partnership will, within four weeks prior to the date of expiration of the Construction Permit, either (i) obtain an Operating Permit with which it can comply or obtain modifications to the Construction Permit satisfactory to the Independent Engineer or (ii) commence the implementation of such mechanical or technical alterations to the Facility which, in the reasonable judgment of the Independent Engineer, are necessary for the Partnership to obtain such an Operating Permit prior to the expiration of the Construction Permit. (b) For purposes hereof, "Construction Permit" means the permit listed as item II.8. on Part A of Schedule 3 hereto, Amendment and Restatement of Loan Agreement 75 as the same may be modified or extended from time to time, and "Operating Permit" means the permit listed as item II.2. on Part B of Schedule 3 hereto. The provisions of this Section 7.25 are not intended to limit any other obligations of the Partnership contained in this Agreement. 7.26 Grant of Easement to NYSEG. As soon as practicable following the Second Capital Contribution Date, but in any event by not later than October 20, 1994, the Borrowers shall submit to NYSEG a form of easement required to be provided under Section 21(e) of the NYSEG Mortgage and shall diligently proceed to cause such easement to become effective as NYSEG may require in accordance with the NYSEG Mortgage. SECTION 8 NEGATIVE COVENANTS The Partnership agrees that, so long as the Letter of Credit Commitment remains in effect, any Note or any Letter of Credit remains outstanding and unpaid, any Surety Bond Arrangements remain in effect, any Obligations are owing to the Agent or any Lender hereunder or under the Collateral Security Documents or any obligations in respect of the Surety Bond Arrangements Reimbursement Obligations or the Surety Bond are owing to the Surety Bond Arranger, the Partnership shall not, and shall not permit North Country (as to itself or with respect to the North Country Project only) to: 8.1 Merger, Sale of Assets, Purchases, Etc. Merge into or consolidate with any other Person, change its form of organization or its business, or liquidate or dissolve itself (or suffer any liquidation or dissolution), or sell, lease, transfer or otherwise dispose of any assets other than (i) in the case of the Partnership, sales of electric power or thermal energy pursuant to the Power Purchase Agreement or the Steam Supply Agreement, (ii) sales of those assets disposed of in the ordinary course of business in accordance with the then current Operating Budget and not in excess of $250,000 in the aggregate in any year and (iii) the sale of the Transmission Line (other than the High Voltage Interconnection System between the Facility and the Saranac Synchronizing Switchyard) to NYSEG pursuant to the Power Purchase Agreement and of the Back-up Boiler to the Steam Host pursuant to the Steam Supply Agreement. Purchase or acquire any assets other than (x) the purchase of assets in connection with the completion of the Project or the North Country Project, as the case may be, and provided for in the then current Construction Budget, or, if different from the Construction Budget, the Completion Budget, (y) the purchase of assets in the ordinary course of business reasonably required in connection with the operation and maintenance of the Project as set forth in the Partnership Operating Budget or the North Country Operating Budget, as the case may be, and (z) Partnership Permitted Amendment and Restatement of Loan Agreement 76 Investments or North Country Permitted Investments, as the case may be. 8.2 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness arising under the Basic Documents, provided, that any Refinancing Loans or Subordinated Refinancing Loans incurred by the Partnership pursuant to Section 10(a) of the Capital Contribution Agreement to refinance only a portion (but not all) of the Term Loans held by the Lenders (other than GE Capital) shall not be permitted Indebtedness under this Section 8.2 unless the terms of such Loans (other than those terms set forth in the proviso clause to such Section 10(a)) shall have been approved in writing by the Required Lenders (which approval shall not be unreasonably withheld); (b) Partnership Permitted Indebtedness, provided, that any Indebtedness described in clause (e) of the definition of Partnership Permitted Indebtedness in Appendix A shall not be permitted Indebtedness under this Section 8.2 unless (i) such Indebtedness is incurred on the terms set forth in the second and third sentences of Section 10.10(a) (ii) of the Amended and Restated Partnership Agreement, and is otherwise subordinated to the Term Loans pursuant to terms which are reasonably satisfactory to the Required Lenders and (ii) the Person to whom such Indebtedness is owed and the Lenders shall have entered into an intercreditor agreement governing their respective rights to the Collateral which is reasonably satisfactory in form and substance to the Required Lenders; (c) Indebtedness (other than Indebtedness for borrowed money) in connection with Loan Agreement Permitted Liens described in clause (ii) of the definition thereof; provided, that such Indebtedness was not incurred by the Partnership or North Country, as the case may be, after the occurrence and during the continuance of a Default or an Event of Default; and (d) other Indebtedness incurred with the prior written consent of the Required Lenders. 8.3 Distributions, Etc. (a) In the case of the Partnership, without the prior written consent of the Required Lenders, make any distributions to the Partners or to any other Person in respect of any partnership interest in the Partnership or any payments of management fees to any Partner, whether in cash or other property, or redeem, purchase or otherwise acquire any interest of any Partner in the Partnership, or permit any Partner to withdraw any capital from the Partnership, excluding, however, unless a Default or Event of Default shall have occurred Amendment and Restatement of Loan Agreement 77 and be continuing, distributions to Partners permitted by the provisions of the Amended and Restated Partnership Agreement and the Amended and Restated Security Deposit Agreement. (b) In the case of North Country, without the prior written consent of the Required Lenders, make any distributions to its shareholders or to any other Person in respect of any capital stock of North Country, whether in cash or other property, or redeem, purchase or otherwise acquire any capital stock of North Country excluding, however, distributions to the Partnership of (A) dividends to the Partnership or (B) payments under the Pipeline Construction Contract or any intercompany debt, so long as such dividends or payments are deposited in the Revenue Account. 8.4 Liens. Create or suffer to exist any Lien on any of its properties or assets securing any Indebtedness or other obligation of the Partnership or North Country or any other Person, other than Loan Agreement Permitted Liens. Notwithstanding the foregoing, the Partnership shall protect and defend its interests in, and the Agent's Liens on, the Collateral, and shall protect and defend its interests in, and the Surety Bond Arranger's Liens on, the Surety Bond Arrangements Collateral; provided, that the Partnership will pay or cause to be paid promptly any valid, final and non-appealable judgment enforcing any lien, cause the Lien relating thereto to be removed and otherwise cause such lien to be satisfied of record. 8.5 Nature of Business. Engage in any business other than the development, construction and operation of the Project or the North Country Project, as the case may be. 8.6 Amendment of Contracts, Etc. Without the prior written consent of the Required Lenders, agree to or permit (a) the cancellation, suspension or termination of any Basic Document (except upon the expiration of the stated term thereof) or (b) the assignment of the rights or obligations of any party to any Basic Document except (i) as contemplated by this Agreement or the Collateral Security Documents or (ii) as permitted without the consent of the Partnership or North Country by the terms of such Basic Document. Except as permitted pursuant to Section 8.18, without the prior written consent of the Required Lenders, agree to or permit any amendment, supplement, or modification of, or waiver with respect to any of the provisions of (i) any Basic Document, (ii) the Plans and Specifications, (iii) the Partnership Operating Budget (in the case of the Partnership) or (iv) the North Country Operating Budget (in the case of North Country). Except as otherwise permitted by the Performance and Payment Bond, amend, supplement, modify or waive any provision of the Construction Contract without the prior consent of the issuer of the Performance and Payment Bond. Amendment and Restatement of Loan Agreement 78 8.7 Investments. Make any investments (whether by purchase of stock, bonds, notes or other securities, loan, advance or otherwise) other than Permitted Investments, intercompany advances made by the Partnership to North Country contemplated by clause (f) of the definition of "Partnership Permitted Indebtedness" in Appendix A and investments of the collateral subject to the Surety Bond Arrangements Cash Collateral Agreement in accordance with the terms thereof. 8.8 Qualifying Facility. In the case of the Partnership, take any action, or omit to take any action, or permit any other Person to take any action or omit to take any action, which could cause the Facility to cease to be a Qualifying Facility, or cause or permit the Facility to use a primary fuel source other than natural gas. 8.9 Leases. Enter into, or be or become liable under, any agreement for the lease, hire or use of any real property or of any personal property provided for in the Partnership Operating Budget or the North Country Operating Budget, as the case may be, except for the Installment Sale Agreements and leases of personal property provided for in the Partnership Operating Budget or the North Country Operating Budget, as the case may be, which are not Capital Leases, or which are not provided for in the Partnership Operating Budget or the North Country Operating Budget, as the case may be, and are not Capital Leases and the aggregate annual rental under which shall not exceed $50,000 in any fiscal year of the Partnership. 8.10 Change of Office. Change the location of its chief executive office or principal place of business or the office where it keeps its records concerning the Project or the North Country Project, as the case may be, and all contracts relating thereto from that existing on the date of this Agreement and specified in Section 5.19, unless the Partnership or North Country, as the case may be, shall have given the Agent at least 30 days' prior written notice thereof and all action requested by the Agent necessary or advisable in the Agent's opinion to protect and perfect the liens and security interests with respect to the right, title, estate and interest of the Partnership in and to the Collateral created by the Collateral Security Documents to which the Partnership is a party shall have been taken. 8.11 Change of Name. Change its name except on 60 days' prior written notice to the Agent. 8.12 Compliance with ERISA. (a) Terminate any Single Employer Plan so as to result in any material liability to PBGC, (b) engage in or permit any Affiliate to engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan which would subject the Partnership or North Country, as the case may be, to any Amendment and Restatement of Loan Agreement 79 material tax, penalty or other liability, (c) incur or suffer to exist any material "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, involving any Plan subject to Section 412 of the Code or Part 3 of Title I(b) of ERISA, (d) allow or permit to exist any event (including a Reportable Event) or condition which represents a material risk of incurring a material liability to PBGC, or (e) permit the present value of all benefits vested under all Single Employer Plans subject to Title IV of ERISA, based on those assumptions used to fund the Plans, as of any valuation date with respect to such Plans to exceed the value of the assets of the Plans allocable to such benefits. 8.13 Transactions with Affiliates and Others. Directly or indirectly, purchase, acquire, exchange or lease any property from, or sell, transfer or lease any property to, or borrow any money from, or enter into any management or similar fee arrangement with, any Affiliate of the Partnership or North Country or any officer, director or employee of the Partnership or North Country except for (a) the transactions contemplated by the Basic Documents and (b) transactions in the ordinary course of business and upon fair and reasonable terms no less favorable than the Partnership or North Country could obtain, or could become entitled to, in the arm's length transaction with a Person which is not an Affiliate of the Partnership or North Country; provided, that no payments (other than (i) payments of O&M Costs (as defined in the Operation Agreement) to the Operator, (ii) payments by North Country to the Partnership under the Pipeline Construction Contract or any intercompany debt and (iii) payments permitted in any Additional Contract (and the related Consent to Assignment thereof) to which an Affiliate of the Partnership or North Country is a party) shall be made to any of the Partnership's or North Country's Affiliates so long as an Event of Default has occurred and is continuing. 8.14 Acceptance of Facility. In the case of the Partnership, without the prior written consent of the Agent, accept Final Performance Acceptance or the Notice of Final Completion (each as defined in the Construction Contract). 8.15 Payment of Certified Construction Costs. In the case of the Partnership, pay any Certified Construction Cost or expense or any amount otherwise due to the Contract or any other Person based on any cost or expense or any percentage thereof except such Certified Construction Costs as are set forth in the final Cost Certificate duly signed by the Partnership, verified by the Independent Engineer and accompanied by invoices and other supporting documentation as the Agent may deem necessary to properly document such Certified Construction Costs. 8.16 Approval of Additional Contracts. Without the consent of the Required Lenders, enter into any Additional Contract requiring payments by the Partnership or North Country Amendment and Restatement of Loan Agreement 80 in excess of $1,500,000 during the term of such Additional Contract or if the payments under such Additional Contract during the twelve month period commencing with the effectiveness of such Additional contract, when aggregated with the payments by the Partnership or North Country under all other Additional Contracts then in effect during such twelve month period would exceed $250,000, unless such Additional contract is contemplated by the Partnership Operating Budget or North Country Operating Budget most recently approved by the Required Lenders pursuant to Section 7.10. 8.17 Alteration or Abandonment of the Site or Facility. (i) Alter, remodel, add to, reconstruct, improve or demolish any part of the Project or the North Country Project, as the case may be, or any other Collateral covered by the Collateral Security Documents, except as contemplated by or in accordance with the Plans and Specifications, in any manner that could materially impair the value of the security provided by the Collateral Security Documents, or (ii) abandon the Project or the North Country Project, as the case may be. 8.18 Change Orders. Execute any revision (of whatever nature or form) of the Construction Contract or any Change Order or change bulletin or other instruments or understandings relating thereto without the Required Lenders' prior written consent, which shall not be unreasonably withheld, in the case of an amendment or modification which would (i) result in costs in excess of $50,000 individually, or $250,OO0 in the aggregate, (ii) impair or reduce the operating capacity, cost efficiency, or reliability of, or materially impair or reduce the value of, the Project, or (iii) violate any Requirement of Law. 8.19 Capital Expenditures. Directly or indirectly, make or commit to make any expenditure in respect of the purchase or other acquisition (including installment purchases or financing leases) of fixed or capital assets (excluding normal replacements and maintenance which are properly charged to current operations), except for expenditures covered by the Completion Budget, the Partnership Operating Budget or the North Country Operating Budget, as the case may be, or funded by additional capital contributions or Partner Loans to the Partnership. 8.20 Hazardous materials. (a) Cause or permit the location, production, treatment, storage, transportation, incorporation, discharge, emission, release, deposit or disposal of any Hazardous Material in, upon, under, over or from any part of the Project or the North Country Project, as the case may be, except in full compliance with all Relevant Environmental Laws. The Partnership and North Country acknowledge and agree that neither the Agent nor any Lender shall have any liability or responsibility for either: Amendment and Restatement of Loan Agreement 81 (i) damage, loss or injury to human health, the environment or natural resources caused by the presence of Hazardous Materials on any part of the Project (including the Site), or (ii) abatement and/or clean-up required under any Environmental Law of any Hazardous Materials located at the Project (including the Site) or used by or in connection with the construction, operation or maintenance of the Project (including the Site), whether by virtue of the interest of the Agent in the Project (including the Site), any other part of the Project or the other Collateral or as the result of the enforcement of their rights or remedies hereunder with respect to the Project (including the Site) (including, but not limited to, becoming the owner thereof by foreclosure or conveyance in lieu of foreclosure). 8.21 Change of Operator. In the case of the Partnership, without the prior written consent of the Required Lenders, appoint or allow the appointment of any operator of the Facility other than the Falcon Power Operating Company. SECTION 9 EVENTS OF DEFAULT If any of the Events of Default listed below in this Section 9 shall occur and be continuing, the Agent may, and upon the written request of the Required Lenders shall, (i) by notice to the Partnership or North Country, and the IDA, declare the Letter of Credit Commitment to be terminated, whereupon the same shall forthwith terminate; and/or (ii) declare the entire unpaid principal amount of the Loans and the then outstanding Notes, all interest accrued and unpaid thereon, and all other Obligations (including, without limitation, obligations in respect of the Letters of Credit and the Surety Bond Arrangements, although contingent and unmatured) to be forthwith due and payable, whereupon such amounts shall become and be forthwith due and payable, without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived by each of the Borrowers; and/or (iii) demand that the Partnership discharge any or all the obligations supported by the Letters of Credit by paying or prepaying any amount due or to become due by the Partnership to the beneficiaries of such Letters of Credit; and/or (iv) demand that the Partnership discharge the Surety Bond by paying or prepaying any amount due or to become due by the Surety Bond Issuer to the beneficiaries of the Surety Bond; and/or (v) foreclose on any or all of the Collateral; and/or (vi) proceed to enforce all other remedies available to it under applicable law. Notwithstanding the foregoing, if an Event of Default referred to in paragraph (g) or (h) below shall occur, automatically and without notice the actions described in clauses (i) and (ii) above shall be deemed to have occurred. All payments under this Section 9 on account of undrawn Letters of Amendment and Restatement of Loan Agreement 82 Credit shall be made by the Partnership directly to a cash collateral account established by the Agent for such purpose for application to the Borrowers' reimbursement obligations as drafts are presented under the Letters of Credit, with the balance, if any, to be applied to the Borrowers' obligations under this Agreement and the Notes as the Agent shall determine with the approval of the Required Lenders. All payments under this Section 9 on account of the Surety Bond Arrangements shall be made by the Partnership directly to a cash collateral account established by the Surety Bond Arranger for such purpose for application to the Partnership's reimbursement obligations as payments are made by the Surety Bond Issuer under the Surety Bond, with the balance, if any, to be applied to the Partnership's obligations to the Surety Bond Arranger under this Agreement as the Surety Bond Arranger shall determine. Such Events of Default are the following: (a) Any principal on the Loans or any reimbursement obligation in respect of any Letter of Credit or any Surety Bond Arrangements Reimbursement Obligation shall not be paid when due and payable; or any interest on the Loans or any fee or any other amount payable to any Lender or the Letter of Credit Issuer or the Surety Bond Arranger hereunder or under the Notes shall not be paid when due and shall remain unpaid for five or more days; provided, however, that any such failure shall not be a Default or an Event of Default if, and only if, payment of any such amount is required to be made by means of a drawing under the Senior Debt Service Letter of Credit and such failure is caused solely by the failure of the Agent to make a drawing under the Senior Debt service Letter of Credit in accordance with the provisions of section 4.3(a) of the Amended and Restated Security Deposit Agreement; or (b) Any representation or warranty made by any Project Participant in any Basic Document to which such Person is a party, or any representation, warranty or statement in any certificate, financial statement or other document furnished to the Agent by or on behalf of the Borrowers or any such Person hereunder, or the Borrowers or SECI under any Basic Document, shall prove to have been false or misleading in any material respect as of the time made or deemed made unless the circumstances that made any such representation false or misleading at the time when made shall no longer be continuing; or the representation contained in Section 5.21 shall cease to be true and correct at any time; or (c) (i) The Partnership or North Country shall fail to perform or observe any of its covenants contained in Section 7 (other than Sections 7.1(a), 7.2, 7.5 (in the case of the Partnership), 7.6 (in the case of North Country) 7.11, 7.17, 7.18 and 7.19) and such failure shall continue unremedied or Amendment and Restatement of Loan Agreement 83 unwaived for a period of 30 days, or (ii) the Partnership or North Country shall fail to perform or observe any of its covenants in Section 7.8, 7.9 or 7.21 and such failure shall continue unremedied for 15 days, or (iii) any Borrower shall fail to perform or observe any other of its covenants contained in this Agreement or the other Loan Documents (other than the covenants and obligations referred to in paragraph (a) or clause (c)(i) or (ii) above); or (d) The Partnership shall fail to perform or observe any of its covenants or obligations (other than the covenants and obligations referred to in paragraphs (a), (b) and (c) above) contained in (i) any of the Basic Documents (other than the Installment Sale Agreement, the Power Purchase Agreement, the Steam Supply Agreement and any of the Gas Arrangements) and such failure shall continue unremedied and unwaived until the later of (x) the end of the applicable grace period, if any, contained in the applicable Basic Document, and (y) 30 days after notice thereof by the Agent to the Partnership and (ii) the Installment Sale Agreement, the Power Purchase Agreement, the Steam Supply Agreement and any of the Gas Arrangements and such failure shall continue unremedied or unwaived until the earlier of (x) the end of the applicable grace period, if any, contained in such agreement and (y) 30 days after notice thereof by the Agent to the Partnership; or (e) The Partnership or North Country shall (i) default in any payment of principal of or interest on any Indebtedness (other than the Notes), the principal amount of which exceeds $250,000, for a period in excess of the lesser of 30 days or the period of grace, if any, provided in the instrument and agreement under which such Indebtedness was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due prior to its stated maturity or to realize upon any collateral given as security therefor; or (f) Any Project Participant (other than the Partnership or North Country) shall fail to perform or observe any of its covenants or obligations contained in any of the Basic Documents for a period in excess of the grace period, if any, provided for in such Basic Documents and which failure could have a Material Adverse Effect or materially adversely affect (i) the ability of any Project Participant to perform its obligations under such Basic Amendment and Restatement of Loan Agreement 84 Document or any other Basic Document or (ii) the ability of either Borrower to perform its obligations under any of the Basic Documents to which it is a party; provided, however, that any such failure by a Project Participant (other than the Operator or NYSEG) shall not be an Event of Default if, during the 30 days immediately following such failure, the Partnership diligently proceeds to enter into an agreement with a substitute Project Participant as set forth below and within 30 days of such failure: (i) a substitute Project Participant shall have entered into an agreement with the Partnership in substantially the form of such Basic Document and containing, in the reasonable judgment of the Required Lenders, terms not materially less favorable to the Project than the terms contained in such Basic Document. (ii) in the reasonable judgment of the Required Lenders, such substitute Project Participant shall be as financially sound as the replaced Project Participant (and the guarantor, if any, of the obligations of such Project Participant) was on the date of execution of the original Loan Agreement; (iii) the Agent shall have received fully executed counterparts of such agreement; (iv) the Agent shall have received a recognition agreement from the Partnership and such substitute Project Participant and an opinion of counsel for such substitute Project Participant, each in form and substance reasonably satisfactory to the Agent; and (v) all Governmental Approvals and other consents and approvals required in connection with the execution, delivery and performance of such substitute agreement shall have been duly obtained or made, and shall be in full force and effect (other than any such Governmental Approvals or other consents and approvals which are obtainable in the ordinary course of business and which are not required for either Borrower or such substitute Project Participant to execute or deliver such substitute agreement or to perform its obligations under such substitute agreement which are then required to be performed by it, (including the obligation of the Partnership to operate the Facility as then required pursuant to such substitute agreement and the other Project Contracts)); whereupon such substitute Project Participant shall be deemed to be a Project Participant hereunder; or Amendment and Restatement of Loan Agreement 85 (g) Any Project Participant shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) admit in writing its inability, or be generally unable, to pay its debts as such debts become due, (iii) make a general assignment for the benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy Code (as now or hereafter in effect), (v) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding up, or composition or readjustment of debts, (vi) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against such Project Participant in an involuntary case under the Bankruptcy Code, or (vii) take any partnership or corporate action for the purpose of effecting any of the foregoing provided, however, that in the case of any Project Participant (other than SECI, the Partnership, NYSEG or the Operator) the events specified in clauses (i) through (vii), above shall not be an Event of Default if, during the 30 days immediately following the occurrence of any such event, the Partnership diligently proceeds to enter into an agreement with a substitute Project Participant as set forth below and within 30 days of such event: (1) a substitute Project Participant shall have entered into an agreement with the Partnership in substantially the form of such Basic Document and containing, in the reasonable judgment of the Required Lenders, terms not materially less favorable to the Project than the terms contained in such Basic Document; (2) in the reasonable judgment of the Required Lenders, such substitute Project Participant shall be as financially sound as the replaced Project Participant (and the guarantor, if any, of the obligations of such Project Participant) was on the date of execution of the Original Loan Agreement; (3) the Agent shall have received fully executed counterparts of such agreement; (4) the Agent shall have received a consent from the Partnership and such substitute Project Participant and an opinion of counsel for such substitute Project Participant, each in form and substance reasonably satisfactory to the Agent; and (5) all Governmental Approvals and other consents and approvals required in connection with the execution, delivery and performance of such substitute Amendment and Restatement of Loan Agreement 86 agreement shall have been duly obtained, or made, and shall be in full force and effect (other than any such Governmental Approvals or other consents and approvals which are obtainable in the ordinary course of business and which are not required for either Borrower or such substitute Project Participant to execute or deliver such substitute agreement or to perform its obligations under such substitute agreement which are then required to be performed by it (including the obligation of the Partnership to operate the Facility as then required pursuant to such substitute agreement and the other Project Contracts)); whereupon such substitute Project Participant shall be deemed to be a Project Participant hereunder; or (h) A proceeding or case shall be commenced without the application or consent of any Project Participant in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution, winding-up, or the composition or readjustment of debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of such Project Participant under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts or (iii) a warrant of attachment, execution or similar process against all or a substantial part of the assets of such Project Participant, any such proceeding or case shall continue undismissed, or any order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days, or any order for relief against such Project Participant shall be entered in an involuntary case under the Bankruptcy Code provided, however, that the commencement of a proceeding referred to above in clauses (i) through (iii) against a Project Participant (other than SECI, the Partnership, NYSEG or the Operator) shall not be an Event of Default if, during the 90 days immediately following the commencement of a proceeding referred to above in clauses (i) through (iii) the Partnership diligently proceeds to enter into an agreement with a substitute Project Participant as set forth below and within 30 days after the lapse of the 60 day period referred to above; (1) a substitute Project Participant shall have entered into an agreement with the Partnership in substantially the form of such Basic Document and containing, in the reasonable Judgment of the Required Lenders, terms not materially less favorable to the Project than the terms contained in such Basic Document; Amendment and Restatement of Loan Agreement 87 (2) in the reasonable judgment of the Required Lenders, such substitute Project Participant shall be as financially sound as the replaced Project Participant (and the guarantor, if any, of the obligations of such Project Participant) was on the date of execution of the Original Loan Agreement; (3) the Agent shall have received fully executed counterparts of such agreement; (4) the Agent shall have received a consent from the Partnership and such substitute Project Participant and an opinion of counsel for such substitute Project Participant, each in form and substance reasonably satisfactory to the Agent; and (5) all Governmental Approvals and other consents and approvals required in connection with the execution, delivery and performance of such substitute agreement shall have been duly obtained or made, and shall be in full force and effect (other than any such Governmental Approvals or other consents and approvals which are obtainable in the ordinary course of business and which are not required for either Borrower or such substitute Project Participant to execute or deliver such substitute agreement or to perform its obligations under such substitute agreement which are then required to be performed by it (including the obligation of the Partnership to operate the Facility as then required pursuant to such substitute agreement and the other Project Contracts)); whereupon such substitute Project Participant shall be deemed to be a Project Participant hereunder; or (i) A judgment or judgments for the payment of money in excess of $250,000 shall be rendered against the Partnership, SECI (other than a judgment under the SECI Loan Documents) or North Country and such judgment or judgments shall remain in effect and unstayed and unbonded and unsatisfied for a period of 30 or more consecutive days; or (j) (i) Any provision of any Basic Document (other than the provisions referred to in paragraph (k) below) shall at any time for any reason cease to be valid and binding or in full force and effect or any party thereto shall so assert in writing and the effect thereof shall, in the reasonable judgment of the Agent, reasonably be expected to have a Material Adverse Effect; or (ii) any provision of any Basic Document (other than the provisions referred to in paragraph (k) below) shall be declared to be null and void or the validity or enforceability thereof shall be contested by any party thereto or any Governmental Authority and the Amendment and Restatement of Loan Agreement 88 effect thereof shall, in the reasonable judgment of the Agent, reasonably be expected to have a Material Adverse Effect; or (iii) any Project Participant shall deny that it has any further liability or obligation under any Basic Document to which it is a party and in the case of such assertion, contest or denial, the Agent shall have determined that such action could reasonably be expected to have a Material Adverse Effect; provided, however, that any such failure described in clauses (i) through (iii) above by or affecting a Project Participant (other than the Partnership, the Operator or NYSEG) shall not be an Event of Default if, during the 30 days immediately following any such event, the Partnership diligently proceeds to enter into an agreement with a substitute Project Participant as set forth below and within 30 days of such failure: (A) a substitute Project Participant shall have entered into an agreement with the Partnership in substantially the form of such Basic Document and containing, in the reasonable judgment of the Required Lenders, terms not materially less favorable to the Project than the terms contained in such Basic Document. (B) in the reasonable judgment of the Required Lenders, such substitute Project Participant shall be as financially sound as the replaced Project Participant (and the guarantor, if any, of the obligations of such Project Participant) was on the date of execution of the Original Loan Agreement; (C) the Agent shall have received fully executed counterparts of such agreement; (D) the Agent shall have received a recognition agreement from the Partnership and such substitute Project Participant and an opinion of counsel for such substitute Project Participant, each in form and substance reasonably satisfactory to the Agent; and (E) all Governmental Approvals and other consents and approvals required in connection with the execution, delivery and performance of such substitute agreement shall have been duly obtained or made, and shall be in full force and effect (other than any such Governmental Approvals or other consents and approvals which are obtainable in the ordinary course of business and which are not required for either Borrower or such substitute Project Participant to execute or deliver such substitute agreement or to perform its obligations under such substitute agreement which are then required to be performed by it (including the obligation of the Partnership to operate the Facility as then required Amendment and Restatement of Loan Agreement 89 pursuant to such substitute agreement and the other Project contracts)); whereupon such substitute Project Participant shall be deemed to be a Project Participant hereunder; or (k) Any Collateral Security Document shall cease, for any reason, to be in full force and effect or any party thereto shall so assert in writing; any Collateral Security Document shall cease to be effective to grant a perfected Lien to the Agent for the ratable benefit of the Lenders, the Letter of Credit Issuer and the Swap Counterparty on the Collateral described therein with the priority purported to be created thereby; or (1) SECI shall, other than in accordance with section 13.2 of the Amended and Restated Partnership Agreement, at any time cease to be the managing general partner of the Partnership, or, except as contemplated by the SECI Term Loan Agreement, SECI shall transfer, sell, assign, mortgage, pledge or otherwise dispose of its equity interest in the Partnership without the Required Lenders' prior written consent, provided that, notwithstanding the foregoing, (x) the appointment by the GE Capital Limited Partner of a substitute managing general partner pursuant to Section 13.2(b) of the Amended and Restated Partnership Agreement which is not GE capital or an Affiliate of GE Capital or (y) any transfer (except as collateral security for the SECI Term Loan) by SECI (or any subsequent transferee of such interest) of its general partnership interest in the Partnership to any Person which is not GE Capital or an Affiliate of GE Capital shall require the reasonable consent of the Required Lenders, and such consent shall not be withheld if, in the reasonable opinion of the Required Lenders, such Person is (i) a Person which, individually or on a consolidated basis, has a tangible net worth of at least $50,000,000, (ii) a Person that has not been convicted or pleaded guilty or no contest to any criminal act within the five years immediately preceding such transfer, (iii) a Person that has demonstrated knowledge and experience in managing and operating independent power projects of the type and size of the Facility, (iv) a Person which, individually or as part of a consolidated group, has not commenced any case or other proceeding, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors and (v) a Person that shall not have had any past, pending or threatened lawsuit against any Lender or any Partner (any such Person meeting the criteria set forth in clauses (i) through (v) above being hereinafter referred to as a "Permitted Transferee") (for purposes of this paragraph (1), the term "GE Capital" shall mean General Electric Capital Corporation and its successors); or Amendment and Restatement of Loan Agreement 90 (m) Falcon and its Affiliates shall cease to directly or indirectly own 100% of the voting securities of and economic interests in SECI or Falcon Power Operating Company, except for any transfer to GE Capital (but with respect to Falcon Power Operating Company, only so long as GE Capital is a Lender or a Partner) or to an assignee or designee of GE Capital, provided that any transfer (except as collateral security for the SECI Term Loans) by Falcon (or any subsequent transferee of such interests) of the voting securities and economic interests in SECI or Falcon Power Operating Company to any Person which is not an Affiliate of GE Capital shall require the reasonable consent of the Required Lenders; such consent shall not be withheld if, in the reasonable opinion of the Required Lenders, such assignee or designee shall be a Permitted Transferee (for purposes of this paragraph (m), the term "GE Capital" shall mean General Electric Capital Corporation and its successors); or (n) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, or (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate any Single Employer Plan, which Reportable Event or institution of proceedings is, in the reasonable opinion of the Agent, likely to result in the termination of such Plan for purposes of Title IV of ERISA, or (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, or (v) the Partnership, North Country or any Commonly Controlled Entity shall, or is, in the reasonable opinion of the Agent, likely to incur any liability in connection with a withdrawal from, or the insolvency or reorganization of, a Multiemployer Plan, or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could subject the Partnership or North Country to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations, property or financial or other condition of the Partnership or North Country; or (o) The Facility shall cease to be a Qualifying Facility; or (p) An Event of Loss shall have occurred; or (q) (i) Any Governmental Approval required to be obtained by the Partnership pursuant to Section 7.8 shall be Amendment and Restatement of Loan Agreement 91 revoked, terminated, withdrawn, suspended, modified or withheld or shall cease to be in full force and effect, and the Required Lenders shall have determined that such revocation, termination, withdrawal, suspension, modification, withholding or cessation could reasonably be expected to have a Material Adverse Effect; or (a) any proceeding which could reasonably be expected to have a Material Adverse Effect shall be commenced by or before any Governmental Authority for the purpose of so revoking, terminating, withdrawing, suspending, modifying or withholding any such Governmental Approval and the Required Lenders shall have determined that such proceeding could reasonably be expected to have a Material Adverse Effect and such proceeding shall not have been dismissed or stayed within 180 days, or notice shall be given by such Governmental Authority for such purpose and shall have remained uncontested for 30 days; or (r) The Partnership shall abandon the Project or otherwise cease to diligently pursue the construction of the Project for a period longer than 30 consecutive days; or (s) The Surety Bond Arrangements Cash Collateral Agreement shall cease, for any reason, to be in full force and effect or the Partnership shall so assert in writing, or the Surety Bond Arrangements cash Collateral Agreement shall cease to be effective to grant a perfected Lien to the Surety Bond Arranger on the Surety Bond Arrangements Collateral with the priority purported to be created thereby; in each case unless either (x) all obligations of the Surety Bond Arranger under the Surety Bond Arrangements shall have been discharged in accordance with the terms hereof or (y) the Surety Bond Arrangements Cash Collateral Agreement shall have been terminated in accordance with the terms thereof. Notwithstanding any other provision of this Agreement, in no event shall the existence of a Default or an Event of Default under the SECI Term Loan Agreement or any other SECI Loan Document constitute a Default or Event of Default hereunder unless the events giving rise to a Default or Event of Default under the SECI Term Loan Agreement or such other SECI Loan Document would independently give rise to a Default or Event of Default hereunder. Upon the occurrence of and during the continuance of any Event of Default, the rights, powers and privileges provided in this paragraph and all other remedies available to the Agent, any Lender, the Letter of Credit Issuer or the Surety Bond Arranger under this Agreement, any Collateral Security Document or the Surety Bond Arrangements Cash Collateral Agreement or by statute or by rule of law may be exercised by such Agent or Lender, the Letter of Credit Issuer or the Surety Bond Arranger Amendment and Restatement of Loan Agreement 92 at any time and from time to time (subject to the terms of any intercreditor agreement) whether or not the Loans or other obligations shall be due and payable, and whether or not the Agent, the Letter of Credit Issuer (with respect to the Project Letters of Credit Reserve Account) or the Surety Bond Arranger (with respect to the Surety Bond Arrangements Cash Collateral Agreement) shall have instituted any foreclosure or other action for the enforcement of any of the Basic Documents and, in the case of Events of Default (j) and (q) above, the required determination having been made by the Agent or the Lenders exercising any remedies hereunder. For the purpose of carrying out the provisions and exercising the rights, powers and privileges granted by this paragraph, the Borrowers hereby irrevocably constitute and appoint the Agent and (with respect to the Surety Bond Arrangements Cash Collateral Agreement only) the Surety Bond Arranger their true and lawful attorneys-in-fact to execute, acknowledge and deliver any instruments and to do and to perform any acts such as are referred to in this paragraph in the name and on behalf of the Borrowers. Such powers of attorney are powers coupled with an interest and cannot be revoked. In the event that the Agent shall have foreclosed on or sold any or all of the Collateral, the Agent shall apply the proceeds of any such foreclosure or sale as follows: first, to the payment in full of the expenses of such sale, disposition or realization, including all expenses, liabilities and advances incurred or made by the Agent in connection therewith, including reasonable attorneys' fees; second, to, the payment of obligations of the Partnership owing to the swap Counterparty under the Swap Agreement and the payment in full of all of the Obligations (including Obligations in respect of the Letters of Credit) owing to the Lenders, the Letter of Credit Issuer and the Letter of Credit Participants; third, to the payment of Obligations owing to the Agent in its capacities as such, under the Loan Documents; and fourth, to the Borrowers. In the event that the Surety Bond Arranger shall have foreclosed on or sold any or all of the Surety Bond Arrangements Collateral, the Security Bond Arranger shall apply the proceeds of any such foreclosure or sale as provided in the Surety Bond Arrangements Cash Collateral Agreement. Amendment and Restatement of Loan Agreement 93 SECTION 10 THE AGENT AND RELATIONS AMONG LENDERS, ETC. 10.1 Appointment of Agent, Powers and Immunities. Each Lender, the Letter of Credit Issuer and the Surety Bond Arranger hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Basic Documents with such powers as are expressly delegated to the Agent by the terms of this Agreement and the other Basic Documents, together with such other powers as are reasonably incidental thereto. The Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement or in any other Basic Document, or be a trustee for any Lender or the Letter of Credit Issuer or the Surety Bond Arranger. Notwithstanding anything to the contrary contained herein, the Agent shall not be required to take any action which is contrary to this Agreement or any other Basic Document or applicable law. Neither the Agent, the Letter of Credit Issuer, the Surety Bond Arranger nor any Lender nor any of their respective affiliates shall be responsible to any other Lender, the Letter of Credit Issuer or the Surety Bond Arranger for any recitals, statements, representations or warranties made by either of the Borrowers or North Country contained in this Agreement or any other Basic Document or in any certificate or other document referred to or provided for in, or received by any Lender, the Surety Bond Arranger or the Letter of Credit Issuer under, this Agreement or any other Basic Document, for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, the Notes, the other Basic Documents or any other document referred to or provided for herein or therein or for any failure by either of the Borrowers to perform its obligations hereunder or thereunder. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Neither the Agent nor any of its directors, officers, employees or agents shall be responsible for any action taken or omitted to be taken by it or them hereunder or under any other Basic Document or in connection herewith or therewith, except for its or their own gross negligence or willful misconduct. 10.2 Reliance by Agent. The Agent shall be entitled to rely upon any certificate, notice or other document (including any cable, telegram, telecopy or telex) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. As to any matters not expressly provided for by this Agreement, the Agent shall not be required to take any action or exercise any discretion, but the Agent shall be required to act or to refrain from acting upon instructions of the Required Lenders and shall in all cases be fully protected in acting, or in refraining from acting, hereunder or under any other Basic Document in accordance with Amendment and Restatement of Loan Agreement 94 the instructions of the Required- Lenders, and such instructions Of the Required Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. 10.3 Defaults. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or an Event of Default unless the Agent has received notice from a Lender or the Partnership referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default or an Event of Default the Agent shall give notice thereof to the Lenders. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Leaders; provided, that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 10.4 Rights as Lenders. With respect to its commitment to make Loans, CS shall have the same rights and powers hereunder as any Lender and may exercise the same as though it were not acting as the Agent and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include CS in its individual capacity. CS and its affiliates may (without having to account therefor to any Lender) extend credit (on a secured or unsecured basis) to and generally engage in any kind of lending, trust or other business with either of the Borrowers or any of their affiliates, as if it were not acting as the Agent. 10.5 Indemnification. Without limiting the obligations of the Partnership, under Sections 11.5 and 11.6, the Lenders agree to indemnify the Agent, ratably in accordance with the aggregate principal amount of the Loans held by such Lender or, if no Loans are then outstanding, the respective amounts of their Commitment Percentages, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements or any kind or nature whatsoever which may at any time (including, without limitation, at any time following the payment of principal of and/or interest on the Loans) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including the costs and expenses which the Partnership is obligated to pay under Sections 11.5 and 11.6) or the enforcement of any of the terms hereof or thereof or of any such other documents, provided, that no Lender shall be liable for any of the foregoing to the extent they arise from the Agent's gross negligence or wilful misconduct. The Agent shall be fully justified in refusing to take or to continue to take any action hereunder unless it shall Amendment and Restatement of Loan Agreement 95 first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. 10.6 Non-Reliance on Agent and Other Lenders. Each Lender represents that it has, independently and without reliance on the Agent, or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of the financial condition and affairs of the Partnership, the IDA and SECI General and its own decision to enter into this Agreement and agrees that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own appraisals and decisions in taking or not taking action under this Agreement. Neither the Agent nor any Lender shall be required to keep informed as to the performance or observance by the Borrowers under this Agreement or any other document referred to or provided for herein or to make inquiry of, or to inspect the properties or books of, the Partnership. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, neither the Agent nor any Lender shall have any duty or responsibility to provide any Lender with any credit or other information concerning the Borrowers, or any affiliate of the Borrowers, which may come into the possession of the Agent or such Lender or any of its or their affiliates. 10.7 Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Lenders and the Partnership, and the Agent may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint A successor Agent. If no successor Agent shall have been appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be (i) a bank with an office (or having an affiliate with an office) in New York, New York having a combined capital and surplus of not less than $500,000,000 and (ii) an Eligible Assignee. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Section 10 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. Amendment and Restatement of Loan Agreement 96 10.8 Authorization. The Agent is hereby authorized by the Lenders, the Surety Bond Arranger and the Letter of Credit Issuer to execute, deliver and perform each of the Basic Documents to which the Agent (whether as "Agent", "Grantee" or "Mortgagee") is or is intended to be a party and each of the Lenders, the Surety Bond Arranger and the Letter of Credit Issuer agrees to be bound by all of the agreements of the Agent contained in the Basic Documents. SECTION 11 MISCELLANEOUS 11.1 Amendments and Waivers. (a) No provision of this Agreement or of any other Basic Document to which the Agent is a party may be amended, supplemented, modified or waived, except in accordance with the terms of this section 11. With the written consent of the Required Lenders, the Borrowers and the Agent may, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Agreement or the Notes or any other Basic Document to which the Agent is a party or changing in any manner the rights of the Agent or of the Borrowers hereunder or thereunder, and the Agent, with the consent of the Required Lenders, may execute and deliver to the Borrowers a written instrument waiving, on such terms and conditions as the Agent may specify in such instrument, any of the requirements of this Agreement or the Notes or any other Basic Document to which the Agent is a party or any Default or Event of Default and its consequences. Any such waiver and any such amendment, supplement or modification shall be binding upon the Borrowers, the Lenders and all future holders of the Notes; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) extend the maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof, or change the amount or terms of any Agency Fees or Letter of Credit Fees, or amend, modify or waive any provision of this Section, or reduce the percentage specified in the definition of Required Lenders or release any Collateral or amend any provision hereof which would result in borrowings or payments by the Borrowers hereunder on a basis other than pro rata among all the Lenders, in each case without the written consent of all the Lenders, or (ii) amend, modify or waive any provision of Section 10 without the written consent of the then Agent or (iii) amend, modify or waive any provision of section 3 applicable to the Letter of Credit Issuer without the written consent of the then Letter of Credit Issuer or (iv) amend, modify or waive any provision of Section 3 applicable to the Surety Bond Arranger without the written consent of the Surety Bond Arranger or (v) amend, modify or waive Section 2.3(b) without the consent of the then Swap Counterparty. Notwithstanding the foregoing, so long as (1) GE Capital is a Partner of the Partnership, (2) GE Capital holds indebtedness of SECI in its capacity as SECI Term Lender or (3) in the reasonable judgment of the Required Lenders, Amendment and Restatement of Loan Agreement 97 GE Capital otherwise maintains a comparable significant economic investment in the Partnership which is junior in right of payment to the interest of the Lenders hereunder and the Required Lenders reasonably believe that the holding of such investment would cause GE Capital, in its capacity as such holder, to take or maintain positions affecting the Partnership which are materially different from the positions which would be taken or maintained by GE Capital if its only investment in the Partnership were the holding of the Term Notes, GE Capital shall not have the right to vote on any matter expressly requiring the consent or waiver of the "Required Lenders"; provided, that (i) each Lender agrees that in exercising its right to vote in instances when the right of GE Capital to vote is so restricted, such Lender will not agree to any such amendment, waiver or consent which, in such Lender's reasonable judgment, will have an effect on GE Capital as a Lender which is different from the effect which such amendment, waiver or consent will have on such Lender and (ii) the Borrowers and the Lenders agree that any vote cast by any Lender in violation of the immediately preceding clause (i) shall be void and of no force or effect; provided, further, that the foregoing limitation on the voting rights of GE Capital as a Lender shall not apply to any Permitted Assignee of GE Capital unless such Permitted Assignee meets any of the tests set forth in clauses (1), (2) or (3) above. The term "GE Capital" as used in this Section 11.1(a) shall mean General Electric Capital Corporation and its successors. (b) Notwithstanding the provisions of Section 11.1(a), the Partnership may, without the consent of the Agent or the Lenders, modify the Construction budget set forth in Schedule 5-A to the Original Loan Agreement solely in order to change the characterization of any item therein, in connection with the Project, as an IDA Building Cost, an IDA Development Cost or a Partnership Development Cost or, in connection with the North Country Project, as an IDA (North Country) Building Cost or an IDA (North Country) Development Cost. 11.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing, by telecopier or, if available, by telex and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or when deposited in the mail, first class postage prepaid, or in the case of transmission by telecopier, when confirmation of receipt is obtained, or in the case of telex notice, when sent, answerback received, addressed as follows in the case of the Partnership, the IDA, the Agent, the Letter of Credit Issuer and the Surety Bond Arranger and as set forth in Schedule 8 in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: Amendment and Restatement of Loan Agreement 98 The Partnership or North Country: Five Post Oak Park Suite 1400 Houston, Texas 77027 Attention: General Counsel Telecopy: (713) 622-0045 The IDA: County of Clinton Industrial Development Agency 2 Industrial Boulevard East Plattsburgh, New York 12901 Attention: Chairman Telecopy: The Agent: Credit Suisse Tower 49 12 East 49th Street New York, New York 10017 Telecopy: (212) 238-5390 Amendment and Restatement of Loan Agreement 99 The Letter of Credit Issuer and Surety Bond Arranger: General Electric Capital Corporation 1600 Summer Street Stamford, Connecticut 06927 11.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or the Lenders, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 11.4 Survival. All representations and warranties made in this Agreement and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes. 11.5 Expenses and Taxes. Whether or not any Term Loan is made or any of the other transactions contemplated by this Agreement are consummated, the Partnership shall (without duplication of any such amounts as shall expressly be required to be paid by the Partnership pursuant to the other provisions of this Agreement): (a) pay all reasonable expenses incurred by GE Capital with respect to the negotiation, preparation, execution and delivery of this Agreement and the other Basic Documents, any and all transactions contemplated hereby or thereby and the preparation of any document reasonably required hereunder or thereunder (other than expenses incurred by GE Capital specifically relating to syndication which shall be for the account of GE Capital and internal overhead expenses), including (without limiting the generality of the foregoing) all reasonable fees and expenses of Simpson Thacher & Bartlett, counsel for GE Capital, all reasonable fees and expenses of the Independent Engineer, the Gas Consultant, insurance consultants, all title and conveyancing charges, recording and filing fees and taxes, mortgage taxes, intangible personal property taxes, escrow fees, revenue and tax stamp expenses, insurance premiums (including title insurance premiums), placement and other fees of investment bankers of the Borrowers, court costs, and surveyors', appraisers', architects', engineers', environmental, gas and other consultants', and accountants' reasonable fees and disbursements, Amendment and Restatement of Loan Agreement 100 (b) pay all reasonable expenses incurred by the Agent, the Lenders, the Letter of Credit Issuer and the Surety Bond Arranger (other than internal overhead expenses) with respect to (i) any amendments, waivers or supplements to any of the Basic Documents, or (ii) any request of the Borrowers for a consent, waiver or other action in connection with the Assigned Contracts and with respect to enforcement of their rights and remedies hereunder, (c) pay the Agent for all its reasonable costs and expenses incurred in connection with, and to pay, indemnify and hold the Agent harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever arising out of or in connection with, the enforcement or preservation of any rights under this Agreement and the other Basic Documents and any such other documents, including without limitation, reasonable fees and disbursements of counsel to the Agent incurred in connection with the foregoing and in connection with advising the Agent with respect to its rights and responsibilities under this Agreement, the other Basic Documents and the documentation relating thereto, and (d) pay, indemnify, and hold each Lender, the Letter of Credit Issuer and the Surety Bond Arranger harmless from and against, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes (and not taxes imposed on or measured by net income, overall gross receipts or capital of such Lender, the Letter of Credit Issuer, the Surety Bond Arranger or any franchise tax imposed on such Lender, the Letter of Credit Issuer or the Surety Bond Arranger), if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement and the other Basic Documents and any such other documents; provided, that the Partnership shall have no obligation hereunder with respect to indemnified liabilities of the Agent, any Lender, the Letter of Credit Issuer or the Surety Bond Arranger or any of their respective Affiliates or any of their respective officers and directors to the extent that such indemnified liability resulted from the gross negligence or willful misconduct of the Agent, such Lender, the Letter of Credit Issuer or the Surety Bond Arranger. The agreements in this subsection shall survive repayment of the Notes and all other amounts payable hereunder. 11.6 Indemnification. The Partnership agrees to pay, indemnify and hold the Agent, each Lender, the Letter of Credit Issuer and the Surety Bond Arranger and their respective Amendment and Restatement of Loan Agreement 101 affiliates, directors and officers harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Notes) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or the other Basic Documents, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (all of the foregoing, collectively, the "indemnified liabilities"), provided, that the Partnership shall have no obligation hereunder to any such Person with respect to indemnified liabilities arising from (i) the gross negligence or willful misconduct of any such Person, (ii) legal proceedings commenced against any such Person by any security holder or creditor of any such Person arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such, or (iii) legal proceedings commenced against any such Person by any Permitted Assignee or Transferee. The agreements in this Section shall survive repayment of the Notes and all other amounts payable hereunder. 11.7 Successors and Assigns; Transferees; Transferred Interests. (a) This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Agent, the Letter of Credit Issuer, the Leaders, the Surety Bond Arranger, all future holders of the Notes and their respective successors and assigns, except that neither of the Borrowers may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Lenders, the Letter of Credit Issuer and the Surety Bond Arranger. (b) (i) Each Lender, in accordance with all Applicable Laws, may at any time assign to one or more Persons (a "Permitted Assignee") all or a portion of its interests, rights and obligations under this Agreement (including, without limitation, interests in Letters of Credit, Loans at the time owing to it and the Notes); provided that (i) at no one time shall there be more than ten (10) Lenders in addition to GE Capital and its successors and direct and indirect Permitted Assignees (GE Capital and any such successors and Permitted Assignees being herein referred to as the "GE Capital Lenders"), (ii) at no one time shall there be more than seven (7) GE Capital Lenders and (iii) after giving effect to any such assignment, both the transferor Lender (unless such Lender shall have transferred all of its interests hereunder) and each Permitted Assignee of such transferor Lender shall hold Loans in a principal amount equal to at least the lesser of (x) $10,000,000 and (y) 4.88687782% of the aggregate principal amount of all the Loans outstanding immediately before giving effect to such assignment. (ii) The parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Amendment and Restatement of Loan Agreement 102 Register referred to in paragraph (iii) of this Section 11.7, an assignment substantially in the form of Exhibit E (an "Assignment and Acceptance"), together with any Note or Notes subject to such assignment. Upon its receipt of an Assignment and Acceptance executed by an assigning Leader and a Permitted Assignee, together with any Note or Notes subject to such assignment and the written consent to such assignment, if required, the Agent shall, if such Assignment and Acceptance has been completed, (x) accept such Assignment and Acceptance, (y) record the information contained therein in the Register and (z) give prompt notice thereof to the Partnership. Within five Business Days after notice of execution and delivery of such assignment, the Borrowers; at the expense of the Partnership and North Country, shall execute and deliver to the Agent in exchange for the assigning Lender's surrendered Note or Notes a new Note or Notes, to the order of such Permitted Assignee in an amount reflecting the portion of the Term Loans assumed by it pursuant to such assignment and a new Note or Notes to the order of the assigning Lender in an amount reflecting the portion of the Term Loans retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the date of such surrendered Note or Notes and shall otherwise be in substantially the form of Exhibit A-1, A-2 or A-3, as the case may be. Cancelled Notes shall be returned to the Borrowers by the Agent after confirming delivery of the new Note or Notes to such Permitted Assignee. In addition, the Partnership shall use its reasonable efforts to provide to the Agent reliance letters covering the opinions and reports required to be delivered on or prior to the Construction Loan Closing Date. Upon (x) the execution, delivery and recording of such assignment, (y) delivery of an executed copy thereof to the Partnership and (z) payment by the Permitted Assignee of the purchase price specified therein, (1) such Permitted Assignee shall be a Lender party hereto and, to the extent provided in such assignment (but in no event in excess of the amount assigned), shall have the rights and obligations of a Lender and a Letter of Credit Participant hereunder and (2) the assigning Lender shall, to the extent provided in such assignment with respect to the interests, rights and obligations of such Lender so assigned, be released from its obligations under this Agreement. (iii) The Agent shall maintain at its address referred to in Section 11.2 a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders and the principal amount of the Term Loan held by each Lender from time to time (the "Register"). The entries in the Register shall be conclusive in the absence of manifest error, and the Borrowers, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. Amendment and Restatement of Loan Agreement 103 (c) The Borrowers acknowledge that each Lender may at any time grant participations in Letters of Credit or in this Agreement and the Collateral Security Documents (collectively, "Participations") to one or more Persons (such Persons being herein called "Transferees"); provided, however, that (i) such Lender's obligations under this Agreement and under any Collateral Security Document shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Transferees shall be entitled to the benefit of the provisions contained in Sections 4.5, 4.7, 4.8 and 4.9, and (iv) the Borrowers shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and under any Collateral Security Documents. (d) The Borrowers authorize each Lender to disclose to any prospective Permitted Assignee pursuant to paragraph (b) of this Section 11.7 or prospective Transferee pursuant to paragraph (c) of this Section 11.7 all financial or other necessary information in such Lender's possession concerning the Borrowers, any Partner or the Project which has been delivered to such Lender by or on behalf of the Borrowers pursuant to this Agreement or any other Basic Document or which has been delivered to such Lender by or on behalf of the Borrowers or any Affiliate of the Borrowers in connection with such Lender's credit evaluation of the Borrowers and the Project prior to or after entering into this Agreement, provided, however, that if any such information furnished to such Lender, prospective Assignee or prospective Transferee is marked in writing as being confidential information, such Lender, prospective Assignee or prospective Transferee shall hold such information confidential, except that such information may be disclosed (i) to the Agent's and Lenders', prospective Assignee's or prospective Transferee's employees, officers, directors and other personnel engaged in the transactions contemplated by the Basic Documents from time to time, (ii) to the Agent's and Lenders' prospective Assignee's or prospective Transferee's counsel, independent certified public accountants or independent insurance advisors or insurance examiners or engineers or consultants who agree to hold such information confidential, (iii) as may be required by any statute, court or administrative order or decree or governmental ruling or regulation, (iv) as may be requested by any Governmental Authority or (v) as may he necessary in connection with the enforcement of any provision of any Basic Document. (e) Each Lender may assign and pledge all or any portion of the Term Notes held by it and the Term Loans owing to it to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank, provided that any payment in respect of such assigned Term Notes and Term Loans made by the Borrowers to the assigning and/or the pledging Lender in Amendment and Restatement of Loan Agreement 104 accordance with the terms of this Agreement shall satisfy the Borrowers' obligations hereunder in respect of such assigned Term Notes and Term Loans to the extent of such payment. No such assignment shall release the assigning Lender from its obligations hereunder. 11.8 No Recourse. (a) The obligations and agreements of the IDA contained herein and any other instrument or document executed in connection therewith or herewith, and any other instrument or document supplemental thereto or hereto, shall be deemed the obligations and agreements of the IDA and not of any member, officer, agent or employee of the IDA in his individual capacity, and the members, officers, agents and employees of the IDA shall not be liable personally hereon or thereon or be subject to any personal liability or accountability based upon or in respect hereof or thereof or of any transaction contemplated hereby or thereby. The obligations and agreements of the IDA contained herein and therein shall not constitute or give rise to an obligation of the State of New York or Clinton County, New York and neither the State or New York nor Clinton County, New York shall be liable hereon or thereon, and, further such obligations and agreements shall not constitute or give rise to a general obligation of the IDA, but rather shall constitute limited obligations of the IDA payable solely from the revenues of the IDA derived and to be derived from the lease, sale or other disposition of the Project (except for revenues derived by the IDA from the Unassigned Rights (as defined in the Installment Sale Agreements)) or by recourse to the Project. (b) Subject to Section 11.8 (a), there shall be full recourse to the Borrowers and all of their assets for the liabilities of the Borrowers under this Agreement and the Notes and their other Obligations, but in no event shall there be any recourse against any partner, including SECI, or any officer, director, employee, shareholder or holder of any equity interest in the Partnership or any partner, or any affiliate thereof, nor shall any partner, including SECI, or any officer, director, employee, shareholder or holder of any equity interest in the Partnership or any partner, or any affiliate thereof, be personally liable or obligated for such liabilities and Obligations of the Partnership except as may be specifically provided in any other Basic Document to which such Person is a party. Nothing herein contained shall limit or be construed to limit the liabilities and obligations of any such Person in accordance with the terms of any other Basic Document creating such liabilities and obligations to which such Person is a party. 11.9 Severability. Any provision hereof which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and without affecting the validity or enforceability of any provision in any other jurisdiction. Amendment and Restatement of Loan Agreement 105 11.10 Headings. The headings of the various sections and paragraphs of this Agreement are for convenience of reference only, do not constitute a part hereof and shall not affect the meaning or construction of any provision hereof. 11.11 Counterparts. This Agreement may be executed by one or more of the parties hereto on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 11.12 The Lenders, the Letter of Credit Issuer and the Surety Bond Arranger Sole Beneficiaries. All conditions of the obligations of the Lenders to make Loans and to take participating interests in Letters of Credit hereunder, all conditions of the obligations of the Letter of Credit Issuer to issue the Letters of Credit hereunder and all conditions to the obligation of the Surety Bond Arranger to enter into the Surety Bond Arrangements as contemplated hereby are imposed solely and exclusively for the benefit of the Lenders, the Letter of Credit Issuer and the Surety Bond Arranger and their respective assigns and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that the Lenders will refuse to make Loans and to take participating interests in Letters of Credit, that the Letter of Credit Issuer will refuse to issue the Letters of Credit or that Surety Bond Arranger will refuse to enter into and maintain the Surety Bond Arrangements in the absence of strict compliance with any or all of such conditions and no Person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by the Lenders, the Letter of Credit Issuer and the Surety Bond Arranger at any time if in their sole discretion it deems it advisable to do so. Inspections and approvals of Plans and Specifications, the Project and the workmanship and materials used therein impose no responsibility or liability of any nature whatsoever on the Agent, the Lenders, the Surety Bond Arranger, the Gas Consultant or the Independent Engineer, and no Person shall, under any circumstances, be entitled to rely upon such inspections and approvals by the Agent, the Lenders, the Surety Bond Arranger, the Gas Consultant or the Independent Engineer for any reason. The Lenders are obligated hereunder solely to make Loans and to take participating interests in Letters of Credit, the Letter of Credit Issuer is obligated hereunder solely to issue the Letters of Credit and the Surety Bond Arranger is obligated hereunder solely to enter into the Surety Bond Arrangements if and to the extent required by this Agreement. 11.13 Governing Law. This Agreement and the Notes and the rights and obligations of the parties under this Agreement and the Notes shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. Amendment and Restatement of Loan Agreement 106 11.14 Submission to Jurisdiction; Waivers. (a) Each of the Borrowers hereby irrevocably and unconditionally: (i) Submits for itself and its property in any legal action or proceeding relating to this Agreement or any other Basic Document, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (ii) Consents that any such action or proceeding may be brought in such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in any inconvenient court and agrees not to plead or claim the same; (iii) Agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Borrower at its address set forth in Section 11.2 or at such other address of which the Agent shall have been notified pursuant thereto; and (iv) Agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. (b) The Borrowers, the Agent, the Letter of Credit Issuer, the Surety Bond Arranger and each Lender hereby irrevocably and unconditionally waive trial by jury in any legal action or proceeding referred to in paragraph (a) above. 11.15 Maximum Interest Rate. Anything to the contrary notwithstanding, the Lenders shall not charge, take or receive and the Borrowers shall not be obligated to pay to the Lenders, any amounts constituting interest on the Loans in excess of the maximum rate permitted by applicable law. 11.16 Release of Collateral. Following the payment in full of all Obligations, the Agent shall release the Collateral under the Collateral Security Documents to the Partnership and the IDA, as the case may be. 11.17 Consent. The parties hereto agree that Amended and Restated Appendix A shall amend and restate Appendix A to all of the Basic Documents of which Appendix A is a part or in which Appendix A is incorporated by reference. Amendment and Restatement of Loan Agreement IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. SARANAC POWER PARTNERS, L.P. By: Saranac Energy Company, Inc., its general partner By: /s/ Martin H. Young Jr. ------------------------------------ Title: NORTH COUNTRY GAS PIPELINE CORPORATION By: /s/ Martin H. Young Jr. ------------------------------------ Title: COUNTY OF CLINTON INDUSTRIAL DEVELOPMENT AGENCY By: /s/ Robert M. Garron ------------------------------------ Title: GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender and as Letter of Credit Issuer By: /s/ illegible ------------------------------------ Title: CREDIT SUISSE, as Agent, a Co-Agent and a Lender By: ------------------------------------ Title: ABN-AMRO BANK, N.V., as a Co-Agent and a Lender By: ------------------------------------ Title: Amendment and Restatement of Loan Agreement IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the' day and year first above written. SARANAC POWER PARTNERS, L.P. By: Saranac Energy Company, Inc., its general partner By: ------------------------------------ Title: NORTH COUNTRY GAS PIPELINE CORPORATION By: ------------------------------------ Title: COUNTY OF CLINTON INDUSTRIAL DEVELOPMENT AGENCY By: ------------------------------------ Title: GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender and as Letter of Credit Issuer By: ------------------------------------ Title: CREDIT SUISSE, as Agent, a Co-Agent and a Lender By: /s/ M. Hurd /s/ PP Schultheiss ------------------------------------ Title: Associate Associate ABN-AMRO BANK, N.V., as a Co-Agent and a Lender By: ------------------------------------ Title: Amendment and Restatement of Loan Agreement IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. SARANAC POWER PARTNERS, L.P. By: Saranac Energy Company, Inc., its general partner By: ------------------------------------ Title: NORTH COUNTRY GAS PIPELINE CORPORATION By: ------------------------------------ Title: COUNTY OF CLINTON INDUSTRIAL DEVELOPMENT AGENCY By: ------------------------------------ Title: GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender and as Letter of Credit Issuer By: ------------------------------------ Title: CREDIT SUISSE, as Agent, a Co-Agent and a Lender By: ------------------------------------ Title: Associate ABN-AMRO BANK, N.V., as a Co-Agent and a Lender By: /s/ Robert S. Mudge ------------------------------------ Title: Robert S. Mudge Vice President Amendment and Restatement of Loan Agreement IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. SARANAC POWER PARTNERS, L.P. By: Saranac Energy Company, Inc., its general partner By: ------------------------------------ Title: NORTH COUNTRY GAS PIPELINE CORPORATION By: ------------------------------------ Title: COUNTY OF CLINTON INDUSTRIAL DEVELOPMENT AGENCY By: ------------------------------------ Title: GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender and as Letter of Credit Issuer By: ------------------------------------ Title: CREDIT SUISSE, as Agent, a Co-Agent and a Lender By: ------------------------------------ Title: Associate ABN-AMRO BANK, N.V., as a Co-Agent and a Lender By: /s/ illegible ------------------------------------ Title: Amendment and Restatement of Loan Agreement 103 NATIONAL WESTMINSTER BANK PLC, as a Co- Agent and a Lender By: /s/ Weber ------------------------------------ Title: Vice President THE FUJI BANK, LIMITED, NEW YORK BRANCH, as a Co-Agent and a Lender By: /s/ Toru Maeda ------------------------------------ Title: Toru Maeda Joint General Manager THE SUMITOMO BANK, LIMITED, asLead Manager and Lender By: ------------------------------------ Title: Amendment and Restatement of Loan Agreement NATIONAL WESTMINSTER BANK PLC, as a Co-Agent and a Lender By: ------------------------------------ Title: THE FUJI BANK, LIMITED, NEW YORK BRANCH, as a Co-Agent and a Lender By: ------------------------------------ Title: THE SUMITOMO BANK, LIMITED, as Lead Manager and a Lender By: /s/ illegible ------------------------------------ Title: Senior Vice President Amendment and Restatement of Loan Agreement EX-10.12 4 AMENDED AND RESTATED SECURITY DEPOSIT AGREEMENT (SARANAC) 1 AMENDED AND RESTATED SECURITY DEPOSIT AGREEMENT AMENDED AND RESTATED SECURITY DEPOSIT AGREEMENT, dated as of October 7, 1994, among (i) SARANAC POWER PARTNERS, L.P., a Delaware limited partnership (the "Partnership"), of which SARANAC ENERGY COMPANY, INC., a Delaware corporation, is the general partner (the "General Partner" or "SECI"), (ii) CREDIT SUISSE, as agent (in such capacity, the "Agent") (x) for the lenders parties to the Loan Agreement referred to below (the "Lenders") and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("GE Capital"), as the letter of credit issuer (in such capacity, the "Letter of Credit Issuer") and the surety bond arranger (in such capacity, the "Surety Bond Arranger") party to the Loan Agreement referred to below and (y) with respect to the Collateral Security Documents (as defined in the Loan Agreement), (iii) GE Capital, as the lender under the SECI Term Loan Agreement referred to below (in such capacity, the "SECI Term Lender"), as the swap counterparty under the Swap Agreement referred to below (in such capacity, the "Swap Counterparty"), as the agent under the Original Loan Agreement (in such capacity, the "Original Agent") and as a limited partner of the Partnership (in such capacity, the "GE Capital Limited Partner"), (iv) TPC SARANAC PARTNER ONE, INC., a Delaware corporation ("TPC One"), (v) TPC SARANAC PARTNER TWO, INC., a Delaware corporation ("TPC Two") and, together with TPC One, the "Other Limited Partners"), (vi) the General Partner and (vii) THE FUJI BANK AND TRUST COMPANY, a bank organized under the laws of the State of New York, as agent for the Agent, the Lenders, GE Capital, the Other Limited Partners and the General Partner under this Amended and Restated Security Deposit Agreement (in such capacity, the "Security Agent"). W I T N E S S E T H : WHEREAS, unless otherwise defined herein, all terms that are defined in Amended and Restated Appendix A hereto shall have the meanings therein assigned to such terms; WHEREAS, in order to finance the costs of developing, constructing and equipping the Project, the Partnership, North Country and the IDA entered into the Loan Agreement pursuant to which the Lenders made Construction Loans and Terms Loans to, and the Letter of Credit Issuer issued or will issue letters of credit for the account of, the Partnership; WHEREAS, the Partnership and the Swap Counterparty have entered into the Swap Agreement; WHEREAS, at the request of the Partnership, the Surety Bond Arranger has entered into the Surety Bond Arrangements; Amended and Restated Security Deposit Agreement 2 WHEREAS, (i) the obligations of the Borrowers under the Loan Agreement and the other Loan Documents (other than reimbursement and fee obligations in respect of the Senior Debt Service Reserve "B" Letter of Credit and the Surety Bond Arrangements Reimbursements Obligations), including their obligations to repay the Term Loans with interest thereon, and (ii) the obligations of the Partnership under the Swap Agreement are secured by, among other things, a first assignment of and prior perfected security interest in all of the revenues of the Partnership pursuant to the terms and provisions of the Security Agreement; WHEREAS, in order to give effect to said assignment and security interest, the Partnership, GE Capital, as Original Agent, Lender and Letter of Credit Issuer, and the Security Agent entered into the Security Deposit Agreement, dated as of the Conformed Agreement Date (the "Original Security Deposit Agreement"), pursuant to which the Partnership agreed that certain of its revenues would be paid directly to the Security Agent, as agent for the Original Agent, the Construction Lenders and the Letter of Credit Issuer, and held by the Security Agent as collateral security for the obligations referred to in the preceding recital and distributed by the Security Agent as provided therein; WHEREAS, pursuant to the Capital Contribution Agreement, the GE Capital Limited Partner made a capital contribution to the Partnership on the Initial Capital Contribution Date in exchange for a limited partnership interest in the Partnership and agreed, subject to the satisfaction of certain other conditions precedent, to make additional capital contributions to the Partnership on or prior to the Second Capital Contribution Date; WHEREAS, on the Initial Capital Contribution Date, SECI, the GE Capital Limited Partner and the Other Limited Partners executed and delivered the Amended and Restated Partnership Agreement; WHEREAS, it is a condition precedent to the making by the GE Capital Limited Partner of its capital contributions on the Second Capital Contribution Date that, among other things, the parties hereto shall have executed and delivered this Agreement, which provides for the deposit, investment and disbursement of revenues, cash, payments, insurance and condemnation proceeds, securities, investments and other amounts during the term of the Partnership; WHEREAS, the SECI Term Lender and SECI are parties to the SECI Term Loan Agreement, pursuant to which the SECI Term Lender has agreed to make SECI Term Loans to SECI; Amended and Restated Security Deposit Agreement 3 WHEREAS, the obligations of SECI under the SECI Term Loan Agreement and the other SECI Loan Documents, including its obligations to repay the SECI Term Loans with interest thereon, are secured by, among other things, a security interest in SECI's rights as the general partner and as a limited partner of the Partnership pursuant to the terms and provisions of the SECI Collateral Security Documents; WHEREAS, pursuant to the terms of the Original Security Deposit Agreement, upon the satisfaction of the conditions precedent to the Second Capital Contribution Date (including, without limitation, the execution and delivery of this Agreement), the terms and conditions of the accounts created pursuant to the Original Security Deposit Agreement are to be governed by this Agreement; WHEREAS, the parties to the Original Security Deposit Agreement have agreed to amend and restate the Original Security Deposit Agreement as hereinafter set forth; and WHEREAS, the Fuji Bank and Trust Company has agreed to act as security agent for the Secured Parties, the Partnership, the Other Limited Partners and SECI pursuant to the terms of this Agreement; NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I Definitions SECTION 1.1 Incorporation of Definitions by Reference, etc. (a) All terms in Appendix A not otherwise defined herein shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto. (b) As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined in Appendix A or otherwise defined herein and accounting terms partly defined in Appendix A or otherwise partly defined herein to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, schedule, exhibit and appendix references are to this Agreement unless otherwise specified. Amended and Restated Security Deposit Agreement 4 (d) References to agreements defined herein or in Appendix A shall include such agreements as they may be amended, supplemented or otherwise modified from time to time in accordance with the provisions of the Basic Documents. (e) Terms defined in Appendix A or otherwise defined herein by reference to any other agreement, document or instrument shall have the meanings assigned to them in such agreement, document or instrument whether or not such agreement, document or instrument is then in effect. SECTION 1.2 Certain Defined Terms. The following terms shall have the following meanings (such definitions to be equally applicable to both singular and plural forms of the terms defined): "Accounts" means the collective reference to the twenty cash collateral accounts established by the Security Agent pursuant to and more particularly described in Section 2.2. "Base Reserve Debt Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Base Reserve Equity Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Completion Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Current Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Distribution Reserve Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Insurance and Condemnation Proceeds Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Insurance and Condemnation Proceeds Deposits" means all cash, cash equivalents, instruments, investments and securities at any time on deposit in the Insurance and Condemnation Proceeds Account. "Major Maintenance Costs" means all costs incurred by the Partnership or the Operator for labor, materials and other direct expenses for any overhaul of, or major maintenance procedure for, the Facility which requires Amended and Restated Security Deposit Agreement 5 significant disassembly or shutdown of the Facility pursuant to manufacturers' guidelines or recommendations, engineering or operating considerations or the requirements of any applicable Governmental Approval, all as contemplated in the Operation and Maintenance Agreement. "Major Maintenance Required Balance" means, as of any Distribution Date, the sum of all Major Maintenance Required Contributions required through such date (regardless of whether they were actually made). "Major Maintenance Required Contribution" means, with respect to any Monthly Transfer Date from and after the Second Capital Contribution Date, initially an amount equal to $208,333.33 (such amount to be (i) increased on each anniversary of the Date of Commercial Operation by a percentage equal to the percentage by which the management fee payable to the Operator pursuant to Section 5.1 of the Operation and Maintenance Agreement is escalated pursuant to Section 5.2 of the Operation and Maintenance Agreement and (ii) adjusted annually, if necessary, in connection with the approval of the Partnership Operating Budget). "Major Maintenance Reserve Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Monthly Transfer Date" has the meaning assigned to such term in Section 4.1. "Project Expense Accrual Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Project Expense Accrual Account Contribution" means the amounts identified by the Partnership in Item 3 of a Project Certificate delivered pursuant to Section 4.1(a) to be deposited into the Project Expense Accrual Account in respect of any Project Expense which (i) the Partnership elects to accrue, (ii) is paid on a periodic basis (but not more frequently than once per calendar quarter) and (iii) is contained in the Partnership Operating Budget in effect at the time such contribution is made; provided, however, that in no event shall any amount exceed an amount equal to the Project Expense in respect of which such amount is being accrued divided by the number of Monthly Transfer Dates during the period from and including the date such contribution is made to and including the date such Project Expense is required to be paid; and provided, further, that the Partnership agrees to elect to accrue in approximately equal amounts on a monthly basis amounts required to pay in full when due Project Expenses in respect of property taxes and insurance. Amended and Restated Security Deposit Agreement 6 "Project Letters of Credit Required Balance" means an amount equal to the aggregate stated amount of all issued and outstanding Project Letters of Credit. "Project Letters of Credit Required Contribution" means, with respect to any Distribution Date occurring on or after the date twelve years after the Date of Commercial Operation, and until such time as the Project Letters of Credit Required Balance shall be on deposit in the Project Letters of Credit Reserve Account, and so long as any Project Letter of Credit remains outstanding, an amount equal to 20% (or such lesser amount as is necessary to achieve the Project Letters of Credit Required Balance) of the Distributable Cash distributable to the Other Partners pursuant to Section 4.3(b) of the Amended and Restated Partnership Agreement. "Project Letters of Credit Reserve Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Retention Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Revenue Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Revenues" means all revenues and all other payments at any time received by or on behalf of the Partnership including, without limitation, Project Revenues, Special Payments and dividends, distributions and other payments (including, without limitation, payments made by North Country in respect of principal and interest on intercompany advances received by North Country from the Partnership) from North Country (other than (i) the proceeds of capital contributions received from the GE Capital Limited Partner, TPC One and TPC Two pursuant to the Capital Contribution Agreement, (ii) the proceeds of insurance or of a Taking payable into the Insurance and Condemnation Proceeds Account pursuant to Section 4.6, (iii) payments received by the Partnership under the Swap Agreement payable into the Senior Debt Service Account, (iv) Special Payments payable into the Completion Account and (v) the proceeds of the Capital Contributions, if any, made or deemed to have been made by SECI to the Partnership pursuant to Section 2.5 of the SECI Term Loan Agreement or Section 8.6 of the Amended and Restated Partnership Agreement), including, without limitation, all interest and other income on funds on deposit in the Accounts (other than the Distribution Reserve Account, the Retention Account, the SECI Debt Service Account and the SECI Reserve Account), all payments received Amended and Restated Security Deposit Agreement 7 by the Partnership under the Power Purchase Agreement and the Steam Supply Agreement and all other payments received by the Partnership from the sale of electricity, heat and/or steam produced by the Facility, all payments in respect of business interruption insurance and all payments received from any other source whatsoever. "SECI Debt Service Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "SECI Default" means a "Default" as such term is defined in the SECI Term Loan Agreement. "SECI Event of Default" means an "Event of Default" as such term is defined in the SECI Term Loan Agreement. "SECI Installment Payment Date" means an "Installment Payment Date" as such term is defined in the SECI Term Loan Agreement. "SECI Interest Payment Date" means an "Interest Payment Date" as such term is defined in the SECI Term Loan Agreement. "SECI Ratio" has the meaning assigned to such term in the SECI Term Loan Agreement. "SECI Reserve Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Secured Parties" means the collective reference to the Agent, the Lenders, the Letter of Credit Issuer (other than in its capacity as issuer of the Senior Debt Service Reserve "B" Letter of Credit), the Swap Counterparty and the SECI Term Lender. "Senior Debt Service Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Senior Debt Service Coverage Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Senior Debt Service Letter of Credit" means a letter of credit issued by the Senior Debt Service Letter of Credit Issuer in favor of the Agent, for the ratable benefit of the Lenders and for the account of the GE Capital Limited Partner, substantially in the form of Exhibit B, in a stated amount equal to the amount that, pursuant to the provisions of Sections 4.2(a) and (b), is required to be transferred to Amended and Restated Security Deposit Agreement 8 the Senior Debt Service Account on a Monthly Transfer Date. Such Senior Debt Service Letter of Credit will be drawn in full by the Agent on each Installment Payment Date that immediately follows the delivery of such Senior Debt Service Letter of Credit and the proceeds of such drawing will be applied to the payment of the principal of and interest on the Term Loans due on such Installment Payment Date. "Senior Debt Service Letter of Credit Issuer" means GE Capital, so long as it maintains a Standard & Poor's credit rating of "A" or better and in the event that it does not maintain such rating or elects to assign the Senior Debt Service Letter of Credit, GE Capital until a successor or assignee which is a financial institution with a Standard & Poor's credit rating of "A" or better and which is reasonably acceptable to the Required Lenders issues a Senior Debt Service Letter of Credit, in either case as issuer of the Senior Debt Service Letter of Credit, it being understood that the Senior Debt Service Letter of Credit Issuer shall be an entity that maintains at all times a Standard & Poor's credit rating of "A" or better and if the Senior Debt Service Letter of Credit Issuer is no longer rated "A" or better by Standard & Poor's, it will be replaced by an entity with a Standard & Poor's credit rating of "A" or better. "Senior Debt Service Reserve Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Senior Debt Service Reserve Letters of Credit" means the Senior Debt Service Reserve "A" Letter of Credit and the Senior Debt Service Reserve "B" Letter of Credit. "Senior Debt Service Reserve 'A' Letter of Credit" means a letter of credit issued by the Senior Debt Service Reserve Letter of Credit Issuer in favor of the Agent, for the ratable benefit of the Secured Parties (other than the SECI Term Lender) and for the account of the Partnership, substantially in the form of Exhibit C, in a stated amount equal to $6,600,000. "Senior Debt Service Reserve 'B' Letter of Credit" means a letter of credit issued by the Senior Debt Service Reserve Letter of Credit Issuer in favor of the Agent, for the ratable benefit of the Secured Parties (other than the SECI Term Lender) and for the account of the Partnership, substantially in the form of Exhibit D, in a stated amount equal to the lesser of (i) the Base Reserve Amount and (ii) the excess, if any, of (A) the sum of (1) the aggregate amount of transfers that have been made from the Base Reserve Debt Account to the Base Reserve Equity Account and immediately withdrawn from the Base Reserve Equity Account Amended and Restated Security Deposit Agreement 9 to make Level 1 Distributions to the GE Capital Limited Partner and (2) the aggregate amount of drawings made under any Base Reserve Letter of Credit to make Level 1 Distributions to the GE Capital Limited Partner over (B) the sum of (1) the aggregate amount of deposits made into the Base Reserve Debt Account pursuant to Section 4.2(d)(ii) and (2) the aggregate amount of reinstatements of the stated amount of any Base Reserve Letter of Credit made after any drawings thereof pursuant to Section 4.9(b). "Senior Debt Service Reserve Letter of Credit Issuer" means GE Capital, so long as it maintains a Standard & Poor's credit rating of "A" or better and in the event that it does not maintain such rating or elects to assign a Senior Debt Service Reserve Letter of Credit, GE Capital until a successor or assignee which is a financial institution with a Standard & Poor's credit rating of "A" or better and which is reasonably acceptable to the Required Lenders issues a Senior Debt Service Reserve Letter of Credit, in either case as issuer of the Senior Debt Service Reserve "A" Letter of Credit and the Senior Debt Service Reserve "B" Letter of Credit, it being understood that the Senior Debt Service Reserve Letter of Credit Issuer shall be an entity that maintains at all times a Standard & Poor's credit rating of "A" or better and if the Senior Debt Service Reserve Letter of Credit Issuer is no longer rated "A" or better by Standard & Poor's, it will be replaced by an entity with a Standard & Poor's credit rating of "A" or better. "Special Payments" means all liquidated damage payments made by any contractor (including, without limitation, the Contractor) to the Partnership pursuant to any Assigned Contract (including, without limitation, the Construction Contract) relating to the engineering of, procurement of services, equipment, supplies or other materials for or related to the construction or repair of the Project. "Standard & Poor's" means Standard & Poor's Corporation. "Steam Reserve Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Swap Counterparty Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Taking" means a taking of title to, or use or occupancy of, all or any part of the Project as a result of the exercise of the right of condemnation or power of eminent domain or similar power or the exercise by a Amended and Restated Security Deposit Agreement 10 governmental body of a non-contractual right to purchase all or any part of the Project, or a sale or other transfer of all or any part of the Project in lieu of condemnation or exercise of power of eminent domain. "Tomen Distribution Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Value" means, for cash, cash equivalents and Permitted Investments, the value thereof determined in accordance with Section 7.1. "Wind-up Account" means the special account designated by that name established by the Security Agent pursuant to Section 2.2. "Working Capital Account" means a checking account established by the Security Agent in the name of the Partnership pursuant to Section 2.2(b) and used for the payment by the Partnership of various minor costs and expenses specified in Section 4.1(b) which are not otherwise directly provided for in this Agreement; the Working Capital Account is not an "Account" for purposes of this Agreement other than for purposes of Sections 3.5, 3.6 and 4.20 and Articles VI, VII, VIII and IX. ARTICLE II Appointment of Security Agent; Establishment of Accounts SECTION 2.1 Appointment of Security Agent. The Fuji Bank and Trust Company is hereby appointed by the Secured Parties as security agent hereunder, and the Security Agent hereby agrees to act as such and to accept all revenues, cash, payments, insurance and condemnation proceeds, other amounts, and Permitted Investments to be delivered to or held by the Security Agent pursuant to the terms of this Agreement. The Security Agent shall hold and safeguard the Accounts (and the revenues, cash, payments, insurance and condemnation proceeds, instruments, securities and other amounts on deposit therein) during the term of this Agreement and shall treat the revenues, cash, payments, insurance and condemnation proceeds, instruments, securities and other amounts in the Accounts as funds, instruments and securities (i) in the case of all Accounts (other than the Distribution Reserve Account, the Retention Account, the Project Letters of Credit Reserve Account (except as provided in clause (ii) below), the Swap Counterparty Account (except as provided in clause (iii) below), the SECI Reserve Account and the SECI Debt Service Account), pledged by the Partnership to the Agent, the Lenders, the Letter of Credit Issuer (other than in its capacity as issuer of the Senior Debt Service Reserve "B" Letter of Amended and Restated Security Deposit Agreement 11 Credit) and the Swap Counterparty, as collateral securing the Obligations, in accordance with the provisions hereof, (ii) in the case of the Project Letters of Credit Reserve Account, pledged by the Partnership to the Letter of Credit Issuer, as collateral securing the Obligations (other than those relating to the Senior Debt Service Reserve Letters of Credit) owing to the Letter of Credit Issuer, in accordance with the provisions hereof, (iii) in the case of the Swap Counterparty Account, pledged by the Partnership to the Swap Counterparty, as collateral securing the Obligations owing to the Swap Counterparty in accordance with the provisions hereof, (iv) in the case of the SECI Reserve Account, the SECI Debt Service Account, the Distribution Reserve Account (to the extent of SECI's interest therein) and the Retention Account (to the extent of SECI's interest therein), pledged by SECI in favor of the SECI Term Lender, as collateral securing to the SECI Obligations, in accordance with the provisions hereof, (v) in the case of the Distribution Reserve Account and the Retention Account, held for the benefit of the GE Capital Limited Partner and the Other Partners and (vi) in the case of the Tomen Distribution Account, held for the benefit of the Tomen Limited Partners. SECTION 2.2 Creation of Accounts. (a) The Security Agent hereby establishes the following twenty special, segregated and irrevocable cash collateral accounts (a) in the case of all Accounts (other than the Distribution Reserve Account, the Retention Account, the Project Letters of Credit Reserve Account (except as provided in clause (b) below), the Swap Counterparty Account (except as provided in clause (c) below), the Tomen Distribution Account, the SECI Reserve Account and the SECI Debt Service Account), in the name of the Agent for the benefit of the Secured Parties (other than the SECI Term Lender), (b) in the case of the Project Letters of Credit Reserve Account, in the name of the Letter of Credit Issuer for its own benefit, (c) in the case of the Swap Counterparty Account, in the name of the Agent for the benefit of the Swap Counterparty, (d) in the case of the SECI Reserve Account and the SECI Debt Service Account, in the name of the SECI Term Lender for its own benefit, (e) in the case of the Distribution Reserve Account and the Retention Account, in the name of the GE Capital Limited Partner for the benefit of the Partners, and (f) in the case of the Tomen Distribution Account, in the name of the Tomen Limited Partners for their own benefit, which shall be maintained at all times until the termination of this Agreement: (1) Revenue Account, (2) Current Account, (3) Project Expense Accrual Account, (4) Completion Account, (5) Major Maintenance Reserve Account, (6) Distribution Reserve Account, (7) Retention Account, (8) Base Reserve Debt Account, Amended and Restated Security Deposit Agreement 12 (9) Base Reserve Equity Account, (10) SECI Reserve Account, (11) SECI Debt Service Account, (12) Project Letters of Credit Reserve Account, (13) Steam Reserve Account, (14) Insurance and Condemnation Proceeds Account, (15) Wind-up Account, (16) Senior Debt Service Account, (17) Senior Debt Service Coverage Account, (18) Senior Debt Service Reserve Account, (19) Swap Counterparty Account, and (20) Tomen Distribution Account. (b) The Security Agent hereby establishes the Working Capital Account in the name of the Partnership, which shall be maintained at all times until the termination of this Agreement. SECTION 2.3 Security Interest. (a)(i) In order to secure the payment and performance by the Borrowers when due of all of their Obligations, this Agreement is intended to create, and the Partnership hereby pledges to, and creates in favor of, the Agent for its benefit and for the benefit of the Lenders, the Letter of Credit Issuer and the Swap Counterparty, a security interest in and to the Accounts (other than the Distribution Reserve Account, the Retention Account, the Project Letters of Credit Reserve Account (except as provided below), the Swap Counterparty Account (except as provided below), the Tomen Distribution Account, the SECI Reserve Account and the SECI Debt Service Account). All moneys, cash equivalents, instruments, investments and securities at any time on deposit in any of such Accounts shall constitute collateral security for the payment and performance by the Borrowers when due of the Obligations and shall at all times be subject to the sole dominion and control of the Agent, acting through the Security Agent, and shall be held in the custody of the Security Agent for the purposes of, and on the terms set forth in, this Agreement. (ii) In order to secure the payment and performance by the Borrowers when due of all of their Obligations to the Letter of Credit Issuer, this Agreement is intended to create, and the Partnership hereby pledges to, and creates in favor of the Letter of Credit Issuer, a security interest in and to the Project Letters of Credit Reserve Account. All moneys, cash equivalents, instruments, investments and securities at any time on deposit in the Project Letters of Credit Reserve Account shall constitute collateral security for the payment and performance by the Borrowers when due of the Obligations (other than those relating to the Senior Debt Service Reserve Letters of Credit) owing to the Letter of Credit Issuer and shall at all times be subject to the sole dominion and control of the Letters of Credit Issuer, acting through the Security Agent, and shall be held in the custody of the Security Agent for the purposes of, and on the terms set forth in, this Agreement. Amended and Restated Security Deposit Agreement 13 (iii) In order to secure the payment and performance by the Borrowers when due of all of their Obligations to the Swap Counterparty, this Agreement is intended to create, and the Partnership hereby pledges to, and creates in favor of the Agent for the benefit of the Swap Counterparty, a security interest in and to the Swap Counterparty Account. All moneys, cash equivalents, instruments, investments and securities at any time on deposit in the Swap Counterparty Account shall constitute collateral security for the payment and performance by the Borrowers when due of the Obligations owing to the Swap Counterparty and shall at all times be subject to the sole dominion and control of the Agent, acting through the Security Agent, and shall be held in the custody of the Security Agent for the purposes of, and on the terms set forth in, this Agreement. (iv) For the purpose of perfecting the security interest of the Agent, the Lenders, the Letter of Credit Issuer and the Swap Counterparty in and to such Accounts and all cash, investments and securities at any time on deposit in such Accounts, the Security Agent shall be deemed to be the agent of the Agent, the Lenders, the Letter of Credit Issuer and the Swap Counterparty. (b) In order to secure the payment and performance by SECI when due of all of the SECI Obligations, this Agreement is intended to create, and SECI hereby pledges to, and creates in favor of the SECI Term Lender, a security interest in and to the SECI Reserve Account, the SECI Debt Service Account, the Distribution Reserve Account (to the extent of SECI's interest therein) and the Retention Account (to the extent of SECI's interest therein) and all cash, cash equivalents, instruments, investments and other securities at any time on deposit in such Accounts. All moneys, cash equivalents, instruments, investments and securities at any time on deposit in such Accounts shall constitute collateral security for the payment and performance by SECI when due of the SECI Obligations and shall at all times be subject to the sole dominion and control of the SECI Term Lender, acting through the Security Agent, and shall be held in the custody of the Security Agent for the purposes of, and on the terms set forth in, this Agreement. For the purpose of perfecting the security interest of the SECI Term Lender in and to such Accounts, the Security Agent shall be deemed to be the agent of the SECI Term Lender. (c) Neither the Partnership nor SECI shall have any rights or powers with respect to any amounts in the Accounts or any part thereof except (i) as provided in Article IV and (ii) the right to have such amounts applied in accordance with the provisions hereof and of the other Loan Documents and, in the case of SECI, the SECI Loan Documents. SECTION 2.4 Location of the Accounts. The Accounts shall be maintained by the Security Agent at its corporate trust Amended and Restated Security Deposit Agreement 14 office located in New York City until the Security Agent gives written notice to the other parties to this Agreement setting forth a different location of the Accounts; provided, however, that such location shall be in the State of New York. ARTICLE III Deposits into Accounts SECTION 3.1 Deposits on Second Capital Contribution Date. (a) On the Second Capital Contribution Date, after making all payments required to be made on such date pursuant to Sections 4.2 and 4.3 of the Original Security Deposit Agreement, the Security Agent shall transfer all remaining amounts, if any, on deposit in the accounts maintained pursuant to the Original Security Deposit Agreement to the Revenue Account. (b) On the Second Capital Contribution Date, the Original Agent shall transfer to the Security Agent for deposit in the Completion Account, from the proceeds of the Construction Loans made by the Construction Lenders on such date, the amount referred to in clause (u) of the definition of Certified Construction Costs in Appendix A. SECTION 3.2 Revenues and Insurance and Condemnation Proceeds. (a) Except as otherwise provided in Sections 3.1 and 3.3, the Partnership shall instruct each Person from whom it receives any Revenues (other than any Person from whom $20,000 or less is expected to be payable to the Partnership in a calendar year, unless the aggregate amount of Revenues of all such Persons exceeds $250,000 in a calendar year, in which case all Revenues in excess of $250,000 in a calendar year from all such Persons shall be paid as hereinafter provided) to pay such Revenues directly to the Security Agent for deposit in the Revenue Account, and if the Partnership shall receive any Revenues it shall deliver such Revenues in the exact form received (but with the Partnership's endorsement, if necessary) to the Security Agent for deposit in the Revenue Account not later than the third Business Day after the Partnership's receipt thereof. The Security Agent shall have the right to receive all Revenues directly from the Persons owing the same. All Revenues received by the Security Agent shall be deposited in the Revenue Account. (b) The Partnership shall deposit in the Insurance and Condemnation Proceeds Account all payments in respect of casualty to or loss of property received by it from any insurer pursuant to the property or casualty insurance maintained by the Partnership and all awards and proceeds in respect of a Taking. SECTION 3.3 Deposits into Senior Debt Service Account; Senior Debt Service Reserve Account; Base Reserve Debt Account. (a)(i) Any payments made by the Swap Counterparty under the Swap Amended and Restated Security Deposit Agreement 15 Agreement shall be deposited upon receipt into the Senior Debt Service Account. (ii) Any amounts drawn under the Senior Debt Service Letter of Credit, if any, as a result of a loss of or reduction in the rating of the Senior Debt Service Letter of Credit Issuer shall be deposited upon receipt into the Senior Debt Service Account. (b) Any amounts drawn under either Senior Debt Service Reserve Letter of Credit as a result of a loss of or reduction in the rating of the Senior Debt Service Reserve Letter of Credit Issuer shall be deposited upon receipt into the Senior Debt Service Reserve Account. (c) Any amounts drawn under the Base Reserve Letter of Credit for the benefit of the GE Capital Limited Partner shall be deposited upon receipt into the Base Reserve Equity Account. SECTION 3.4 Additional Deposits into Completion Account. Any Special Payments received by the Partnership pursuant to the Construction Contract shall be deposited into the Completion Account and amounts released pursuant to Section 10(b) of the Surety Bond Arrangements Cash Collateral Agreement. SECTION 3.5 Information to Accompany Amounts Delivered to Security Agent; Deposits Irrevocable. (a) All amounts delivered to the Security Agent by the Partnership shall be accompanied by information in reasonable detail specifying the source of the amounts and the Account or Accounts into which such amounts are to be deposited. If the Security Agent shall be unable to determine the source of any payments received or the Account or Accounts into which such payments are to be deposited, the Security Agent shall hold such amounts in the Revenue Account until identified by the Partnership. (b) Any deposit made into any Account hereunder shall, absent manifest error, be irrevocable and the amount of such deposit and any instrument or security held in such Account hereunder and all interest thereon shall be held by the Security Agent and applied solely as provided herein. SECTION 3.6 Books of Account; Statements. (a) The Security Agent shall maintain books of account for the Partnership, SECI, the Agent, the Letter of Credit Issuer, the Swap Counterparty and the SECI Term Lender on a cash basis and record therein all deposits into and transfers to and from the Accounts and all investment transactions effected by the Security Agent pursuant to Article V. The Security Agent shall make such books of account available during normal business hours with reasonable advance notice for inspection and audit by the Partnership, SECI, the Agent, the Letter of Credit Issuer, the Amended and Restated Security Deposit Agreement 16 Swap Counterparty or the SECI Term Lender and their respective representatives. (b) Not later than the fifteenth Business Day of each month, the Security Agent shall deliver to the Partnership, SECI, the Agent, the Letter of Credit Issuer, the Swap Counterparty and the SECI Term Lender, a statement setting forth the transactions in each Account during the preceding month and specifying the Revenues, Special Payments, Insurance and Condemnation Proceeds Deposits, Permitted Investments and other amounts held in each Account at the close of business on the first Business Day of such month and the value thereof at such time. ARTICLE IV Payments from Accounts SECTION 4.1 Revenue Account--Monthly Transfers with Respect to Project Expenses. (a) On or before the twentieth day of each month, the Partnership shall deliver to the Security Agent a Project Certificate (with appropriate insertions) signed by a Responsible Officer of the Managing General Partner (with a copy to the GE Capital Limited Partner) and countersigned by a Responsible Officer of the Agent and, until the First GE Capital Flip Date, the GE Capital Limited Partner, requesting distributions to be made from the Revenue Account. Each of the Agent and the GE Capital Limited Partner agrees that it shall countersign each such certificate presented to it which is in compliance with the Partnership Operating Budget and the Loan Documents. On the last Business Day of each month (each such date, a "Monthly Transfer Date"), the Security Agent shall distribute, from the cash available in the Revenue Account, (i) (A) directly to the Operator and each Person to which an amount in excess of $250,000 is due and payable, the amounts identified as Project Expenses (other than the Project Expenses on account of which amounts have already been deposited or are to be deposited contemporaneously into the Major Maintenance Reserve Account, the Current Account or the Project Expense Accrual Account) then due and owing in Item 1 of the Project Certificate referred to above, or (B) to the Partnership for the benefit of the Persons entitled thereto, all other Project Expenses (other than the Project Expenses on account of which amounts have already been deposited or are to be deposited contemporaneously into the Major Maintenance Reserve Account, the Current Account or the Project Expense Accrual Account) then due and owing in Item 1 of the Project Certificate referred to above, (ii) to the Current Account, the amounts identified as Project Expenses expected to be due and owing prior to the next Monthly Transfer Date in Item 2 of the Project Certificate referred to above (other than the Project Expenses on account of which amounts have already been deposited or are to be deposited contemporaneously into the Major Maintenance Reserve Account or the Project Expense Amended and Restated Security Deposit Agreement 17 Accrual Account), (iii) to the Project Expense Accrual Account, the amount identified as the Project Expense Accrual Account Contribution in Item 3 of the Project Certificate referred to above, (iv) so long as (A) no prepayments of any of the Loans are required to be made by the Partnership on such Monthly Transfer Date or during the Quarterly Period in which such Monthly Transfer Date occurs pursuant to Section 4.2(a) of the Loan Agreement and (B) the Partnership has performed its obligations under Section 4.1(b) to the Working Capital Account, an amount equal to $50,000 minus the amount then on deposit in the Working Capital Account as specified in Item 10 of the Project Certificate, (v) until the amount on deposit in the Major Maintenance Reserve Account is equal to or greater than the Major Maintenance Required Balance as of such Monthly Transfer Date, to the Major Maintenance Reserve Account, the greater of (A) the Major Maintenance Required Contribution and (B) the amount which equals the positive difference, if any, between the Major Maintenance Required Balance as of such Monthly Transfer Date and the amount then on deposit in the Major Maintenance Reserve Account, (vi) directly to the Agent, all Agency Fees then due and payable to the Agent under the Loan Agreement which are specified in Item 9 of the Project Certificate, (vii) directly to the Security Agent, all fees, expenses and other costs then due and payable to the Security Agent hereunder which are specified in Item 9 of the Project Certificate, (viii) directly to the Swap Counterparty, all expenses and other amounts then due and payable to the Swap Counterparty under Sections 1(d) (in respect of deduction or withholding for taxes), 4(e) (in respect of stamp or similar taxes) and 11 (in respect of expenses) of the Swap Agreement which are specified in Item 9 of the Project Certificate, (ix) to the extent not included in any of the foregoing clauses (i) through (viii), directly to the Persons specified in Item 9 of the Project Certificate, all expenses then due and payable to such Persons under Sections 3.13 and 11.5 of the Loan Agreement. (b) The Partnership covenants and agrees that all amounts from time to time on deposit in the Working Capital Account shall be used by it only to pay Project Expenses or to enable North Country to pay Project Expenses related to the North Country Project. (c) For purposes of this Section 4.1, cash available in the Revenue Account shall not include any check or other instrument which may be deposited therein until the final collection thereof. SECTION 4.2 Revenue Account--Monthly Transfers. On each Monthly Transfer Date, the Security Agent shall distribute, as directed by the Partnership from the cash available in the Revenue Account (after making all transfers required by Section 4.1), the following amounts in the following order of priority: Amended and Restated Security Deposit Agreement 18 (a) first, pro rata to (i) the Senior Debt Service Account, an amount equal to one-third of the interest and (except as provided in Section 4.2(b)) other amounts payable in respect of the Term Loans which are due and payable on the next succeeding Installment Payment Date (together with any deficiency in accumulation of such amount during any preceding month or months since the last Installment Payment Date) minus one-third of the amount, if any, payable by the Swap Counterparty to the Partnership under the Swap Agreement (unless the Swap Counterparty is in default under the Swap Agreement) on the next succeeding Installment Payment Date unless, with respect only to the first and second Monthly Transfer Dates of the three month period ending on the next Installment Payment Date, the Security Agent shall have received a notice from the Agent stating that a Senior Debt Service Letter of Credit has been issued and delivered to the Agent in accordance with Section 4.3(c) and specifying the stated amount thereof, in which case the Security Agent shall distribute to the GE Capital Limited Partner (from the amount otherwise to be deposited into the Senior Debt Service Account pursuant to this clause (i)) an amount equal to such stated amount (such distribution to be treated in accordance with Section 4.17 of the Amended and Restated Partnership Agreement), (ii) the Letter of Credit Issuer, an amount equal to all Letter of Credit Fees, interest and (except as provided in Sections 4.1(a), 4.2(b) and 4.2(c)) other amounts payable to the Letter of Credit Issuer under the Loan Agreement and in respect of the Letters of Credit then due and payable by the Borrowers, (iii) the Swap Counterparty Account, an amount equal to one-third of all amounts, if any, payable by the Partnership to the Swap Counterparty under the Swap Agreement (except as provided in Sections 4.1(a) and 4.2(b) which are due and payable on the next succeeding Installment Payment Date (together with any deficiency in accumulation of such amount during any preceding month or months since the last Installment Payment Date) and (iv) the Surety Bond Arranger, an amount equal to the sum of (1) the excess of the Surety Bond Arranger Fee then due and payable by the Partnership to the Surety Bond Arranger under the Loan Agreement over the amount of such Surety Bond Arranger Fee paid from funds available under the Surety Bond Arrangements Cash Collateral Agreement and (2) expenses, interest and other amounts (other than principal payments in respect of the Surety Bond Arrangements Reimbursement Obligations) then due and payable by the Partnership to the Surety Bond Arranger under the Loan Agreement and the Surety Bond Arrangements Cash Collateral Agreement; Amended and Restated Security Deposit Agreement 19 (b) second, pro rata to (i) the Senior Debt Service Account, an amount equal to: (x) one-third of the aggregate scheduled principal amount of the Term Loans which is due and payable on the next succeeding Installment Payment Date (together with any deficiency in accumulation of such amount during any preceding month or months since the last Installment Payment Date); less (y) any increase in the Value of the Senior Debt Service Account which occurred during the preceding month as a result of earnings on the amounts on deposit therein; unless, with respect to the first and second Monthly Transfer Dates of the three month period ending on the next Installment Payment Date, the Security Agent shall have received a notice from the Agent stating that a Senior Debt Service Letter of Credit has been issued and delivered to the Agent in accordance with Section 4.3(c) and specifying the stated amount thereof, in which case the Security Agent shall distribute to the GE Capital Limited Partner (from the amount otherwise to be deposited in the Senior Debt Service Account pursuant to this clause (i)) an amount equal to such stated amount (such distribution to be treated in accordance with Section 4.17 of the Amended and Restated Partnership Agreement), (ii) the Senior Debt Service Account, an amount equal to any prepayments on the Term Loans which are then due and payable, (iii) the Letter of Credit Issuer, all amounts then due and payable (including, without limitation, any prepayments) in respect of reimbursement obligations relating to the Project Letters of Credit, and (iv) the Swap Counterparty, all amounts then due and payable pursuant to Section 6(e) of the Swap Agreement; (c) third, if there shall have been a drawing on either the Senior Debt Service Reserve "A" Letter of Credit or the Senior Debt Service Reserve "B" Letter of Credit (other than a drawing as a result of a loss of or a reduction in the rating of the Senior Debt Service Reserve Letter of Credit Issuer) or a withdrawal from the Senior Debt Service Reserve Account pursuant to Section 4.9(a), (x) first, to the Senior Debt Service Reserve Letter of Credit Issuer, an amount equal to the aggregate amount of all unreimbursed drawings under the Senior Debt Service Reserve "A" Letter of Credit, (y) second, to the Senior Debt Service Reserve Letter of Credit Issuer, an amount equal to the aggregate amount of all unreimbursed drawings under the Senior Debt Service Reserve "B" Letter of Credit and (z) third, to the Senior Debt Service Reserve Account, an amount equal to all withdrawals therefrom pursuant to Section 4.9(a) until such withdrawals have been replenished; Amended and Restated Security Deposit Agreement 20 (d) fourth, in the following order of priority, (provided that (I) the Security Agent shall not make any payments to the Partners or any of the payments described in clauses (v) through (x) below if (i) the certificate of the Managing General Partner described below states that a Default or Event of Default has occurred and is continuing or (ii) the Agent has notified the Security Agent that a Default or Event of Default has occurred and is continuing and (II) if (i) the certificate of Managing General Partner described below states that a Special Event has occurred and is continuing and (ii) the Security Agent has not received either of the notices referred to in subclauses (i) and (ii) of clause (I) of this proviso, the Security Agent shall distribute all amounts that would otherwise be distributable to the Partners pursuant to this Section 4.2(d) in accordance with Section 4.16(d))(x) subject to Section 4.2(e), directly to the Partners, Distributable Cash in the amount distributable to the Partners pursuant to Section 4.3(a) of the Amended and Restated Partnership Agreement, and (y) subject to Section 4.2(e), directly to the Partners, Distributable Cash in such amounts as are distributable to the Partners pursuant to Section 4.3(b) and/or Section 4.6(b) (in respect of Net Cash from Sales or Refinancing) and/or Section 4.13 and/or Section 4.14 of the Amended and Restated Partnership Agreement and, in the case of each of clauses (x) and (y) above, accompanied by a certificate of a Responsible Officer of the Managing General Partner (with a copy to the Agent, the SECI Term Lender and the GE Capital Limited Partner), setting forth the amounts so distributable and the amounts, if any, required to be deposited in the Accounts specified below and the calculations (including, without limitation, the Debt Service Coverage Ratio, the Ratio and the SECI Ratio) used in determining such amounts and stating whether any Special Event, Default or Event of Default has occurred and is continuing; provided, however, that: (i) if a withdrawal from the Base Reserve Debt Account or a drawing under any Base Reserve Letter of Credit shall have occurred pursuant to Section 4.9(a), until the amount of such withdrawal has been replenished in the Base Reserve Debt Account or the stated amount of such Base Reserve Letter of Credit has been reinstated in an amount equal to the amount of such drawing, the amount of Distributable Cash to be distributed on each Distribution Date from the cash in the Revenue Account to each Partner pursuant to Sections 4.3(a), 4.3(b), 4.13 and 4.14 of the Amended and Restated Partnership Agreement that corresponds to 100% of such Distributable Cash distributable to each such Partner, shall not be distributed to each such Partner on such Distribution Date but shall instead be Amended and Restated Security Deposit Agreement 21 transferred to and retained in the Base Reserve Debt Account and applied as provided in Section 4.9; (ii) subject to the availability of Distributable Cash after application (if any) thereof pursuant to Section 4.2(d)(i), if a transfer of cash from the Base Reserve Debt Account to the Base Reserve Equity Account and a withdrawal of such cash from the Base Reserve Equity Account or a drawing under any Base Reserve Letter of Credit shall have occurred pursuant to Section 4.9(b), until the amount of such withdrawal has been replenished in the Base Reserve Debt Account or the stated amount of such Base Reserve Letter of Credit has been reinstated in an amount equal to the amount of such drawing, the amount of Distributable Cash to be distributed on each Distribution Date from the cash in the Revenue Account to each Partner pursuant to Sections 4.3(a), 4.3(b), 4.13 and 4.14 of the Amended and Restated Partnership Agreement that corresponds to 100% of such Distributable Cash distributable to each such Partner, shall not be distributed to each such Partner on such Distribution Date but shall instead be transferred to and retained in the Base Reserve Debt Account and applied as provided in Section 4.9; (iii) subject to the availability of Distributable Cash after application (if any) thereof pursuant to Sections 4.2(d)(i) and (ii), during the period from and including the date of occurrence of a Steam Host Event, as certified to the Security Agent in a certificate of the Agent, to but excluding the date of receipt by the Security Agent of either written notice from the Agent described in Section 4.15(a), 100% of all Distributable Cash to be distributed from the cash in the Revenue Account to each Partner pursuant to Sections 4.3(a), 4.3(b), 4.13 and 4.14 of the Amended and Restated Partnership Agreement and 100% of all Net Cash from Sales or Refinancing to be distributed from the cash in the Revenue Account to each Partner pursuant to Section 4.6(b) of the Amended and Restated Partnership Agreement in respect of each Distribution Date occurring during the continuance of such Steam Host Event shall not be distributed to such Partner on each such Distribution Date but instead shall be transferred to and retained in the Steam Reserve Account and applied as provided in Section 4.15; (iv) subject to the availability of Distributable Cash after application (if any) thereof pursuant to Sections 4.2(d)(i), (ii) and (iii), in the event that the Debt Service Coverage Ratio for any Measurement Period with respect to any Distribution Date on or after December 31, 1994 shall be less than 1.20 to Amended and Restated Security Deposit Agreement 22 1.00, as certified to the Security Agent in a certificate of the Agent, 100% of the Distributable Cash to be distributed from the cash in the Revenue Account to the Partners pursuant to Sections 4.3(a), 4.3(b), 4.13 and 4.14 of the Amended and Restated Partnership Agreement in respect of each of the three Distribution Dates immediately after the end of such Measurement Period and 100% of the Net Cash from Sales or Refinancing to be distributed to the Partners pursuant to Section 4.6(b) of the Amended and Restated Partnership Agreement in respect of the period commencing with the end of such Measurement Period and ending on the third Distribution Date occurring immediately after the end of such Measurement Period shall not be distributed to the Partners on each such Distribution Date but shall instead be transferred to and retained in the Senior Debt Service Coverage Account and applied as provided in Section 4.11(a); (v) subject to the availability of Distributable Cash after application (if any) thereof pursuant to Sections 4.2(d)(i), (ii), (iii) and (iv), until the sum of (1) the amount on deposit in the Base Reserve Debt Account or, after the Loan Agreement is no longer in effect, the Base Reserve Equity Account and (2) the then stated amount of the Base Reserve Letter of Credit, if any, is equal to or greater than the Base Reserve Amount, the amount of Distributable Cash to be distributed from the cash in the Revenue Account to the Other Partners pursuant to Section 4.3(b) of the Amended and Restated Partnership Agreement that corresponds to 23.7% of such Distributable Cash distributable to each such Other Partner on each Distribution Date shall not be distributed to each such Other Partner on such Distribution Date but shall instead be deposited and retained in the Base Reserve Debt Account and applied as provided in Section 4.9; (vi) subject to the availability of Distributable Cash after application (if any) thereof pursuant to Sections 4.2 (d)(i), (ii), (iii), (iv) and (v), in the event that the Ratio for any Quarterly Period ending on or after December 31, 1994 shall be less than the respective values set forth below, as certified in a certificate of the GE Capital Limited Partner, the amount of Distributable Cash to be distributed from the cash in the Revenue Account to the Other Partners pursuant to Section 4.3(b) of the Amended and Restated Partnership Agreement in respect of each of the three Distribution Dates immediately after the end of such Measurement Period, in each case that corresponds to the percentage set forth opposite each such value below, shall not be distributed to such Other Partners Amended and Restated Security Deposit Agreement 23 on each such Distribution Date but shall instead be transferred to and retained in the Distribution Reserve Account and applied as provided in Section 4.11(b): Ratio Percentage Retained ----- ------------------- 1.40 to 1.00 20% 1.30 to 1.00 25% 1.20 to 1.00 98% (vii) subject to the availability of Distributable Cash after application (if any) thereof pursuant to Sections 4.2(d)(i), (ii), (iii), (iv), (v) and (vi), in the event that the Security Agent shall have received written notice from the GE Capital Limited Partner that, but for the provisos to any of Sections 13.1(b), (c), (d), (f) or (m), or the lapse of either the 180 day or 30 day period referred to in clause (ii) of Section 13.1(t), of the Amended and Restated Partnership Agreement, a Special Event would occur and be continuing, 98% of the amount of Distributable Cash to be distributed from the cash in the Revenue Account to the Other Partners pursuant to Sections 4.3(b) and 4.13 of the Amended and Restated Partnership Agreement on such Distribution Date shall not be distributed to such Other Partners on such Distribution Date but shall instead be transferred to and retained in the Retention Account and applied as provided in Section 4.10; (viii) subject to the availability of Distributable Cash after application (if any) pursuant to Sections 4.2(d)(i), (ii), (iii), (iv), (v), (vi) and (vii), until the amount on deposit in the Project Letters of Credit Reserve Account is equal to the Project Letters of Credit Required Balance as of such Distribution Date, 98% of the amount of Distributable Cash to be distributed on each Distribution Date from the cash in the Revenue Account to each Other Partner pursuant to Section 4.3(b) of the Amended and Restated Partnership Agreement that corresponds to each such Other Partner's allocable share of the Project Letters of Credit Required Contribution (determined by multiplying the Project Letters of Credit Required Contribution by the Allocation Percentage of each Other Partner in such Distributable Cash) shall not be distributed to each such Other Partner on such Distribution Date but shall instead be transferred to and retained in the Project Letters of Credit Reserve Account and applied as provided in Section 4.12; (ix) for so long as any amounts are due and payable under the SECI Term Loan Agreement, the amount of Distributable Cash to be distributed from the cash Amended and Restated Security Deposit Agreement 24 in the Revenue Account to SECI pursuant to Sections 4.3 and 4.13 of the Amended and Restated Partnership Agreement on each Distribution Date and Net Cash from Sales or Refinancing to be distributed to SECI pursuant to Section 4.6(b) of the Amended and Restated Partnership Agreement, as certified in a certificate of a Responsible Officer of the SECI Term Lender, shall be reduced by the amounts specified in clauses (A) and (B) below and such amounts specified in such clauses shall be transferred to and retained in the SECI Debt Service Account and applied as provided in Section 4.13: (A) first, an amount equal to one-third of the interest and fees and other amounts payable in respect of the SECI Term Loan which are due and payable on the next succeeding SECI Interest Payment Date (together with any deficiency in accumulation of such amount during any month or months since the last SECI Interest Payment Date); and (B) second, an amount equal to one-third of the principal amount of the SECI Term Loans which is due and payable on the next succeeding SECI Installment Payment Date (together with any deficiency in accumulation of such amount during any preceding month or months since the last SECI Installment Payment Date); and (x) subject to the availability of Distributable Cash after application pursuant to Section 4.2(d)(ix), (A) for so long as any amounts are due and payable under the SECI Term Loan Agreement, in the event that the SECI Ratio for any Measurement Period occurring prior to the First Tomen Flip Date shall be less than the respective values set forth below, as certified in a certificate of a Responsible Officer of the SECI Term Lender or a certificate of a Responsible Officer of SECI, the amount of Distributable Cash to be distributed from the cash in the Revenue Account to SECI pursuant to Sections 4.3 and 4.13 of the Amended and Restated Partnership Agreement on each of the three Distribution Dates immediately after the end of such Measurement Period and Net Cash from Sales or Refinancing to be distributed to SECI pursuant to Section 4.6(b) of the Amended and Restated Partnership Agreement for the period commencing with the end of such Measurement Period and ending with the third Distribution Date occurring immediately after the end of such Measurement Period, in each case that corresponds to the percentage set forth opposite each Amended and Restated Security Deposit Agreement 25 such value below shall not be distributed to SECI but shall instead be transferred to and retained in the SECI Reserve Account and applied as provided in Section 4.14: SECI Ratio Percentage Retained ---------- ------------------- 1.80 to 1.00 30% 1.60 to 1.00 100%; and (B) for so long as any amounts are due and payable under the SECI Term Loan Agreement, in the event that the SECI Ratio for any Measurement Period occurring from and after the First Tomen Flip Date shall be less than the respective values set forth below, as certified in a certificate of the SECI Term Lender or a certificate of a Responsible Officer of SECI, the amount of Distributable Cash to be distributed from the cash in the Revenue Account to SECI pursuant to Sections 4.3 and 4.13 of the Amended and Restated Partnership Agreement on each of the three Distribution Dates immediately after the end of such Measurement Period and Net Cash from Sales or Refinancing to be distributed to SECI pursuant to Section 4.6(b) of the Amended and Restated Partnership Agreement for the period commencing with the end of such Measurement Period and ending with the third Distribution Date occurring immediately after the end of such Measurement Period, in each case that corresponds to the percentage set forth opposite each such value (as such values may be adjusted in connection with an adjustment to the Capped Term Allocation Percentage pursuant to Section 3.4 of the Amended and Restated Partnership Agreement) below shall not be distributed to SECI but shall instead be transferred to and retained in the SECI Reserve Account and applied as provided in Section 4.14: SECI Ratio Percentage Retained ---------- ------------------- 1.70 to 1.00 30% 1.55 to 1.00 100%; provided, that, if the SECI Term Lender shall have notified the Security Agent that a SECI Default or SECI Event of Default has occurred and is continuing, notwithstanding the provisions of clause (ix) above and the foregoing provisions of this clause (x), all amounts otherwise required to be distributed to SECI pursuant to this Section 4.2(d) shall be transferred instead to the SECI Term Lender. Amended and Restated Security Deposit Agreement 26 (e) The amount of Distributable Cash to be distributed from the cash in the Revenue Account to the Tomen Limited Partners pursuant to Sections 4.3, 4.4 and 4.5 of the Amended and Restated Partnership Agreement on each Distribution Date which does not occur on the last Business Day in a Quarterly Period shall be transferred to and retained in the Tomen Distribution Account and applied as provided in Section 4.21. SECTION 4.3 Senior Debt Service Account; Swap Counterparty Account. (a) On each Installment Payment Date or any other date on which any interest on or principal of the outstanding Term Loans becomes due and payable pursuant to the Loan Agreement or the Notes, first, the Security Agent shall distribute to the Agent for payment of such principal or interest, from the cash available in the Senior Debt Service Account, an amount equal to (i) the amount of such interest and principal then due and payable minus (ii) the aggregate stated amount of all Senior Debt Service Letters of Credit for which the Security Agent has received notice from the Agent pursuant to Section 4.3(c) since the date of the next preceding Installment Payment Date, and second, the Agent shall make a drawing under the Senior Debt Service Letters of Credit in the aggregate amount available to be drawn thereunder. Any amounts drawn under the Senior Debt Service Letters of Credit shall be applied by the Agent to the payment of principal and interest on the Loans due and payable on such Installment Payment Date. (b) On each Installment Payment Date or any other date on which any interest or other amounts become due and payable to the Swap Counterparty pursuant to the Swap Agreement, the Security Agent shall distribute to the Swap Counterparty for payment of such interest or other amounts, from the cash available in the Swap Counterparty Account, an amount equal to the aggregate amount of such interest and other amounts then due and payable, as set forth in a certificate of the Swap Counterparty delivered to the Security Agent (with a copy to the Agent). (c)(i) On any Monthly Transfer Date that is not an Installment Payment Date, provided that on such date no Event of Default has occurred and is continuing, the GE Capital Limited Partner may cause the Senior Debt Service Letter of Credit Issuer to issue a Senior Debt Service Letter of Credit in favor of the Agent in a stated amount equal to all or a portion of the amount that, pursuant to the provisions of Sections 4.2(a) and (b), is required to be transferred to the Senior Debt Service Account on such Monthly Transfer Date, and expiring not earlier than the tenth Business Day following the next Installment Payment Date. Any reimbursement obligations of the account party in respect of a Senior Debt Service Letter of Credit shall not be secured by the assets of any of the Partnership, SECI, North Country, SECI Amended and Restated Security Deposit Agreement 27 Holdings, FSPC or the Operator or the interest of any other person in such person. (ii) Upon receipt of a Senior Debt Service Letter of Credit meeting the requirements of paragraph (i) above, the Agent shall notify the Security Agent of the issuance thereof and the stated amount thereof. SECTION 4.4 Completion Account. The Security Agent shall pay Certified Construction Costs described in the Completion Budget on account of which amounts have been deposited in the Completion Account out of cash available in the Completion Account as such Certified Construction Costs become due and payable in the amounts and as set forth in Item 8 of the Project Certificate. Upon receipt of a certificate from the Independent Engineer, countersigned by a Responsible Officer of the Agent and the GE Capital Limited Partner, stating that the Project is complete and all items described in the Completion Budget have been completed in accordance with the Construction Contract, the Security Agent shall distribute all remaining amounts in the Completion Account directly to SECI in partial payment of the Success Fee. SECTION 4.5 Intentionally Omitted. SECTION 4.6 Insurance and Condemnation Proceeds Account. (a) The Insurance and Condemnation Proceeds Deposits shall be accumulated in the Insurance and Condemnation Proceeds Account and held therein until paid to or upon the order of the Partnership as provided in paragraph (b) of this Section 4.6, or returned to the Partnership as provided in Section 9.2. (b)(i) If the amount of Insurance and Condemnation Proceeds Deposits of the Partnership is less than $250,000, such amount shall be paid over to or upon the order of the Partnership, as the case may be, to reimburse it for, or to pay, the cost of repairing, rebuilding or otherwise replacing the damaged or destroyed or lost or condemned property in respect of which such moneys were received, upon the receipt by the Security Agent of: a certificate of a Responsible Officer of the Managing General Partner, countersigned by the Agent, (A) containing the plans and specifications setting forth in reasonable detail the work done or proposed to be done and materials purchased or to be purchased by way of the renewal, repair, rebuilding or other replacement of the damaged or destroyed or lost or condemned property and (B) stating the specific amount requested to be paid over to or upon the order of the Partnership, as the case may be, or that such amount is requested to reimburse the Partnership for, or to pay, costs actually incurred to repair, rebuild or replace property and that such amount, together with amounts remaining in the Insurance and Condemnation Proceeds Account for such purpose and other funds of the Partnership available for such purpose, are sufficient to pay in full the costs of such Amended and Restated Security Deposit Agreement 28 renewal, repair, rebuilding or other replacement. The Agent shall countersign such certificate if (w) no Default or Event of Default has occurred and is continuing, (x) the Agent shall have received an opinion of counsel, satisfactory in every regard to the Agent, stating that all Governmental Approvals required in connection with the work done or proposed to be done have been obtained and (y) the Agent shall have received (I) evidence of any lien waivers requested to be obtained by the Agent, and (II) evidence, satisfactory to the Agent, that the Lien of the Collateral Security Documents is in full force and effect; or (ii) if the amount of Insurance and Condemnation Proceeds Deposits is more than $250,000, such amount shall be paid over to the Persons entitled thereto from time to time (as set forth in the certificate referred to below) to pay the cost of repairing, rebuilding or otherwise replacing the damaged or destroyed or lost or condemned property in respect of which such moneys were received, upon the receipt by the Security Agent of a certificate of a Responsible Officer of the Managing General Partner countersigned by the Agent, (A) containing the plans and specifications setting forth in reasonable detail the work done or proposed to be done and the materials purchased or to be purchased by way of the renewal, repair, rebuilding or other replacement of the damaged or destroyed or lost or condemned property and (B) stating the specific amounts requested to be paid, the Persons to whom and the dates on which such amounts are to be paid, that such amounts will be used to pay costs actually incurred to repair, rebuild or replace property and that such amounts, together with amounts remaining in the Insurance and Condemnation Proceeds Account for such purpose and other funds of the Partnership available for such purpose, are sufficient to pay in full the costs of such renewal, repair, rebuilding or other replacement. The Agent shall countersign such certificate if (w) no Default or Event of Default has occurred and is continuing, (x) the Agent shall have received an opinion of counsel, satisfactory in every regard to the Agent, stating that all Governmental Approvals required in connection with the work done or proposed to be done have been obtained, (y) in the reasonable opinion of the Agent, the matters referred to in such certificate can be accomplished in the manner provided for in such certificate and (z) the Agent shall have received (I) evidence of any lien waivers requested to be obtained by the Agent, and (II) evidence, satisfactory to the Agent, that the Lien of the Collateral Security Documents is in full force and effect; or (iii) if the Agent has determined that the conditions described in clauses (i) or (ii), as applicable, of this Section 4.6(b) have not been satisfied, such proceeds shall be applied by the Security Agent upon the written direction of the Agent to the payment of Obligations or to the Partnership to reimburse it for, or to pay, the cost of repairing, rebuilding or otherwise replacing the damaged or destroyed or lost or condemned Amended and Restated Security Deposit Agreement 29 property in respect of which such moneys were received as the Agent shall elect; and (iv) in the event that any amounts remain in the Insurance and Condemnation Proceeds Account after application thereof in accordance with this Section 4.6(b), the Security Agent shall pay such amounts to the Agent for application in accordance with the other Loan Documents. (c) If the Agent shall at any time notify the Security Agent that an Event of Loss has occurred, the Security Agent shall withdraw the Insurance and Condemnation Proceeds Deposits from the Insurance and Condemnation Proceeds Account and deliver the same to the Agent to be applied to the payment of the obligations of the Borrowers under the Loan Agreement in accordance with the provisions of the Loan Agreement and the Collateral Security Documents. SECTION 4.7 Major Maintenance Reserve Account; Project Expense Accrual Account; Current Account. (a) The Security Agent shall, from and to the extent of the cash available in the Major Maintenance Reserve Account, pay the Major Maintenance costs identified in Item 6 of the Project Certificate delivered to the Security Agent pursuant to Section 4.1, directly to the Persons designated in such certificate. (b) The Security Agent shall, from and to the extent of cash available in the Project Expense Accrual Account, pay Project Expenses identified in Item 7 of the Project Certificate delivered to the Security Agent pursuant to Section 4.1 and for which the Partnership has previously deposited reserves in the Project Expense Accrual Account, directly to the Persons designated in such certificate. (c) The Security Agent shall, from and to the extent of cash available in the Current Account, pay Project Expenses identified in Item 2 of the Project Certificate delivered in connection with the making of the deposit in the Current Account on the most recent Monthly Transfer Date, directly to the Persons designated in such certificate. SECTION 4.8 Release of Excess Amounts in Major Maintenance Reserve Account. If on a Monthly Transfer Date the amount on deposit in the Major Maintenance Reserve Account is in excess of the Major Maintenance Required Balance, the Security Agent shall transfer such excess to the Revenue Account. SECTION 4.9 Base Reserve Debt Account; Base Reserve Equity Account. (a) To the extent that the cash available in the Revenue Account, the Senior Debt Service Account and the Swap Counterparty Account, and under the Senior Debt Service Letters of Credit, is insufficient to make any payments described in Section 4.1(a)(vi), (vii), (viii) or (ix) or Section 4.2(a) or Amended and Restated Security Deposit Agreement 30 4.2(b) (the amount of any such shortfall being herein called the "Senior Debt Service Deficiency Amount"), first, upon written direction from the Agent, the Security Agent shall distribute to the Agent, from the cash available in the Base Reserve Debt Account, an amount equal to the Senior Debt Service Deficiency Amount, as set forth in a certificate of the Agent delivered to the Security Agent, second, the Agent shall make a drawing under the Base Reserve Letter of Credit in an amount equal to the lesser of (x) the amount available to be drawn thereunder and (y) the excess of the Senior Debt Service Deficiency Amount over the aggregate amount set forth in clause first of this paragraph, third, the Agent shall make a drawing under the Senior Debt Service Reserve "B" Letter of Credit (or, if necessary, upon written direction from the Agent, the Security Agent shall make a distribution to the Agent from the Senior Debt Service Reserve Account) in an amount equal to the lesser of (x) the amount available to be drawn thereunder (or the cash available in the Senior Debt Service Reserve Account, as the case may be) and (y) the excess of the Senior Debt Service Deficiency Amount over the sum of the amounts set forth in clauses first and second of this paragraph, and fourth, the Agent shall make a drawing under the Senior Debt Service Reserve "A" Letter of Credit (or, if necessary, upon written direction from the Agent, the Security Agent shall make a distribution to the Agent from the Senior Debt Service Reserve Account) in an amount equal to the lesser of (x) the amount available to be drawn thereunder (or the cash available in the Senior Debt Service Reserve Account, as the case may be) and (y) the excess of the Senior Debt Service Deficiency Amount over the sum of the amounts set forth in clauses first, second and third of this paragraph. Any of the foregoing amounts withdrawn from the Base Reserve Debt Account or the Senior Debt Service Reserve Account, or drawn under the Base Reserve Letter of Credit or the Senior Debt Service Reserve Letters of Credit, shall be applied by the Agent to the payment of the Senior Debt Service Deficiency Amount in the order of priority set forth in Sections 4.1(a)(vi), (vii), (viii) and (ix), 4.2(a) and 4.2(b). (b) Subject to Section 4.9(a), if after giving effect to all transfers required to be made pursuant to Sections 4.1(a) and 4.2(a), (b), (c) and (d)(i), (ii), (iii) and (iv), (i) on the last Distribution Date of any Quarterly Period the amount of Distributable Cash on such Distribution Date is insufficient to make the scheduled Level 1 Distribution distributable to the Partners on such Distribution Date and any shortfall in the Level 1 Distribution distributable to the Partners on any prior Distribution Date (the aggregate amount of any such shortfall being herein called the "Level 1 Deficiency Amount") and (ii) no Default or Event of Default shall have occurred and be continuing, all as certified in writing to the Security Agent and the Agent by the Managing General Partner, first, the Security Agent shall promptly transfer from the Base Reserve Debt Account to the Base Reserve Equity Account, from the cash available in such Account, an amount equal to the Level 1 Deficiency Amount, Amended and Restated Security Deposit Agreement 31 as notified to the Security Agent and the Agent by the GE Capital Limited Partner, and second, the Agent shall make a drawing under the Base Reserve Letter of Credit in an amount equal to the lesser of (x) the amount available to be drawn thereunder and (y) the excess of the Level 1 Deficiency Amount over the amount transferred to the Base Reserve Equity Account pursuant to clause first above. Any such amount drawn under the Base Reserve Letter of Credit shall be deposited in the Base Reserve Equity Account. Upon receipt by the Security Agent of a notice from the Agent stating that a Senior Debt Service Reserve "B" Letter of Credit has been issued and delivered to the Agent in a stated amount equal to at least the sum of the amount transferred to the Base Reserve Equity Account pursuant to clause first above and the amount drawn under the Base Reserve Letter of Credit pursuant to clause second above, the Security Agent shall promptly withdraw from the Base Reserve Equity Account an amount equal to such stated amount and distribute such amount to the Partners for payment of the amounts described in this paragraph. The Agent agrees to provide the foregoing notice to the Security Agent promptly after receipt by the Agent of a Senior Debt Service Reserve "B" Letter of Credit in the stated amount specified above. (c) If on any Distribution Date, (i) the sum of (x) the amounts on deposit in the Base Reserve Debt Account (so long as the Loan Agreement is in effect) and the Base Reserve Equity Account plus (y) the aggregate undrawn amount of the Base Reserve Letters of Credit, if any, exceed the Base Reserve Amount following any application thereof pursuant to Sections 4.9(a) and (b), and (ii) no Default or Event of Default or Special Event shall have occurred and be continuing, all as certified in writing by the Managing General Partner and confirmed in writing by the Agent and the GE Capital Limited Partner, the Security Agent shall promptly withdraw the amount of such excess of the Base Reserve Amount and transfer such amount to the Partners entitled thereto. (d) So long as no Event of Default or Special Event shall have occurred and be continuing, the Partnership or the Managing General Partner shall have the option, at any time, to cause a Base Reserve Letter of Credit to be issued by the Base Reserve Letter of Credit Issuer in a stated amount equal to the cash otherwise required to be deposited in the Base Reserve Debt Account pursuant to Section 4.2(d)(v), or equal to the amount then on deposit in the Base Reserve Debt Account. Upon notice from the Agent and the GE Capital Limited Partner to the Security Agent stating that a Base Reserve Letter of Credit has been issued and delivered to the Agent, for the benefit of the Secured Parties and the GE Capital Limited Partner, in a stated amount not less than the amount referred to above in this Section 4.9(d) and expiring not earlier than one year after the issuance thereof, and setting forth the application (in accordance with Section 4.2) of the amounts then required to be deposited, or Amended and Restated Security Deposit Agreement 32 amounts then on deposit, in the Base Reserve Debt Account, the Security Agent shall withdraw from the Base Reserve Debt Account an amount equal to the stated amount of such Base Reserve Letter of Credit and distribute such amount to the Other Partners entitled thereto in accordance with such notice. Such letter of credit shall provide that the Agent may make a drawing thereunder upon the occurrence and during the continuance of an Event of Default, whereupon the proceeds of such drawing shall be applied by the Agent to the payment of the obligations of the Borrowers under the Loan Agreement and the other Loan Documents (other than the Partnership Agreement and the Capital Contribution Agreement) in accordance with the provisions of the Loan Agreement and the other Loan Documents. (e) At any time after a drawing has been made under a Senior Debt Service Letter of Credit, the GE Capital Limited Partner may notify the Agent and the Senior Debt Service Letter of Credit Issuer in writing that it would like to arrange for the cancellation of such Senior Debt Service Letter of Credit. Upon receipt of such request, the Agent agrees to deliver a Cancellation Certificate in the form of Annex C to such Senior Debt Service Letter of Credit to the Senior Debt Service Letter of Credit Issuer and to notify the Security Agent of such cancellation. SECTION 4.10 Retention Account. (a) If (i) amounts shall be on deposit in the Retention Account and (ii) the event or events specified in any of Sections 13.1(b), (c), (d), (f), (m) or (t) of the Amended and Restated Partnership Agreement that, but for the provisos to any of such Sections (or in the case of Section 13.1(t), but for the lapse of the 30 or 180 day periods referred to in clause (ii) of such Section), would cause a Special Event to occur and be continuing, shall be cured, as certified in writing by the Managing General Partner and confirmed in writing by the GE Capital Limited Partner, the Security Agent shall promptly withdraw the amounts on deposit in the Retention Account and distribute such amounts directly to the Other Partners entitled thereto as if the deposits into the Retention Account had not occurred. (b) If the Security Agent shall have received written notice from the GE Capital Limited Partner that a Special Event has occurred and is continuing, the Security Agent shall promptly withdraw the amounts on deposit in the Retention Account and distribute such amounts to the GE Capital Limited Partner as provided in Section 13.2(c) of the Amended and Restated Partnership Agreement. SECTION 4.11 Senior Debt Service Coverage Account; Distribution Reserve Account. (a)(i) If the Security Agent shall have received written notice from the Agent that, as of the end of any six consecutive Measurement Periods, the Debt Service Coverage Ratio is less than the value specified in Section Amended and Restated Security Deposit Agreement 33 4.2(d)(iv) for each of such six consecutive Measurement Periods, the Security Agent shall promptly withdraw amounts on deposit in the Senior Debt Service Coverage Account and deliver the same to the Agent to be applied by the Agent to the payment of the obligations of the Partnership under, and in accordance with, Section 4.2(a)(ii) of the Loan Agreement. (ii) If, as of the end of any six consecutive Measurement Periods, (x) the Debt Service Coverage Ratio shall be equal to or greater than the value specified in Section 4.2(d)(iv) for each of such six consecutive Measurement Periods, as certified in writing by the Managing General Partner and confirmed in writing by the Agent, but (y) the Ratio for any Quarterly Period during which Distributable Cash was required to be deposited or maintained in the Senior Debt Service Coverage Account shall not be equal to or greater than the value specified in Section 4.2(d)(vi), as certified in writing by the Managing General Partner and confirmed in writing by the GE Capital Limited Partner, the Security Agent shall promptly withdraw amounts on deposit in the Senior Debt Service Coverage Account, including without limitation all interest and other income from the funds on deposit therein, and (1) (I) distribute directly to the GE Capital Limited Partner such amounts as the GE Capital Limited Partner would have been entitled to had the deposits into the Senior Debt Service Coverage Account not occurred, as certified in writing by the Managing General Partner and confirmed in writing by the GE Capital Limited Partner and (II) distribute directly to the Other Partners such amounts as the Other Partners would have been entitled to pursuant to Section 4.3(a) of the Amended and Restated Partnership Agreement had the deposits into the Senior Debt Service Coverage Account not occurred and (2) transfer the remaining balance in the Senior Debt Service Coverage Account directly to the Distribution Reserve Account. (iii) If, as of the end of any six consecutive Measurement Periods, the Debt Service Coverage Ratio shall be equal to or greater than the value specified in Section 4.2(d)(iv) for each of such six consecutive Measurement Periods and the Ratio for each Quarterly Period occurring during such three consecutive Measurement Periods shall be equal to or greater than the value specified in Section 4.2(d)(vi), all as certified in writing by the Managing General Partner and confirmed in writing by the Agent and the GE Capital Limited Partner, the Security Agent shall promptly withdraw amounts on deposit in the Senior Debt Service Coverage Account, including without limitation all interest and other income from the funds on deposit therein, and distribute such amounts directly to the Partners entitled thereto, as certified in writing by the Managing General Partner and confirmed in writing by the GE Capital Limited Partner, as if the deposits into the Senior Debt Service Coverage Account had not occurred. Amended and Restated Security Deposit Agreement 34 (b) (i) If the Security Agent shall have received written notice from the GE Capital Limited Partner that as of the end of any three consecutive Quarterly Periods, the Ratio is less than the value specified in Section 4.2(d)(vi) for each of such Quarterly Periods, the Security Agent shall promptly withdraw amounts on deposit in the Distribution Reserve Account and deliver the same to the GE Capital Limited Partner which, in the case of such amounts as would have otherwise been distributed to the Other Partners, will be treated as an early distribution of the Level 1 Distributions to the extent required for the GE Capital Limited Partner to achieve the Base Term Return. (ii) If, as of the end of any three consecutive Quarterly Periods, the Ratio shall be equal to or greater than the value specified in Section 4.2(d)(vi) for each of such three consecutive Quarterly Periods, all as certified in writing by the Managing General Partner and confirmed in writing by the GE Capital Limited Partner, the Security Agent shall promptly withdraw amounts on deposit in the Distribution Reserve Account, including without limitation all interest and other income from the funds on deposit therein, and distribute such amounts directly to the Other Partners entitled thereto, as certified in writing by the Managing General Partner and confirmed in writing by the GE Capital Limited Partner, as if the deposits into the Distribution Reserve Account had not occurred. SECTION 4.12 Project Letters of Credit Reserve Account. (a) Upon receipt of a certificate signed by the Letter of Credit Issuer, and countersigned by a Responsible Officer of the Agent, stating that a draw has been made under a Project Letter of Credit and that the amount of such drawing has not been paid to the Agent or the Letter of Credit Issuer and specifying the amount which has not been so reimbursed, the Security Agent shall pay to the Letter of Credit Issuer, from the amounts on deposit in the Project Letters of Credit Reserve Account, an amount equal to the amount specified in such certificate. (b) All amounts remaining in the Project Letters of Credit Reserve Account after the payment of items contemplated in Section 4.12(a) and the cancellation of the Project Letters of Credit shall be distributed to the Other Partners entitled thereto, as certified in writing by the Managing General Partner and confirmed in writing by the Agent and the Letter of Credit Issuer, as if deposits into the Project Letters of Credit Reserve Account had not occurred. SECTION 4.13 SECI Debt Service Account. (a) On each SECI Interest Payment Date and SECI Installment Payment Date or any other date on which any interest on or principal of the outstanding SECI Term Loans becomes due and payable pursuant to the SECI Term Loan Agreement or the SECI Term Note, the Security Agent shall distribute to the SECI Term Lender for payment of such principal or interest, from the cash available in the SECI Amended and Restated Security Deposit Agreement 35 Debt Service Account, an amount equal to the amount of such interest and principal then due and payable, as set forth in a certificate of the SECI Term Lender delivered to the Security Agent. (b) On each date on which any prepayment of the outstanding SECI Term Loans becomes due and payable pursuant to the SECI Term Loan Agreement or the SECI Term Note, the Security Agent shall distribute to the SECI Term Lender, from the cash available in the SECI Debt Service Account, after payments pursuant to (a) above, an amount equal to such prepayment then due and payable, as set forth in a certificate of the SECI Term Lender delivered to the Security Agent. SECTION 4.14 SECI Reserve Account. (a) If the Security Agent shall receive written notice from the SECI Term Lender that, as of the end of any three consecutive Measurement Periods, the SECI Ratio is less than the value specified in Section 4.2(d) (x) for each of such Measurement Periods, the Security Agent shall promptly withdraw amounts on deposit in the SECI Reserve Account and deliver the same to the SECI Term Lender to be applied by the SECI Term Lender to the payment of the obligations of SECI under, and in accordance with, the provisions of the SECI Term Loan Agreement. (b) Upon request of SECI, (i) if, as of the end of any three consecutive Measurement Periods, the SECI Ratio shall be equal to or greater than the value specified in Section 4.2(d) (x) for each of such Measurement Periods, and (ii) no SECI Default or SECI Event of Default shall have occurred and be continuing, all as certified in writing by SECI and confirmed in writing by the SECI Term Lender, the Security Agent shall promptly withdraw amounts on deposit in the SECI Reserve Account, including without limitation all interest and other income from the funds on deposit therein, and deliver the same to SECI. SECTION 4.15 Steam Reserve Account. (a) (i) If the Security Agent shall have received written notice from the Agent that a Steam Host Event has ceased to exist either as a result of (x) the substitute facility described in the Alternative Steam Plan commencing commercial operation or (y) the Required Lenders and the GE Capital Limited Partner determining, in their reasonable judgment, that the Alternative Steam Plan can be implemented substantially on the terms and the timetable described therein, the Security Agent, subject to the provisions of Sections 4.15(b) and 4.15(a) (ii), shall promptly withdraw amounts on deposit in the Steam Reserve Account, including without limitation all interest and other income from the funds on deposit therein, and transfer such amounts to the Revenue Account. (ii) If the Security Agent shall have received written notice from the Agent that the amount on deposit in the Steam Amended and Restated Security Deposit Agreement 36 Reserve Account is equal to or greater than the amount then required to complete the Alternative Steam Plan and required to be funded from amounts on deposit in the Steam Reserve Account as set forth in clause (vii) of the definition of Alternative Steam Plan in Appendix A (such required amount, the "Required Alternative Steam Plan Amount"), the Security Agent, subject to the provisions of Section 4.15(b), shall promptly withdraw all amounts on deposit in the Steam Reserve Account in excess of the Required Alternative Steam Plan Amount and transfer such excess amounts to the Revenue Account. (iii) The Security Agent may rely on a certificate of the Managing General Partner, confirmed in writing by the GE Capital Limited Partner, as to the amounts to be transferred to the Revenue Account from the Steam Reserve Account pursuant to paragraphs (i) and (ii) of this Section 4.15(a). The Agent shall give any notice specified in paragraph (i) or (ii) of this Section 4.15(a) promptly after receiving evidence satisfactory to the Agent that the conditions specified in clause (x) or (y) of paragraph (i) of this Section 4.15(a) or the conditions specified in paragraph (ii) of this Section 4.15(a), as the case may be, have been satisfied. (b) If the Security Agent shall have received written notice from the Managing General Partner, confirmed in writing by the Agent and the GE Capital Limited Partner, that all or a portion of the cash available in the Steam Reserve Account is to be applied towards the development, construction and completion of a substitute facility in compliance with the Alternative Steam Plan, first, the Security Agent shall promptly withdraw, from the cash available in the Steam Reserve Account, such amounts as shall be specified in such written notice and second, the Agent shall make a drawing on the Letter of Credit described in paragraph (c) below in an amount equal to the excess of the amount to be so applied over the amount set forth in clause first above, and, in each case, distribute such amount to the Persons specified in such written notice. (c) The GE Capital Limited Partner, with the consent of the General Partner, shall have the option, at any time, to request GE Capital to issue a letter of credit for the benefit of the Agent, for the account of a Person other than the Partnership and the reimbursement obligations in respect of which are not secured by the assets of any of the Partnership, SECI, North Country, SECI Holdings, FSPC or the Operator or the interest if any other person in such person, in form and substance reasonably satisfactory to the Required Lenders, in a stated amount equal to all or a portion of the cash then available in the Steam Reserve Account and, upon issuance of such letter of credit, as certified by the Agent to the Security Agent, the Security Agent shall distribute to the GE Capital Limited Partner, from the cash available in the Steam Reserve Account, an amount equal to the stated amount of such letter of credit. Such letter of credit Amended and Restated Security Deposit Agreement 37 shall expire no earlier than the date on which the Agent delivers the notice specified in Section 4.15(a), and shall provide that the Agent may make a drawing thereunder (i) if the notice specified in Section 4.15(a) is delivered by the Agent, whereupon the proceeds of such drawing shall be distributed to the Partners entitled thereto or (ii) if the development, construction and completion of the substitute facility described in the Alternative Steam Plan are to be financed in compliance with the Alternative Steam Plan with the amounts which were otherwise required to be deposited in the Steam Reserve Account, upon receipt by the Agent of the written notice of the Managing General Partner (confirmed in writing by the Agent and the GE Capital Limited Partner) specified in Section 4.15(b), whereupon the proceeds of such drawing shall be distributed to the Persons specified in such written notice or (iii) upon the occurrence and during the continuance of an Event of Default, whereupon the proceeds of such drawing shall be applied by the Agent to the payment of the obligations of the Borrowers under the Loan Agreement and the other Loan Documents (other than the Partnership Agreement and the Capital Contribution Agreement) in accordance with the provisions of the Loan Agreement and the other Loan Documents. SECTION 4.16 Events of Default, Tax Indemnity Events; SECI Events of Default and Special Events. (a) Upon notice to the Security Agent from the Agent that an Event of Default shall have occurred and be continuing, the Security Agent shall, at the written direction of the Agent, promptly withdraw amounts on deposit in the Accounts specified in such written direction (other than the Project Letters of Credit Reserve Account, the Distribution Reserve Account, the Retention Account, the Tomen Distribution Account, the SECI Reserve Account and the SECI Debt Service Account) and deliver the same to the Agent to be applied by the Agent to the payment of the obligations of the Borrowers under the Loan Agreement and the other Loan Documents (other than the Partnership Agreement and the Capital Contribution Agreement) in accordance with the provisions of the Loan Agreement and the other Loan Documents. (b) Subject to Section 4.16(a), and provided that the Agent shall not have notified the Security Agent in writing that a Default shall have occurred and be continuing, upon notice to the Security Agent from the GE Capital Limited Partner that a Tax Indemnity Event shall have occurred, the Security Agent shall, at the written direction of the GE Capital Limited Partner, pay over to the GE Capital Limited Partner all amounts otherwise distributable to SECI under Section 4.2(d) (but subject to the provisions of Sections 4.2(d) (i) through (ix)) until the GE Capital Limited Partner shall notify the Security Agent that the Tax Indemnity Amount equals zero. When the Tax Indemnity Amount equals zero, the GE Capital Limited Partner agrees promptly to give notice to such effect to the Security Agent. Amended and Restated Security Deposit Agreement 38 (c) Upon notice to the Security Agent from the SECI Term Lender that a SECI Event of Default shall have occurred and be continuing, the Security Agent shall, at the written direction of the SECI Term Lender, promptly withdraw amounts on deposit in the SECI Reserve Account and the SECI Debt Service Account and deliver the same to the SECI Term Lender to be applied by the SECI Term Lender to the payment of the obligations of SECI under the SECI Term Loan Agreement and the other SECI Loan Documents in accordance with the provisions of the SECI Term Loan Agreement and the other SECI Loan Documents. (d) Subject to Section 4.16(a), and provided that the Agent shall not have notified the Security Agent in writing that a Default shall have occurred and be continuing, upon notice to the Security Agent from the GE Capital Limited Partner that a Special Event has occurred and is continuing, the Security Agent shall, at the written direction of the GE Capital Limited Partner, pay over to the GE Capital Limited Partner and the Other Partners such amounts as are otherwise required to be distributed to the Partners pursuant to Section 4.2(d) (but subject to the provisions of Sections 4.2(d) (i) through (ix)) in the amounts required to be distributed to the Partners pursuant to Section 4.7 of the Amended and Restated Partnership Agreement until the GE Capital Limited Partner shall notify the Security Agent that the GE Capital Limited Partner shall have received such amounts as are distributable to the GE Capital Limited Partner pursuant to Section 4.7 of the Amended and Restated Partnership Agreement or that no Special Event shall be continuing. When the conditions specified in the foregoing sentence have been satisfied, the GE Capital Limited Partner agrees promptly to give notice to such effect to the Security Agent. (e) Upon notice to the Security Agent from the Letter of Credit Issuer that an Event of Default has occurred and is continuing, the Security Agent shall, at the written direction of the Letter of Credit Issuer, promptly withdraw amounts on deposit in the Project Letters of Credit Reserve Account and deliver the same to the Letter of Credit Issuer to be applied by the Letter of Credit Issuer to the payment of the obligations of the Partnership in respect of the Project Letters of Credit in accordance with the provisions of the Loan Agreement. SECTION 4.17 Events of Default; Special Events. (a) Notwithstanding any other provision of this Agreement which requires the Security Agent to follow the written instructions of any other party hereto with respect to deposits into, transfers to or withdrawals from, any of the Accounts (other than the Project Letters of Credit Reserve Account, the Distribution Reserve Account, the Retention Account, the Tomen Distribution Account, the SECI Reserve Account and the SECI Debt Service Account), upon receipt by the Security Agent of written notice from the Agent stating that an Event of Default has occurred and is continuing, the Security Agent shall thereafter distribute Amended and Restated Security Deposit Agreement 39 cash from the Accounts (other than the Project Letters of Credit Reserve Account, the Distribution Reserve Account, the Retention Account, the Tomen Distribution Account, the SECI Reserve Account and the SECI Debt Service Account) in accordance with the other provisions hereof only upon the express written instructions of the Agent (which instructions shall comply with the terms of this Agreement and may provide that such amounts be applied to the payment of the Obligations or that the Security Agent continue to follow the instructions of the Managing General Partner) until notified in writing by the Agent that such Event of Default has been waived by the Agent or cured. The Agent shall give such notice of waiver or cure promptly after the granting of such waiver or receiving evidence satisfactory to the Agent that such Event of Default has been cured. (b) Subject to Sections 4.16(a) and 4.17(a), but notwithstanding any other provision of this Agreement which requires the Security Agent to follow the written instructions of any other party hereto with respect to deposits into, transfers to or withdrawals from, any of the Accounts (other than the Project Letters of Credit Reserve Account, the Tomen Distribution Account, the SECI Reserve Account and the SECI Debt Service Account), upon receipt by the Security Agent of written notice from the GE Capital Limited Partner stating that a Special Event has occurred and is continuing, the Security Agent shall thereafter distribute cash from the Accounts (other than the Project Letters of Credit Reserve Account, the Tomen Distribution Account, the SECI Reserve Account and the SECI Debt Service Account) in accordance with the other provisions hereof only upon the express written instructions of the GE Capital Limited Partner (which instructions shall comply with the terms of this Agreement and may provide that the Security Agent continue to follow the instructions of the Managing General Partner) until notified in writing by the GE Capital Limited Partner that such Special Event has been waived by the GE Capital Limited Partner or cured. The GE Capital Limited Partner shall give such notice of waiver or cure promptly after the granting of such waiver or receiving evidence satisfactory to the GE Capital Limited Partner that such Special Event has been cured. (c) Notwithstanding any other provision of this Agreement which requires the Security Agent to follow the written instructions of any other party hereto with respect to deposits into, transfers to or withdrawals from the SECI Reserve Account or the SECI Debt Service Account, upon receipt by the Security Agent of written notice from the SECI Term Lender stating that a SECI Event of Default has occurred and is continuing, the Security Agent shall thereafter distribute cash from the SECI Reserve Account and the SECI Debt Service Account in accordance with the other provisions hereof only upon the express written instructions of the SECI Term Lender (which instructions shall comply with the terms of this Agreement and may provide that such amounts be applied to the payment of the SECI Obligations or that Amended and Restated Security Deposit Agreement 40 the Security Agent continue to follow the instructions of the Managing General Partner) until notified in writing by the SECI Term Lender that such SECI Event of Default has been waived by the SECI Term Lender or cured. The SECI Term Lender shall give such notice of waiver or cure promptly after the granting of such waiver or receiving evidence satisfactory to the SECI Term Lender that such SECI Event of Default has been cured. (d) Notwithstanding any other provision of this Agreement which requires the Security Agent to follow the written instructions of any other party hereto with respect to deposits into, transfers to or withdrawals from the Project Letters of Credit Reserve Account, upon receipt by the Security Agent of written notice from the Letter of Credit Issuer stating that an Event of Default has occurred and is continuing, the Security Agent shall thereafter distribute cash from the Project Letters of Credit Reserve Account in accordance with the other provisions hereof only upon the express written instructions of the Letter of Credit Issuer (which instructions shall comply with the terms of this Agreement and may provide that such amounts be applied to the payment of the Obligations in respect of the Project Letters of Credit or that the Security Agent continue to follow the instructions of the Managing General Partner) until notified in writing by the Letter of Credit Issuer that such Event of Default has been waived by the Letter of Credit Issuer or cured. The Letter of Credit Issuer shall give such notice of waiver or cure promptly after the granting of such waiver or receiving evidence satisfactory to the Letter of Credit Issuer that such Event of Default has been cured. (e) So long as the obligations of the Borrowers under the Loan Agreement and the other Loan Documents shall remain outstanding, if the Security Agent shall receive inconsistent instructions from the Agent, the GE Capital Limited Partner, the Letter of Credit Issuer and the SECI Term Lender, the Security Agent shall rely on the instructions of the Agent. SECTION 4.18 Certain Payments. Notwithstanding anything to the contrary contained herein, in the event that on any Monthly Transfer Date or Distribution Date there are insufficient funds on deposit in any Account to pay principal, interest, reimbursement obligations, fees, distributions and/or other amounts due and payable from such Account on such Monthly Transfer Date or Distribution Date to the Agent, the Lenders, the Letter of Credit Issuer, the Swap Counterparty and/or the Security Agent pursuant to any of the Loan Documents, and thereafter funds are deposited into the Revenue Account, the Security Agent shall distribute such funds to the Agent for the payment of such principal, interest, reimbursement obligations, fees or other amounts, such payments to be made in the same order of priority as they would have been made had such funds been on deposit in the applicable Account on such Monthly Transfer Date or Distribution Date. Amended and Restated Security Deposit Agreement 41 SECTION 4.19 Wind-up Account. (a) Subject to the provisions of Section 4.17, but notwithstanding any other provision of this Agreement, upon receipt of notice from the Managing General Partner and the GE Capital Limited Partner that the Partnership shall be dissolved in accordance with the terms of the Amended and Restated Partnership Agreement, the Security Agent shall transfer to the Wind-up Account all amounts in all the Accounts (other than the Tomen Distribution Account, the SECI Debt Service Account and the SECI Reserve Account) and all amounts subsequently received by the Security Agent. (b) On any date specified in a certificate of a Responsible Officer of the Managing General Partner, countersigned by a Responsible Officer of the GE Capital Limited Partner (the "Wind-up Date") (which date shall not be earlier than five Business Days following the date of receipt by the Security Agent of the certificate of a Responsible Officer of the GE Capital Limited Partner specified in Section 4.19(a)), the Security Agent shall transfer, from and to the extent of cash available in the Wind-up Account, to the Partners such amounts, certified in such certificate, as are required to be distributed pursuant to Section 13.4(c) of the Amended and Restated Partnership Agreement. SECTION 4.20 Delivery of Officer's Certificates; Timing of Payments. (a) Each of the certificates of a Responsible Officer required to be delivered hereunder shall be delivered not later than 1:00 p.m., New York City time, on the day on which the Security Agent is required to make transfers hereunder. Any certificate of a Responsible Officer delivered later than the time specified herein shall nevertheless be considered valid and shall be honored by the Security Agent on or as promptly after the date otherwise specified herein for payment as is practicable, subject to the availability of cash in the applicable Account. (b) Subject to (i) the timely receipt of a certificate of a Responsible Officer as prescribed in Section 4.20(a), (ii) the availability of cash in the applicable Account and (iii) other circumstances beyond the control of the Security Agent, the Security Agent shall make any payment hereunder required (except for transfers between Accounts) by means of wire transfer of immediately available funds, to the address of the payee set forth on Schedule I or, in the case of payments to be made pursuant to Section 4.1(a), to the address of the payee set forth in the Project Certificate, to be received prior to 3:00 p.m., New York City time, on the date specified herein for such payment, or by such other means of payment, to such other address or at such later time as shall be specified in the certificate of a Responsible Officer of such payee. (c) Each Partner shall deliver to each other Partner, simultaneously with the delivery thereof to the Security Agent, a Amended and Restated Security Deposit Agreement 42 true copy of each certificate of a Responsible Officer of such Partner delivered by such Partner pursuant to this Agreement. SECTION 4.21 Tomen Distribution Account. On each Distribution Date which occurs on the last Business Day of a Quarterly Period, the Security Agent, after making the transfer described in Section 5.1(e), shall promptly withdraw all amounts on deposit in the Tomen Distribution Account and transfer such amounts to the Tomen Limited Partners entitled thereto. ARTICLE V Investment SECTION 5.1 Investments. (a) Any cash held by the Security Agent in any Account (other than the Project Letters of Credit Reserve Account, the Distribution Reserve Account, the Retention Account, the Tomen Distribution Account, the SECI Reserve Account and the SECI Debt Service Account), shall be invested by the Security Agent from time to time as directed in writing by the Managing General Partner (or, if the Agent shall have notified the Security Agent that a Default or an Event of Default under the Loan Agreement has occurred and is continuing, by the Agent or, if no such notice shall have been received from the Agent and the GE Capital Limited Partner shall have notified the Security Agent that a Special Event has occurred and is continuing, by the substitute Managing General Partner appointed by the GE Capital Limited Partner) in Permitted Investments. Any income or gain realized as a result of any such investment shall be held as part of the applicable Account and reinvested as provided herein. The Security Agent shall have no liability for any loss resulting from any such investment or sale thereof other than any reason of its willful misconduct or negligence. Any such investment may be sold (without regard to maturity date) by the Security Agent whenever necessary to make any distribution required by this Agreement. The Security Agent will promptly notify the Agent and the Partnership of any loss resulting from such investment. (b) Any cash held by the Security Agent in the SECI Reserve Account and the SECI Debt Service Account shall be invested by the Security Agent from time to time as directed in writing by SECI (or, if the SECI Term Lender shall have notified the Security Agent that a SECI Default or a SECI Event of Default has occurred and is continuing, by the SECI Term Lender) in Permitted Investments. Any income or gain realized as a result of any such investment shall be held as part of the applicable Account and reinvested as provided herein. The Security Agent shall have no liability for any loss resulting from any such investment or sale thereof other than by reasons of its willful misconduct or negligence. Any such investment may be sold (without regard to maturity date) by the Security Agent whenever Amended and Restated Security Deposit Agreement 43 necessary to make any distribution required by this Agreement. The Security Agent will promptly notify the SECI Term Lender and the SECI of any loss resulting from any such investment. (c) Any cash held by the Security Agent in the Distribution Reserve Account and the Retention Account shall be invested by the Managing General Partner (or, if the GE Capital Limited Partner shall have notified the Security Agent that a Special Event has occurred and is continuing, by the substitute Managing General Partner appointed by the GE Capital Limited Partner) in Permitted Investments. Any income or gain realized as a result of any such investment shall be held as part of the Distribution Reserve Account and the Retention Account and reinvested as provided herein. The Security Agent shall have no liability for any loss resulting from any such investment or sale thereof other than by reason of its willful misconduct or negligence. Any such investment may be sold (without regard to maturity date) by the Security Agent whenever necessary to make any distribution required by this Agreement. The Security Agent will promptly notify the GE Capital Limited Partner and the Partnership of any loss resulting from any such investment. (d) Any cash held by the Security Agent in the Project Letters of Credit Reserve Account shall be invested by the Security Agent from time to time as directed in writing by the Managing General Partner (or, if the Letter of Credit Issuer shall have notified the Security Agent that a Default or an Event of Default under the Loan Agreement has occurred and is continuing, by the Letter of Credit Issuer or, if not such notice shall have been received from the Letter of Credit Issuer and the GE Capital Limited Partner shall have notified the Security Agent that a Special Event has occurred and is continuing, by the substitute Managing General Partner appointed by the GE Capital Limited Partner) in Permitted Investments. Any income or gain realized as a result of any such investment shall be held as part of the applicable Account and reinvested as provided herein. The Security Agent shall have no liability for any loss resulting from any such investment or sale thereof other than by reason of its willful misconduct or negligence. Any such investment may be sold (without regard to maturity date) by the Security Agent whenever necessary to make any distribution required by this Agreement. The Security Agent will promptly notify the Letter of Credit Issuer and the Partnership of any loss resulting from any such investments. (e) Any cash held by the Security Agent in the Tomen Distribution Account shall be invested by the Security Agent from time to time as directed in writing by the Managing General Partner (or, if the Agent shall have notified the Security Agent that a Default or an Event of Default under the Loan Agreement has occurred and is continuing, by the Agent or, if no such notice shall have been received from the Agent and the GE Capital Amended and Restated Security Deposit Agreement 44 Limited Partner shall have notified the Security Agent that a Special Event has occurred and is continuing, by the substitute Managing General Partner appointed by the GE Capital Limited Partner) in Permitted Investment maturing not later than the date such case is to be distributed to the Tomen Limited Partners pursuant to Section 4.21. Any income or gain realized as a result of any such investment shall be held in such Account and be reinstated as provided herein, and on each Distribution Date which occurs on the last Business Day of a Quarterly Period, all amounts in such Account in excess of the sum of the transfers to such Account pursuant to Section 4.2(e) during such Quarterly Period shall be transferred to the Revenue Account. The Security Agent shall have no liability for any loss resulting from any such investment or sale thereof other than by reason of its willful misconduct or negligence. Except as may otherwise be directed by the Tomen Limited Partners pursuant to a written notice delivered to the Security Agent, any such investment may be sold (without regard to maturity date) by the Security Agent whenever necessary to make any distribution required under Section 4.21. The Security Agent will promptly notify the Agent, the Partnership and the Tomen Limited Partners of any loss resulting from any such investment. ARTICLE VI Security Agent SECTION 6.1 Rights, Duties, etc. (a) The acceptance by the Security Agent of its duties hereunder is subject to the following terms and conditions which the parties to this Agreement hereby agree shall govern and control with respect to its rights, duties, liabilities and immunities: (i) it shall act hereunder as an agent only and shall not be responsible or liable in any manner whatsoever for soliciting any funds or for the sufficiency, correctness, genuineness or validity of any funds, securities or other amounts deposited with or held by it; (ii) it shall be protected in acting or refraining from acting upon any written notice, certificate, instruction, request or other paper or document, as to the due execution thereof and the validity and effectiveness of the provisions thereof and the validity and effectiveness of the provisions thereof and as to the truth of any information therein contained, which the Security Agent in good faith believes to be genuine; (iii) it shall not be liable for any error of judgment or for any act done or step taken or omitted except in the case of its gross negligence, willful misconduct or bad faith; Amended and Restated Security Deposit Agreement 45 (iv) it may consult with and obtain advice from counsel of its own choice in the event of any dispute or question as to the construction of any provision hereof or otherwise in connection with its duties as Security Agent hereunder, and any action taken or omitted by the Security Agent in reasonable reliance upon such opinion shall be full justification and protection to its; (v) it shall have no duties as Security Agent except those which are expressly set forth herein and in any modification or amendment hereof; provided, however, that no such modification or amendment hereof shall affect its duties unless it shall have given its prior written consent thereto; (vi) it may execute or perform any duties hereunder (other than the holding of the Accounts) either directly or through agents or attorneys; (vii) it may engage or be interested in any financial or other transactions with any party hereto and may act on, or as depositary, trustee or agent for, any committee or body of holders of obligations of such Persons as freely as if it were not Security Agent hereunder; (viii) it shall have no right of set-off against any Account; (ix) it hereby waives any and all Liens which may arise from time to time in its favor on any Account or any other amounts received by its pursuant to this Agreement; and (x) it shall not be obligated to take any action which in its reasonable judgment would involve it in expense or liability unless it has been furnished with an indemnity reasonable satisfactory to it. (b) No implied covenants or obligations shall be read into this Agreement. If in one or more instances the Security Agent takes any action or assumes any responsibility not specifically delegated to it hereunder, neither the taking of such action nor the assumption of such responsibility shall be deemed to be an express or implied undertaking on the part of the Security Agent that it will take the same or similar action or assume the same or similar responsibility in any other instance. (c) The Security Agent shall not be under any liability for interest on any funds received by its pursuant to any of the provisions of this Agreement. (d) The Security Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, Amended and Restated Security Deposit Agreement 46 request, consent, order, approval, bond or other paper or document, unless requested in writing to do so by the Agent; provided, however, that if the payment within a reasonable time to the Security Agent of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Security Agent, not reasonably assured to the Security Agent by the security afforded to it by the terms of this Agreement, the Security Agent may require reasonable indemnity against such expense or liability as a condition to taking any such action. The reasonable expense of every such examination shall be paid by the Partnership or, if paid by the Security Agent, shall be repaid by the Partnership upon demand from the Partnership's own funds. SECTION 6.2 Resignation or Removal. (a) The Security Agent may at any time resign by giving notice to each other party to this Agreement, such resignation to be effective upon the appointment of a successor Security Agent as hereinafter provided. (b) The Agent may remove the Security Agent at any time by giving notice to each other party to this Agreement, such removal to be effective upon the appoint of a successor Security Agent as hereinafter provided. (c) In the event of any resignation or removal of the Security Agent, a successor Security Agent, which (i) shall be a bank or trust company organized under the laws of the United States of America or of the State of New York, having a capital and surplus of not less than $100,000,000, and shall in any event maintain an office in the State of New York where it will hold the Accounts, and (ii) shall be acceptable to the Agent, the SECI Term Lender and the GE Capital Limited Partner, shall be selected by the Partnership (or, if a Default or Event of Default shall have occurred and be continuing, by the Agent or the GE Capital Limited Partner) and appointed by the Agent on behalf of itself and the Secured Parties. If a successor Security Agent shall not have been appointed, or shall not have accepted its appointment, as Security Agent hereunder within 45 days after such notice of resignation of the Security Agent or such notice of removal of the Security Agent, the Security Agent, the Agent or the GE Capital Limited Partner may apply to any court of competent jurisdiction to appoint a successor Security Agent to act until such time, if any, as a successor Security Agent shall have accepted its appointment as above provided. Any successor Security Agent so appointed by such court shall immediately and without further act be superseded by any successor Security Agent appointed by the Agent on behalf of itself and the Secured Parties as above provided. Any such successor Security Agent shall deliver to each party to this Agreement a written instrument accepting such appointment hereunder and thereupon such successor Security Agent shall succeed to all the rights and Amended and Restated Security Deposit Agreement 47 duties of the Security Agent hereunder and shall be entitled to receive the Account from the predecessor Security Agent. ARTICLE VII Determinations SECTION 7.1 Value. Cash and Permitted Investments on deposit from time to time in the Accounts shall be valued by the Security Agent as follows: (a) cash shall be valued at the face amount thereof; and (b) Permitted Investments shall be valued at the amount which the Security Agent would have received at such time if the Security Agent had liquidated such Permitted Investments (at then prevailing market prices). SECTION 7.2 Other Determinations. The Partnership, the Agent, GE Capital, the SECI Term Lender and the Security Agent may establish procedures not inconsistent with this Agreement pursuant to which the Security Agent may conclusively determine, for purposes of this Agreement, the amounts from time to time to be distributed or paid by the Security Agent from cash available in the Accounts. ARTICLE VIII Representations and Warrants SECTION 8.1 Representations. Each Partner represents and warrants, for the benefit of each other Partner, the Agent, the Lenders, the Letter of Credit Issuer, the Swap Counterparty and the SECI Term Lender, that each certificate of a Responsible Officer delivered by such Partner in connection with this Agreement shall be true and correct in all material respects and that the amounts of money certified thereby shall be the proper amounts to be set forth in such certificates of a Responsible Officer. SECTION 8.2 Indemnification. (a) The Managing General Partner hereby undertakes to indemnify and hold harmless each Partner, the Agent, the Lenders, the Letter of Credit Issuer, the Swap Counterparty and the SECI Term Lender from and against any and all expenses imposed on, incurred by or asserted against such Person in any way relating to or arising out of any inaccuracy in any certificate of a Responsible Officer delivered by the Managing General Partner. Amended and Restated Security Deposit Agreement 48 (b) The GE Capital Limited Partner hereby undertakes to indemnify and hold harmless the Partnership from and against any and all expenses imposed on, incurred by or asserted against the Partnership arising solely out of the issuance or use of the Senior Debt Service Letter of Credit or any draw or attempt to draw thereunder. ARTICLE IX Miscellaneous SECTION 9.1 Fees and Indemnification of Security Agent. The Partnership agrees to pay the reasonable fees of the Security Agent as compensation for its services under this Agreement. In addition, the Partnership assumes liability for, and agrees to indemnify, protect, save and keep harmless the Security Agent and its officers, employees, successors, assigns, agents and servants from and against, any and all claims, liabilities, obligations, losses, damages, penalties, costs and expenses that may be imposed on, incurred by, or asserted against, at any time, the Agent or its officers and employees and in any way relating to or arising out of the execution and delivery of this Agreement, the establishment of the Accounts, the acceptance of deposits, the purchase or sale of Permitted Investments, the retention of cash and Permitted Investments or the proceeds thereof and any payment, transfer or other application of cash or Permitted Investments by the Security Agent in accordance with the provisions of this Agreement, or as may arise by reason of any act, omission or error of the Security Agent made in good faith in the conduct of its duties; except that the Partnership shall not be required to indemnify, protect, save and keep harmless the Security Agent against (a) its own gross negligence, active or passive, or willful misconduct and (b) any claims which the Agent, GE Capital, the SECI Term Lender, the GE Capital Limited Partner or the Tomen Limited Partners (solely with respect to the Tomen Distribution Account) may have against the Security Agent as a result of a failure by the Security Agent to perform its obligations hereunder. The indemnities contained in this Section 9.1 shall survive the termination of this Agreement. SECTION 9.2 Termination. This Agreement shall terminates upon written notice by the Partnership, the Agent, the GE Capital Limited Partner, the Letter of Credit Issuer, the Swap Counterparty and the SECI Term Lender to the Security Agent; provided, that upon payment in full of the Obligations, as notified in writing by the Agent, the Letter of Credit Issuer and the Swap Counterparty to the Security Agent, the Accounts listed in numbers (8), (12), (16), (17), (18) and (19) of Section 2.2(a) shall be closed by the Security Agent and any remaining amounts, together with any interest thereon, on deposit in such Accounts, shall be transferred to the Revenue Account; provided, further, Amended and Restated Security Deposit Agreement 49 that if at the time of delivery of the notice referred to in the foregoing proviso, either the GE Capital Limited Partner or the SECI Term Lender shall have delivered a written notice to the Security Agent that a Special Event has occurred and is continuing or that a SECI Event of Default has occurred and is continuing, as the case may be, the Security Agent shall transfer such remaining amounts in accordance with Sections 4.16(d) and 4.16(c), respectively. Upon termination of this Agreement, except following a transfer pursuant to Section 4.19, the Security Agent shall transfer any remaining amounts, together with any interest thereon, on deposit in the Accounts to the party or parties specified in such notice. Any liability or obligation hereunder arising prior to the termination of this Agreement shall survive such termination. SECTION 9.3 Agreement Regarding Letters of Credit. The Agent, the Partnership and GE Capital intend that the Letters of Credit issued by GE Capital in favor of the Agent pursuant to this Agreement and the Loan Agreement shall constitute in all respects letters of credit as such term in commonly used in the commercial banking business, it being understood that the obligations of GE Capital under such Letters of Credit are independent of and shall not be affected by the occurrence of any Default or Event of Default, any choice of remedies under the Collateral Security Documents by the Agent, any invalidity, irregularity or unenforceability of or any modification to the terms of this Agreement, the Loan Agreement or the release or granting of any security interest by the Partnership in favor or the Agent, and that GE Capital, in its capacity as issuer of such Letters of Credit, hereby waives notice of any of the foregoing (except to the extent provided for or required by the terms of any draw certificate under such Letter of Credit) and waives any right to assert any counterclaim or set-off rights against any beneficiary of any such Letter of Credit in connection with its obligations under such Letters of Credit. SECTION 9.4 Severability. If any one or more of the covenants or agreements provided in this Agreement on the part of the parties hereto to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenant or agreement shall be deemed and construed to be severable from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. SECTION 9.5 Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 9.6 Amendments. This Agreement may not be modified or amended without the prior written consent of each of the parties hereto, other than the Original Agent. Amended and Restated Security Deposit Agreement 50 SECTION 9.7 Applicable Law. This Agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of New York. SECTION 9.8 Notices. Unless otherwise specifically provided herein, all notices, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms hereof to be given to any Person shall be in writing and shall become effective, if mailed, upon the earlier of (i) receipt by the addressee and (ii) five Business Days after being deposited in the United States mail, proper postage for first-class mail affixed thereto or, if delivered by hand or courier service or in the form of a telex, telecopy or telegram, when received and shall be directed to the address, telecopy or telex number of such Person designated pursuant to the Loan Agreement, the Swap Agreement, the SECI Term Loan Agreement or the Amended and Restated Partnership Agreement, as the case may be, or in the case of the Security Agent, to Two World Trade Center, 81st Floor, New York, New York 10048, Attention: Trust Administration Department, telephone number, 212-898-2520, facsimile number, 212-321-2468, telex number, 425-777 FUJ TRUI, or to such other address, or telecopy number as may be specified from time to time by such Person or the Security Agent. SECTION 9.9 Limited Liability. There shall be full recourse to the Partnership and all of its assets for the liabilities of the Partnership under this Agreement and its other Obligations, but in no event shall any officer, shareholder, director, employee or holder of any equity interest in the Partnership or any Affiliate of any thereof, be personally liable or obligated for such liabilities and Obligations of the Partnership except as may be specifically provided in any other Basic Document to which such Person is a party. Nothing herein contained shall limit or be construed to limit the liabilities and obligations of any such Person in accordance with the terms of any other Basic Document creating such liabilities and obligations to which such Person is a party. SECTION 9.10 Benefit of Agreement. This Agreement shall inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and permitted assigns, and no other Person shall be entitled to any of the benefits of this Agreement. Amended and Restated Security Deposit Agreement 51 IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. SARANAC POWER PARTNERS, L.P. By: Saranac Energy Company, Inc., its general partner By: /s/ Martin H. Young, Jr. -------------------------------------- Title: Senior Vice President SARANAC ENERGY COMPANY, INC. By: /s/ Martin H. Young, Jr. -------------------------------------- Title: Senior Vice President TPC SARANAC PARTNER ONE, INC. By: /s/ Keichi Matsuzuka -------------------------------------- Title: Chief Financial Officer TPC SARANAC PARTNER TWO, INC. By: /s/ Keichi Matsuzuka -------------------------------------- Title: Chief Financial Officer Amended and Restated Security Deposit Agreement 52 CREDIT SUISSE, as Agent By: /s/ PP Hurd -------------------------------------- Title: Associate By: /s/ PP Schultheiss -------------------------------------- Title: Associate GENERAL ELECTRIC CAPITAL CORPORATION, as Original Agent, Letter of Credit Issuer, Swap Counterparty, SECI Term Lender and GE Capital Limited Partner By: /s/ illegible -------------------------------------- Title: Manager Operations THE FUJI BANK AND TRUST COMPANY By: /s/ Sharon Moore -------------------------------------- Title: Vice President Amended and Restated Security Deposit Agreement EX-10.13 5 INSTALLMENT SALE AGREEMENT (SARANAC) INSTALLMENT SALE AGREEMENT THIS INSTALLMENT SALE AGREEMENT made and entered into as of December 29, 1992, by and between County of Clinton Industrial Development Agency (the "Issuer"), a public benefit corporation duly organized and existing under the Constitution and laws of the State of New York (the "State"), and Saranac Power Partners, L.P., a limited partnership formed under and pursuant to the laws of the State of Delaware (the "Company"). WITNESSETH: WHEREAS, the New York State Industrial Development Agency Act, being Title 1 of Article 18-A of the General Municipal Law, Chapter 24 of the Consolidated Laws of the State of New York, as amended (hereinafter referred to as the "Enabling Act") authorizes the creation of industrial development agencies for the benefit of the several counties, cities, villages and towns in the state of New York and empowers such agencies, among other thing, to acquire, construct, reconstruct, lease, improve, maintain, equip and furnish real and personal property, whether or not now in existence or under construction, which shall be suitable for, among others, manufacturing, warehousing, research, commercial or industrial purposes, in order to advance the job opportunities, health, general prosperity and economic welfare of the people of the State of New York and to improve their recreation opportunities, prosperity and standard of living; and WHEREAS, the Enabling Act further authorizes each such agency to lease or sell its projects, to charge and collect rent, or the purchase price therefor, to issue its bonds for the purpose of carrying out any of its corporate purposes and, as security for the payment of the principal and redemption price of, and interest on, any such bonds, to mortgage any or all of its facilities and to pledge the revenues and receipts therefrom to the payment of such bonds; and WHEREAS, pursuant to and in accordance with the provisions of the Enabling Act, Chapter 225 of the 1971 Laws of the State of New York, as amended (said chapter and the Enabling Act being hereinafter collectively referred to as the "Act") created the Agency for the benefit of Clinton County, New York and the inhabitants thereof; and WHEREAS, (i) the Company has acquired and will acquire fee title to, leasehold interests in and certain easements to various parcels of real property located in Clinton County, New York (such rights, title and interests collectively referred to as the Land, as more specifically defined hereinbelow) and has undertaken (a) to construct on the Land a 240MW natural gas-fired cogeneration facility and related transmission lines and electric energy interconnection facilities (the "Facility"), and (b) to acquire and install certain Equipment (as hereinafter defined) (the Land, the Facility and the Equipment being hereinafter collectively referred to as the "Project Facility"); and (ii) the Issuer will sell or lease the Project Facility to the Company under this installment sale agreement (hereinafter referred to as the "Agreement") between the Issuer and the Company; and WHEREAS, the Company submitted and application to the Issuer, and the Issuer by a resolution has accepted such application, for the Issuer to issue notes (the "Bonds") for the purposes of financing a portion of the costs of a project (the "Project") consisting of (i) the acquisition, construction, installation and equipping of the Project Facility, and (ii) the sale and/or lease of the Project Facility to the Company; and WHEREAS, the Issuer by resolution adopted on September 16, 1992 (the "Inducement Resolution") determined to issue up to $400,000,000 aggregate principal amount of its Bonds for the purposes of financing a portion of the cost of the Project and by resolution adopted on December 29, 1992 (the "Bond Resolution") determined to issue its Bonds for such purpose; and WHEREAS, the Company, the Issuer, North Country Gas Pipeline Corporation, a New York corporation ("North Country"), certain lending institutions (the "Lenders") and General Electric Capital Corporation, as Agent to the Lenders, have entered into a loan agreement dated as of December 29, 1992 (the "Loan Agreement") pursuant to which the Lenders have agreed to make certain extensions of credit, including, but not limited to, the loans to be evidenced by the Bonds; and WHEREAS, the Issuer proposes to undertake the Project, appoint the Company as agent of the Issuer to undertake the acquisition, construction, and installation of the Project Facility and sell the Project Facility to the Company, and the Company desires to act as agent of the Issuer to undertake the acquisition, construction and installation of the Project Facility and purchase the Project Facility from the Issuer, all pursuant to the terms and conditions hereinafter set forth; and WHEREAS, the providing of the Project Facility and the sale of the Project Facility to the Company pursuant to this Agreement is for a proper purpose to wit, to advance the job opportunities, health, general prosperity and economic welfare of the inhabitants of the State pursuant to the provisions of the Enabling Act; WHEREAS, this Agreement sets forth the terms and conditions pursuant to which the Issuer agrees to sell and the Company agrees to purchase the Project Facility; and WHEREAS, all things necessary to constitute this Agreement a valid and binding agreement by and between the parties hereto in accordance with the terms hereof, have been done and performed, and the creation, execution and delivery of this Agreement have in all respects been duly authorized; NOW, THEREFORE, in consideration of the promises and the mutual covenants hereinafter contained, the parties hereto agree as follows: 2 ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION Section 1.1. DEFINITIONS. In addition to the words and terms elsewhere defined in this Agreement, the following words and terms as used herein shall have the following meanings unless the context or use clearly indicates another or different meaning or intent, and any other words and terms not otherwise defined in this Agreement shall have the same meanings when used herein as assigned in Appendix A of the Loan Agreement, a copy of which is attached hereto, unless the context or use clearly indicates another or different meaning or intent: "Acquisition", when used with reference to the Project Facility, means acquisition, construction, installation and equipping. "Agent" means General Electric Capital Corporation, as Agent as more particularly described in the Loan Agreement, and any successor agent. "Agreement" means this Installment Sale Agreement between the Issuer and the Company and any modifications, alterations and supplements hereto made in accordance with the provisions hereof. "Assignment to Company" means an assignment agreement in form and substance reasonably satisfactory to the Issuer and the Company pursuant to which the Issuer shall assign to the Company (i) the Easements and (ii) the Leases. "Assignment to Issuer" means the assignment and assumption of agreements dated the Closing Date, given by the Company to the Issuer conveying all of the Company's right, title and interest in and to the G-P Leases and the Easements, and improvements thereon, to the Issuer. "Assignment to NYSEG" means an assignment agreement in form and substance reasonably satisfactory to the Issuer and the Company pursuant to which the Issuer shall assign to NYSEG the NYSEG Easements. "Authorized Representative" means the Person or Persons at the time designated to act on behalf of the Issuer or the Company, as the case may be, by written certificate containing the specimen signature of each such Person and signed on behalf of (A) the issuer by its Chairman or Vice Chairman, or such other person as may be authorized by resolution of the Issuer, and (B) the Company by the President or any Vice President of its General Partner, or such other persons as may be authorized by the Company. "Bill of Sale to Company" means the bill of sale in form and substance reasonably satisfactory to the Issuer and the Company pursuant to which the Issuer shall convey the Issuer's interest in the Equipment to the Company. 3 "Bill of Sale to G-P" means a bill of sale in form and substance reasonably satisfactory to the Issuer and the Company pursuant to which the Issuer shall convey its interest in the G-P Equipment to Georgia Pacific. "Bill of Sale to Issuer" means the bill of sale dated the Closing Date from the Company to the Issuer conveying the Company's right, title and interest in the Equipment. "Bill of Sale to NYSEG" means a bill of sale in form and substance reasonably satisfactory to the Issuer and the Company pursuant to which the Issuer shall convey its right, title and interest in the NYSEG Equipment to NYSEG. "Bond Documents" means, collectively, the Bonds, this Agreement, the Loan Agreement, the Saranac PILOT Mortgage, the IDA Building Loan Mortgage, the IDA Development Loan Mortgage, the Partnership/North Country Development Loan Mortgage, the NYSEG Subordinated Mortgage, the Georgia-Pacific Mortgage and Security Agreement, the Partnership Security Agreement, the IDA North Country Security Agreement, the Partnership Development Loan Note, the Saranac PILOT Agreement, the Assignments to Issuer, the Bills of Sale to Issuer, the Deed to Issuer, the [Site Transmission Line] Short-Form Construction Loan Agreement, the [Pipeline] Short-Form Construction Loan Agreement, the Security Deposit Agreement, the IDA (North Country) Building Loan Mortgage, the IDA (North Country) Building Loan Note, the IDA (North Country) Development Loan Mortgage, the IDA (North Country) Development Loan Note, the IDA (North Country) Installment Sale Agreement, the North Country PILOT Agreement, the North Country PILOT Mortgage and the Construction Contract. "Bonds" means the IDA Building Loan Note and the IDA Development Loan Note. "Budgets" means, collectively, the IDA Development Loan Budget and the IDA Building Loan Budget. "Closing Date" means the Conformed Agreement Date as defined in the Loan Agreement. "Completion Date" means the date the Acquisition of the Project Facility is certified as being complete in accordance with this Agreement. "Cost(s) of the Project", "Cost" or "Costs" means all fees, costs and allowances which the Issuer or the Company may properly pay or accrue for the Project Facility, and which, under generally accepted accounting principles, are chargeable to the capital account of the Project Facility or could be so charged either with a proper election to capitalize such costs or, but for a proper election, to expense such costs, including (without limitation) the following costs: (a) Fees and expenses incurred in preparing the plans and specifications for the Project Facility (including any 4 preliminary study or planning or any aspect thereof); any labor, services, materials and supplies used or furnished in Land acquisition, improvement and construction; any Equipment for the Project Facility; and any acquisition necessary to provide utility services or other services, including, trackage to provide the Project Facility with public transportation facilities, roadways, parking lots, water supply, sewage and waste disposal facilities; all interests in real and tangible personal property deemed necessary by the Company and acquired in connection with the Project Facility; insurance as required under the Loan Agreement or herein; payment of fees and commissions payable to GECC pursuant to the Loan Agreement; and payments of miscellaneous expenses incidental to any of the foregoing items. (b) The fees for architectural, engineering, legal counsel and supervisory and consulting services in connection with the Project Facility; (c) Any fees and expenses incurred in connection with perfecting and protecting title to the Project Facility and any fees and expenses incurred in connection with preparing, recording or filing such documents, instruments or financing statements as either the Company or the Issuer may deem desirable to perfect or protect the rights of the Issuer or the Lenders under the Bond Documents or the Loan Documents; (d) The legal, accounting or financing advisory fees and expenses, any fees and expenses of the Issuer, Agent, Lenders, filing fees, and printing and engraving costs, including, without limitation, fees and expenses of bond counsel and the counsel to the Issuer and special counsel to the Issuer, incurred in connection with the authorization and issuance of the Bonds, and the preparation of the Bond Documents and all other documents in connection with the authorization and issuance of the Bonds; (e) Interest to accrue on the Bonds during construction of the Project Facility; (f) Any administrative or other fees charged by the Issuer or reimbursement thereto of expenses in connection with the Project until the Completion Date; (g) Payment of taxes including property taxes, assessments and other charges, if any, or payments in lieu of taxes with respect thereof, or reimbursement thereof if paid by the Company, and (h) Any other costs and expenses relating to the Project which could constitute costs or expenses for which the Issuer may expend Bond proceeds under the Act. "Deed to the Company" means a deed in form and substance reasonably satisfactory to the Issuer and the Company pursuant to which the Issuer shall convey its right, title and interest in the Fee Premises to the Company. 5 "Deed to G-P" means a deed in form and substance reasonably satisfactory to the Issuer, the Company and Georgia Pacific pursuant to which the Issuer shall convey all of its right, title and interest in the G-P Premises to Georgia Pacific. "Deed to Issuer" means the deed dated the Closing Date given by the Company to the Issuer conveying all of the Company's interest in the Fee Premises to the Issuer. "Deed to NYSEG" means a deed in form and substance reasonably satisfactory to the Issuer, the Company and NYSEG pursuant to which the Issuer shall convey all of its right, title and interest in the NYSEG Fee Premises to NYSEG. "Easement Premises" means the portions of the Land covered by the Easements. "Easements" means the agreements described on Exhibit A-1 attached hereto and the easements and licenses to be obtained upon the completion of the condemnation proceeding described on Exhibit A-2 hereto; provided, however, that from and after the execution and delivery of the Assignment to NYSEG, the term Easements shall not include the NYSEG Easements. "Equipment" means all machinery and equipment to be installed in or utilized in connection with the construction of the Project Facility; provided, however, that (i) from and after the execution and delivery of the Bill of Sale to G-P, the term Equipment shall not include the G-P Equipment and (ii) from and after the execution and delivery of the Bill of Sale to NYSEG, the term Equipment shall not include the NYSEG Equipment. "Eminent Domain" means the taking of title to, or the temporary use of, the Project Facility or any part thereof pursuant to eminent domain or condemnation proceedings or by any settlement or compromise of such proceedings, or any voluntary conveyance of the Project Facility or any part thereof during the pendency of, or as a result of a threat of, such proceedings. "Event of Default" shall have the meaning set forth in Section 10.1 hereof. "Fee Premises" means the portions of the Land described on Exhibit B attached hereto; provided, however, that (i) from and after the execution and delivery of the Deed to G-P, the term Land shall not include the G-P Premises, and (ii) from and after the execution and delivery of the Deed to NYSEG, the term Land shall not include the NYSEG Fee Premises. "GECC" shall have the same meaning as "GE Capital" as set forth in the Loan Agreement. "Georgia Pacific" means the Georgia-Pacific Corporation, a Georgia corporation. 6 "G-P Equipment" means the portion of the Equipment located on the G-P Premises. "G-P Leases" means the leases between the Company and Georgia Pacific described in Exhibit C attached hereto. "G-P Premises" means the portions of the Land described in Exhibit D attached hereto. "Governmental Authorities" means the United States of America, the State and any political subdivision thereof, and any agency, department, commission, court, board, bureau or instrumentality of any of them. "IDA Building Loan Note" shall have the same meaning as set forth in the Loan Agreement. "IDA Development Loan Note" shall have the same meaning as set forth in the Loan Agreement. "Installment Purchase Payments" means the payments made by the Company to the Issuer in accordance with Section 5.2 hereof. "Issuer Representative" means any one of the persons at the time designated to act on behalf of the Issuer by written certificate furnished to the Company containing the specimen signatures of such persons and signed on behalf of the Issuer by its Chairman or Vice chairman. "Land" shall mean, collectively, the Fee Premises, the Leasehold Premises and the Easement Premises. "Leasehold Premises" means the portions of the Land described in Exhibit E attached hereto. "Lenders" means the financial institutions parties to the Loan Agreement from time to time. "Lien" shall have the meaning as set forth in the Loan Agreement. "Loan Agreement" means the Loan Agreement dated as of the Closing Date by and among the Borrowers, the Lenders and the Agent. "Loan Agreement Permitted Lien" shall have the meaning as set forth in the Loan Agreement. "Mortgage" shall mean collectively the IDA Building Loan Mortgage, the IDA Development Loan Mortgage and the Partnership Development Loan Mortgage. "Net Proceeds", when used with respect to any proceeds of insurance or proceeds resulting from Eminent Domain, means the gross proceeds therefrom less all expenses (including attorneys' fees) incurred in realization thereof. 7 "North Country" means the North Country Gas Pipeline Corporation, a New York corporation. "North Country PILOT Agreement" shall have the meaning as set forth in the Loan Agreement. "NYSEG" means New York State Electric & Gas Corporation, a New York corporation. "NYSEG Easements" means the portion of the Easements described on Exhibit F attached hereto. "NYSEG Equipment" means the portion of the Equipment located on the land covered by the NYSEG Easements and the NYSEG Fee Premises. "NYSEG Fee Premises" means the portion of the Fee Premises described on Exhibit G attached hereto. "Permitted Encumbrances" shall have the same meaning as Loan Agreement Permitted Liens as set forth in the Loan Agreement. "PILOT Agreements" shall mean collectively the Saranac PILOT Agreement and the North Country PILOT Agreement. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Saranac PILOT Agreement" shall have the meaning as set forth in the Loan Agreement. "Saranac PILOT Mortgage" shall have the meaning as set forth in the Loan Agreement. "State" means the State of New York. "Unassigned Rights" means (i) the indemnification rights of the Issuer granted pursuant to Sections 8.6, 8.7 and 12.14 of this Agreement, (ii) the monies due and to become due the Issuer for its own account or to the members, officers, agents and employees of the Issuer for their own account pursuant to Sections 5.2, 6.8, 8.6, 10.3 and 10.5 of this Agreement, (iii) the rights of the Issuer to receive notices, reports and other statements hereunder, (iv) the right of the Issuer to provide consents or receive notices hereunder, (v) the rights of access and inspection provided to the Issuer hereunder, (vi) the rights of the Issuer under Sections 12.4 and 12.5 hereof, (vii) the right of the Issuer to receive the covenants of the Company under Section 2.2(h) and (i) hereof, (viii) the rights of the Issuer under Sections 3.1(f), 3.1(g), 6.2, 6.4, 8.8, 8.13, 8.17, 8.18, 9.3 and 10.3 of this Agreement, and (ix) the right to enforce the foregoing pursuant to Article X of this Agreement. Section 1.2. RULES OF CONSTRUCTION. Unless the context clearly indicates to the contrary, the following rules shall apply to the construction of this Agreement. 8 (a) Capitalized terms used but not defined in this Agreement shall have the meaning ascribed to them in the Loan Agreement. (b) Words importing the singular number shall include the plural number and vice versa. (c) The table of contents, captions and headings herein are solely for convenience of reference only and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect. (d) Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders, and words of the neuter gender shall be deemed and construed to include correlative words of the masculine and feminine genders. (e) All references in this Agreement to particular Articles or Sections are references to Articles and Sections of this Agreement, unless otherwise indicated. ARTICLE II REPRESENTATIONS Section 2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE ISSUER. The Issuer represents and warrants as follows: (a) The issuer is an industrial development agency within the meaning of the Act, is duly established under the provisions of the Act and is authorized by the Act to acquire the Project Facility and to enter into this Agreement and the transactions contemplated herein and to carry out its obligations hereunder, has been duly authorized by its governing body to execute, deliver and perform this Agreement and to carry out its obligations hereunder, and will do or cause to be done all things necessary to preserve and keep this Agreement in full force and effect. The Project Facility will constitute a "project" as that term is defined in the Act. (b) The Issuer has all requisite power, authority and legal right to execute and deliver the Bond Documents to which it is a party and all other instruments and documents to be executed and delivered by the Issuer pursuant thereto, to perform the provisions thereof and to carry out the transactions contemplated by the Bond Documents, including the issuance of the Bonds. All corporate action on the part of the Issuer which is required for the execution, delivery and performance by the Issuer of the Bond Documents has been duly authorized and effectively taken, and such execution, delivery and performance by the Issuer do not contravene applicable law or any contractual restriction binding on or affecting the Issuer, nor will the same constitute a default by the Issuer under any of the foregoing. 9 (c) The Issuer has duly approved the issuance of the Bonds and the Acquisition of the Project Facility; no other authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required as a condition to the performance by the Issuer or its obligations under any Bond Documents. (d) The bonds shall be issued under and pursuant to the provisions of the Loan Agreement and shall finance the Costs of the Project. (e) This Agreement is, and each other Bond Document to which the Issuer is a party when delivered will be, legal valid and binding special obligations of the Issuer enforceable against the Issuer in accordance with its terms. (f) There is no default of the Issuer in the payment of the principal of or interest on any of its indebtedness for borrowed money or under any instrument or instruments or agreements under and subject to which any indebtedness for borrowed money has been incurred which does or could affect the validity and enforceability of the Bond Documents or the ability of the Issuer to perform its obligations thereunder, and, to the knowledge of the Issuer, no event has occurred and is continuing under the provisions of any such instrument or agreement which constitutes or, with the lapse of time or the giving of notice, or both, would constitute such a default. (g) There is not pending or, to the knowledge of the Issuer, threatened any action or proceeding before any court, governmental agency or arbitrator (i) to restrain or enjoin the issuance or delivery of the Bonds, (ii) in any way contesting or affecting the authority for the issuance of the Bonds, or the validity of any of the Bond Documents, or (iii) in any way contesting the existence or powers of the Issuer. (h) In connection with the authorization and issuance of the Bonds, the Issuer has complied with all provisions of the Constitution and laws of the State, including the Act. (i) The Issuer has not assigned, encumbered or pledged and will not assign, encumber or pledge its interest in this Agreement or the Project Facility (or any part thereof) for any purpose other than as contemplated under the Loan Agreement or the Bond Documents. (j) The Issuer is not in default under any of the provisions of the laws of the State, where any such default would affect the issuance, validity or enforceability of the Bonds or the transactions contemplated by this Agreement or the Loan Agreement. (k) So long as any Bonds shall remain unpaid, the Issuer will, upon request of the Agent and provided it shall be furnished with indemnification as set forth in Section 12.5 below and with sufficient funds to pay all costs and expenses (including 10 attorneys' fees) reasonably incurred by it as such costs and expenses accrue: (i) take all action and do all things which it is authorized by law to take and do in order to perform and observe all covenants and agreements on its part to be performed and observed under the Bond Documents; and (ii) execute, acknowledge where appropriate, and deliver from time to time all such instruments and documents as are necessary or desirable to carry out the intent and purpose of the Bond Documents. (l) The Issuer has been induced to enter into this Agreement by the undertaking of the Company to develop the Project Facility in the County of Clinton, New York. (m) The Issuer shall cooperate with the Company in the filing by the Company, as agent of the Issuer, of such applications, returns and other information with any Governmental Authority as is required by any applicable law or regulation; provided, however, that the Company shall bear all costs of preparing, gathering and filing such documents. (n) The Issuer agrees to promptly record all deeds, and/or assignments, as appropriate, at its own expense (subject to reimbursement as contemplated by Sections 2.2(j) and 5.2(c)) and upon the direction of the Company, upon the transfer of title to the Company, NYSEG or Georgia Pacific of portions of the Project Facility in accordance with Section 5.1(b) hereof. Section 2.2. REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE COMPANY. The Company represents, warrants and covenants as follows: (a) (i) The Company is a limited partnership duly organized and validly existing and in good standing under the laws of the state of Delaware, is duly qualified to do business in the State, and has full partnership and other legal power and authority to execute, deliver and perform the covenants on its part contained in the Bond Documents and the Basic Documents to which it is a party, and has duly authorized the execution, delivery and performance of the Bond Documents and the Basic Documents to which it is a party and has duly approved such Bond Documents and Basic Documents. (ii) Saranac Energy Company, Inc. is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business in the State, and is the only general partner of the Partnership. (b) The execution and delivery of the Bond Documents and Basic Documents to which it is a party, consummation of the transactions contemplated hereby and thereby, and the fulfillment of or compliance with the terms and conditions hereof and thereof will not conflict with or constitute a breach of or a default under 11 the Company's agreement of limited partnership or the articles of incorporation or bylaws of the general partner of the Company or any agreement or instrument to which the Company or the general partner of the Company is a party, or any existing law, administrative regulation, court order or consent decree to which the Company is subject, or by which it or any of its property is bound, or result in the creation or imposition of any prohibited lien, charge or encumbrance upon any of the property or assets of the Company or the general partner of the Company under the terms of any instrument or agreement to which the Company or such general partner is a party or by which it is bound. (c) There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, pending or, to the best of the Company's knowledge, threatened against or affecting the Company or any of its partners, wherein an unfavorable decision, ruling or finding would materially adversely affect the transactions contemplated by this Agreement or that would adversely affect, in any way, the validity or enforceability of any of the Bond Documents or the Basic Documents or any other agreement or instrument to which the Company is a party and that is to be used or contemplated for use in the consummation of the transactions contemplated hereby. (d) No consent, authorization, approval or action is required to be made, obtained or complied with prior to the execution, delivery and performance by the Company of its obligations hereunder or under the other Bond Documents and Project Documents that has not been made, obtained or complied with, other than the Governmental Approvals and other consents and approvals listed in Schedules 4 and 3 of the Loan Agreement. Each of this Agreement, the other Bond Documents and the other Basic Documents to which the Company is a party has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principal of equity. (e) The Company will fully and faithfully perform all the material duties and obligations that it is required to perform pursuant to the Bond Documents to which it is a party and the other Basic Documents and will perform or cause to be performed, for and on behalf of the Issuer, each and every affirmative obligation of the Issuer under and pursuant to the Mortgage and each Basic Document to which the Issuer is a party to the extent any such duties and obligations are reasonably capable of performance by the Company. The Company shall defend, indemnify and hold the Issuer and its officers, directors, members, agents, and employees harmless from any liability or expense resulting from any failure by the Company to comply with this paragraph. (f) No further authorizations, consents or approvals of governmental bodies or agencies are required in connection with the execution and delivery by the Company of this Agreement or the 12 other Bond Documents or Basic Documents to which the Company is a party or in connection with the carrying out by the Company of its obligations under this Agreement or the other Bond Documents or Basic Documents to which the Company is a party. (g) The financing of the Project Facility as provided under the Loan Agreement, and the participation of the Issuer therein have induced the Company to locate its Project Facility in the jurisdiction of the Issuer. The providing of the Project Facility by the Issuer and the sale thereof by the Issuer to the Company (and, as provided herein, the conveyance of (i) the NYSEG Easements, the NYSEG Fee Premises and the NYSEG Equipment to NYSEG and (ii) the G-P Premises and the G-P Equipment to Georgia-Pacific) hereby will not result in the removal of an industrial or manufacturing plant or commercial activity of the Company or its general partner from one area of the State to another area of the State or in the abandonment of one or more plants or facilities of the Company or its general partner located within the State. (h) After the Company completes the Acquisition of the Project, the Company shall utilize the Project as a "project" within the meaning of the Act until the conveyance of the Project Facility to the Company in accordance herewith. (i) The Project Facility will be acquired, constructed installed and operated in such manner as to conform in all material respects with all applicable zoning, planning, building, environmental and other regulations of any governmental authorities having jurisdiction of the Project Facility. The Company shall defend, indemnify and hold the Issuer and its officers, directors, members, agents, and employees harmless from any liability or expense resulting from any failure by the Company to comply with this paragraph. (j) The Company shall promptly reimburse the Issuer for any expenses, including, but not limited to, legal, accounting or filing fees, incurred in connection with the fulfillment of the covenant contained herein above in Section 2.1(n). (k) The Company shall comply in all material respects with all mitigating measures, requirements and conditions, if any, identified in (i) the Findings Statement adopted by the Issuer and (ii) the documents accepted by the State Department of Environmental Conservation as the final environmental impact statement with respect to the Project Facility. (l) All proceeds of the Bonds shall be used to pay Costs of the Project. 13 ARTICLE III ACQUISITION OF THE PROJECT Section 3.1. ACQUISITION OF THE LAND; CONSTRUCTION OF THE FACILITY; ACQUISITION AND INSTALLATION OF THE EQUIPMENT. (a) The Company shall, on behalf of the Issuer, and with due diligence, (1) acquire the Land or cause the Land to be acquired, (2) construct the Facility or cause the Facility to be constructed, and (3) acquire and install the Equipment or cause the acquisition and installation of the Equipment, all in accordance with the Plans and Specifications. The approval of the Issuer shall not be required for changes in the Plans and Specifications which do not substantially alter the purpose and description of the Project Facility as set forth in the Exhibits hereto. (b) In the event that the Company desires to amend or supplement the Project Facility and such amendment or supplement substantially alters the purpose and description of the Project Facility as described in the Exhibits hereto, the Issuer will enter into such amendment or supplement upon receipt of: (i) a certificate of an Authorized Representative of the Company describing in detail the proposed changes and stating that they will not have the effect of disqualifying the Project Facility as a cogeneration project that may be financed pursuant to the Act and that they will not violate any permits in existence relating to the Project Facility or that such permits will be amended to permit such changes; (ii) a copy of the proposed form of amended or supplemented Exhibits hereto; and (iii) the written consent of the Agent. (c) Title to all materials, equipment, machinery and other items of Property intended to be incorporated or installed in and to become part of the Project Facility shall vest in the Issuer immediately upon deposit on the Land or incorporation or installation in the Facility, whichever shall first occur. The Company shall execute, deliver and record or file all instruments necessary or appropriate to so vest title in the Issuer and shall take all action necessary or appropriate to protect such title against claims of any third Persons. (d) The Issuer shall enter into, and accept the assignment of such contracts as the Company may request in order to effectuate the purposes of this Section 3.1, provided, however, that the liability of the Issuer thereunder shall be subject to Sections 12.4 and 12.5 hereof. (e) The Issuer hereby appoints the Company its true and lawful agent and the Company hereby accepts such agency, (1) to acquire the Land, construct the Facility, and acquire and install 14 the Equipment in accordance with the Plans and Specifications, (2) to make, execute, acknowledge and deliver any contracts; orders, receipts, writings and instructions with any other Persons, and in general to do all things which may be requisite or proper, all for the acquisition, construction and equipping of the Project Facility with the same powers and with the same validity as the Issuer could do if acting in its own behalf, (3) to pay all fees, costs and expenses incurred in the acquisition, construction and equipping of the Project Facility from funds made available therefor in accordance with the Loan Agreement, (4) to apply for all permits and licenses, (5) to request on behalf of the Issuer, and receive for the purpose of paying the Costs of the Project, advances of funds pursuant to the Loan Agreement, (6) to ask, demand, sue for, levy, recover and receive all such sums of money, debts, dues and other demands whatsoever which may be due, owing and payable to the Issuer under the terms of any contract, order, receipt or writing in connection with the acquisition, construction, equipping and installation of the Project Facility, and to enforce the provisions of any contract, agreement, obligation, bond or other performance security, (7) to take all actions necessary or in the opinion of the Company desirable for the construction and, to the extent permitted by law, the operation, use, repair and maintenance of the Project Facility for its intended purposes, including, to the extent permitted by law, the institution and prosecution of a condemnation proceeding to obtain all necessary or riparian rights necessary for the Project Facility, (8) to the extent permitted by law, to obtain, negotiate, execute and deliver agreements, contracts and/or leases for the management, maintenance and operation of the Project Facility and the sale of electric power generated at the Project Facility to third persons, and (9) to appoint sub-agents of the Issuer to do any or all of the foregoing. The agency designation granted hereby shall be irrevocable and shall vest the Company with complete authority and discretion with respect to the matters referred to above and, prior to the occurrence of an Event of Default, the Issuer shall not have the right to interfere with, direct or control the Company in the performance of the foregoing duties. In order to facilitate the securing of an exemption from State sales and use taxes as such exemption may be in existence during the period in which this Agreement is in effect and the Project is being constructed and the Equipment installed, the Issuer hereby agrees to provide to the Company any letter or certificate reasonably requested by the Company for such purpose, to the extent permitted under New York law, and the Company agrees to pay or reimburse the Issuer for any costs, including reasonable legal fees, incurred in connection therewith. Notwithstanding the first sentence of this paragraph (e) and anything in this Agreement to the contrary, the Issuer shall not provide any letter or certificate to the Company securing any State sales and use tax exemption for the Project Facility for the period beginning on the Construction Loan Maturity Date and ending on the date of termination of this Agreement. (f) The Company shall give, or cause to be given, all notices and comply or cause compliance with all laws, ordinances, municipal rules and regulations and requirements of all 15 Governmental Authorities applying to or affecting the conduct of work on the Project Facility, and the Company will defend, indemnify and save the Issuer and its officers, members, agents, servants and employees harmless from all fines and penalties due to failure to comply therewith. All permits and licenses necessary for the prosecution of work on the Project Facility shall be procured or caused to be procured promptly by the Company. (g) The Company, as agent for the Issuer, in compliance with Section 13 of the Lien Law of the State (but without conceding the applicability of such Section 13), covenants that it (i) will hold the right to receive the proceeds of the IDA Building Loan Note as a trust fund to be applied first for the purpose of paying the "cost of improvements" (as such item is defined in subdivision 5 of Section 2 of the Lien Law) and (ii) will apply the same first to the payment of the "cost of improvement" before using any part of the total of same for any other purposes. Section 3.2. AGREEMENT TO PROCURE FINANCING. To facilitate the provision of funds to finance the Project Facility, the Issuer agrees to execute and deliver the Bond Documents and other Basic Documents to which it is a party and any certificates or letters reasonably required thereby, subject to the payment or reimbursement of any reasonable costs incurred by the Issuer in accordance with the terms of this Agreement. Section 3.3. DISBURSEMENTS OF LOAN PROCEEDS. The Company, on behalf of itself and as agent of the Issuer, shall qualify for, obtain and apply advances of funds under the Loan Agreement sufficient to permit the Acquisition of the Project Facility in accordance with the terms of the Loan Agreement. The Company shall not agree to, or accept any modification or waiver of, the provisions of the Loan Agreement if such modification or waiver would result in proceeds of the Bonds being used to pay costs that are not Costs of the Project. Section 3.4. ESTABLISHMENT OF COMPLETION DATE. The Company will proceed with due diligence to complete the Acquisition of the Project Facility. Completion of the Acquisition of the Project Facility shall be evidenced as set forth in the Loan Agreement. Section 3.5. COMPLETION BY THE COMPANY. (a) In the event that the proceeds of the IDA Building Loan Note and the IDA Development Loan Note are not sufficient to pay in full all costs of acquiring the Land, constructing the Facility and acquiring and installing the Equipment in accordance with the Loan Agreement, the Company agrees, for the benefit of the Issuer and the Agent, subject to Section 12.1 hereof, to complete such acquisition, construction, installation and equipping and to pay all such sums as may be in excess of the proceeds of the IDA Building Loan Note and the IDA Development Loan Note. Title to all portions of the Facility constructed or of the Equipment installed or acquired pursuant to the previous sentence at Company's expense shall immediately upon such construction, installation or acquisition vest in the Issuer. The Company shall execute, deliver 16 and record or file such instruments as the Issuer may reasonably request in order to perfect or protect the Issuer's title to such portions of the Facility and Equipment. (b) No payment by the Company pursuant to this Section 3.5 shall entitle the Company to any reimbursement for any such expenditure from the Issuer or the Agent or to any diminution or abatement of any amounts payable by the Company under this Agreement. Section 3.6. REMEDIES TO BE PURSUED AGAINST CONTRACTORS, SUBCONTRACTORS, MATERIALMEN AND THEIR SURETIES. In the event of a default by any contractor, subcontractor or materialman under any contract made by it in connection with the construction of the Facility or the acquisition and installation of the Equipment or in the event of a breach of warranty or other liability with respect to any materials, workmanship, or performance guaranty, the Company may proceed, either separately or in conjunction with others, to exhaust the remedies of the Company and the Issuer against the contractor, subcontractor or materialman so in default and against each surety for the performance of such contract. The Company may, in its own name or in the name of the Issuer, prosecute or defend any action or proceeding or take any other action involving any such contractor, subcontractor, materialman or surety which the Company deems reasonably necessary, and in such event the Issuer hereby agrees, at the Company's sole expense, to cooperate fully with the Company and to take all action necessary to effect the substitution of the Company for the Issuer in any such action or proceeding. The Company shall advise the Issuer of any actions or proceedings taken hereunder. The proceeds of any recovery secured by the Company as a result of any action pursued against a contractor, subcontractor, materialman or their sureties pursuant to this Section 3.6 shall be used to complete the Project Facility and shall thereafter be payable to the Company. ARTICLE IV [RESERVED] ARTICLE V AGREEMENT TO CONVEY PROJECT; PAYMENT PROVISIONS Section 5.1. INSTALLMENT SALE. (a) The Company has conveyed or will convey to the Issuer (i) by deed pursuant to the Deed to Issuer, dated the Closing Date, its right, title and interest in and to the Fee Premises and all improvements thereon, including, without limitation, the Facility, and (ii) by assignment pursuant to the Assignment to Issuer, dated the Closing Date, its right, title and interest in and to the Leasehold Premises and the Easement Premises, and all improvements thereon. The Company agrees that 17 such title shall be free and clear of all liens except for Loan Agreement Permitted Liens. All right, title and interest of the Company in and to any Equipment has been or will be conveyed to the Issuer by the Bill of Sale to Issuer, dated the Closing Date. (b) In consideration of the Company's covenant herein to make Installment Purchase Payments, and in consideration of the other covenants of the Company contained herein, including the covenant to make additional and other payments required hereby, the Issuer hereby agrees to (i) convey to NYSEG all of the Issuer's right, title and interest to the NYSEG Fee Premises, the NYSEG Easements and the NYSEG Equipment, pursuant to the Deed to NYSEG, Assignment to NYSEG and the Bill of Sale to NYSEG, upon the request of the Company made in accordance with the provisions of the Loan Agreement, and (ii) convey to Georgia-Pacific the G-P Premises and the G-P Equipment, pursuant to the Deed to G-P and the Bill of Sale to G-P upon the request of the Company made in accordance with the provisions of the Loan Agreement, and (iii) on the earlier of (x) termination of this Agreement pursuant to Section 10.2 hereof, or (y) on the date of the termination of the Saranac PILOT Agreement, sell and convey to the Company, and the Company hereby agrees to purchase and acquire from the Issuer, all of the Issuer's right, title and interest in the Project Facility, pursuant to the Deed to the Company, the Assignment to the Company, the Bill of Sale to the Company, and such other sale, transfer or conveyancing documents as may be reasonably requested by the Company, with title to pass to the Company on the date on such date; provided, however, that if the Loan Agreement shall be in effect, the Agent shall have consented thereto. To obligation of the Issuer under this Section 5.1(b) to convey the Project Facility to the Company shall be subject to there being no Event of Default existing hereunder, or any other event which would, but for the giving of notice, the passage of time, or both, be any such Event of Default. The Company covenants to promptly record or cause to be recorded the sale, transfers or conveyancing documents for the conveyances set forth above in clauses (i), (ii) and (iii) above. (c) Until title to the Project Facility shall be conveyed to the Company in accordance with the provisions of Section 5.1(b) above, the Company shall have, and the Issuer does hereby grant unto the Company, a present possessory right to enter upon, use, maintain, operate, construct, rehabilitate, lease and otherwise deal with the Project Facility, subject, however, to the terms, and provisions of this Agreement and the Loan Agreement. So long as no Event of Default shall exist hereunder, the foregoing present possessory right shall be irrevocable and is hereby deemed to be coupled with an interest. (d) Subsequent to the Closing Date, the Company shall be entitled to use the Project Facility in any manner not otherwise prohibited by the Bond Documents or other Project Documents, provided that such use causes the Project Facility to qualify or continue to qualify as a "project" under the Act. Section 5.2. AMOUNTS PAYABLE. The Company here by agrees to pay the sum of the following amounts as hereinafter set forth: 18 (a) The Company, on its behalf and on behalf of the Issuer, agrees to pay all amounts due under the Bonds and the Loan Agreement in accordance with the terms thereof; provided, however, that if no amounts remain outstanding under the Loan Agreement, the Company shall pay to the Issuer one dollar ($1.00) per annum on January 1 of each calendar year until the termination of this Agreement. (b) The Company shall pay the amounts referenced in Section 6.2 herein. (c) The Company will also pay when due and payable the fees and reasonable expenses of the Issuer and the officers, members, agents (except for the Company) and employees thereof, including any filing or recordation fees and related reasonable legal fees incurred by the Issuer, related to the issuance of the Bonds and the ownership, sale or financing of the Project Facility (or portions thereof) or in connection with the carrying out of the Issuer's duties and obligations as contemplated under any Bond Document or other Basic Document, or any other such fee or expense of the Issuer or its officers, members, agents (except for the Company) and employees, the payment of which is not otherwise provided for under this Agreement, including without limitation, reasonable attorneys' fees and expenses. (d) The Company shall pay all rents and other amounts from time to time payable under the G-P Leases. (e) In the event the Company shall fail to make any of the payments required in this Section 5.2, the item or installment so in default shall continue as an obligation of the Company until the amount in default shall have been fully paid; provided, however, that all amounts due under subsections (b) and (c) above shall accrue interest at the lesser of (i) 24 percent (24%) per annum and (ii) the maximum rate permitted by law and all amounts due under subsection (a) above shall accrue interest at the rates set forth in the Loan Agreement. Section 5.3. UNCONDITIONAL OBLIGATIONS. Subject to Section 12.1, the obligation of the Company to make the payments required by Section 5.2 above shall be absolute and unconditional. The Company shall pay all such amounts without abatement, diminution or deduction (whether for taxes or otherwise) regardless of any cause or circumstance whatsoever including, without limitation, any defense, set-off, recoupment or counterclaim that the Company may have or assert against the Issuer or any other Person, or the conveyance of title to the Project Facility pursuant to this Agreement. The Company agrees it will not: (a) suspend, discontinue or abate any payment required by this Agreement; or (b) fail to observe any of its other covenants or agreements in this Agreement; or 19 (c) terminate this Agreement for any cause whatsoever including, without limiting the generality of the foregoing, failure to acquire the Land or complete construction of the Facility or acquisition and installation of the Equipment, any defect in the title, design, operations, merchantability, fitness or condition of the Project Facility or any part thereof or in the suitability of the Project Facility or any part thereof for the Company's purposes or needs, failure of consideration, destruction of or damage to, condemnation of title to or the use of all or any part of the Project Facility, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either, or any failure of the Issuer to perform and observe any agreement, whether expressed or implied, or any duty, liability or obligation arising out of or in connection with this Agreement. Nothing contained in this Agreement shall be construed to release the Issuer from the performance of any of the covenants or agreements on its part contained in this Agreement and, in the event the Issuer shall fail to perform or observe any such covenant or agreement, the Company may institute such action against the Issuer as the Company may deem necessary to compel performance (subject to Sections 12.4 and 12.5 hereof) of such covenant or agreement. Section 5.4. PREPAYMENTS. The Company may prepay all or any part of the amounts required to be paid by it under Section 5.2 herein at any time, subject to the provisions contained in the Loan Agreement. Section 5.5. [Reserved]. Section 5.6. [Reserved]. Section 5.7. INTEREST RATES. The Company is hereby granted the right to designate from time to time changes in the Interest Rate on the Bonds in the manner and to the extent set forth in the Loan Agreement. Section 5.8. RIGHTS AND OBLIGATIONS OF COMPANY UPON DISCHARGE OF LIEN OF MORTGAGE. Subject to the provisions of the Mortgage, in the event that the Bonds and all sums outstanding under this Agreement, the Loan Agreement and the other Bond Documents shall have been paid in full, the Issuer shall request the Company to do all acts and execute all documents as may be reasonably necessary to discharge the lien of the Mortgage on the Project Facility, and the Company shall perform such acts and execute such documents, and, at the request of the Company, the Issuer shall also do all acts and execute all documents as may be reasonably necessary to discharge the lien of the Mortgage on the Project Facility. 20 ARTICLE VI MAINTENANCE, TAXES AND INSURANCE Section 6.1. COMPANY'S OBLIGATIONS TO MAINTAIN AND REPAIR. (a) Except in an Event of Loss, and except to the extent impractical for any period during construction of the Facility or during which the Company is pursuing with due diligence the restoration of the Project Facility in accordance with the Loan Agreement, the Company agrees that during the term of this Agreement it will keep and maintain the Project Facility in good condition, repair and working order in accordance with sound electric generation practice, ordinary wear and tear excepted, at its own cost, and will make or cause to be made from time to time all repairs thereto (including external and structural repairs) and renewals and replacements thereto which are necessary to maintain the Project Facility or any part thereof in good working order. (b) So long as title to the Project Facility shall be held by the Issuer, the Company may, after providing the Issuer with prior written notice, make, at its expense, such alterations of or additions to the Project Facility or any part thereof from time to time as the Company in its discretion may determine to be desirable for its uses and purposes, as permitted by the Loan Agreement; provided, however, that (1) such alterations or additions are effected with due diligence, in a good and workmanlike manner and in compliance with all applicable legal requirements, (2) such alterations or additions are promptly and fully paid for by the Company in accordance with the terms of the applicable contract(s) therefor, and in a manner such that the Project Facility shall at all times be free of any mortgage, Lien, encumbrance, security interest or claim except for Loan Agreement Permitted Liens, (3) such alterations or additions do not change the nature of the Project Facility so that it does not constitute a "project" under the Act, (4) such alterations or additions are performed in full compliance with the Loan Agreement, (5) the provisions of Article 8 of the Environmental Conservation Law, Chapter 43-B of the Consolidated Laws of New York, as amended, are satisfied with respect to such alteration or addition, and (6) the Issuer is furnished with an agreement by the Company reasonably satisfactory to the Issuer requiring the Company to make payments in lieu of taxes with respect to such alteration or addition. Any evidences of indebtedness of the Issuer issued in connection with any such alterations or additions shall be in accordance with all policies and requirements of the Issuer in effect at such time. All alterations of and additions to the Project Facility shall constitute a part of the Project Facility subject to this Agreement and the Mortgage, and the Company shall deliver to the Issuer appropriate documents as may be necessary to convey title to such property to the Issuer, free and clear of all liens and encumbrances other than Loan Agreement Permitted Liens. (c) Neither the Issuer nor the Company shall be under any obligation to renew, repair or replace any inadequate, 21 obsolete, worn out, unsuitable, undesirable or unnecessary portions of the Project Facility. (d) The Issuer shall be under no obligation to replace, maintain or effect repairs of the Project Facility or to furnish any utilities or services for the Project Facility, and the Company hereby agrees to assume full responsibility therefor. Section 6.2. TAXES AND OTHER CHARGES. (a) The Company will pay and discharge or cause to be paid and discharged all taxes, payments in lieu of taxes, including the PILOT Payments (as defined in the Saranac PILOT Agreement) assessments, governmental charges or levies and all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project Facility imposed upon it or in respect of the Project Facility not later than the date payment of same is required pursuant to the Loan Agreement and the Saranac PILOT Agreement as well as all lawful claims which, if unpaid, might become a lien or charge upon such property and assets or any part thereof, except such that are contested in good faith by the Company in accordance with the requirements of the Loan Agreement and the Saranac PILOT Agreement. (b) It is recognized that under the provisions of the Act the Issuer is required to pay no taxes or assessments upon any of the Property acquired by it or under its jurisdiction, control or supervision or upon its activities. It is not the intention, however, of the parties hereto that the Project Facility be treated as exempt from real property taxation, and accordingly, the parties have entered into the Saranac PILOT Agreement. Until the expiration of the Saranac PILOT Agreement, the Company and the Issuer agree that the Company shall make all payments due under the Saranac PILOT Agreement. In the event that (i) the Project Facility would be subject to real property taxation if owned by the Company but shall be deemed exempt from real property taxation due to the involvement of the Issuer therewith, and (ii) the Saranac PILOT Agreement is not entered into, or if entered into shall for any reason no longer be in effect, the Issuer and the Company hereby agree that the Company, or any subsequent user of the Project Facility under this Agreement, shall in such event be required to make or cause to be made payments in lieu of taxes to or for the benefit of the school district or school districts, city, town, county, village and other political units wherein the Project Facility is located having taxing powers (such political units are hereinafter collectively referred to as the "Taxing Entities") in such amounts as would result from taxes being levied on the Project Facility by the Taxing Entities if the Project Facility were privately owned by the Company and not deemed owned by or under the jurisdiction, control or supervision of the Issuer, but with appropriate reductions similar to the tax exemptions and credits, if any, which would be afforded to the Company if it were the owner of the Project Facility. It is agreed that the Issuer, in cooperation with the Company, (w) shall endeavor to cause the Project Facility to be valued for purposes of determining the amounts due hereunder as if owned by the Company as aforesaid by 22 the appropriate officer or officers of any of the Taxing Entities as may from time to time be charged with responsibility for making such valuations, (x) shall endeavor to cause to be appropriately applied to the valuation or valuations so determined the respective tax rate or rates of the Taxing Entities that would be applicable to the Project Facility if so privately owned, (y) shall endeavor to cause the appropriate officer or officers of the Taxing Entities charged with the duty of levying and collecting such taxes to submit to the Company, when the respective levies are made for purposes of such taxes upon property privately owned as aforesaid, statements specifying the amounts and due dates of such taxes which the Taxing Entities would receive if such property were so privately owned by the Company and not deemed owned by or under the jurisdiction, control or supervision of the Issuer, and (z) shall file with the appropriate officer or officers any accounts or tax returns furnished to the Issuer by the Company for the purpose of such filing. In the event the Company shall fail to make or cause to be made any such payment in lieu of taxes or taxes, the amount or amounts so in default shall continue as an obligation of the Company until fully paid, and the Company hereby agrees to pay or cause to be paid the same, together with interest thereon, at the same rate per annum as provided for in the Saranac PILOT Agreement, or, if taxes, as if such amounts were delinquent taxes. Section 6.3. LIENS. The Company may create or permit to remain a Lien against its interest in the Project Facility, provided the same constitutes a Loan Agreement Permitted Lien; and provided further, however, that the Company shall provide the Issuer with written notice of any such Lien within thirty (30) days after the Company learns of such Lien. Section 6.4. INSURANCE. (a) The Company will during the term of this Agreement continuously insure, or cause to be insured, and pay, or cause to be paid, all premiums relating thereto, the Project Facility in accordance with requirements of the Loan Agreement, and, if no Loan Agreement is in effect, in accordance with the customary standards of businesses of like size and type (taking into account the policies and amounts required under the Loan Agreement, which shall be considered customary as of the Closing Date), including, but not limited to, title, required workers' compensation, adequate public liability, personal injury or death, workmen's compensation as legally required, builder's risk all risk, during the construction of the Project Facility, and full cash replacement value casualty insurance, all policies with adequate cancellation and alteration notice provisions in the reasonable opinion of the Issuer. All insurance policies required under this Agreement shall be carried with insurance companies qualified under the laws of the State in financially sound companies selected by the Company and satisfactory to the Issuer, and such policies shall provide at least thirty (30) days written notice to the Company and the Issuer prior to cancellation, lapse, reduction in policy limit or material change in coverage (except that, to the extent customary, only ten (10) days written notice shall be required in the circumstance of non-payment of premium). All claims on such insurance regardless of amount may be adjusted by the Company with the insurers. The proceeds of all insurance 23 policies for loss or damage to the Project Facility shall be payable to the Issuer and the Company as their interests may appear (subject to the rights, if any, of the Agent), provided that any such policy may be written or endorsed as to make payments on all claims for losses payable directly to the Company. The Issuer shall be a named insured under any public liability insurance policies. The Net Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which such insurance proceeds may be paid. Notwithstanding the above in this Section 6.4, so long as the Loan Agreement is in effect, the Company shall comply with the terms of the Loan Agreement and the Security Deposit Agreement relating to insurance coverage and the use of insurance proceeds. (b) The Company shall require the Contractor, any replacement therefor, and all Subcontractors to maintain all forms of insurance with respect to their employees at the Project Facility required by law. (c) THE ISSUER DOES NOT IN ANY WAY REPRESENT THAT THE INSURANCE SPECIFIED HEREIN, WHETHER IN SCOPE OR IN LIMITS OF COVERAGE, IS ADEQUATE OR SUFFICIENT TO PROTECT THE COMPANY'S BUSINESS OR INTERESTS. (d) Certificates of insurance reasonably satisfactory in form and substance to the Issuer to evidence all insurance required hereby shall be delivered to the Issuer on or before the Closing Date. Prior to the expiration of any such policy, the Company shall furnish to the Issuer evidence that the policy has been renewed or replaced or is no longer required by this Agreement. Section 6.5. REMODELING AND IMPROVEMENTS. The Company may remodel the Project Facility or make substitutions, additions, modifications or improvements thereto from time to time as it, in its discretion, deems desirable, provided that any such remodeling, substitutions, additions, modifications or improvements do not materially alter the character of the Project Facility as an enterprise permitted by the Act or violate any governmental permits of the Project Facility. The cost of such remodeling, substitutions, additions, modifications or improvements shall be paid by the Company. Section 6.6. EQUIPMENT. The Company may from time to time substitute machinery and equipment for any Equipment in accordance with the provisions of the Loan Agreement, the Mortgage and the covenants contained in this Agreement and the Loan Agreement. Any such substituted machinery and equipment shall become a part of the Project Facility and be included under the terms of this Agreement. The Company may also sell, scrap, trade-in or otherwise dispose of, any Equipment, without substitution therefor so long as the removal of the Equipment to be purchased or otherwise disposed of will not materially alter the character of the Project Facility as an enterprise permitted by the Act and under the governmental permits required to construct or operate the Project Facility. 24 Section 6.7. INSTALLATION OF COMPANY'S OWN MACHINERY AND EQUIPMENT. The Company may, from time to time in its sole discretion and at its own expense, install additional machinery, equipment and other tangible personal property in the Facility and title thereto shall remain in the Company. Section 6.8. ADVANCES BY ISSUER. In the event the Company shall fail: (a) to keep the Project Facility in the condition as required by Section 6.1; (b) to pay all taxes or their equivalent, assessments or other governmental or utility charges as required by Section 6.2; (c) to pay or cause to be satisfied and discharged any Liens filed or established against the Project Facility as required by Section 6.3; or (d) to maintain the insurance required by Section 6.4, and the Agent does not make such payments on behalf of the Company, the Issuer may (but unless satisfactorily indemnified shall be under no obligation to) take such action as may be necessary to cure such failure after first giving 60 days notice in writing to the Company and the Agent, including the advancement of amounts of money, and all amounts so advanced therefor by the Issuer shall become an additional obligation of the Company to the one making the advance, which amounts the Company agrees to pay on demand. ARTICLE VII EMINENT DOMAIN AND DAMAGE AND DESTRUCTION Section 7.1. PROVISIONS RESPECTING EMINENT DOMAIN. In case of any damage to or destruction of all or any part of the Project Facility exceeding $500,000, the Company shall give prompt written notice thereof to the Issuer. In case of a taking or proposed taking of all or any part of the Project Facility or any right therein by Eminent Domain, the party upon which notice of such taking is served shall give prompt written notice to the other. Each such notice shall describe generally the nature and extent of such damage, destruction, taking, loss, proceedings or negotiations. Section 7.2. DAMAGE AND DESTRUCTION. If the Project Facility, or any material portion thereof, shall be damaged or destroyed by fire, flood, windstorm or other casualty, or title to, or the temporary use of, the Project Facility, or any portion thereof, shall have been taken by the power of Eminent Domain, the Company shall cause, subject to the provisions of Section 7.3 herein and the provisions of the Loan Agreement, the Net Proceeds from insurance or condemnation or an amount equal thereto to be used for the repair, reconstruction, restoration or improvement of the Project Facility. 25 Section 7.3. REPAIR OF THE PROJECT. (a) Notwithstanding Sections 7.1 and 7.2 herein, (i) the Issuer shall have no obligation to replace, repair, rebuild, restore or relocate the Facility or the Equipment; (ii) there shall be no abatement or reduction in the amounts payable by the Company under this Agreement (whether or not the Facility or the Equipment are replaced, repaired, rebuilt, restored or relocated); or (iii) subject to the provisions in the Loan Agreement and except as otherwise provided in subsections (f) or (g) of this Section 7.3, the Company shall promptly replace, repair, rebuild, restore, or relocate (within the County of Clinton) the Facility to substantially the same condition and value as an operating entity with such changes, alterations and modifications as may be desired by the Company and approved by the Issuer (which approval shall not be unreasonably withheld or delayed), provided that such changes, alterations or modifications do not so change the nature of the Project Facility so that it does not constitute a "project", as such term is defined in the Act, or conform with its operating permits. (b) Except in an Event of Loss (and as hereinafter otherwise provided), the Company shall cause all Net Proceeds of insurance and of any award in any condemnation or Eminent Domain proceeding to be paid to and held in accordance with the Loan Agreement; provided, however, that following the termination of the Loan Agreement, such Net Proceeds shall be held by a mutually agreeable escrow agent to be used (subject to subparagraph (e) below) solely for the repair, reconstruction, restoration or improvement of the Project Facility. (c) Except in an Event of Loss, in the event such Net Proceeds are not sufficient to pay in full the costs of such replacement, repair, rebuilding, restoration or relocation, the Company shall nonetheless complete so much of the work, and pay from its own moneys that portion of the costs thereof in excess of such Net Proceeds, as shall be required in the judgment of an independent architect to restore the Project Facility to an operating economic unit capable of serving as a natural gas-fired cogeneration facility similar in size to the original Project Facility. (d) All such replacements, repairs, rebuilding, restoration and relocations made pursuant to this Section 7.3, 26 whether or not requiring the expenditure of the Company's own money, shall automatically become a part of the Project Facility as if the same were specifically described herein. (e) Any balance of such Net Proceeds remaining after payment of all the costs of such replacement, repair, relocation, rebuilding or restoration shall be used only as set forth in the Basic Documents, or, if the Basic Documents shall no longer be in effect, such balance shall be paid over to the Company for its purposes. (f) In the event any condemnation or Eminent Domain award, or damage to the Project Facility, exceeds $30,000,000 in value or amount, the Company shall not be obligated to replace, repair, relocate, rebuild, or restore the Project Facility, and the Net Proceeds of the insurance shall not be applied as provided in subsections (a) through (e) of this Section 7.3, if the Company shall notify the Issuer (in writing, promptly upon making its conclusion and before notifying any other Person except for the Agent) that, in its sole judgment, it does not deem it practical to so replace, repair, relocate, rebuild or restore the Project Facility. If the Net Proceeds is less than the amount necessary to prepay the Bonds in full, including accrued interest and prepayment penalty, if any, there shall be no abatement or reduction in the amount payable by the Company under this Agreement. (g) If the entire amount of the Bonds, accrued interest thereon and prepayment penalty, if any, and all other sums outstanding in connection with the Bond Documents, have been fully paid, together with all other amounts due hereunder, all such Net Proceeds, or the surplus thereof, shall be paid to the Company for its purposes. (h) The Company and the Issuer acknowledge that a mortgage and security interest in the Net Proceeds of insurance carried pursuant to this Agreement and the Net Proceeds of any condemnation or similar awards will be granted by the Issuer and the Company to the Agent pursuant to the Collateral Security Documents, and the Company consents thereto. Notwithstanding anything in this Article VII to the contrary, while the Loan Agreement remains in effect, the provisions of the Loan Agreement and the other Bond Documents, and not this Article VII, shall govern all matters with respect to insurance and Eminent Domain, including the applications of proceeds thereof. (i) The Issuer hereby appoints the Company as its true and lawful agent, and the Company hereby accepts such agency, to replace, repair, rebuild and restore the Project Facility as provided in the Loan Agreement and in accordance with all Applicable Laws, and in consideration of such acceptance the Issuer hereby assigns to the Company all its right to receive payments from the Net Proceeds of any insurance settlement or condemnation or similar award for the payment or reimbursement of the cost of such replacement, repair, rebuilding and restoration. 27 ARTICLE VIII SPECIAL COVENANTS Section 8.1. ACCESS TO THE PROPERTY AND INSPECTION. The Issuer, the Agent, and their respective agents and employees, shall have the right, at all reasonable times during normal business hours upon the furnishing of reasonable notice to the Company under the circumstances and upon compliance with the Company's reasonable safety and confidentiality policies, to enter upon and examine and inspect the Project Facility and to examine and copy the books and records of the Company insofar as such books and records relate to the Project Facility or the Bond Documents. Section 8.2. AGREEMENT TO PROVIDE INFORMATION. The Company and the General Partner of the Company agree to provide and certify or cause to be certified such financial and other information concerning the Company, the Project Facility and the General Partner of the Company, as the Issuer from time to time reasonably considers necessary or appropriate, including, but not limited to, (i) such information as to enable Issuer to make any reports required by any law, statute, rule or governmental regulation, (ii) all information relating to the compliance of the Company with all environmental laws, statutes, rules and regulations of all applicable Governmental Authorities, and (iii) all pleading and other material information relating to any material litigation concerning the Company, its general partner or the Project Facility. Section 8.3. FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS. (a) Subject to the provisions of the Loan Agreement, the Issuer and the Company agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements and amendments hereto and such further instruments as may reasonably be required for carrying out the intention or facilitating the performance of this Agreement. (b) The Issuer (at the Company's direction and expense) shall cause this Agreement to be kept recorded and filed in such manner and in such places as may be required by law to fully preserve and protect the security of the Lenders and to perfect the security interest created by the Loan Agreement. Section 8.4. RECORDING AND FILING; OTHER INSTRUMENTS. (a) The Company covenants that it will cause continuation statements to be filed as required by law in order fully to preserve and to protect the rights of the Issuer in the assignment of certain rights of the Issuer under this Agreement and otherwise under the Mortgage. The Company covenants that it will cause a certificate, with filings attached, to be delivered to the Issuer not earlier than 60 nor later than 30 days prior to each anniversary date occurring at five-year intervals after the 28 issuance of the Bonds to the effect that all Financing Statements, notices and other instruments required by applicable law, including this Agreement, have been recorded or filed or re-recorded or re-filed in such manner and in such places required by law in order fully to preserve and to protect the rights of the Issuer under this Agreement and otherwise under the Mortgage. (b) The Issuer shall, at the request of the Company, file and re-file and record and re-record or shall cause to be filed and re-filed and recorded and re-recorded all instruments, including, without limitation, the Mortgage, required to be filed and re-filed and recorded or re-recorded and shall continue or cause to be continued the liens of such instruments for so long as this Agreement shall remain in effect. Section 8.5. [Reserved] Section 8.6. INDEMNITY AGAINST CLAIMS. The Company will pay and discharge and will indemnify and hold harmless the Issuer from any taxes, assessments, impositions, claims, reasonable fees and expenses of attorneys and consultants incurred by the Issuer, and other charges in respect of the Project Facility or the issuance of the Bonds. If any claim of any thereof is asserted, or any such lien or charge upon payments, or any such taxes, assessments, impositions or other charges, are sought to be imposed, the Issuer will give prompt written notice to the Company; provided, however, that the failure to provide such notice will not relieve the Company of the Company's obligations and liability under this Section 8.6 and will not give rise to any claim against or liability of the Issuer. The Company shall have the right to assume the defense thereof, with counsel reasonably acceptable to the person on behalf of which the Company undertakes a defense, with full power to litigate, compromise or settle the same in its sole discretion. The Company covenants and agrees to pay or to reimburse the Issuer, its members, attorneys or consultants for all reasonable costs incurred in connection with any investigation or defense relating to the Project Facility. Section 8.7. RELEASE AND INDEMNIFICATION. The Company shall at all times protect, indemnify and hold the Issuer, the members of the Issuer, and the attorneys, agents and employees of the Issuer harmless against any and all liability, losses, damages, costs, expenses, taxes, causes of action, suits, claims, demands and judgments of any nature arising or in connection with the development, Acquisition or operation of the Project Facility or the financing of the Project Facility, including, without limitation, all claims or liability resulting from entering into or performing in accordance with or in connection with the Bond Documents or Basic Documents or any loss or damage to property or any injury to or death of any person that may be occasioned by any cause whatsoever pertaining to the Project Facility or the use thereof, including without limitation any lease thereof or assignment of its interest in this Agreement, such indemnification to include reasonable expenses and attorneys' fees incurred by the Issuer, its directors, members, officers, attorneys, agents and employees in connection therewith; provided, that such indemnity 29 shall be effective only to the extent of any loss that may be sustained by the Issuer, its directors, members, officers, attorneys, agents and employees in excess of the Net Proceeds received by it or them from any insurance carried with respect to such loss, if applicable, and provided, further that the benefits of this Section 8.7 shall not inure to any person other than the Issuer, its directors, members, officers, attorneys, agents and employees; and provided, further that such loss, damage, death, injury, claims, demands or causes shall not have resulted from the gross negligence or intentional or willful misconduct of, the Issuer or such directors, members, officers, attorneys, agents (other than the Company or any of its subagents) or employees. Section 8.8. COMPLIANCE WITH LAWS. The Company agrees to comply in all material respects with all applicable zoning, planning, building, environmental and other statutes, laws, ordinances, orders, rules, requirements and regulations of all Governmental Authorities having jurisdiction of the Project Facility and to operate the Project Facility as a "project" under the Enabling Act. Section 8.9. [Reserved] Section 8.10. Reserved] Section 8.11. [Reserved] Section 8.12. [Reserved] Section 8.13. MAINTENANCE OF EXISTENCE. (a) So long as the Loan Agreement is in effect the Company agrees that it will maintain its existence as a limited partnership, will not dissolve or otherwise dispose of all or substantially all of its assets (except in a foreclosure action on the Mortgage), will not consolidate with or merge into another entity or permit one or more other entities to consolidate with or merge into it, sell any interests in the Limited Partnership other than to the Tomen Limited Partners or the GE Capital Limited Partner, or admit any additional General Partner, except with the consent of the Agent in accordance with the provisions of the Loan Agreement and reasonable advance notice to the Issuer; (b) If the Loan Agreement is not in effect, any general partner of the Company as of the termination of the Loan Agreement shall remain a general partner of the Company (and shall not sell its interests as general partner except in accordance with the agreement of limited partnership) and the Company agrees that it will continue to be a limited partnership either organized under the laws of or duly qualified to do business as a foreign limited partnership in the State, will maintain its existence, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another entity or permit one or more entities to consolidate with or merge into it except as permitted under its agreement of limited partnership; provided, that the Company and its general partner may, without 30 violating the foregoing, consolidate with or merge into another entity, or permit one or more entities to consolidate with or merge into it, or transfer all or substantially all of its assets to another such entity (and thereafter dissolve or not dissolve, as the Company may elect) if the entity surviving such merger or resulting from such consolidation, or the entity to which all or substantially all of the assets of the Company are transferred, as the case may be: (i) is a limited partnership, general partnership or corporation organized under the laws of the United States of America, or any state, district or territory thereof, and qualified to do business in the State; (ii) shall expressly in writing assume all of the obligations of the Company contained in this Agreement; (iii) has a consolidated tangible net worth (after giving effect to such consolidation, merger or transfer) of not less than the consolidated tangible net worth of the Company and its consolidated subsidiaries immediately prior to such consolidation, merger or transfer; and (iv) provided that no Event of Default has occurred and is continuing hereunder. (d) The foregoing limitations on transfer of assets shall not apply from and after any foreclosure of the Project Facility by the Agent or its nominee or subsidiary. The term "consolidated tangible net worth," as used in this Section 8.13, shall mean the difference obtained by subtracting total consolidated liabilities (not including as a liability any capital or surplus item) from total consolidated tangible assets of the Company and all of its consolidated subsidiaries, computed in accordance with generally accepted accounting principles. Prior to any such consolidation, merger or transfer the Issuer shall be furnished a certificate from the chief financial officer of the Company or his deputy stating that in the opinion of such officer none of the covenants in this Agreement will be violated as a result of said consolidation, merger or transfer. Section 8.14. GRANT OF EASEMENTS; LIENS. (a) If no Event of Default shall have occurred and be continuing, the Company may: (i) at any time or times grant easements, licenses, rights-of-way (including the dedication of public highways) and other rights or privileges in the nature of easements with respect to any part of the Project Facility with or without consideration, (if with consideration, the proceeds shall be retained by the Company); or (ii) secure the release of existing easements, licenses, rights-of-way and other rights and privileges. 31 (b) The Company shall not permit or create or suffer to be permitted or created any Lien, except for Loan Agreement Permitted Liens, upon the Project Facility or any part thereof. Section 8.15. NO WARRANTY OF CONDITION OR SUITABILITY BY ISSUER. The Company recognizes that the Issuer does not deal in goods of the kind comprising components of the Project Facility or otherwise hold itself out as having knowledge or skill peculiar to the practices or goods involved in the Project Facility, and that the Issuer is not one to whom such knowledge or skill may be attributed by its employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill. The Company further recognizes that since the components of the Project Facility have been and are to be designated and selected by the Company, THE ISSUER HAS NOT MADE AN INSPECTION OF THE PROJECT FACILITY OR OF ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, AND, EXCEPT AS OTHERWISE PROVIDED HEREIN, THE ISSUER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED OR OTHERWISE, WITH RESPECT TO THE SAME OR TO THE LOCATION, USE, DESCRIPTION, DESIGN, MERCHANTABILITY, FITNESS FOR USE FOR ANY PARTICULAR PURPOSE, CONDITION OR DURABILITY THEREOF, TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, IT BEING AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY THE COMPANY. IN THE EVENT OF ANY DEFECT OR DEFICIENCY OF ANY NATURE IN THE PROJECT FACILITY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER PATENT OR LATENT, THE ISSUER SHALL HAVE NO RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES OR REPRESENTATIONS BY THE ISSUER, EXPRESS OR IMPLIED (TO THE EXTENT PERMITTED BY APPLICABLE LAW), WITH RESPECT TO THE PROJECT FACILITY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER ARISING PURSUANT TO THE U.C.C. OR ANOTHER LAW NOW OR HEREAFTER IN EFFECT OR OTHERWISE. Section 8.16. PERMITTED CONTESTS. The Company may, at its expense and in its name and behalf or in the name and behalf of the Issuer, in good faith contest any: (a) taxes, assessments and other charges referred to in Section 6.2; (b) lien, encumbrance or charge referred to in Section 6.3; or (c) regulation or other requirement referred to in Section 8.8. In the event of such contest, the Company may permit said taxes, assessments or other charges so contested to remain unpaid or such lien, encumbrance or charge to remain unsatisfied and undischarged during the period of such contest and any appeal therefrom. The Issuer shall cooperate fully with the Company in any such contest, except where the Issuer is an adverse party to the Company. Each such contest shall be promptly prosecuted to a final conclusion. No such contest shall subject the Issuer to the risk 32 of any material civil liability (other than the charge being contested) or any criminal liability, and the Company shall give such reasonable security to the Issuer as may be demanded by the Issuer to insure compliance with the foregoing provisions of this Section. The foregoing shall not constitute a waiver by the Issuer of any civil or criminal remedies otherwise available to the Issuer against the Company. Section 8.17. PROMOTION OF EMPLOYMENT. The Company, recognizing the intent of the Act to provide employment, agrees during the term of this Agreement to exercise good faith to maintain and operate or cause to be maintained and operated an enterprise permitted by the Act and thereby to provide employment in such operations not inconsistent with the best interest of the Company and the Issuer in achieving the purpose set forth in the Act; provided, however, that the Company shall not be deemed guilty or chargeable with any breach of any agreement contained in this Section 8.17 unless and until the Company has failed for a continuous period of one year (strikes, war, acts of God, fire, acts of government and other casualties not under Company's control excepted) to comply with the provisions of this Section. Section 8.18. NOTICE AND CERTIFICATES TO ISSUER. The Company hereby agrees to provide the Issuer with the following: (a) On or before January 1 and July 1 of each year during which any of the Bonds are outstanding, a certificate of an Authorized Representative that: (i) all payments required under this Agreement have been made, and (ii) any applicable third party credit support will continue in full force during the succeeding twelve months, or explaining why not; (b) Within one hundred twenty (120) days of the end of the fiscal year of the Company, (i) a certificate of the Company to the effect that all payments have been made under this Agreement and that, to the best of its knowledge, there exists no Event of Default or unmatured default, and (ii) the audited annual financial report of the Company; (c) Upon knowledge of an Event of Default under this Agreement, notice of such Event of Default, such notice to include a description of the nature of such event and what steps are being taken to remedy such Event of Default; (d) At the time of filing the certificate referred to in subparagraph (a) above, a certificate, either stating all the steps, actions and proceedings to be taken which are reasonably necessary to maintain in force in connection with the Project Facility, or that no such steps, actions or proceedings are necessary to maintain such security. Such certificate shall also describe the recording, filing, re-recording and re-filing of the Collateral Security Documents and the execution and filing of any financing statements and continuation statements that will be required to maintain the lien and priority of any security interest in personal property granted in connection with the Project Facility for the next year. 33 ARTICLE IX ASSIGNMENT, LEASE AND SALE Section 9.1. RESTRICTIONS ON TRANSFER OF ISSUER'S RIGHTS. The Issuer agrees that, except for the assignment of its rights as contemplated under this Agreement, it will not during the term of this Agreement sell, assign, transfer or convey its interests in this Agreement except (i) as provided in Section 5.1, Section 9.2 and Article X below, (ii) with the consent of the Company, and (iii) if the Loan Agreement is in effect, with the consent of the Agent. Section 9.2. MORTGAGING BY THE COMPANY AND THE ISSUER. (a) The Company and the Issuer shall mortgage to the Agent their respective rights, titles and interests in and to the Project Facility to secure the Bonds as more particularly set forth in the Loan Agreement and the Mortgage. (b) If the Agent commences an action to foreclose the Mortgage (or any mortgage included in the definition thereof), the Agent may, at its option, name as defendants in such foreclosure action either (i) the Company or (ii) both the Company and the Issuer. If both the Company and the Issuer are named as defendants in such foreclosure action, (x) this Agreement shall terminate on the date that title to the Project Facility ceases to be held by the Issuer pursuant to such foreclosure action and (y) Issuer shall join in any referee's deed or similar conveyance necessary or advisable in order to convey Issuer's right, title and interest in and to the Project Facility to the purchaser at the foreclosure sale in such foreclosure action; provided, however, that prior to naming the Issuer as a defendant, the Agent shall offer to enter into an agreement with the Taxing Entities (as defined in the Saranac PILOT Agreement) preserving the substance of the Saranac PILOT Agreement. If the Issuer is not named in such foreclosure action, this Agreement shall remain in effect and, upon divestiture of the Company's vendee's interest hereunder pursuant to such foreclosure action, the Issuer shall recognize and attorn to the entity succeeding to the Company's vendee's interest at the conclusion of such foreclosure action; provided, however, that all amounts owned to the Issuer under this Agreement shall have been paid as provided in Section 10.8. (c) Except as provided in subsection (a) above, Section 9.3 below, or as permitted by the Loan Agreement, neither the Company nor the Issuer shall mortgage, pledge or assign their respective rights, titles or interests in and to the Project Facility or any portion thereof. Section 9.3. SALE OR LEASE OF THE PROJECT FACILITY. The Company may sell or lease the Project Facility or any part thereof in accordance with the provisions of the Loan Agreement, provided that such sale or lease shall not release the Company of any of its obligations under this Agreement, and the Company shall remain as 34 fully bound as though no sale or lease had been made. Performance by any buyer or lessee shall be considered as performance by the Company; provided, however, that the Company may assign this Agreement by a written assignment agreement, and be thereby relieved of further obligation hereunder in connection with a transaction involving merger, consolidation or transfer as permitted under Section 8.13, provided (a) the requirements thereof are met; and (b) the party to which such assignment is made is the entity surviving such merger or resulting from such consolidation or is the entity to which all or substantially all of the assets of the Company is transferred, and such party shall execute an assumption agreement having the effect of not altering the material terms of this Agreement and the obligations of such assignee to fulfill them. The Company shall, within ten days after the delivery of the requisite agreements and approvals, furnish or cause to be furnished to the Issuer a true and complete copy of each such agreement of sale or lease or assignment and assumption of assignment. ARTICLE X EVENTS OF DEFAULT AND REMEDIES Section 10.1. EVENTS OF DEFAULT DEFINED. (a) The term "Event of Default" as used herein shall mean any one or more of the following events; (i) (x) Failure by the Company to make any payments required to be paid pursuant to Section 5.2(b) and (c) hereof; provided, any such failure remains uncured for a period of twenty (20) days following written notice of same to the Company, and (y) Failure by the Company to make any payments under Section 5.2(a) hereof, which failure has led the Agent or its nominee or subsidiary to enforce material remedies against the Company; (ii) The occurrence and continuance of an Event of Default (as defined in the Saranac PILOT Agreement or North Country PILOT Agreement, as the case may be) beyond the expiration of any applicable notice and cure period shall have occurred and be continuing under the Saranac PILOT Agreement or the North Country PILOT Agreement; (iii) From and after the date that the Loan Agreement shall no longer be in effect, any representation by or on behalf of the Company contained in this Agreement or in any instrument furnished in compliance with or in reference to this Agreement proves 35 false or misleading in any material respect as of the date of the making or furnishing thereof and has a material adverse effect upon the Project Facility in the reasonable opinion of the Company; (iv) Failure by the Company to observe or perform any of its other covenants, conditions, payments or agreements under this Agreement for a period of 30 days after written notice, specifying such failure and requesting that it be remedied, is given to the Company by the Issuer (unless such notice is not required due to actual knowledge of such failure by the Company); provided, that such period shall be extended for such period as the Company is diligently proceeding to cure such default and such default is susceptible of cure; (v) From and after the date that the Loan Agreement shall no longer be in effect, the Company shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, assignee, sequestrator, trustee, liquidator or similar official of the Company or of all or a substantial part of its property, (ii) admit in writing its inability, or be generally unable, to pay its debts as such debts become due, (iii) make a general assignment for the benefit of its creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect), (v) file a petition seeking to take advantage of any other federal or state law relating to bankruptcy, insolvency, reorganization, arrangement, winding-up or composition or adjustment of debts, (vi) fail to controvert in a timely or appropriate manner, or acquiesce in writing to, any petition filed against the Company in an involuntary case under said Federal Bankruptcy Code, or (vii) take any corporate action for the purpose of effecting any of the foregoing; unless in any event any such petition or case is dismissed or stayed within 90 days of filing; (vi) From and after the date that the Loan Agreement shall no longer be in effect, a proceeding or case shall be commenced, without the application or consent of the Company, in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, arrangement, dissolution, winding-up or composition or adjustment of debts of the Company, (ii) the appointment of a trustee, receiver, custodian, assignee, sequestrator, liquidator or similar official of the Company or of all or any substantial part of its assets, or (iii) similar relief in respect of the Company under any law relating to bankruptcy, insolvency, reorganization, arrangement, winding-up or composition or adjustment of debts and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period 36 of 90 days from the commencement of such proceeding or case or the date of such order, judgment or decree, or an order for relief against the Company shall be entered in an involuntary case under said Federal Bankruptcy Code; (vii) If any insurance policy required to be maintained pursuant to the Loan Agreement or this Agreement shall be canceled or terminated or shall lapse and shall not have been replaced prior to the effective date of such cancellation, termination or lapse by a policy covering the same matters and that complies with the requisite criteria herein; (viii) The occurrence and continuance of an Event of Default (as defined in the Loan Agreement) under the Loan Agreement; provided, any such Event of Default has led the Agent or its nominee or subsidiary to enforce material remedies against the Company; (ix) the Company shall fail to operate the Project Facility as a "project" under the Enabling Act or shall fail to comply with any other covenant contained herein (except for the covenants listed in subparagraph (x) below), within thirty (30) days of written notice by the Issuer to the Company; provided that such period shall be extended for such additional period as the Company is diligently proceeding to cure such default and such default is susceptible to cure; or (x) The Company shall violate Sections 8.13 or 9.3 hereinabove. (b) Notwithstanding the provisions of subparagraph (a) above, and subject to the provisions of the Loan Agreement, in the event that the performance by either party hereto of its obligations under this Agreement is delayed due to the following events of force majeure: (i) an act of God, or (ii) an act of nature, or (iii) the imposition of any restrictions by any governmental authority, or (iv) war, military operations or national emergencies, or (v) weather, or (vi) any other cause beyond the control of the parties, then and in that event all time limitations and performance dates herein shall be appropriately extended by the parties, upon notice to the other party hereto by the party whose performances is delayed of such condition causing the delay, for a period equal to the number of days that the performance of said obligations is delayed; provided, that in no event shall such delay be deemed to extend the time for performance by said party for more than ninety (90) days in the aggregate. The extension of such time limitations and performance dates for such period pursuant to this subsection (b) shall not be deemed an Event of Default under this Section 10.1. Notwithstanding anything to the contrary in this subsection (b), any event of force majeure shall not excuse, delay or in any way diminish the obligations of the Company to make the payments required by Sections 5.2, 5.4 and 6.2 herein and observe the covenants, obtain the insurance policies and provide the indemnity as required by this Agreement. 37 Section 10.2. REMEDIES ON DEFAULT. Upon the occurrence and during the continuance of an Event of Default under this Agreement, the Issuer may take any one or more of the following remedial steps: (a) By written notice declare all payments pursuant to Section 5.2(a) hereof and all other amounts payable hereunder immediately due and payable, whereupon the same shall become immediately due and payable without presentment, demand, protest or any other notice whatsoever, all of which are hereby expressly waived by the Company; provided, however, that if the Loan Agreement is still in effect, the Issuer shall receive the Agent's prior written consent; (b) In the event any of the Bonds shall at the time be unpaid, have access to and inspect, examine and make copies of books and records and any and all accounts, data and income tax and other tax returns of the Company only, however, insofar as they relate to the Project Facility; (c) Take whatever other action at law or in equity may appear necessary or desirable to collect the amounts payable pursuant hereto then due and thereafter to become due or to enforce the performance and observance of any obligation, agreement or covenant of the Company under this Agreement or to secure possession of the Project Facility; provided, however, that the Agent provides its prior written consent, except that no such consent is necessary or required with respect to enforcement of Sections 5.2(b) and (c), 5.4 or 6.2 hereinabove; (d) Take possession of and operate the Project Facility upon thirty (30) days notice to the Company, with the prior written consent of the Agent; or (e) Terminate this Agreement and convey the Project Facility to the Company; provided, the Issuer shall give ninety (90) days notice to the Agent prior to such conveyance. In the enforcement of the remedies provided in this Section 10.2, the Issuer may treat all reasonable expenses of enforcement, including, without limitation, legal, accounting and advertising fees and expenses, as additional amounts payable by the Company then due and owing. No action taken pursuant to this Section 10.2 (including repossession of the Project Facility) shall relieve the Company from its obligation to make all payments required by Section 5 of this Agreement. Section 10.3. APPLICATION OF AMOUNTS REALIZED IN ENFORCEMENT OF REMEDIES. Except as otherwise paid to the Agent in accordance with the terms of the Loan Agreement, any amounts collected pursuant to action taken under Section 10.2 shall be paid to the Issuer. 38 Section 10.4. NO REMEDY EXCLUSIVE. No remedy herein conferred upon or reserved to the Issuer is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power upon and during the continuance of an Event of Default under this Agreement shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient provided such Event of Default is then continuing. Section 10.5. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. Upon the occurrence and during the continuance of an Event of Default under this Agreement, if the Issuer employs attorneys or incurs other expenses for the collection of amounts payable hereunder or for the enforcement of the performance or observance of any covenants or agreements on the part of the Company herein contained, whether or not suit is commenced, the Company agrees that it will on demand therefor pay to the Issuer the reasonable fees of such attorneys and such other reasonable expenses so incurred by the Issuer. Section 10.6. ISSUER AND COMPANY TO GIVE NOTICE OF DEFAULT. The Issuer and the Company severally covenant that they will, at the expense of the Company, promptly give to the Agent, and to each other, written notice of any Event of Default under this Agreement of which they shall have actual knowledge or written notice, but the Issuer shall not be liable for failing to give such notice. Section 10.7. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the event that any agreement contained herein should be breached by either party and thereafter be waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Section 10.8. NOTICE TO AGENT. Before exercising any of its remedies pursuant to Section 10.2 hereof, the Issuer shall give to the Agent a notice that a specified Event of Default hereunder remains unremedied and that the Issuer is entitled to exercise such remedies, and the Agent shall have the right to remedy any Event of Default within a period of ninety (90) days after the service of such notice and the Issuer will postpone the exercise of any of its remedies provided for in Section 10.2 hereof for such period or periods of time as may be necessary for the Agent, with the exercise of due diligence, to extinguish the Company's interest under this Agreement and to perform or cause to be performed all of the covenants and agreements to be performed by the Company as aforesaid. Upon such extinguishment of the Company's interest under this Agreement and such performance by the Agent, the Issuer's right to exercise any remedies provided for in Section 10.2 hereof, based upon the occurrence, existence and continuance of any Event of Default hereunder which cannot with the exercise of due diligence be remedied by the Agent, shall be, and be deemed to be, waived. Nothing herein contained shall be deemed to require 39 the Agent to continue with any foreclosure or other proceedings or, in the event that the Agent shall acquire possession of the Project Facility, to continue such possession, if the Event of Default in respect of which the Issuer shall have given such notice shall have been remedied to the satisfaction of the Agent and possession of the Project Facility shall have been restored to the Company. Nothing herein contained shall affect the right of the Issuer, upon the occurrence (and during the continuance) of any Event of Default by Agent hereunder arising after the Agent obtains possession of the Project Facility, to exercise any right or remedy herein reserved to the Issuer. ARTICLE XI [RESERVED] ARTICLE XII MISCELLANEOUS Section 12.1. LIMITATIONS WITH RESPECT TO OBLIGATIONS OF THE COMPANY. Anything contained herein to the contrary notwithstanding, the Issuer hereby agrees that there shall be no recourse against the Company or any partner or affiliate of the Company nor any shareholder, partner, officer, director, agent or representative of any thereof for any liability to the Issuer arising in connection with any breach or default under this Agreement by the Company except to the extent the same is enforced against the rights, title and interest of the Company in the Project Facility, and the Issuer shall look solely to the rights, title and interest of the Company relating to the Project Facility in enforcing its rights against the Company under and in connection with this Agreement; provided, that (a) the foregoing provisions of this Section shall not constitute a waiver, release or discharge of any of the obligations arising under, or of any of the terms, covenants, conditions, or provisions of, this Agreement, but the same shall continue until fully paid, discharged, observed, or performed, (b) the foregoing provisions of this Section shall not limit or restrict the right of the Issuer to name the Company or any other Person as a defendant in any action or suit for a judicial foreclosure or for the exercise of any other remedy under or with respect to this Agreement, or for injunction or specific performance, and (c) the Issuer is not waiving any right it may have against any such partner, shareholder, officer, director, agent or representative of the Company or any partner or affiliate thereof arising from any misrepresentation by, or tort by, such Person. In addition, nothing contained in this Section shall limit in any way the ability of the Issuer from enforcing its rights or the rights of the Company against any Person other than the Company under this Agreement. Section 12.2. SUBORDINATION TO MORTGAGES. This Agreement and all rights of the Issuer and the Company hereunder are and shall be 40 subject and subordinate to the lien of the Mortgage and the Saranac PILOT Mortgage. The subordination of the lien of this Agreement to the lien of the Mortgage and the Saranac PILOT Mortgage shall be automatic, without the execution of any further subordination agreements by the Company. Nonetheless, if the Agent requires any further written subordination agreements, the Company and the Issuer agree to execute, acknowledge and deliver the same. Section 12.3. NOTICES. Except as otherwise provided herein, it shall be sufficient service or giving of any notice, request, complaint, demand or other paper if the same shall be duly mailed by registered or certified mail, postage prepaid, addressed as set forth below, or by telecopy or courier with written evidence of receipt by the addressor, to the Issuer, the Company, the Agent or to any other Person set forth therein. The Issuer, the Company and the Agent by notice given hereunder may designate any different addresses to which subsequent notices, certificates or other communications shall be sent. A duplicate copy of each notice, certificate or other communication given hereunder by one party to another shall also be given to each of the other parties listed herein. To the Issuer: County of Clinton Industrial Development Agency 2 Industrial Boulevard West Plattsburgh, New York 12901 Attention: Chairman With a copy to: Moser & Moser 50 Broadway New York, New York 10004 To the Company: Saranac Power Partners, L.P. Five Post Oak Park, Suite 1400 Houston, TX 77027 Attention: President To the Agent: General Electric Capital Corporation 1600 Summer Street Stamford, CT 06927-1560 Attention: Vice President, Energy Project Operations
Section 12.4. ISSUER, DIRECTORS, MEMBERS, ATTORNEYS, OFFICERS, EMPLOYEES AND AGENTS OF ISSUER NOT LIABLE. No recourse shall be had for the enforcement of any obligation, promise or agreement of the Issuer contained herein or contemplated hereby or in or contemplated by the other Bond Documents or Basic Documents or for any claim based hereon or thereon or otherwise in respect hereof or thereof against any director, officer, agent (other than the Company), attorney or employee, as such, in his individual capacity, past, present or future, of the Issuer or of any successor entity, either directly or through the Issuer or any successor entity whether by virtue of any constitutional provision, 41 statute or rule of law, or by the enforcement of any assessment or penalty or otherwise. No personal liability whatsoever shall attach to, or be incurred by, any director, officer, agent (other than the Company), attorney or employee as such, past, present or future, of the Issuer or any successor entity, either directly or through the Issuer or any successor entity, under or by reason of any of the obligations, promises or agreements entered into between the Issuer and the Company, whether herein contained or to be implied herefrom as being supplemental hereto; and all personal liability of that character against every such director, officer, agent (other than the Company), attorney and employee is, by the execution of this Agreement and as a condition of, and as part of the consideration for, the execution of this Agreement, expressly waived and released. Section 12.5. SPECIAL OBLIGATION. Notwithstanding any representation or statement to the contrary contained herein or in any of the other Bond Documents or Basic Documents, the obligations and agreements of the Issuer contained herein or contemplated hereby and in or contemplated by any other Bond Document or Basic Document, and in any other therewith, and any other instrument or document supplemental thereto shall be deemed the obligations and agreements of the Issuer, and not of any member, officer, agent (other than the Company) or employee of the Issuer in his individual capacity, and the members, officers, agents (other than the Company) and employees shall not be liable personally hereof or thereon or be subject to any personal liability or accountability based upon or in respect hereof or thereof or of any transaction contemplated hereby or thereby. The obligations and agreements of the Issuer contained herein shall not constitute or give rise to an obligation of the State or County of Clinton, New York and neither the State nor County of Clinton New York shall be liable thereon, and further, such obligations and agreements shall not constitute or give rise to a general obligation of the Issuer, but rather shall constitute limited obligations of the Issuer payable solely from the revenues of the Issuer derived and to be derived from the sale or other disposition of the Project Facility (except for revenues derived by the Issuer with respect to the Unassigned Rights). The Issuer shall not be obligated to take any action pursuant to any provision hereof and no order or decree of specific performance with respect to any of the obligations of the Issuer hereunder shall be sought or enforced against the Issuer unless (1) the party seeking such order or decree shall first have requested the Issuer in writing to take the action sought in such order or decree of specific performance, and 10 days shall have elapsed from the date of receipt of such request, and the Issuer shall have refused to comply with such request (or if compliance therewith would reasonably be expected to take longer than 10 days, if the Issuer shall have failed to institute and diligently pursue action to cause compliance with such request) or failed to respond within such notice period, and (2) if the Issuer refused to comply with such request and the Issuer's refusal to comply is based on its reasonable expectation that it will incur fees and expenses, the party seeking such order or decree shall have placed in an account with the Issuer an amount or undertaking sufficient to cover such reasonable fees and expenses, and (3) if the Issuer refuses to 42 comply with such request and the Issuer's refusal to comply is based on its reasonable expectation that it or any of its members, officers, agents (other than the Company) or employees shall be subject to potential liability, the party seeking such order or decree shall (a) agree to indemnify and hold harmless the Issuer and its members, officers, agents (other than the Company) and employees against any liability incurred as a result of its compliance with such demand and (b) if requested by the Issuer shall furnish to the Issuer satisfactory security to protect the Issuer and its members, officers, agents (other than the Company) and employees against all liability, expected to be incurred as a result of compliance with such request. The principal of, prepayment penalty, if any, and interest on the Bonds shall be payable solely from the funds pledged for their payment in accordance with the Loan Agreement. Section 12.6. IF PERFORMANCE DATE NOT A BUSINESS DAY. If the last date for performance of any act or the exercising of any right, as provided in this Agreement, shall not be a Business Day, such payment may be made or act performed or right exercised on the next succeeding Business Day. Section 12.7. BINDING EFFECT. This Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Company, and their respective successors and assigns. No assignment of this Agreement by the Company shall relieve the Company of its obligations hereunder. Section 12.8. SEVERABILITY. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 12.9. AMENDMENTS, CHANGES AND MODIFICATIONS. Subsequent to the issuance of the Bonds and prior to payment of the Bonds, this Agreement may not be effectively amended, changed, modified, altered or terminated except by an instrument in writing signed by the parties hereto, with the written consent of the Agent. Section 12.10. EXECUTION IN COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 12.11. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State. Section 12.12. NO THIRD-PARTY BENEFICIARY. It is specifically agreed between the parties executing this Agreement that it is not intended by any of the provisions of any part of this Agreement to establish in favor of the public or any member thereof, other than as expressly provided herein, the rights of a third-party beneficiary hereunder, or to authorize anyone not a party to this Agreement to maintain a suit for personal injuries or property 43 damage pursuant to the terms or provisions of this Agreement. The duties, obligations and responsibilities of the parties to this Agreement with respect to third parties shall remain as imposed by law. Section 12.13. TERM OF THIS AGREEMENT. This Agreement shall be in full force and effect from the date hereof and shall continue in effect, unless earlier terminated as set forth hereinabove, until the date title to the Project Facility is conveyed to the Company in accordance with Section 5.1(b)(iii) hereof. Section 12.14. SURVIVAL OF OBLIGATIONS. The obligations of the Company to make the payments required by this Agreement and to provide the indemnity required by this Agreement shall survive the termination of this Agreement and the full payment of the Bonds, and all such other payments due hereunder after such termination shall be made upon demand of the party to whom such payment is due. The obligations of the Company with respect to the Unassigned Rights shall survive the termination of this Agreement until the expiration of the period stated in the applicable statute of limitations. 44 IN WITNESS WHEREOF, the Issuer and the Company have caused this Agreement to be executed in their respective legal names and the signatures of duly authorized persons to be attested, all as of the date first above written. COUNTY OF CLINTON INDUSTRIAL DEVELOPMENT AGENCY By: /s/ illegible --------------------------------------- (Vice) Chairman Saranac Power Partners, L.P. By: SARANAC ENERGY COMPANY, INC., its General Partner By: /s/ illegible --------------------------------------- Name: Title: President EX-10.15 6 AMENDED AND RESTATED TERM LOAN AGREEMENT (POWER RESOURCES) AMENDED AND RESTATED TERM LOAN AGREEMENT THIS AMENDED AND RESTATED TERM LOAN AGREEMENT, dated as of December 30, 1988 (the "Agreement"), is made by and among KANSALLIS-OSAKE-PANKKI, a bank organized and existing under the laws of Finland, acting through its New York branch ("KOP"), CREDIT SUISSE, a bank organized and existing under the laws of Switzerland, acting through its New York branch ("CS") as lenders (KOP and CS are hereinafter referred to sometimes as a "Term Lender" and collectively as "Term Lenders"), POWER RESOURCES, INC., a corporation organized and existing under the laws of the State of Texas, as borrower ("Borrower"), and CREDIT SUISSE, a bank organized and existing under the laws of Switzerland, acting through its New York branch, as agent, ("Agent"), in respect of a term loan in the maximum principal sum of ONE HUNDRED SIXTY-FIVE MILLION DOLLARS ($165,000,000). WHEREAS, the Borrower, the Term Lenders and the Agent have entered into that certain Term Loan Agreement dated as of December 31, 1986 (the "Original Term Loan Agreement"); and WHEREAS, the Borrower, the Term Lenders and the Agent desire to amend and restate the Original Term Loan Agreement as herein provided; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged hereby, the parties hereto agree to amend and restate the Original Term Loan Agreement as follows: ARTICLE 1 - DEFINITIONS For purposes of this Agreement, the following terms shall have the respective meanings assigned to them: Accounts. The term "Accounts" means the Additional Collateral Account, the Debt Protection Account, the Maintenance Reserve Account, the Project Control Account and the Special Operating Account. Additional Collateral Account. The term "Additional Collateral Account" means the account established by Borrower at the Agent in accordance with Section 4.2 hereof. Adjusted CD Rate. The term "Adjusted CD Rate" shall mean, on any day, the sum (rounded upwards to the nearest 1/100th of 1%) as determined by the Agent of (i) the rate obtained by dividing (x) the weighted average of the Certificate of Deposit Base Rate of each of the Co-Managers for such day by (y) an amount equal to 1 minus the maximum stated reserve requirement (expressed as a decimal) as specified in Regulation D that would be applicable during the Interest Period to which such Adjusted CD Rate is to apply to a new U.S. dollar nonpersonal time deposit in the United States (with a maturity equal to the Interest Period for which an Adjusted CD Rate is being determined) of a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars (including, without limitation, any marginal, emergency, supplemental, special or other reserves applicable to such liability), plus (ii) the then maximum daily net annual assessment rate as calculated by the Agent for determining the then current annual assessment payable by a Co-Manager to the Federal Deposit Insurance Corporation for insuring such U.S. dollar deposits in the United States. Adjusted CP Rate. The term "Adjusted CP Rate" shall mean, on any day, the sum (rounded upwards to the nearest 1/100th of 1%) as determined by the Agent of (i) the rate obtained by dividing (x) the weighted average of the Commercial Paper Base Rate of each of the Co-Managers for such day by (y) an amount equal to 1 minus the maximum stated reserve requirement (expressed as a decimal) as specified in Regulation D that would be applicable during the Interest Period to which such Adjusted CP Rate is to apply to new U.S. dollar commercial paper in the United States (with a maturity equal to the Interest Period for which an Adjusted CP Rate is being determined) of a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars (including, without limitation, any marginal, emergency, supplemental, special or other reserves applicable to such liability). Advance The term "Advance" means (i) a disbursement by Term Lenders of any of the proceeds of the Term Loan pursuant to the 2 terms of this Agreement or (ii) an issuance of any Letter of Credit by the Letter of Credit Bank, each of which disbursements or issuances is to be made in accordance with the terms of this Agreement. Affidavit of Borrower. The term "Affidavit of Borrower" means a sworn affidavit of Borrower in the form attached hereto as part of Exhibit A, to the effect that: (i) the representations and warranties of Borrower contained in Article 3 of this Agreement, in the other Loan Instruments and in the Project, Documents are complete and correct on the date of such Affidavit of Borrower as though made on and as of such date; (ii) the covenants of Borrower contained in Article 4 of this Agreement, in the other Loan Instruments and in the Project Documents required to be complied with by Borrower on such date have all been fully complied with by Borrower; and (iii) no Default or Event of Default, or event which with the giving of notice or lapse of time, or both, would become such an Event of Default, has occurred and is continuing or will result from the issuance of the Advance then being requested. Agency Fee. The term "Agency Fee" means the non-refundable annual fee of Fifty Thousand dollars ($50,000) to be paid in advance by the Borrower to Agent. The annual Agency Fee shall be paid on the date hereof and on each anniversary of this Agreement and shall be deemed earned when paid. Agent. The term "Agent" means the party named Agent in the first paragraph of this Agreement, or any successor Agent selected pursuant to Section 6.7, acting as Agent for the Term Lenders hereunder. Alternative Financing Proceeds. The term "Alternative Financing Proceeds" has the meaning set forth in Section 2.13(b) hereof. 3 Applicable Lending Office. The term "Applicable Lending Office" means the office of a Term Lender in which the Term Loan is booked for such Term Lender's record-keeping purposes. Application for Advance. The term "Application for Advance" means a written application to Agent, substantially in the form of Exhibit A hereto, by Borrower and containing an Affidavit of Borrower and other documents as Agent may reasonably request. Approved Budget. The term "Approved Budget" means a budget prepared by Borrower and approved by Agent and the Independent Engineer covering the entire term of this Agreement and specifying by principal items for each year of such budget the Projected Gross Revenues and Projected Operating Costs. The Approved Budget is attached hereto as Exhibit C and incorporated herein by reference. Assurance Obligations. The term "Assurance Obligations" has the meaning set forth in Section 7.14 hereof. Availability Period. The term "Availability Period" means the period commencing on the date of this Agreement and terminating on the day preceding the first anniversary of the date of this Agreement. Banking Day. The term "Banking Day" means any day that is not a Saturday, Sunday or legal holiday in the State of New York or the State of Texas, or a day on which banking institutions chartered by the State of New York, the State of Texas or the United States are legally required or authorized to close, and, when used in connection with LIBOR, means a day on which deposits in Dollars may be dealt in on the London interbank market. Base Requirement. The term "Base Requirement" has the meaning set forth in Section 2.3(m). 4 Borrower. The term "Borrower" means the party named Borrower in the first paragraph of this Agreement. Calculation Date. The term "Calculation Date" means the second Term Loan Repayment Date and each subsequent Term Loan Repayment Date. Calculation Period. The term "Calculation Period" has the meaning set forth in Section 4.2 hereof. Certificate. The term "Certificate" has the meaning set forth in Section 4.13 hereof. Certificate of Deposit Base Rate. The term "Certificate of Deposit Base Rate" shall mean, on any day, the sum (rounded upward to the nearest 1/100th of 1%) as determined by the Agent to be the weighted average of the prevailing rates per annum offered at 10:00 a.m. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by the Co-Managers for the purchase at face value of certificates of deposit of the Co-Managers for a period and in an amount comparable to the Interest Period and Principal Amount of the Advance or the amount of the Term Loan with respect to which Borrower has chosen the Certificate of Deposit Rate which shall be made by the Agent and outstanding during such Interest Period. Closing Fee. The term "Closing Fee" means the non-refundable fee equal to 0.375% of the Term Loan Commitment to be paid by Borrower to the Term Lenders on the date hereof. Code. The term "Code" has the meaning set forth in Section 4.16 hereof. Co-Managers. The term "Co-Managers" means KOP and CS. 5 Commercial Code. The term "Commercial Code" means the Uniform Commercial Code as in force in the State of Texas. Commercial Paper Base Rate. The term "Commercial Paper Base Rate" shall mean, on any day, the sum (rounded upward to the nearest 1/100th of 1%) as determined by the Agent to be the weighted average of the prevailing rates per annum offered at 10:00 a.m. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by the Co-Managers for the commercial paper of each such Co-Manager for a period and in an amount comparable to the Interest Period and Principal Amount of the Advance or the amount of the Term Loan with respect to which Borrower has chosen the Commercial Paper Base Rate which shall be made by the Agent and outstanding during such Interest Period. Commitment Fee. The term "Commitment Fee" means the commitment fee to be paid by Borrower for any portion of the Term Loan Commitment which is not advanced, at the rate of one-quarter of one percent (0.25%) per annum, calculated and payable in accordance with Section 2.6 hereof. Construction Lenders. The term "Construction Lenders" means the "Construction Lenders" as defined in the Construction Loan Agreement. Construction Loan Agreement. The term "Construction Loan Agreement" means that certain Construction Loan Agreement, dated as of December 31, 1986, by and among KOP and CS as Construction Lenders, the Borrower and CS as Agent. Contractor. The term "Contractor" means Hawker Siddeley Power Engineering, Inc., a Delaware corporation, as contractor pursuant to the Turnkey Contract. Debt. The term "Debt" of any person means at any date, without duplication, (i) all obligations of such person for 6 borrowed money, (ii) all obligations of such person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligation of such person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, and (iv) all debt of others guaranteed by such person, whether or not secured by a lien or other security interest on any asset of such person. Debt Protection Account. The term "Debt Protection Account" means the interest bearing account established by Borrower at KOP in accordance with the terms of Section 4.3 of this Agreement. Debt Protection Amount. The term "Debt Protection Amount" has the meaning set forth in Section 4.3(b) hereof. Debt Service. The term "Debt Service" means, for any period, an amount equal to the aggregate of (i) principal and interest actually due on the Term Loan during such period pursuant to this Agreement, such amount to be adjusted for any amounts retained in or application of funds from the Additional Collateral Account pursuant to Section 4.2 hereof, (ii) LOC Fees actually due and payable on all Letters of Credit during such period pursuant to this Agreement and any placement costs (including underwriting, marketing, remarketing and legal fees) incurred by Borrower in connection with a financing arrangement supported by a Letter of Credit and (iii) other amounts which Borrower is obligated to pay during such period to Term Lenders pursuant to this Agreement and the other Loan Instruments, all as calculated by Agent. Debt Service Coverage Ratio. The term "Debt Service Coverage Ratio" means, for any period, the ratio of (i) Net Revenues during such period to (ii) the Debt Service for such period, as calculated by Borrower in form and substance reasonably satisfactory to Agent. A sample calculation of a Debt Service Coverage Ratio is attached hereto as Exhibit D. Debtor Relief Laws. The term "Debtor Relief Laws" means any applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar laws 7 affecting the rights or remedies of creditors generally, as in effect from time to time. Default. The term "Default" means the occurrence of any of the Events of Default in Section 5.1, and the failure of such Event of Default to be remedied during the applicable grace period, if any. Default Interest. The term "Default Interest" means interest payable pursuant to Section 2.5(b) of this Agreement. Default Interest Rate. The term "Default Interest Rate" means the Term Loan Interest Rate then in effect for each Advance plus one and twenty-five hundredths per cent (1.25%). Deposit Amount. The term "Deposit Amount" has the meaning set forth in Section 4.2 hereof. Discretionary Cash Flow. The term "Discretionary Cash Flow" means, for any period, Net Revenues for such period less Debt Service for such period. ERISA. The term "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Event of Default. The term "Event of Default" means the occurrence of any of the events and occurrences set forth in Section 5.1 hereof." Facility. The term "Facility" means the natural gas fired cogeneration facility constructed by Contractor for Borrower on property near Big Spring, Howard County, Texas, for the purpose of supplying electric energy and capacity to TUEC and steam to Fina, pursuant to, and as more fully described in, the Turnkey Contract, the O&M Contract and the other Project Documents. 8 Federal Funds Margin. The term "Federal Funds Margin" means with respect to interest on the Term Loan (i) from the date hereof to the day before the fifth anniversary of the date hereof, ninety-five hundredths per cent (0.95%), (ii) from the fifth anniversary of the date hereof to the day before the twelfth anniversary of the date hereof, one and ten hundredths per cent (1.10%), and (iii) on or after the twelfth anniversary of the date hereof, one and thirty-five hundredths per cent (1.35%). Federal Funds Rate. The term "Federal Funds Rate" means, for each Interest Period, for each Advance (or, where the context so requires, the aggregate of the Advances then outstanding), the per annum rate of interest equal to the average of the Term Federal Funds rates offered to Prime Banks at 11 a.m. New York time two (2) Banking Days prior to the commencement of such Interest Period, as reported by Prebon and Garven or other reputable sources, for such period chosen by the Borrower as is available, plus, in the case of each such period of seven (7) days or less, the Federal Funds Margin or, in the case of each such period in excess of seven (7) days, the Interest Margin. FERC Qualifying Facility Certificate. The term "FERC Qualifying Facility Certificate" means the certification of the Facility granted by the Federal Energy Regulatory Commission pursuant to 18 C.F.R. Section 292.207(b), (1986), or such self-qualification certificate pursuant to 18 C.F.R. Section 292.207(a) as may be acceptable in form and substance to the Agent. Fina. The term "Fina" means Fina Oil and Chemical Company, a corporation organized and existing under the laws of the State of Delaware, owning and operating an oil refinery near Big Spring, Howard County, Texas. Final Maturity Date. The term "Final Maturity Date" means the date fifteen (15) years from the date hereof; provided, however, that if either a firm power sales contract or a steam sales contract, in each case reasonably satisfactory to the Term Lenders, is not in effect on or at any time after September 30, 2003, such date shall be the Final Maturity Date. 9 Financial Statements. The term "Financial Statements" means the information which Borrower is required to furnish to Agent pursuant to Section 4.9 hereof and such additional financial information as shall be reasonably required by Agent from time to time including, without limitation, operating statements with respect to the Property and Facility and other reasonable financial information regarding Borrower and the other parties to the Project Documents as Borrower may reasonably be able to obtain. Financing Statements. The term "Financing Statements" means the Form UCC-1 and UCC-3 financing statements and such other documents, instruments or certificates required to be filed with the appropriate offices of Governmental Authorities for the perfection of the security interests granted hereunder and under the Security Documents. First Advance. The term "First Advance" means the first Advance of the Term Loan made by the Term Lenders to or for the account of the Borrower pursuant to the terms and conditions of this Agreement. Fixed Offered Rate. The term "Fixed Offered Rate" means, for each Interest Period, for each Advance (or where the context so requires, the aggregate of the Advances then outstanding) a rate per annum equal to the weighted average of the rates of interest paid by CS on a medium-term deposit note, as described in a Supplement dated July 31, 1987 to an offering circular dated July 31, 1987 or a comparable succeeding note offering, and by KOP from time to time on a comparable medium-term deposit note for that period of three hundred sixty-six (366) days or two through fifteen years (but ending no later than the final Term Loan Repayment Date) which the Borrower shall determine at a rate which the Co-Managers would offer to a third party on a medium-term deposit note of like duration and amount, such weighted average to reflect the proportionate amount of each Co-Managers Term Loan Commitment, or if such rate is not available or reasonably satisfactory to the Borrower, such other medium-term or long-term fixed-rate funding as may be available, for the periods set forth herein, as selected by Borrower and agreed to by the Co-Managers. 10 FSGC. The term "FSGC" means Falcon Seaboard Gas Company, a corporation organized and existing under the laws of the State of Texas. FSOC. The term "FSOC" means Falcon Seaboard Oil Company, a corporation organized and existing under the laws of the State of Texas, and the sole shareholder of Borrower. FSOC Guaranty. The term "FSOC Guaranty" has the meaning set forth in Section 4.3(h) hereof. Governmental Authority. The term "Governmental Authority" means the government of any federal, state, municipal or other political subdivision in which the Property and the Facility are located, and any other government or political subdivision thereof exercising jurisdiction over the Property, the Facility, Borrower or any other party to any of the Project Documents or other Loan Instruments, including all agencies and instrumentalities of such governments and political subdivisions. Governmental Requirements. The term "Governmental Requirements" means all Laws, ordinances, statutes, codes, rules, regulations, orders and decrees of any Governmental Authority, including, without limitation, all authorizations, consents, approvals, registrations, exemptions, permits and licenses with or from any Governmental Authority, applicable to the Property, the Facility, Borrower or any other party to any of the Project Documents or other Loan Instruments. Gross Revenues. The term "Gross Revenues" means, for any period, the total amounts actually received by Borrower from operation of the Facility including, without limitation, payments made by Fina and TUEC. Indemnified Part The term "Indemnified Party" has the meaning set forth in Section 4.31 hereof. 11 Independent Engineer. The term "Independent Engineer" means (i) with respect to the Facility, Calpine Corporation or such other engineering firm as is mutually agreed upon by the Agent and the Borrower or (ii) with respect to the resource and fuel-related requirements of the Facility, Stone & Webster, Inc. or such other engineering firm as is mutually agreed upon by the Agent and the Borrower. Insurance Policies. The term "Insurance Policies" means the insurance policies specified in Article XII of the O&M Contract, the insurance policies specified in Article XIV of the TUEC Agreement, the insurance policies specified in Article XIII of the Steam Agreement and such other insurance policies as Agent may reasonably require and are reasonably commercially available for risks and/or contingencies that are not covered to the reasonable satisfaction of Agent by existing policies. All Insurance Policies shall (1) conform to the relevant provisions of the O&M Contract, the TUEC Agreement and/or the Steam Agreement; (2) be issued by companies and in form and substance reasonably satisfactory to Agent; (3) have Agent, for the account of the Term Lenders, named as an additional insured or, if applicable, a lenders' loss payable (provided, however, that Agent and Term Lenders shall be named as beneficiaries of the worker's compensation policy); and (4) have a provision giving Agent thirty (30) days' prior notice of cancellation or of material change in the coverage. Interest Margin. The term "Interest Margin" means with respect to interest on the Term Loan: (i) from the date hereof to the day before the fifth anniversary of the date hereof, eighty-five hundredths per cent (0.85%); (ii) from the fifth anniversary of the date hereof to the day before the twelfth anniversary of the date hereof, one per cent (1.00%); and (iii) on or after the twelfth anniversary of the date hereof, one and twenty-five hundredths per cent (1.25%);. Interest Payment Date. The term "Interest Payment Date" means with respect to interest on the Term Loan and the LOC Fees, each Term Loan Repayment Date and the final date of each Interest Period. 12 Interest Period. The term "Interest Period" means, in the first instance, the period commencing on and including the date of an Advance and, in the case of each subsequent and successive Interest Period applicable thereto, on the last day of the immediately preceding Interest Period, and ending (i) in the case of an Interest Period using LIBOR, on the same day in the first, third, sixth or twelfth calendar month thereafter, (ii) in the case of an Interest Period based on the Federal Funds Rate, on the day selected by the Borrower and as made available by the Co-Managers, (iii) in the case of an Interest Period based on the Short Term Rate, on the day selected by the Borrower in accordance with the provisions of this Agreement and as made available by the Co-Managers, and (iv) in the case of an Interest Period based on the Fixed Offered Rate, on the next day in the first year thereafter, or the same day in the second through fifteenth year thereafter, or as otherwise available, in each case counting the first but not the last day of each such Interest Period. Borrower shall select each Interest Period by giving written notice of such selection to Agent at least three (3) Banking Days before the first day of such Interest Period; provided, however, that (a) any Interest Period which would otherwise end on a day which is not a Banking Day shall be extended to the next succeeding Banking Day unless, in the case of an Interest Period using LIBOR, such Banking Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Banking Day; (b) any Interest Period which begins on the last Banking Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month in which such Interest Period ends) shall end on the last Banking Day of such calendar month in which the Interest Period ends; (c) at no time shall the outstanding principal amount of the Term Loan accrue interest pursuant to 13 more than twenty (20) Interest Periods (each variation in time or in the basis upon which interest is calculated constituting an Interest Period) unless agreed to by the Agent; and (d) No Interest Period shall extend beyond the Final Maturity Date. Interest Rate Hedge Agreement. The term "Interest Rate Hedge Agreement" means an interest rate swap agreement or an interest rate cap or collar agreement or a fixed offered rate private placement on terms and conditions acceptable to Agent and which are reasonably consistent with standard interest rate swap, cap or collar agreements at the time such agreement is made or the standard terms and provisions applicable to such a private placement at the time such arrangement is entered into, for a period which ends no later than the Final Maturity Date. Law. The term "Law" means any constitution or treaty, any law, ordinance, decree, regulation, order, rule, judicial or arbitral decision and any voluntary restraint, policy or guideline not having the force of law with which such party must reasonably comply, or any of the provisions of such Laws binding on or affecting the party referred to in the context in which the term is used. Letter of Credit. The term "Letter of Credit" means an irrevocable direct-pay letter of credit issued pursuant to Section 2.13 hereof. Letter of Credit Bank. The term "Letter of Credit Bank" means Credit Suisse or any other financial institution acceptable to Agent and Borrower, as issuer of Letters of Credit in accordance with the provisions hereof. LIBOR. The term "LIBOR" means, for each Advance (or where the context so requires, the aggregate of the Advances then outstanding), for Interest Periods of one (1), three (3), six (6) and twelve (12) months, as selected by Borrower, or such other period as requested by Borrower and approved by Agent, for the principal amount of the Term Loan then outstanding, the 14 per annum rate of interest at which dollar deposits in the amount of such outstanding principal amount are, or would be, offered for such Interest Period in the London interbank market at 11 a.m. London time two (2) Banking Days prior to the commencement of such Interest Period, as reported in the Reuter's Monitor for such date under the page code "LIBOR," and in case of variations in rates, the arithmetic average thereof rounded upward if necessary to the nearest one-sixteenth of one percent (1/16%), calculated by Agent; provided, however, that if such reported rate is unavailable, "LIBOR" shall mean, for each Interest Period, for each Advance (or, where the context so requires, the aggregate of Advances then outstanding), the per annum rate of interest at which dollar deposits in the amount of such Advance are, or would be, offered by KOP and CS to prime banks in the London interbank market at 11 a.m. London time two (2) Banking Days prior to the commencement of such Interest Period, and in the case of variations in rates, the weighted average thereof rounded upward if necessary to the nearest one-sixteenth of one percent (1/16%) calculated by Agent. Loan Instruments. The term "Loan Instruments" means this Agreement, the Security Documents, the Term Note(s), the Letter(s) of Credit, the Financing Statements and such other instruments evidencing, securing or pertaining to the Term Loan Commitment, as shall from time to time be executed and delivered to Term Lenders or to Agent by Borrower, or any other party, pursuant to this Agreement, including, without limitation, the Operating Budget. Loan Obligations. The term "Loan Obligations" has the meaning set forth in Section 7.14 hereof. LOC Fee. The term "LOC Fee" means the Interest Margin. LOC Fronting Fee. The term "LOC Fronting Fee" means the letter of credit fronting fee to be paid by Borrower on the outstanding portion of any Letter of Credit at the rate of 0.15% per annum, calculated and payable in accordance with Section 2.6 hereof. LOC Reimbursement Obligation, The term "LOC Reimbursement Obligation" means the obligation of the Borrower to reimburse the Term Lenders for 15 any liabilities incurred by such Term Lenders as account parties in connection with any Letters of Credit issued Pursuant to the provisions of this Agreement. L/C. The term "L/C" has the meaning set forth in Section 4.3(g) hereof. Maintenance Reserve Account. The term "Maintenance Reserve Account" means the interest bearing account established by Borrower with the Agent in accordance with the terms of Section 4.4 of this Agreement. Majority Lenders. The term "Majority Lenders" means, prior to the date of the First Advance, Term Lenders whose aggregate Term Loan Commitment percentages exceed seventy percent (70%) of the total Term Loan Commitment, and after the date of the First Advance means Term Lenders which have advanced more than seventy percent (70%) of the outstanding Term Loan. Mortgage. The term "Mortgage" means each of (i) the Amended and Restated Deed of Trust, Security Agreement and Assignment of Rents dated as of December 29, 1988 by Borrower in favor of Agent for the benefit of the Term Lenders, and (ii) the Deed of Trust, Security Agreement and Assignment of Rents dated as of even date herewith by Borrower in favor of Agent for the benefit of the Term Lenders, securing the payment of, inter alia, the Term Note(s), all amounts due in connection with the Letters of Credit, payment and performance of all obligations specified in the Mortgage and this Agreement, and evidencing a valid and enforceable first-priority perfected lien on the Property and the Facility. Net Revenues. The term "Net Revenues" means, for any period, the difference between Gross Revenues of Borrower and Operating Costs of the Facility. O&M Contract The term "O&M Contract" means that certain Operation and Maintenance Agreement, dated December 30, 1988, by and between Borrower and Operator, as approved by Agent, as the same may be from time to time amended, including all Exhibits thereto. 16 Operating Budget. The term "Operating Budget" means an annual budget prepared by Borrower no later than November 15 of each year and approved by Agent specifying by principal items, for each month of such budget, the Projected Gross Revenues and Projected Operating Costs. The Operating Budget shall be subject to review on an annual basis or at such other times as Borrower or Agent shall reasonably request. Operating Costs. The term "Operating Costs" means, for any period, the amounts actually expended during such period for operation and maintenance of the Facility, including, without limitation, taxes (including federal income taxes), contributions to the Maintenance Reserve Account, premiums for Insurance Policies, fuel costs and the Operator Fee pursuant to the O&M Contract. Operating Costs do not include Debt Service. Operator. The term "Operator" means Falcon Power Operating Company, a corporation organized and existing under the laws of the State of Texas, as Operator pursuant to the O&M Contract. Original Term Loan Agreement. The term "Original Term Loan Agreement" means that certain Term Loan Agreement, dated as of December 31, 1986, by and among KOP and CS, as Term Lenders, Borrower and CS, as Agent. Other Collateral. The term "Other Collateral" has the meaning set forth in Section 7.14 hereof. Participant. The term "Participant" has the meaning set forth in Section 4.29 hereof. Pay-Off Date. The term "Pay-Off Date" has the meaning set forth in Section 7.14 hereof. 17 Permitted Investments. The term "Permitted Investments" means with respect to amounts of less than $100,000, (a) deposit accounts of KOP or CS, as selected by Borrower, bearing interest at prevailing money market rates, and (b) with respect to the Debt Protection Account, time deposits or certificates of deposit with KOP or CS, as determined by Borrower, up to a term not to exceed three (3) months; and for amounts in excess of $100,000, investments maturing not more than 270 days from the date made in any of: (a) direct obligations of the United States of America or of any agency thereof, or obligations guaranteed as to principal and interest by the United States of America; (b) bankers' acceptances and certificates of deposit issued by the Agent, or any bank or trust company having capital, surplus and undivided profits of at least $500,000,000 whose long-term debt is given one of the two highest ratings by both Standard & Poor's Corporation and Moody's Investors Service, Inc.; (c) obligations with the Agent, any bank or trust company or bank holding company described in clause (b) above, in respect of the repurchase of obligations of the type described in clause (a) hereof, provided that such repurchase obligations shall be fully secured by obligations of the type described in said clause (a) and the possession of such obligations shall be transferred to, and segregated from other obligations owned by, the Agent, any such bank or trust company or bank holding company; and (d) commercial paper given one of the two highest ratings (without giving effect to pluses or minuses) by both Standard & Poor's Corporation and Moody's Investors Service, Inc., provided that not more than 25% of the Permitted Investments owned by the Borrower at any time shall consist of commercial paper of the second highest rating; provided, however, in each case, that an investment shall be a Permitted Investment only if Agent may maintain the perfected security interest in favor of the Term Lenders in the funds so invested. Permitted Liens. The term "Permitted Liens" has the meaning set forth in Section 4.10 hereof. Plans. The term "Plans" means the working drawings and specifications for the construction of the Facility, including, without limitation, the project designs constituting Exhibit A to the Turnkey Contract as provided by the Contractor, the Special Conditions constituting Exhibit B1 to the Turnkey Contract and the General Conditions constituting Exhibit B2 to the Turnkey Contract. 18 Pledge Agreement. The term "Pledge Agreement" means that certain Amended, Restated and Consolidated Pledge Agreement dated as of even date herewith among Term Lenders, Agent and Borrower, granting Term Lenders a pledge of the money contained in the Accounts. Prepayment Fee. The term "Prepayment Fee" means the fee to be paid by Borrower to Agent for the account of the Term Lenders, in the amount of three-eighths of one per cent (0.375%) of the amount of any prepayments of the Term Loan prepaid pursuant to Section 2.11 hereof on or before December 31, 1991. Proceeds. The term "Proceeds" has the meaning set forth in Section 4.13(b) hereof. Process Agent. The term "Process Agent" has the meaning set forth in Section 7.11 hereof. Project Control Account. The term "Project Control Account" has the meaning provided in Section 4.1(a) of this Agreement. Project Documents. The term "Project Documents" means all of the following, as any of them may be amended from time to time: (i) Turnkey Contract; (ii) Compromise and Settlement Agreement, dated September 1, 1988, between Borrower and Contractor, as amended by that certain First Amendment to Compromise and Settlement Agreement dated September ___, 1988; (iii) O&M Contract; (iv) Gas Supply Agreement, dated December 11, 1986, between FSOC and Natural Gas Clearinghouse; (v) Gas Supply Agreement, dated December 29, 1986, between FSOC and Borrower; (vi) Gas Supply Agreement, dated December 30, 1988, between FSGC and Borrower; 19 (vii) Fuel Purchase and Sale Agreement, dated November 21, 1986, between Fina and Borrower; (viii) Other gas supply arrangements and pledges or dedications of Qualified gas reserves and substitutes therefor; (ix) Water Supply Agreement, dated _____________________, between the Colorado River Municipal Water District and Borrower; (x) Lease Agreement, dated as of November 21, 1986, between Fina, as lessor, and Borrower, as lessee, as amended by that certain First Amendment to Lease Agreement dated as of December 29, 1986; (xi) Steam Agreement; (xii) TUEC Agreement; (xiii) Tax Agreement; (xiv) Confidentiality Agreement dated October 7, 1985, between FSOC and TUEC; (xv) Letter dated December 23, 1986 from Morgan Stanley Group Inc. to FSOC; (xvi) Insurance Policies; and (xvii) Any other agreement executed in connection with the Facility or any of the Project Documents. Projected Debt Service. The term "Projected Debt Service" means, for any period, as of any date of calculation, an amount equal to the aggregate of (i) principal due on the Term Loan, computed on the Scheduled Payment Basis, during such period, and interest due on the Term Loan during such period, such amounts to be adjusted for any credit or application of funds from the Additional Collateral Account, as the case may be, pursuant to Section 4.2 hereof, (ii) fees due on the Letters of Credit during such period pursuant to this Agreement and any placement costs (including underwriting, marketing, remarketing and legal fees) expected to be incurred by Borrower in connection with a planned financing arrangement supported by a Letter of Credit; and (iii) principal, interest and fees which Borrower is obligated to pay during such period to Term Lenders pursuant to the Agreement or the other Loan Instruments, all as calculated by Agent. Interest for purposes of computing Projected Debt 20 Service shall be deemed to accrue at the then-current Term Loan Interest Rate. Projected Gross revenues. The term "Projected Gross Revenues" means, for any period, the total projected amounts to be received from operation of the Facility (including, without limitation, payments made by Fina and TUEC) based upon the energy, capacity and steam sales prices projected for such period pursuant to the Project Documents, the Facility's average availability and performance during the prior six (6) months, including factors such as routine maintenance, TUEC outages and other events affecting such availability and performance, and such other factors as Borrower, Agent or Independent Engineer shall reasonably deem relevant. Projected Net Revenues. The term "Projected Net Revenues" means, for any period, the difference between Projected Gross Revenues of Borrower and Projected Operating Costs of the Facility. Projected Operating Costs. The term "Projected Operating Costs" means, for any period, the total amounts projected to be expended during such period for operation and maintenance of the Facility including, without limitation, taxes (including federal income taxes), premiums for Insurance Policies, contributions to the Maintenance Reserve Account, fuel costs projected for such period and the Operator Fee pursuant to the O&M Contract. Projected Operating Costs does not include actual Debt Service or Projected Debt Service. Property. The term "Property" means the real property described in Exhibit A to the Lease Agreement dated as of November 21, 1986 between Fina, as lessor, and Borrower, as lessee, as amended by that certain First Amendment to Lease Agreement dated December 29, 1986, together with the leasehold interest held in such Property by Borrower, along with the Facility and all other property constituting the "Mortgaged Property," as described in the Mortgage. Regulation D. The term "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System and any 21 successor regulation, in each case as in effect from time to time. Regulation G. The term "Regulation G" means Regulation G of the Board of Governors of the Federal Reserve System and any successor regulation, in each case as in effect from time to time. Regulation U. The term "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System and any successor regulation, in each case as in effect from time to time. Regulation X. The term "Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System and any successor regulation, in each case as in effect from time to time. Replacement Components. The term "Replacement Components" has the meaning set forth in Section 4.5 hereof. Required Alterations. The term "Required Alterations" has the meaning set forth in Section 4.6 hereof. Required Maintenance Amount. The term "Required Maintenance Amount" means the amount described in Section 4.4(b) hereof. Revolving Loan Amount. The term "Revolving Loan Amount" shall mean the portion of the Term Loan Commitment in excess of One Hundred Ten Million dollars ($110,000,000). Scheduled Payment Basis. The term "Scheduled Payment Basis" means the principal of the Term Loan to be repaid, based upon the principal repayment due pursuant to the schedule set forth in Exhibit F 22 plus interest due and payable, in accordance with the provisions of this Agreement, on each Term Loan Repayment Date. Security Agreement. The term "Security Agreement" means that certain Amended and Restated Assignment and Security Agreement, dated of even date herewith, among Term Lenders, Agent and Borrower, granting to Term Lenders a security interest in the Collateral, as therein defined. Security Documents. The term "Security Documents" means all of the following, as any of them may be amended from time to time: (i) Mortgage; (ii) Security Agreement; (iii) Pledge Agreement; (iv) Financing Statements; (v) Assignment of Insurance Policies; (vi) Letter dated December 23, 1986 from FSOC to TUEC; and (vii) Any other agreement executed in connection with the financing of the Facility or any of the Loan Instruments. Short Term Rate. The term "Short Term Rate" means, for Interest Periods of up to 270 days, as selected by the Borrower, for each Advance (or, where the context so requires, the aggregate of the Advances then outstanding), the per annum Adjusted CD Rate or Adjusted CP Rate offered by the Co-Managers, as available and as determined solely by the Agent; provided, however, that if both the Certificate of Deposit Base Rate and the Commercial Paper Base Rate are offered by both Co-Managers, the Borrower may choose either such rate as the basis for the Short Term Rate; provided further, that if only one of the Certificate of Deposit Base Rate and the Commercial Paper Base Rate is offered by both Co-Managers, such rate shall be the basis for the Short Term Rate; and provided further, that if only one of the Co-Managers offers a Certificate of Deposit Base Rate or a Commercial Paper Base Rate, the Short Term Rate shall be based upon the weighted average of the rate offered by such 23 Co-Manager and the best alternative comparable rate offered by the other Co-Manager. Special Operating Account. The term "Special Operating Account" means the account of Borrower specified in Section 4.1(c) of this Agreement. Steam Agreement. The Term "Steam Agreement" means that certain Steam Purchase and Sale Agreement, dated as of November 21, 1986, by and between Borrower and Fina. Substantial Subcontractors. Subcontractors, materialmen and other parties who have supplied labor, materials or services for the design, construction, testing, start-up and operation of the Facility and whose contract or contracts with Contractor, Operator or Borrower call for a payment or payments totaling at least $100,000, or who otherwise might be entitled to claim a contractual or statutory lien against the Property or the Facility in the amount $100,000 or more. Tax Agreement. The term "Tax Agreement" means that certain Tax Agreement dated as of even date herewith between FSOC and Borrower. Tax Benefits. The term "Tax Benefits" means all those certain tax credits, deductions and depreciation allowances derived from or in connection with the Facility. Taxes. The term "Taxes" means all taxes prescribed under the laws of the United States or any political subdivision thereof imposed on Term Lenders or Agent or on payments to be made to or received by any of them, including without limitation stamp, transfer, withholding and turnover taxes, duties, penalties, fees and other charges, except for (i) Taxes on or measured by income or assets imposed by the United States or the jurisdiction of the principal office or the branch thereof maintaining the Term Loan, (ii) Taxes that would not have been imposed but for the existence of a connection between the Term Lender or Agent, or a participant or sub-participant permitted by Section 4.29, and the jurisdiction imposing such taxes 24 (other than a connection arising solely by reason of this Agreement), and (iii) any Taxes resulting from a failure of any Term Lender or Agent, or a participant permitted by Section 4.29, (x) to act for purposes hereof through a branch in the United States (y) to conduct its business, so that each payment received by it hereunder is effectively connected with the conduct by it of a trade or business through such branch, and (z) to provide appropriate documentation (currently Internal Revenue Service Form 4224) to that effect. Term Lenders. The term "Term Lenders" means the Term Lenders named in the first paragraph of this Agreement. Any subsequent financial institution approved by Borrower (which approval shall not be unreasonably withheld), signing an addendum to this Agreement agreeing to be bound by the terms hereof, shall also be considered a Term Lender under this Agreement, and such Term Lender's proportionate share of the Term Loan shall be evidenced on a revised Schedule I, which shall be promptly furnished to Borrower. Any Term Lender may grant participations in the Term Loan, as provided in Section 4.29 hereof, but the grant of such participations shall not relieve any Term Lender of its obligations, or impair the rights of any Term Lender hereunder. Term Loan. The term "Term Loan" means the aggregate of all Advances by the Term Lenders to Borrower under this Agreement not to exceed, in the aggregate, the Term Loan Commitment. Term Loan Commitment. The term "Term Loan Commitment" means the commitment of each Term Lender to lend sums to Borrower during the Availability Period and to fund Letters of Credit during the term of this Agreement up to but not exceeding the respective amounts set forth for each Term Lender in Schedule I attached hereto and made a part hereof and to maintain such Term Lender's proportionate share thereof, subject to each of the terms and conditions of this Agreement; or where the context so requires, the aggregate Term Loan Commitments for all Term Lenders up to the aggregate amount of One Hundred Sixty-Five Million dollars ($165,000,000), subject to each of the terms and conditions of this Agreement. 25 Term Loan Interest Rate. The term "Term Loan Interest Rate" means, in the case of any Interest Period, interest on the principal amount of each Advance, at that rate per annum equal to: (i) LIBOR plus the Interest Margin for such Interest Period; or (ii) the Short Term Rate plus the sum of the Interest Margin plus twelve and one-half (12.5) basis points for such Interest Period; or (iii) the Federal Funds Rate for such Interest Period; or (iv) the Fixed Offered Rate plus the Interest Margin for such Interest Period; each as selected by Borrower for each Interest Period, and notified to Agent at least three (3) Banking Days prior to the commencement of such Interest Period. In the event Borrower fails to provide such notice to Agent within such time, the Term Loan Interest Rate for the next succeeding Interest Period shall be determined by the Agent. Term Loan Repayment Date. The term "Term Loan Repayment Date" means, except as otherwise required pursuant to Section 2.10, the last day of March, June, September and December, commencing with the first of such dates on or after the date of the First Advance. Term Notes. The term "Term Notes" means one or more negotiable promissory notes in the form attached hereto as Exhibit B. Title Company The term "Title Company" means Southwest Title Company, 3103 Bee Cave Road, Centre 1, Suite 100, Austin, Texas 78746, as agent for Transamerica Title Insurance Company. Title Insurance. The term "Title Insurance" means a title insurance commitment, binder or policy, as Agent may require, in the amount of One Hundred Sixty-Five Million dollars ($165,000,000), insuring or committing to insure that the Mortgage constitutes a valid lien covering the Property having 26 the priority required by Agent and subject only to those exceptions and encumbrances which Agent has approved, issued by the Title Company. TUEC. The term "TUEC" means Texas Utilities Electric Company, a corporation organized and existing under the laws of the State of Texas. TUEC Agreement. The term "TUEC Agreement" means that certain Agreement dated July 30, 1986 between TUEC and FSOC, as amended on December 23, 1986 and May 27, 1988 and that certain Assignment by FSOC to Borrower, with the consent of TUEC, dated December 23, 1986. Turnkey Contracts The term "Turnkey Contract" means the Turnkey Cogeneration Facility Agreement, dated November 22, 1986, between Borrower and Contractor, as the same may be from time to time amended, including all Exhibits thereto. Unadvanced Commitment. The term "Unadvanced Commitment" has the meaning set forth in Section 2.6 hereof. ARTICLE 2 - ADVANCES OF THE TERM LOAN AND PAYMENTS 2.1 Term Loan Commitment. Subject to the terms and conditions hereof, and provided that and Event of Default, and the expiration of the applicable grace period, if any, has not occurred, each Term Lender severally commits for its own account to make Advances, to or for the account of Borrower in accordance with this Agreement, during the Availability Period, and to fund Letters of Credit during the term of this Agreement, up to its respective Term Loan Commitment, as set forth on Schedule I, as the same may be revised from time to time, and totalling in the aggregate the maximum amount of the total Term Loan Commitment. Subject to the limitations on the amount of the Term Loan Commitment and to the provisions of this Agreement, any amounts of the Revolving Loan Amount which Borrower prepays during the Availability Period pursuant to Section 2.11 of this Agreement may be reborrowed by Borrower. The Term Lenders 27 shall have no obligations to make any Advance after the Availability Period. During the Availability Period, the Borrower shall have the right, upon thirty (30) days irrevocable written notice to the Agent and upon payment in full of the Commitment Fee accrued through the date of such reduction, to reduce the amount of the Term Loan Commitment not yet advanced hereunder; provided, however, that all such reductions shall be in the amount of integral multiples of One Million dollars ($1,000,000). All reductions of the Term Loan Commitment pursuant to this provision shall be permanent. 2.2 Procedure for Advances. (a) From time to time during the Availability Period, but not more frequently than once per calendar month, Borrower may submit an Application for Advance to Agent requesting an Advance. Each such Application for Advance shall be submitted at least five (5) (but no more than thirty (30)) Banking Days prior to the date on which such Advance is desired. Each Application for Advance shall be properly executed, and, if signed by Borrower, shall constitute a representation and warranty by Borrower that it is in compliance with all the conditions precedent to such Advance specified in this Agreement. An Application for Advance must request an Advance of at least One Million dollars ($1,000,000) and must be in an integral multiple of one Million dollars ($1,000,000). An Affidavit of Borrower shall be received by Agent prior to each Advance. Borrower acknowledges that if it does not provide all necessary documentation on a timely basis delays may result in making Advances, and Borrower irrevocably consents to such delays. (b) All sums advanced and disbursed hereunder shall be disbursed under and shall be secured by the Loan Instruments. Subject to the other provisions of this Agreement, Agent shall make Advances available to Borrower in immediately available funds not later than 2:00 p.m. (New York time) on the day in question for credit on such day to the Special Operating Account of Borrower or in the case of Advances related to the issuance of Letters of Credit, the Letter of Credit Bank shall issue Letters of Credit in favor of the appropriate party as described in Section 2.13 hereof. Agent may, in its sole discretion, upon the occurrence of an Event of Default or an event which with the passage of time, the giving of notice or both would constitute an Event of Default, make payments directly to Operator, Fina or any other party to a Project Document. 28 2.3 Conditions to the First Advance. The obligation of the Term Lenders to make available the First Advance is subject to the fulfillment, to the satisfaction of Agent and its counsel, not less than three (3) Banking Days prior to the date thereof, and to the continued fulfillment of each such condition on the date of such Advance as if made on each such date, of each of the following: (a) The documents set forth in Exhibit E to this Agreement shall have been duly executed and delivered by the party or parties thereto and shall in all respects be satisfactory in form and substance to Agent; (b) There shall have been no material adverse change in the condition (financial or otherwise) of Borrower or any other party to any of the Loan Instruments or Project Documents, that would materially adversely affect the ability of Borrower to repay the Term Loan, there shall have been no material adverse change in the security interests of the Term Lenders in the Collateral or the Pledged Collateral (as defined in such agreements), and there shall have been no material adverse change in the financial prospects, likely profitability, or likely financial performance of the Facility from the date of this Agreement that would impair the ability of Borrower to meet its obligations hereunder, all as determined in good faith by Agent; (c) The representations and warranties contained in Article 3 hereof shall be true on and as of the date of the First Advance; there shall exist on the date of the First Advance no Default or Event of Default under this Agreement; and Borrower shall deliver to Agent a duly executed certificate, satisfactory in form and substance to Agent, dated the date of the First Advance to both such effects; (d) Borrower shall have opened the Debt Protection Account and deposited One Million dollars ($1,000,000) therein; (e) Neither the execution and delivery and compliance with the terms of this Agreement nor Borrower's ownership or operation of the Facility will cause Borrower, Agent or Term Lenders to become subject to regulation by any Governmental Authority as a "public utility," an "electric utility," an "electric utility holding company," a "public utility holding company," or an "electrical corporation" under any Law or Governmental Requirements (including, without limitation, the Public Utility Holding Company Act of 1935, the Federal Power Act and the Public Utility Regulatory Policies Act of 1978, each as amended); 29 (f) The execution and delivery and compliance with the terms of this Agreement shall not violate any applicable Law or Governmental Requirement; (g) The Security Documents and the delivery of the Pledged Collateral, as defined in such documents, shall have created, as security for the obligations of Borrower hereunder and under the Term Notes, valid and perfected first-priority security interests in and liens on the collateral described therein with priority dating from the date of this Agreement; (h) The Facility shall be a "Qualifying Cogeneration Facility," as such term is defined in the Public Utility Regulatory Policies Act of 1978, as amended, and Borrower shall have self-certified as a Qualifying Cogeneration Facility or shall have obtained a FERC Qualifying Facility Certificate, in full force and effect on the date of the First Advance, from the Federal Energy Regulatory Commission. The Facility, the Property, Borrower and Fina (with respect to the Property) shall be in full compliance with all Governmental Requirements including, without limitation, all applicable environmental, pollution control and ecological laws, ordinances, rules and regulations. The applicable environmental protection agency, pollution control board and/or other Governmental Authorities having jurisdiction over the Property and the Facility shall have issued all permits required to be obtained as of such date for the operation of the Facility, and there shall be no impediment to procurement of all other permits when required; (i) Each of TUEC and Fina shall have executed and delivered to Borrower a certificate, in form and substance reasonably satisfactory to Agent, not earlier than fifteen (15) days prior to the date of the First Advance, attesting that the TUEC Agreement or the Steam Agreement, as the case may be, is in full force and effect; (j) Agent shall have received an Operating Budget from Borrower, reasonably acceptable in form and substance to Agent and Independent Engineer; (k) Borrower shall have opened the Maintenance Reserve Account and deposited Four Hundred Thousand dollars ($400,000) therein; (l) Borrower shall have contracted, in the aggregate, for either (i) a minimum of 12,800,000 MM BTUs for each year of this Agreement or (ii) such amount of natural gas as may from time to time be reasonably deemed necessary by the Co-Managers, after consultation with Borrower, or as Borrower may reasonably recommend, subject to the reasonable approval of the Co-Managers in consultation with the Independent Engineer, to 30 meet in a timely manner all of its obligations under the TUEC Agreement and this Agreement (the "Base Requirement"). The Base Requirement may be provided from one or more of the following sources: (i) National Gas Clearinghouse Inc., pursuant to that certain contract, dated as of December 11, 1986, by and between National Gas Clearinghouse Inc. and FSOC, as the same has been assigned and may be amended from time to time; (ii) Certain Qualified gas reserves currently owned or controlled by FSGC and more fully described on Exhibit G hereto, which, if owned, shall be pledged or, if controlled, shall be dedicated to the Facility until such time and to the extent necessary to fulfill the Base Requirement. For purposes of this Section 2.3(m), the term "Qualified" shall mean such natural gas reserves or natural gas supply arrangements as are reasonably approved by the Independent Engineer and the Agent; and (iii) Qualified natural gas reserves or natural gas supply arrangements as and when the same are acquired and/or entered into by FSGC, a wholly owned subsidiary thereof or an affiliate thereof, including, without limitation, that certain Purchase and Sale Agreement, dated November 21, 1986, by and between Borrower and Fina; provided, however, that Borrower shall have the right to substitute from time to time alternative Qualified natural gas reserves or natural gas supply arrangements. All arrangements for the supply of natural gas to the Facility shall (i) be on terms and conditions reasonably satisfactory to the Co-Managers, (ii) be sufficient to supply the Facility's Base Requirement for a period of fifteen (15) years commencing on the date hereof; (iii) include the execution and delivery of transportation agreements as deemed necessary and reasonably approved by Agent and Independent Engineer; and (iv) during any given year, provide for the sale of natural gas at a price not in excess of the annual weighted average price set forth opposite such year as provided on Exhibit H hereto; and (n) Borrower shall have prepared and submitted to Agent an Approved Budget acceptable to Agent and the Independent Engineer. 2.4 Conditions to Subsequent Advances. The obligation of the Term Lenders to make available any subsequent Advance is subject to the fulfillment to the 31 reasonable satisfaction of Agent and its counsel not less than three (3) days prior to such Advance, and to the continued fulfillment of such conditions on the date of each such Advance, of the following additional conditions precedent and, if required by Agent, Borrower shall deliver to Agent evidence of such fulfillment: (a) All conditions precedent to the First Advance and each subsequent Advance shall have been and shall remain satisfied (including any conditions waived for the First Advance); (b) No material adverse change in the financial condition of the Borrower or any party to the Project Documents or other Loan Instruments shall have occurred which (i) would impair the Borrower's ability to meet its obligations under this Agreement or under the other Loan Instruments; or (ii) impair the security interests of the Term Lenders in the collateral subject to the Security Documents; (c) The representations and warranties contained in Article 3 hereof shall be true in all material respects on and as of each such date; the covenants contained in Article 4 hereof shall have been complied with in all material respects on such date; there shall exist no Event of Default, or an event which with the passage of time, the giving of notice or both would become an Event of Default, under this Agreement; and (d) The Security Documents and the Title Insurance shall have been endorsed and extended, if required under local rules, to cover each Advance with no additional title exceptions objectionable to Agent. 2.5 Interest and Fees. (a) Current Interest and LOC Fees. Borrower shall be obligated to pay interest (and LOC Fees) to Agent for the account of the Term Lenders in respect of each Interest Period (computed on the basis of actual number of days elapsed and a year of 360 days, except with respect to the Fixed Offered Rate) on the daily principal amount of the Term Loan outstanding (or in the case of Letters of Credit, on the daily outstanding portion of any Letters of Credit) during such Interest Period, in arrears, on each Interest Payment Date, at the rate per annum equal to the Term Loan Interest Rate(s) in effect on each such day (or in the case of Letters of Credit, at the LOC Fee then in effect). Interest with respect to an Advance made during an Interest Period shall be computed only from the date of such Advance. Borrower hereby authorizes Term Lenders to make an Advance on each Term Loan Repayment Date which occurs during the Availability Period in 32 the amount of the principal, interest, fees and other amounts due on such date, and credit the Term Loan balance by such amount, whether or not an Application for Advance has been submitted by Borrower. (b) Default Interest. Upon the occurrence of an Event of Default, Borrower shall pay on demand by Agent interest on the principal amount of the Term Loan outstanding and due and payable (and shall pay fees on the outstanding portion of any Letter of Credit) from and including the date of such event to the date such event is cured (after as well as before judgment) at the Default Interest Rate (or in the case of Letters of Credit, at a fee equal to 2.00% per annum), computed on the basis described in sub-paragraph (a) above, so long as such past due amount remains unpaid, which interest shall be payable on each Term Loan Repayment Date and also on demand by Agent. In addition to the payment of such interest, Borrower shall pay to Agent for the account of the Term Lenders any funding and yield protection costs, as provided in Section 2.7 of this Agreement, resulting from the failure of Borrower to pay any amounts under this Agreement when due. Borrower hereby authorizes the Term Lenders to make an Advance on each Term Loan Repayment Date which occurs during the Availability Period in the amount of interest and other costs due on such date, and credit the Term Loan balance by such amount, whether or not an Application for Advance has been submitted by Borrower. 2.6 Other Fees. Borrower shall pay to Agent for the account of the Term Lenders: (i) at the time of the First Advance, the non-refundable Closing Fee; (ii) on the date of any prepayment of the Term Loan, the Prepayment Fee(s), if any, in accordance with the provisions of Section 2.11 hereof; and (iii) the Commitment Fee for any portion of the Term Loan Commitment which is not advanced. Borrower shall pay to the Letter of Credit Bank the LOC Fronting Fee for the outstanding portion of any Letters of Credit and shall pay to the Agent the Agency Fee on the date hereof and each anniversary thereof. The portion of the Term Loan Commitment which is not advanced is referred to herein as the "Unadvanced Commitment". The Commitment Fee shall be computed based upon the average daily balance of the Unadvanced Commitment during each three (3) month period from the date hereof payable in arrears on the last day of each such three (3) month periods and on the last day of the Availability Period. The LOC Fronting Fee shall be computed based upon the average daily balance of outstanding Letters of Credit during each three (3) month period from the date hereof payable in arrears on the last day of each such three (3) month periods 33 and on the last Term Loan Repayment Date. Borrower hereby authorizes Agent to make an Advance in the amount of the Commitment Fee or LOC Fronting Fee when due and credit the Term Loan balance by such amount, whether or not an Application for Advance has been submitted by Borrower. 2.7 Funding and Yield Protection. (a) Taxes. (i) Borrower shall make all payments of all amounts payable hereunder and under the Term Notes net, free and clear of all Taxes, and shall reimburse each Term Lender for the cost of any Taxes imposed on such Term Lender or on any payment under or with respect to any aspect of the Term Loan, the Term Notes or the Letters of Credit or the making, execution or enforcement thereof. Payments to KOP or CS, each acting through its respective New York branch, are currently not subject to any Taxes. Borrower is not obligated to pay any Taxes resulting from a failure of any Term Lender or Agent to maintain a branch, or the failure of any permitted participants to have and maintain a branch, in the United States. If Borrower so requests within ten (10) days of receipt of notice of any such Taxes, such Term Lender shall (consistent with its internal policies and legal and regulatory restrictions) attempt to negotiate with Borrower an assignment of such Term Lender's proportionate share of the Term Loan as further provided below; provided, however, that Borrower shall promptly pay when due all reasonable fees and expenses of such Term Lender incurred or to be incurred in connection with such transfer or assignment; and provided further, that no such transfer or assignment shall relieve Borrower of liability hereunder for amounts imposed on such Term Lender or on any payment under or with respect to any aspect of the Term Loan, the Term Notes or the Letters of Credit or the making, execution or enforcement thereof. (ii) If Borrower is prohibited or prevented by Law or otherwise from making any such payment net, free and clear of any Taxes or from reimbursing any Term Lender for the cost of any such Taxes (as provided above), then the amount of such payment to be made by Borrower shall be increased by such additional amount or amounts as may be necessary to ensure that each Term Lender shall receive a net amount which after payment of any Taxes imposed shall be equal to the amount each Term Lender would have received had no such imposition been made. (iii) Borrower shall provide evidence that all Taxes imposed on all payments under or with respect to the Term Loan, the Term Notes, the Letters of Credit or any related instrument shall have been paid in full to the appropriate authorities by 34 delivery of official receipts or notarized copies thereof to Agent within thirty (30) days after payment thereof. Borrower shall be entitled to make all filings, pursue all remedies and appeals and take such other lawful action to prevent or challenge the imposition of any Taxes, or to procure a refund of any Taxes paid; provided, however, that Borrower shall indemnify and hold the Term Lenders harmless, to the reasonable satisfaction of each Term Lender, for such Taxes (and any penalties, interest or other charges attached thereto) and for any liabilities, costs or expenses incurred by any Term Lender (including reasonable fees and expenses of counsel) in connection with any such action by Borrower. (iv) The Term Lenders and each of the Participants shall provide the Borrower with the forms prescribed by the Internal Revenue Service of the United States certifying such party's exemption from United States withholding taxes with respect to all payments to be made to such party hereunder. (b) Increased Costs. If, with respect to this Agreement, the Term Loan or any of the other Loan Instruments and/or to the making or the maintenance by any Term Lender of its proportionate share of the Term Loan, including the obligations of any Term Lender to reimburse the Letter of Credit Bank for such Term Lender's proportionate share of the Letters of Credit when drawn, compliance by any Term Lender with any direction, requirement or request from any regulatory authority whether or not having the force of Law, with which such Term Lender must reasonably comply, or if any change in the interpretation or application of any Law or the enactment of any Law after the date hereof imposing or modifying any reserve, deposit or similar requirement with respect to any class of assets or liabilities of, deposits with or for the account of, or loans or letter of credit by any Term Lender (or with respect to any change therein or in the amount thereof), or any other condition or circumstance with respect to this Agreement and/or to the maintenance by any Term Lender of its proportionate share of, or obligations with respect to, the Term Loan or the Letters of Credit (other than as a result of any tax or similar charge, whether domestic or foreign, of the type described in Section 2.7(a)), shall result in any increase in cost to any Term Lender in connection with or arising out of this Agreement, the Term Loan, the Letters of Credit or any of the other Loan Instruments or in any reduction in the amount of any payment receivable by such Term Lender hereunder or thereunder, Borrower shall fully reimburse such Term Lender the amount of such increase in cost or of such reduction in payment receivable promptly after written notification thereof to Borrower and Agent by such Term Lender. Each Term Lender shall 35 (consistent with its internal policies and legal and regulatory restrictions) use its best efforts to avoid such increased costs by giving Borrower prompt notice thereof and granting Borrower the opportunity to convert to an alternative arrangement in accordance with the provisions of this Agreement; provided, however, that if Borrower so requests within ten (10) days of receipt of the notification referred to above, such Term Lender shall (consistent with its internal policies and legal and regulatory restrictions) attempt to negotiate with Borrower an assignment of such Term Lender's proportionate share of the Term Loan as further provided below; provided further, that Borrower shall promptly pay when due all reasonable fees and expenses of such Term Lender incurred or to be incurred in connection with such transfer or assignment; and provided further, that no such transfer or assignment shall relieve Borrower of liability hereunder for amounts incurred by such Term Lender pursuant to this provision. In the event such Term Lender shall claim any additional amounts payable pursuant to this Section 2.7 each affected Term Lender shall use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to change the location of its Applicable Lending office so as to eliminate the amount of any such costs or additional amounts which may thereafter accrue; provided, however, that, without prejudice to the other provisions of this Section 2.7, including without limitation this subsection 2.7(b), no such change shall be made if, in the reasonable judgment of such affected Term Lender, such change would be disadvantageous to such Term Lender. Borrower shall pay promptly when due all reasonable fees and expenses of such Term Lender as incurred in connection with such alternative arrangement or change of such Term Lender's Applicable Lending Office. (c) Change of Law. After the date hereof, if any change in applicable Law or in the interpretation thereof by any Governmental Authority makes it unlawful for any Term Lender to make or continue its proportionate interest in the Term Loan, or for the Letter of Credit Bank to issue or maintain the Letters of Credit, then such Term Lender or Letter of Credit Bank shall promptly give notice along with evidence thereof to Borrower and Agent, and Borrower shall pay forthwith in the manner set forth below all amounts outstanding, accrued or payable under this Agreement and the Term Note(s) to such Term Lender or Letter of Credit Bank; provided, however, that if Borrower so requests within ten (10) days of receipt of the notice referred to above, such Term Lender shall (consistent with its internal policies and legal and regulatory restrictions) attempt to negotiate with Borrower an assignment of such Term Lender's proportionate share of the Term Loan as further provided below; provided 36 further, however, that Borrower shall promptly pay when due all reasonable fees and expenses of such Term Lender incurred or to be incurred in connection with such transfer or assignment. If a transfer or assignment is not agreed to by Agent, Borrower and the affected Term Lender(s), then Borrower shall pay forthwith in the manner set forth below all amounts outstanding, accrued or payable under this Agreement and the Term Note(s) to such Term Lender(s). (d) Non-Availability. If at any time dollar deposits in the principal amount of any Term Lender's proportionate interest in, or obligation under, the Term Loan are not available for the next Interest Period to any Term Lender in the London interbank market, such Term Lender shall so notify Agent, who shall so notify Borrower, and the LIBOR basis for such Term Loan shall be suspended, or, at the Borrower's option, the obligation of such affected Term Lender to advance or to continue its proportionate interest in the Term Loan shall be suspended; provided, however, that if the basis is changed to the Short Term Rate or the Federal Funds Rate, Borrower shall pay any additional costs to the Term Lenders incurred as a result of such change. If at any time the Interest Rate (other than the Fixed Offered Rate) then in effect does not serve as an accurate reference, in the reasonable judgment of any Term Lender, for such Term Lender to determine the cost of advancing or maintaining its respective proportionate interest in the Term Loan during any Interest Period, then such Term Lender shall notify Agent, who shall so notify Borrower, and interest on such Term Lender's proportionate share of the Term Loan shall thereafter accrue at an Interest Rate determined by reference to another basis (LIBOR, Short Term Rate or Federal Funds Rate); provided, however, that if such other Interest Rate also does not serve as an accurate reference for such Term Lender, then such Term Lender shall so notify Agent, who shall so notify Borrower, and the obligation of such affected Term Lender to advance or to maintain its proportionate interest in the Term Loan shall be suspended. Borrower shall upon demand of Agent pay forthwith in the manner set forth below all amount outstanding, accrued or payable hereunder owing to such affected Term Lender(s). (e) LIBOR Funding Costs. The provisions of this subsection (e) of Section 2.7 shall apply in the case of interest on the Debt of Borrower hereunder to which a Term Loan Interest Rate based on LIBOR applies. Together with (i) any early repayment or prepayment 37 of the Term Loan, the Letters of Credit or any portion thereof, or (ii) any repayment or prepayment of such obligations or a portion thereof on a date other than an Interest Payment Date or Term Loan Repayment Date, for any reason, Borrower shall pay all interest accrued on the principal amount so repaid or prepaid to the date of actual payment, plus all fees, expenses, liabilities and losses incurred by any Term Lender as a consequence of such early repayment, prepayment or termination. In the case of payment of any amount made prior to the last day of the Interest Period applicable to such amount, Borrower shall pay the amount by which the interest that would have been payable by Borrower to such Term Lender (minus the Interest Margin) on the amount repaid or prepaid from the date of repayment or prepayment until such last day of such Interest Period exceeds the interest payable on a deposit of such amount at the rate as offered to such Term Lender in the London interbank market or in certificates of deposit, as the case may be, one (1) Banking Day after receipt for value of such amount from Borrower for the period from the date two (2) Banking Days after such receipt to the last day of such Interest Period, plus all other amounts payable with respect to the Term Loan or the Letters of Credit, as the case may be. (f) Other Funding Costs. The provisions of this subsection (f) of Section 2.7 shall apply in the case of interest on the Debt of Borrower hereunder to which Term Loan Interest Rate calculated on any basis other than LIBOR applies. Together with (i) any early repayment or prepayment of the Term Loan or any portion thereof, or (ii) any repayment of such obligations or a portion thereof on a date other than an Interest Payment Date or Term Loan Repayment Date, for any reason, Borrower shall pay all interest accrued on the principal amount so repaid or prepaid to the date of actual payment, plus all fees, expenses, liabilities and losses incurred by any Term Lender as a consequence of such early repayment or prepayment, including, without limitation, any loss, cost or expense incurred by such Term Lender by reason of liquidation or re-employment of deposits from third parties in matching deposits in similar instruments for the remaining term of the applicable Interest Periods in accordance with such Term Lender's investment policies with respect to liquidation or re-employment of deposits from third parties. 2.8 Term Note. On or prior to the date of the First Advance, Borrower shall execute and deliver to Agent for the account of the Term Lenders a duly executed Term Note, with maturities and interest conforming to the Term Loan repayment provisions set forth in this Agreement, all in the form attached hereto as Exhibit B 38 and made a part hereof. At the reasonable request of Agent, Borrower will execute and deliver one or more Term Notes, representing in the aggregate the balance then outstanding of the Term Loan, payable to Agent or Term Lender(s), in substitution for the Term Note(s) held prior thereto, which shall be delivered simultaneously to Borrower for cancellation. 2.9 Conditions Precedent for the Benefit of Term Lenders and Agent. All conditions precedent to the obligation of Term Lenders to make any Advance are imposed hereby solely for the benefit of Term Lenders and Agent, and no other party may require satisfaction of any such condition precedent or be entitled to assume that Term Lenders will make any Advance in the absence of strict compliance with such conditions precedent. 2.10 Repayment of the Term Loan. (a) Borrower shall repay the Term Loan, plus accrued and unpaid interest and fees thereon, to Agent for the pro rata account of the Term Lenders, in sixty (60) consecutive quarterly installments, commencing on March 31, 1989 and on each subsequent Term Loan Repayment Date. The amount of principal to be repaid on each of the first four (4) Term Loan Repayment Dates shall be in an amount equal to $625,000. The amount of principal to be repaid on each remaining Term Loan Repayment Date shall be determined by multiplying by 25% the product of the outstanding amount of the Term Loan immediately following the fourth Term Loan Repayment Date and the percentage indicated on Exhibit F that corresponds to the 12-month period from the date of the First Advance in which such Term Loan Repayment Date occurs. (b) Notwithstanding the provisions of Section 2.10(a) above, if on September 30, 2003 the Borrower has not entered into binding agreements in form and substance reasonably satisfactory to the Term Lenders for the sale of electricity and steam produced by the Facility throughout the period of the final Term Loan Repayment Date pursuant to Section 2.10(a), the final Term Loan Repayment Date shall be September 30, 2003, and all of the then outstanding principal amount of the Term Loan plus interest accrued and unpaid thereon shall be due and payable on such date. (c) In addition to payments pursuant to Section 2.10(a) above, on the final day of any Interest Period which does not end on a Term Loan Repayment Date, Borrower shall pay to Agent for the pro rata account of the Term Lenders all accrued and unpaid interest on the Term Loan attributable to such Interest Period. 39 (d) All installments shall be rounded down to the nearest whole dollar, except the final installment, which shall be in an amount equal to the outstanding principal amount of the Term Loan, plus interest accrued and unpaid thereon and fees accumulated and unpaid on any Letter of Credit. 2.11 Optional Prepayment of the Term Loan. By giving irrevocable written notice, which is received by Agent at least five (5) but not more than forty-five (45) Banking Days in advance, Borrower may, at its option make prepayments on a Term Loan Repayment Date to Agent for the account of the Term Lenders of either all the outstanding principal amount of the Term Loan or from time to time any part thereof equal to One Million dollars ($1,000,000) or whole number multiples thereof, all partial prepayments to be applied, upon the direction of Borrower, pro rata against remaining principal payments to minimize, to the extent reasonably practicable, any increased costs to the Agent as described in Section 2.7 hereof; provided, however, that together with all prepayments made prior to January 1, 1992, except for those prepayments made pursuant to Sections 2.7, 2.10 or 4.2, or the substitution of a Letter of Credit pursuant to Section 2.13 for all or a portion of the Term Loan, Borrower shall pay to Agent for the account of the Term Lenders a prepayment premium equal to three-eighths of one percent (0.375%) of the amount of such prepayment; and provided, further, that Borrower shall have no obligation to pay such prepayment premium for any amounts of the Revolving Loan Amount prepaid by Borrower during the Availability Period; and provided, further, that Borrower shall pay to Term Lenders all costs (as described in Section 2.7 hereof), if any, which are incurred by Term Lenders as a result of a prepayment of a portion of the Term Loan or, as the case may be, Term Lenders shall pay to Borrower all Gain (as defined below), if any, resulting from such prepayment. For purposes of this provision, "Gain" shall mean the negative difference of the following two components: (i) the then present value of the required principal and interest payments of the Term Loan that are avoided by such prepayment, discounted at a rate equal to the sum of the yield on U.S. Treasury obligations having a final maturity equal to the average life of the principal payments avoided by such prepayment plus the Interest Margin and (ii) the principal amount of the Term Loan then being prepaid. 2.12 General Terms of Payment. (a) All sums payable to Agent or the Term Lenders hereunder shall be paid without deduction, set-off or counterclaim in New York City in immediately available funds not later than 1:00 p.m. (New York time) on the day in question 40 to the Federal Reserve Bank of New York, for credit to the account of Credit Suisse, New York Branch, ABA No. 0260-0917-9 (CR SUISSE NY), Attention: Loan Department. (b) Any payments made to Agent for its account or for the benefit of Term Lenders shall be applied first against costs, expenses and indemnities due hereunder; then against fees due to Agent and Term Lenders (other than LOC Fees); then against Default Interest, if any; then against interest on the Term Loan; then against any LOC Fees; and then against principal of the Term Loan. (c) Whenever any payment hereunder shall be due, or any calculation shall be made, on a day which is not a Banking Day, the date for payment or calculation, as the case may be, shall be extended to the next succeeding Banking Day, and any interest on any payment shall be payable for such extended time at the specified rate. In no event shall this Section be deemed to modify the definitions of Term Loan Repayment Date or Interest Period set forth in this Agreement. (d) All calculations of interest, fees, increased costs, funding costs, gross up costs or other amounts due hereunder calculated by Agent shall be conclusive as to the amount thereof absent manifest error. Agent shall promptly provide Borrower with a certificate, as to the basis and amount of any withholding or increased cost, setting forth the method of calculation of such amounts, the assumptions made in making such calculation and the reason for such withholding. At least five (5) Banking Days prior to the date on which a payment is due from Borrower hereunder, Agent shall provide a notice to Borrower specifying the amount due and the date on which such amount is due. (e) If no due date is specified for the payment of any amount payable by Borrower hereunder, such amount shall be due and payable not later than twenty (20) days after receipt of written demand by Agent to Borrower for payment thereof. 2.13 Letters of Credit. (a) If Borrower obtains commitments, acceptable in form and substance to Agent, for financing arrangements consisting of commercial paper or privately placed medium-term or long-term debt, and if no Event of Default (or any event that with the passage of time, giving of notice or both would constitute an Event of Default) exists, upon the approval of the Agent the Letter of Credit Bank shall upon Borrower's request support such arrangements through the issuance of one or more Letters of Credit in accordance with the terms and conditions of this Agreement; provided, however, that the 41 Letter of Credit Bank shall be obligated to issue such Letters of Credit only if and when such Letter of Credit Bank's regulations and lending limits permit the issuance of such Letters of Credit. The Letter of Credit Bank shall use reasonable efforts to issue such Letters of Credit within fifteen (15) Banking Days (or sooner, if practicable) after receiving written notice from Borrower. The Letter of Credit Bank agrees to cooperate, consistent with its internal policies and procedures, in providing marketing information and in seeking the highest possible credit agency rating with respect to any such commercial paper. The Term Lenders shall be the account parties with respect to such Letters of Credit, each Term Lender being obligated to reimburse the Letter of Credit Bank in its proportionate share of such Letters of Credit as set forth on Schedule I hereto. Borrower shall be unconditionally obligated to reimburse the LOC Reimbursement Obligation with respect to such Letters of Credit. (b) Borrower shall pay the proceeds of a financing arrangement supported by a Letter of Credit (the "Alternative Financing Proceeds") to Agent for the account of the Term Lenders to reduce all or a portion of the outstanding Term Loan. Any payment made by Borrower to Agent pursuant to this Section 2.13(b) shall be made contemporaneously with the issuance of the Letter of Credit. (c) The stated amount of any Letter of Credit shall equal (i) the Alternative Financing Proceeds of the financing arrangement associated with such Letter of Credit (which may not exceed the outstanding principal balance of the Term Loan), plus (ii) unless otherwise agreed to in writing by Borrower and the Letter of Credit Bank, an amount representing interest on the proceeds of such financing arrangement for a period not to exceed 210 days (or, in the case of proceeds resulting from the issuance of commercial paper, 270 days), at a rate not to exceed twelve per cent (12%) per annum, calculated on the basis of a year of 365 days and the actual number of days elapsed. (d) The agreement or arrangement through which Borrower obtains a financing described in Section 2.13(a) shall be in a form and substance satisfactory to Agent and: (i) shall provide that the repayment obligation under such financing arrangement shall become due and payable on the date the beneficiary of the related Letter of Credit receives written notice from Agent that an Event of Default has occurred or that all amounts outstanding under the Term Note(s) are due, and shall require such beneficiary to call upon the related Letter of Credit on such date, and (ii) shall require Borrower to repay the LOC Reimbursement Obligation under such financing arrangement, and require the beneficiary of the related Letter of Credit to call upon such Letter of Credit, in such a manner 42 as to ensure that the outstanding balance of the Term Loan on each Term Loan Repayment Date shall equal or exceed the principal amount which Borrower is required to repay on the Term Loan on such date in accordance with Exhibit F. (e) Each Letter of Credit issued by the Letter of Credit Bank shall have a term of up to five (5) years. The expiration date of any such Letter of Credit may, at the request of Borrower received by the Letter of Credit Bank at least six (6) months prior to such expiration date, be extended by the Letter of Credit Bank on each annual anniversary date of the issuance of such Letter of Credit until and including December 30, 1998, to an anniversary date of up to five (5) years succeeding such extension date, by written notice from the Letter of Credit Bank on such extension date to the Borrower specifying the new expiration date. Any Letter of Credit issued by the Letter of Credit Bank shall expire on or before the final Maturity Date. (f) Upon payment by the Letter of Credit Bank to a beneficiary under a Letter of Credit: (i) each of the Term Lenders (other than the Letter of Credit Bank) shall immediately reimburse the Letter of Credit Bank without further notice or demand of any kind, in an amount equal to such Term Lender's proportionate share (as set forth on Schedule I hereto) of such payment by the Letter of Credit Bank to a beneficiary under a Letter of Credit, (ii) the outstanding principal balance of the Term Loan shall be increased by an amount equal to the Alternative Financing Proceeds of the financing arrangement associated with such Letter of Credit, and (iii) Borrower shall immediately pay Agent for the account of the Term Lenders, without demand or further notice of any kind, an amount equal to such payment by the Letter of Credit Bank to the beneficiary less the amount by which the outstanding principal balance of the Term Loan was increased in connection with such payment; provided, however, if there is more than one scheduled payment under a Letter of Credit, Agent and Borrower shall agree before the issuance of such Letter of Credit on the proportion of each such payment that will be allocated to increase the outstanding principal balance of the Term Loan and the proportion of each such payment that Borrower will immediately pay to Agent for the account of the Term Lenders. If Borrower fails to pay Agent for the account of the Term Lenders an amount due under this Section 2.13(f), the amount not reimbursed shall bear interest to the extent permitted by law, payable upon demand, at the Default Interest Rate until such amount is paid in full. 43 The obligations of the Term Lenders and Borrower to make each payment due under the terms of this Section 2.13(f) shall be absolute, unconditional and irrevocable, and shall not be affected by any condition or event, including, without limitation: (a) any lack of validity or enforceability of this Agreement, any Letter of Credit or any of the other Loan Instruments; (b) any amendment or waiver of, or consent to departure from, all or any of the Loan Documents, unless expressly agreed to by the Letter of Credit Bank in writing; (c) the existence of any claim, set-off, defense or other right which Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom any such beneficiary or any such transferee may be acting), Agent, the Letter of Credit Bank, the Term Lenders or any other person or entity, whether in connection with this Agreement, any of the other the Loan Instruments or any unrelated transactions; (d) any statement or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever, provided that such presentment shall not have been the result of, or result in a payment due to, gross negligence or willful misconduct of the Agent, the Letter of Credit Bank or the Term Lenders; (e) payment by the Letter of Credit Bank under any Letter of Credit against presentation of a draft or certificate which does not comply with the terms thereof, provided such payment shall not have constituted gross negligence or willful misconduct of the Letter of Credit Bank; or (f) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing, provided that the same shall not have constituted gross negligence or willful misconduct of the Letter of Credit Bank. 2.14 Interest Rate Hedge Agreement. Provided that no Event of Default or event that with the passage of time, giving of notice or both would constitute an Event of Default exists, upon the approval of the Co-Managers, the Borrower may enter into one or more Interest Rate Hedge Agreements with a third party so long as such agreement, in Agent's reasonable judgment, will not have an adverse effect on the Term Lenders' security under the Security Documents or Borrower's ability to meet its obligations hereunder. The Agent agrees to intermediate the swap or hedge and act as a counterparty for a fee to be determined by mutual agreement of the Borrower and the Agent at the time the Borrower selects the counterparty. The Agent's counterparty under such Interest Rate Hedge Agreement shall have at least an "investment grade" rating and be acceptable to the Term Lenders. If the swap or hedge is arranged during the twelve (12) month period beginning on the date of this Agreement, the 44 Agent's annual fee as counterparty shall be twelve and one-half (12.5) basis points if the Agent's counterparty has an investment rating of at least "AA". ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF BORROWER Borrower hereby represents and warrants and certifies to Agent and to the Term Lenders that, as of the date of this Agreement, each of the following representations and warranties is true and correct in all material respects and does not omit to state any material fact necessary to make the contents thereof not misleading. 3.1 Good Standing and Power. Borrower is a corporation duly organized and existing in good standing under the laws of the State of Texas with the power to own its property and to carry on its business as now being conducted and is duly qualified to do business in the State of Texas and in each other jurisdiction in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary. The Borrower has no subsidiaries. 3.2 Authority Borrower has full power and authority to enter into and perform this Agreement and each other Loan Instrument and all Project Documents to which it is a party, and the entering into of this Agreement, each other Loan Instrument and all Project Documents by Borrower has been duly authorized by all proper and necessary corporate action. 3.3 Consents. All authorizations, consents, approvals, registrations, exemptions, permits and licenses with or from Governmental Authorities which are necessary for the execution and delivery by Borrower of this Agreement, each other Loan Instrument and all Project Documents to which Borrower is a party, and the performance by Borrower of its obligations hereunder and thereunder (except for such items not obtained, as explained on Exhibit 1, which items Borrower shall obtain as and when necessary for the operation of the Facility) have been effected or obtained and are in full force and effect. 45 3.4 Binding Effect. Assuming due authorization by the other parties hereto and thereto, this Agreement constitutes, and each other Loan Instrument and Project Document when executed and delivered will constitute, the valid and legally binding obligations of Borrower and the other parties thereto, enforceable in accordance with their respective terms. Enforcement of the Loan Instruments is subject to no defenses, and, with respect to the First Advance, no basis exists for any claims against Term Lenders or Agent under the Loan Instruments. 3.5 Financial Statements. The Financial Statements of Borrower to be provided hereunder are or will be true, correct and complete as of the dates specified therein and fully and accurately present the financial condition of Borrower as of the dates and for the periods specified. To the best of Borrower's knowledge, no material adverse change has occurred in the financial condition of any of the other parties whose Financial Statements Borrower is required to deliver hereunder since the date hereof which would impair the ability of the Borrower to meet its obligations hereunder. 3.6 Suits and Actions. Except, as set forth on Exhibit J, there are no conditions, circumstances, events, agreements, material actions, suits or proceedings pending, or to the knowledge of Borrower threatened, in any court, at law or in equity, or before or by any Governmental Authority against or affecting Borrower, the Property or the Facility, or involving the validity, enforceability or priority of any of the Loan Instruments or, to the best of Borrower's knowledge, involving any of the parties to any of the Project Documents which could impair the ability of such party to perform its obligations under such Project Document. The consummation of the transactions contemplated hereby, and the performance of any of the terms and conditions hereof and of the other Loan Instruments, will not result in a breach of, or constitute a default in, any mortgage, deed of trust, lease, promissory note, loan agreement, credit agreement, other agreement or any rule, regulation, statute or judgment to which Borrower, FSGC or Operator is a party or by which Borrower, FSGC or Operator may be bound or affected. None of Borrower, FSGC or Operator is in default under any Governmental Requirements, other than any non-compliance which does not impair (i) the ability of the Borrower to meet its obligations hereunder or (ii) any of the security interests granted to Term Lenders under any of the Security Documents. 46 3.7 Disclosure. There is no fact which Borrower knows or reasonably should have known that Borrower has not disclosed to Term Lenders in writing that in the reasonable opinion of Borrower would be reasonably likely to materially adversely affect the Property, the Facility or the property, business or financial condition of Borrower or FSGC. 3.8 Inducement to Term Lenders. The representations and warranties contained in the Loan Instruments are made by Borrower as an inducement to Term Lenders to make the Term Loan Commitment hereunder and to advance and maintain the Term Loan, and Borrower understands that Term Lenders are relying on such representations and warranties and that such representations and warranties shall remain true and correct so long as any part of the Term Loan remains outstanding and shall survive any (a) bankruptcy proceedings involving Borrower or the Facility, (b) foreclosure of the Mortgage, (c) conveyance of title to the Property (including the Facility) in lieu of foreclosure of the Mortgage or (d) exercise of any other rights by Term Lenders pursuant to any of the Security Documents. 3.9 Submissions. To the best of Borrower's knowledge, the Loan Instruments and all financial statements, budgets, schedules, opinions, certificates, confirmations, Operator's statements, Fina statements, TUEC statements, FSOC statements, agreements, Project Documents, and other materials submitted to the Term Lenders in connection with or in furtherance of the Loan Instruments by or on behalf of the Borrower (as of the date made or furnished) fully and fairly state the matters with which they purport to deal, and neither misstate any material fact, nor separately or in the aggregate fail to state any material fact necessary to make the statements made not misleading in light of the circumstances under which they were made. 3.10 Status of Parties. None of Borrower, Term Lenders, Agent or Borrower will, solely as a result of the participation by the parties separately or as a group, in the transactions contemplated hereby and the ownership, use or operation of the Facility contemplated hereunder, be deemed by any Governmental Authority to be, or be subject to regulation as, a "public utility," an "electric utility," an "electric utility holding company," "a public utility holding company," a "holding company," or an 47 "electrical corporation" or a subsidiary or affiliate of any of the foregoing under any Law or Governmental Requirements (including, without limitation, the Public Utility Holding Company Act of 1935, the Federal Power Act, and the Public Utility Regulatory Policies Act of 1978, each as amended), and all consents, orders, approvals, or filings necessary to accomplish this result shall have been duly obtained or made. 3.11 Security Interests, Filing and Recordings. On or before the date of the First Advance: (i) Borrower, as trustor, shall execute and cause the recordation of the Mortgage; and (ii) Borrower, as debtor, shall execute Financing Statements covering the security interest transferred to and/or created in favor of Agent for the account of Term Leaders by the Security Documents. In addition, Borrower shall, at its expense, take all reasonable actions that have been requested by Agent or that Borrower knows are necessary to maintain the perfection of the interests of Agent and Term Lenders and shall furnish timely notice of the necessity of such action, together with such instruments, in execution form, and such other information as may be required to enable such person to take such action. Without limiting the generality of the foregoing, Borrower shall execute or cause to be executed and shall file or cause to be filed such Financing Statements, continuation statements, and fixture filings and such Mortgage, deeds of trust, leases or memoranda of leases in all places necessary or advisable (in the opinion of counsel for Agent) to perfect and maintain such security interests and in all other places that Agent shall reasonably request and shall promptly notify Agent of any change in Borrower's chief executive office. 3.12 Operating Budget. The Operating Budget attached hereto as Exhibit K is, to the best of Borrower's knowledge, complete, fair and accurate. 3.13 Regulation U and X. Neither the Borrower nor any of its subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purposes of purchasing or carrying margin stock, as that term is defined by Regulation U. The execution, delivery and performance of this Agreement, the Loan Instruments and the Project Documents in accordance with their respective terms and the making of the Term Loan do not violate the provisions of Regulation U or X. 48 3.14 Base Requirement. To the best of Borrower's knowledge, the Base Requirement is sufficient to satisfy the fuel requirements needed by the Facility to enable Borrower to meet in a timely manner all of its obligations under the TUEC Agreement and this Agreement. 3.15 Environmental Issues. (a) For the purposes of this Section 3.15, all terms used in this Section 3.15 which are not otherwise defined in this Section are used as defined- in that certain Amended and Restated Deed of Trust, Security Agreement and Assignment of Rents dated as of December 29, 1988 by Borrower in favor of Agent for the benefit of the Term Lenders. Unless the context otherwise specifies or requires, the following terms shall have the meaning herein specified: (i) "Hazardous Materials" shall mean (a) any "hazardous waste" as defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), as amended from time to time, and regulations promulgated thereunder; (b) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.) ("CERCLA"), as amended from time to time, and regulations promulgated thereunder; (c) asbestos; (d) polychlorinated biphenyls; (e) any substance the presence of which on the Land is prohibited by any Legal Requirements; (f) any petroleum-based products; (g) underground storage tanks for storing any material in subparagraphs (a) - (f); and (g) any other substance which by any Legal Requirements requires special handling of any federal, state or local governmental entity in its collection, storage, treatment, or disposal. (ii) "Hazardous Materials Contamination" shall mean the contamination (whether presently existing or hereafter occurring) of the Improvements, facilities, soil, groundwater, air or other elements on or of the Land by Hazardous Materials, or the contamination of the buildings, facilities, soil, groundwater, air or other elements on or of any other property as a result of Hazardous Materials at any time (whether before or after the date of this Agreement) emanating from the Land. (iii) "Unauthorized" shall mean not in compliance with all Legal Requirements. 49 (b) Grantor hereby represents and warrants that, to Grantor's knowledge, no Unauthorized Hazardous Materials are now located on the Land and that Grantor has never caused or permitted any Hazardous Materials to be disposed of on, under or at the Land or any part thereof or ever caused or permitted any Hazardous Materials to be placed, held, or located on the Land in an Unauthorized manner. Grantor hereby represents and warrants that, to Grantor's knowledge, no other person has ever caused or permitted any Hazardous Materials to be placed, held, located or disposed of on, under or at the Land or any part thereof except as follows: Based upon a site assessment of the surface conducted by a reputable environmental engineering consulting company, a portion of the surface of the Land was found to have Hazardous Materials Contamination thereon. Such Hazardous Materials Contamination was minor and was subsequently properly and completely removed prior to construction of the Improvements. To Grantor's knowledge, the Land is no longer subject to Hazardous Materials Contamination. To Grantor's knowledge, no part of the Land is being used for the disposal of Hazardous Materials, and no part of the Land is affected by any Hazardous Materials Contamination. To Grantor's knowledge, although the property adjoining the Land may have been used for the processing, manufacturing or other handling of Hazardous Materials, Grantor does not have any specific knowledge regarding the conditions on such properties, except as follows: Based upon a review of Texas Water Commission records, certain activities by Ground Lessor, and its predecessor Cosden Oil and Chemical Company, has caused groundwater contamination underneath the refinery adjacent to the Land. Such groundwater contamination has apparently resulted from surface impoundments and landfills located on the refinery site. A copy of a letter from the attorney for Cosden Oil and Chemical Company to the Texas Department of Water Resources dated April 23, 1985, summarizes the position of Cosden Oil and Chemical Company with regard to such matters. An engineering report entitled "Fina Oil and Chemical Company, Big Spring Facility Proposal to Assess Ground-Water Quality Along Down- gradient Property Boundary" dated April, 1988 and a Compliance Plan between Fina and the Texas Water Commission was issued and was filed with the Texas Water Commission. Based upon a 50 review of such documents and other documents in the Texas Water commission files, it appears that any groundwater contamination on the refinery site is migrating to the South and East rather than the West where the Land is located and any Hazardous Materials Contamination is being removed by Fina pursuant to the Compliance Plan. Accordingly, Grantor has a reasonable basis to believe that the groundwater under the Land is not contaminated. Since Grantor is solely a lessee of the surface and Ground Lessor remains the fee simple owner of the Land, no environmental assessment of the groundwater underneath the Improvements was conducted, especially since Texas Water Commission records indicate that any nearby groundwater contamination would migrate away from rather than toward the Land. The enforcement action against Ground Lessor also resulted in the establishment of a baseline which clearly establishes Ground Lessor as the responsible party with respect to any groundwater contamination in the event that there is any migration of contaminated groundwater under the Land. To Grantor's knowledge, no investigation, administrative order, consent order and agreement, litigation or settlement with respect to Hazardous Materials or Hazardous Materials Contamination is proposed, threatened, anticipated or in existence with respect to the Land. To Grantor's knowledge, the Land is not currently on, and to Grantor's knowledge, after diligent investigation and inquiry, has never been on, any federal or state "Superfund" or "Superlien" list. (c) The representations and warranties of Borrower contained in this Section 3.15 are made only as of the date of this Agreement. ARTICLE 4 - COVENANTS AND AGREEMENTS OF BORROWER Borrower hereby covenants and agrees that from the date of the First Advance until all amounts payable or outstanding hereunder or under any of the other Loan Instruments are paid in full, Borrower shall faithfully observe and fulfill, and shall cause to be fulfilled and observed each and all of the following covenants: 51 4.1 Project Control Account. (a) All Gross Revenues shall be deposited by Borrower in a special depository account (the "Project Control Account") maintained by Borrower with Credit Suisse, 100 Wall Street, New York, New York 10005 (Account No. 199605-02), and titled appropriately so as to identify the nature of such account. Borrower has irrevocably instructed all parties paying Gross Revenues to Borrower, and shall so instruct all other parties at any time paying Gross Revenues to Borrower, to make such payments into the Project Control Account, and all such parties have agreed to make all such payments into the Project Control Account. The monies in the Project Control Account shall be invested in Permitted Investments, selected by Borrower considering the timing of projected withdrawals from such account. (b) All monies while in the Project Control Account are hereby irrevocably pledged by Borrower to Agent for the benefit of the Term Lenders. Borrower hereby irrevocably authorizes Agent to make withdrawals from the Project Control Account pursuant to the terms of this Agreement. (c) From and after the date of the First Advance, Agent shall, on each Term Loan Repayment Date, withdraw from the Project Control Account and pay to the Letter of Credit Bank the LOC Fronting Fee. (d) From and after the date of the First Advance, Agent shall, after making the withdrawal specified in subpart (c) above, withdraw from the Project Control Account on each anniversary of this Agreement and pay to the Agent the Agency Fee. (e) From and after the date of the First Advance, Agent shall, on the last day of each month, after making the withdrawals specified in subpart (d) above, or as requested by Borrower and reasonably agreed to by Agent, withdraw from the Project Control Account, and transfer into a Special Operating Account maintained by Borrower with the Agent (Account No. 19960503) (the "Special Operating Account") or into any other account designated by Borrower, an amount equal to the following month's Projected Operating Costs, determined by reference to the Operating Budget; provided, however, that by written request received by the Agent at least five (5) Banking Days prior to such date, the Borrower may increase the amount set out in the Operating Budget for such Projected Operating Costs by up to fifteen percent (15%) of the Operating Budget, less any portion of such fifteen percent (15%) amount previously so deposited, plus the amount of any non-discretionary payments. 52 (f) From and after the date of the First Advance, Agent shall on the last day of each month, after making the withdrawals specified in subpart (e) above, withdraw from the Project Control Account, and transfer into a Maintenance Reserve Account maintained by Borrower with the Agent (Account No. 19960504) (the "Maintenance Reserve Account"), any deposits due and payable on such date. (g) From and after the date of the First Advance, Agent shall, after making the withdrawals specified in subpart (f) above, withdraw from the Project Control Account on each Term Loan Repayment Date, and apply in accordance with the terms of this Agreement and in the following order, the Debt Service due and payable on such date, and, in the following order, any deposits to the Additional Collateral Account and the Debt Protection Account due and payable on such date; provided, however, that if any Letters of Credit issued pursuant to Section 2.13 hereof are outstanding on such Term Loan Repayment Date, the Agent shall provide for a retainage in the Project Control Account on such Term Loan Repayment Date of an amount determined by the Agent to be equal to the LOC Fees accrued as of such date on the borrowing supported by such Letters of Credit. (h) On the date of the First Advance and on each Term Loan Repayment Date thereafter, Agent shall, after making the withdrawals in the order specified above and allocating a working capital balance of at least Seven Hundred Fifty Thousand dollars ($750,000) or such other amount as mutually agreed by Borrower and the Term Lenders, transfer as Borrower shall direct all monies in excess of such allocated amount remaining in the Project Control Account on such date. (i) From and after the date of the First Advance, Agent shall withdraw from the Project Control Account on any Interest Payment Date which is not a Term Loan Repayment Date, and apply in accordance with the terms of this Agreement, the Debt Service due and payable on such date, and on any other appropriate date as required, the amount described in Section 2.13(f)(iii). (j) Borrower shall draw checks against the Special Operating Account only for payment of Operating Costs in accordance with the Operating Budget and for payment of Operator payments; provided, however, that Borrower shall be permitted to increase the amount set out in the Operating Budget for such Operating Costs by up to fifteen percent (15%) of the Operating Budget, less any portion of such fifteen percent (15%) amount previously added, plus the amount of any non-discretionary payments, without the prior written approval of the Agent and Independent Engineer. All monies at any time in the Special Operating Account are hereby irrevocably pledged by Borrower for the benefit of the Term Lenders as additional security to secure the prompt payment to the Term Lenders of 53 all the Borrower's liabilities to the Term Lenders, and to secure the performance by Borrower of its obligations to them hereunder and under the other Loan Instruments. Borrower hereby irrevocably constitutes and appoints Agent as Borrower's attorney-in-fact, in Borrower's name or in Agent's name, to make withdrawals from the Special Operating Account upon the occurrence of an Event of Default in accordance with the provisions of this Agreement. Prior to an Event of Default, Borrower shall have the right to exercise all its rights with respect to the Special Operating Account, provided that Borrower shall not take any action or suffer to be done any act which would impair the security constituted by this assignment and pledge. Borrower hereby agrees to provide Agent with the authorization necessary to obtain monthly and other periodic advises of debits and credits to the Special Operating Account. (k) At any time when an Event of Default shall have occurred and is continuing, and the applicable grace period, if any, shall have expired, Agent may apply any monies in the Project Control Account and any monies in the Special Operating Account to the payment of Borrower's obligations to the Term Lenders and Agent in such order of application as the Agent may determine in its sole discretion. Borrower shall provide Agent with the authorization necessary to effectuate such transactions. Prompt notification shall be provided by Agent to Borrower of the exercise of any such rights. 4.2 Debt Service Coverage Ratio. (a) Borrower shall deliver to Agent on each Calculation Date the Debt Service Coverage Ratio calculated for the six (6) month period terminating on the last day of the third month immediately preceding such Calculation Date (the "Calculation Period"); provided, however, that for purposes of the first Calculation Date, the Calculation Period shall be the period commencing on the date hereof and terminating on the last day of the third month immediately preceding such first Calculation Date; and provided further, that Borrower shall deliver to Agent all information upon which each such calculation is based five (5) Banking Days prior to such Calculation Date. (b) If the Debt Service Coverage Ratio calculated on any Calculation Date is less than one and one-fifth (1.20), then on such Calculation Date a percentage of the Discretionary Cash Flow for the three month period ending on such Calculation Date (the "Deposit Amount") shall be withdrawn from the Project Control Account and deposited by the Agent, in accordance with Section 4.1 hereof, into the Additional Collateral Account maintained by Borrower at the Agent (Account No. 19960505). Monies in the Additional Collateral Account may be invested in 54 Permitted Investments. So long as no Event of Default has occurred and is continuing, if the Debt Service Coverage Ratio calculated on the next succeeding Calculation Date is one and one-fifth (1.20) or greater, then (i) all funds in the Additional Collateral Account shall be released to Borrower, or to such other person as the Agent shall be legally required to make such delivery and (ii) the full amount of Borrower's Discretionary Cash Flow shall be released to Borrower or as otherwise provided elsewhere in this Agreement, until such time as a calculation required hereunder yields a Debt Service Coverage Ratio of less than one and one-fifth (1.20), in which event the mandatory allocation provisions of this Section 4.2 shall apply. For purposes of this Section 4.2, the Deposit Amount shall be determined in accordance with the formula set forth in Exhibit L hereof. (c) If each Debt Service Coverage Ratio calculated on any two consecutive Calculation Dates is less than one and one- fifth (1.20), then all funds in the Additional Collateral Account shall be retained and the required Deposit Amount shall continue to be deposited by Agent into such account until: (i) such time as the Debt Service Coverage Ratio, calculated taking into account the amounts deposited in the Additional Collateral Account, on any three consecutive Calculation Dates is one and one-fifth (1.20) or greater, at which time all amounts in excess of those required to meet the one and one-fifth Debt Service Coverage Ratio shall be released to Borrower or as may be otherwise provided elsewhere in this Agreement; or (ii) upon the direction of Borrower, applied pro rata against remaining principal payments to minimize, to the extent reasonably practicable, any increased costs to the Agent as described in Section 2.7 hereof. So long as no Event of Default has occurred and is continuing, if the Debt Service Coverage Ratio, calculated excluding the amounts deposited in the Additional Collateral Account, on any three consecutive Calculation Dates is one and one-fifth (1.20) or greater, all amounts in such account shall be released to Borrower on the third such date. For purposes of this Section 4.2(c), the amount of the outstanding balance of the Additional Collateral Account on a Calculation Date shall be divided by the number of remaining Term Loan Repayment Dates; the resulting dollar amount shall be credited against the Scheduled Payment plus interest and/or LOC Fees due and payable on the Term Loan Repayment Dates commencing six months prior to such Calculation Date in order to determine the Debt Service which shall be the denominator for the calculation of the Debt Service Coverage Ratio. 55 (d) All monies while in the Additional Collateral Account are hereby irrevocably pledged by Borrower to Agent for the benefit of the Term Lenders. Borrower hereby irrevocably authorizes Agent, in Borrower's name or in Agent's name, to make withdrawals from the Additional Collateral Account pursuant to the terms of this Agreement. (e) At any time when an Event of Default shall have occurred and is continuing, and the applicable grace period, if any shall have expired, Agent may apply any monies in the Additional Collateral Account to the payment of Borrower's obligations to the Term Lenders and Agent in such order of application as the Agent may determine in its sole discretion. Borrower shall provided Agent with the authorization necessary to effectuate such transactions. Prompt notification shall be provided by Agent to Borrower of the exercise of any such rights. 4.3 Debt Protection Account. (a) Prior to the date hereof, Borrower shall open, and shall thereafter maintain in accordance with the provisions hereof, an account with KOP, 575 Fifth Avenue, New York, New York 10017 (Account No. 52805230) (the "Debt Protection Account"). Monies in the Debt Protection Account may be invested in Permitted Investments by Borrower. On or before the date hereof, Borrower shall deposit into the Debt Protection Account an amount equal to One Million dollars ($1,000,000). (b) On or prior to the day which is five (5) Banking Days prior to each Term Loan Repayment Date, Agent shall advise Borrower of the Projected Debt Service for the three (3) month period commencing on such Term Loan Repayment Date; such amount, for each such period, is referred to herein as the "Debt Protection Amount". (c) If the Debt Protection Account does not contain the Debt Protection Amount, Agent shall withdraw from the Project Control Account and deposit into the Debt Protection Account on each Term Loan Repayment Date, in accordance with Section 4.1 hereof, up to fifty percent (50%) of the Discretionary Cash Flow of the quarter ending on such Term Loan Repayment Date, until the Debt Protection Account contains the Debt Protection Amount; provided, however, that if Agent withdraws any money from the Debt Protection Account to pay Debt Service, Operating Costs or any other reasonable expense in connection with the Property or the Facility, Borrower shall thereafter deposit into the Debt Protection Account, on each Term Loan Repayment Date, eighty percent (80%) of the Discretionary Cash Flow of the quarter ending on such Term Loan 56 Repayment Date, until an amount has been deposited in the Debt Protection Account which, together with interest earned on the amount remaining in the Debt Protection Account, is equal to the withdrawn monies; and thereafter deposit into the Debt Protection Account on each Term Loan Repayment Date up to fifty percent (50%) of the Discretionary Cash Flow of the quarter ending on such Term Loan Repayment Date until the Debt Protection Account contains the full Debt Protection Amount; provided further, that if any calculation of the Debt Service Coverage Ratio, as calculated pursuant to Section 4.2 hereof, is below one and one-fifth (1.20), Borrower's Discretionary Cash Flow shall be utilized as provided in such Section 4.2 prior to making the withdrawals and transfers required hereunder. (d) The monies constituting the Debt Protection Account shall be held by the Agent until applied by Agent to the payment of Borrower's obligations to Agent and the Term Lenders under this Agreement. Borrower hereby irrevocably authorizes Agent, in Borrower's name or in Agent's name, to make withdrawals from the Debt Protection Account pursuant to the terms of this Agreement. If Agent determines that the Project Control Account does not contain sufficient funds to make the payments required hereunder, Agent shall withdraw funds from the Debt Protection Account to cover such shortfall. (e) Borrower hereby pledges to Agent and the Term Lenders and grants to them a security interest in all monies at any time constituting the Debt Protection Account (including the interest paid on such amount) for the purpose of securing all of Borrower's obligations to them under this Agreement and under the other Loan Instruments. (f) At any time when an Event of Default shall have occurred and is continuing, and the applicable grace period, if any shall have expired, Agent may apply any monies in the Debt Protection Account to the payment of Borrower's obligations to the Term Lenders and Agent in such order of application as the Agent may determine in its sole discretion. Borrower shall provided by Agent with the authorization necessary to effectuate such transactions. Prompt notification shall be provided by Agent to Borrower of the exercise of any such rights. (g) If on any Term Loan Repayment Date the Debt Protection Account (including accrued interest) contains more than the then required Debt Protection Amount, the Agent shall transfer such excess to the Project Control Account. Upon payment in full of all obligations of Borrower to Agent and the Term Lenders under this Agreement and the other Loan Instruments, the monies constituting the Debt Protection Account, together with the interest paid thereon, if any, will 57 be released to Borrower, or to such other person as the Agent shall be legally required to make such delivery. (h) So long as no Event of Default (or event that with the passage of time, the giving of notice or both, would constitute an Event of Default) has occurred and is continuing, Agent shall, within five (5) Banking Days after the written request of Borrower, transfer all or a requested portion of the funds in the Debt Protection Account to any account requested by Borrower if all of the following conditions are met: (i) Agent is provided with a letter of credit (the "L/C") from a financial institution acceptable to Agent naming Agent and Term Lenders as beneficiaries and a party other than Borrower as account party; (ii) The amount of the L/C shall be in the full amount of the funds requested to be transferred from the Debt Protection Account; and (iii) The L/C is in a form and substance acceptable to Agent. Agent may draw upon the L/C (i) at any time Agent determines in its sole discretion that funds should be applied from the Debt Protection Account (and there is no balance in such account), (ii) upon the occurrence of an Event of Default (if a payment Event of Default, Agent shall draw upon the L/C) or (iii) the day prior to the date upon which the L/C will expire. Funds drawn under the L/C shall be transferred to the Debt Protection Account; provided, however, that if funds are drawn under the L/C pursuant to (ii) above, then Agent may apply such funds as Agent would have applied funds from the Debt Protection Account. Under no circumstances shall Borrower be obligated for any reimbursement obligation with respect to the L/C, whether to the financial institution issuing the L/C, the account party under the L/C or otherwise. (i) So long as no Event of Default (or event that with the passage of time, the giving of notice or both, would constitute an Event of Default) has occurred and is continuing, Agent may, in its sole and absolute discretion, transfer, within ten (10) days after the written request of Borrower, all or a requested portion of the funds in the Debt Protection Account to any account requested by Borrower if (i) Agent is provided with an irrevocable, unconditional guaranty executed by FSOC (the "FSOC Guaranty") in form and substance acceptable to Agent guaranteeing the availability of the monies which would have otherwise been available in the Debt Protection Account, and (ii) the amount of the FSOC Guaranty is in the full amount of the funds transferred from the Debt Protection Account. 58 The Agent may draw upon the FSOC Guaranty (i) at any time Agent determines in its sole discretion that funds should be applied from the Debt Protection Account, or (ii) upon the occurrence of an Event of Default. Funds paid to Agent pursuant to the FSOC Guaranty shall be transferred to the Debt Protection Account; provided, however, that if funds are drawn on the FSOC Guaranty pursuant to (ii) above, then Agent shall apply such funds as Agent would have applied any funds from the Debt Protection Account. Under no circumstances shall the Borrower be obligated for any reimbursement obligation to FSOC or any other party with respect to the FSOC Guaranty. 4.4 Maintenance Reserve Account. (a) Prior to the date hereof, Borrower shall open, and shall thereafter maintain in accordance with the provisions hereof, an account with the Agent for the purposes of providing for periodic overhaul, repairs and spare parts, in accordance with the provisions of the Operating Budget governing long-term maintenance of the Facility (the "Maintenance Reserve Account"). Monies in the Maintenance Reserve Account may be invested in Permitted Investments by Borrower. (b) The Agent shall deposit and apply funds in the Maintenance Reserve Account in accordance with this provision. When requested by Borrower, amounts may be withdrawn from the Maintenance Reserve Account for budgeted and non-discretionary payments and deposited in the Special Operating Account. So long as the Maintenance Reserve Account does not contain the "Required Maintenance Amount" set forth on the schedule for such deposits attached hereto as Exhibit M, as the same may be amended from time to time by the Borrower with the consent of the Agent and the Independent Engineer, the Agent shall withdraw from the Project Control Account and deposit into the Maintenance Reserve Account on each Term Loan Repayment Date, in accordance with Section 4.1 hereof, the amount set forth on such schedule for each deposit to such account, until the Maintenance Reserve Account contains the Required Maintenance Amount; provided, however, that if Agent withdraws any money from the Maintenance Reserve Account to pay Operating Costs or any other reasonable expense in connection with the Property or the Facility, Agent shall thereafter deposit into the Maintenance Reserve Account, on each Term Loan Repayment Date, amounts in accordance with the schedule until an amount equal to the Required Maintenance Amount is on deposit in the Maintenance Reserve Account. (c) Borrower hereby irrevocably authorizes Agent, in Borrower's name or in Agent's name, to make withdrawals from the Maintenance Reserve Account pursuant to the terms of this Agreement. If Agent determines that the Project Control 59 Account does not contain sufficient funds to make the payments required hereunder, Agent may withdraw funds from the Maintenance Reserve Account to cover such shortfall. (d) Borrower hereby pledges to Agent and the Term Lenders and grants to them a security interest in all monies at any time constituting the Maintenance Reserve Account (including the interest paid on such amount) for the purpose of securing all of Borrower's obligations to them under this Agreement and under the- other Loan Instruments. (e) At any time when an Event of Default shall have occurred and is continuing, and the applicable grace period, if any shall have expired, Agent may apply any monies in the Maintenance Reserve Account to the payment of Borrower's obligations to the Term Lenders and Agent in such order of application as the Agent may determine in its sole discretion. Borrower shall provided Agent with the authorization necessary to effectuate such transactions. Prompt notification shall be provided by Agent to Borrower of the exercise of any such rights. (f) Upon payment in full of all obligations of Borrower to Agent and the Term Lenders under this Agreement and the other Loan Instruments, the monies constituting the Maintenance Reserve Account, together with the interest paid thereon, if any, will be released to Borrower, or to such other person as the Agent shall be legally required to make such delivery. 4.5 Replacement of Components. Borrower, at its sole cost and expense, shall, with reasonable promptness, replace all necessary and advisable components of the Facility that may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever, to the extent that replacement of such components is not the responsibility of Contractor or Operator under the Turnkey Contract or O&M Contract, respectively (such replacements by Borrower being referred to herein as "Replacement Components"). Except as otherwise permitted herein, all Replacement Components shall be free and clear of all liens and rights of others and shall be in as good operating condition as, and shall have a productive capacity, value, utility and remaining useful life at least equal to, the components replaced and shall be in the condition and repair required to be maintained by the terms hereof. 60 4.6 Required Alterations. Borrower, at its sole cost and expense, shall make such alterations to the Facility and the Property as may be required from time to time, subject to the reasonable review and approval of Agent or Independent Engineer, to meet the requirements of any Governmental Requirements ("Required Alterations"). Borrower shall install any Required Alterations promptly; provided, however, that Borrower may at its sole cost and expense contest the applicability of any Governmental Requirements as may entail the installation of any Required Alterations, if and so long as adequate reserves are maintained in accordance with applicable accounting principles with respect to such Required Alterations, and if in Agent's and Independent Engineer's reasonable opinion failure to make such Required Alteration does not impair the productive capacity, value, utility or remaining useful life of the Facility. Subject to the foregoing, all such alterations shall comply with all Governmental Requirements, unless such non-compliance would not impair (i) the ability of the Borrower to meet its obligations under this Agreement or (ii) any of the security interests granted to the Term Lenders under any of the Security Documents. 4.7 Operating Logs. Borrower shall, at its sole cost and expense, (i) maintain at the Property daily operating logs showing, among other things, the electrical and useful steam output of the Facility, (ii) keep maintenance and repair reports in sufficient detail to indicate the nature and date of all work done, (iii) maintain a current operating manual and a complete set of plans, accounting records, and specifications reflecting all alterations and (iv) maintain all other records, logs, and other materials required by the O&M Contract or any Governmental Requirements. 4.8 Resist Regulatory Change. If any Governmental Authority shall issue any order, judgment, regulation or decision the effect of which is to rescind, terminate, repeal, invalidate, suspend, enjoin, amend or modify the TUEC Agreement, the Steam Agreement or any part thereof, then Borrower shall so notify Agent and if, as a result of such regulatory change, there shall exist in the opinion of Agent a reasonable possibility that such regulatory change will have a material and adverse effect on any of the Loan Instruments, Project Documents or the operations or economics of the Facility, Agent shall give Borrower notice thereof and Borrower shall diligently and in a timely fashion (i) make all filings, (ii) pursue all remedies and appeals, and 61 (iii) take such other lawful action, in each case as shall be necessary or, in the reasonable opinion of Agent after such notice, desirable to prevent such regulatory change from becoming final and nonappealable or otherwise irrevocable, to postpone the effectiveness of such regulatory change and to cause such regulatory change to be revoked or amended or modified so as to eliminate the reasonable possibility of such material adverse effect. 4.9 Information. Borrower will deliver to Agent the following information: (a) as soon as available after a best efforts attempt by Borrower to obtain such information, a balance sheet of Borrower, TUEC, Fina, Operator and FSGC, as of the end of such fiscal year, the related statements of income, equity and changes in financial position for such fiscal year and related consolidated statements, if any, setting forth in each case in comparative form the figures for the previous fiscal year, the foregoing financial statements to be consolidated, if such party has subsidiaries, to be prepared in accordance with generally accepted accounting principles in the country of such party's principal place of business, consistently applied, and to be audited by, and to carry the unqualified report (or qualified report reasonably acceptable to the Agent) of independent public accountants of nationally recognized standing; (b) as soon as available after a best efforts attempt by Borrower to obtain such information, a balance sheet of Borrower, TUEC, Fina, Operator and FSGC, consolidated, if such party has subsidiaries, as of the end of the first three quarters of each fiscal year of each such party, the related statements of income and changes in financial position for such quarter and for the portion of such party's fiscal year ended at the end of such quarter and the related consolidated statements, if any, setting forth in each case in comparative form the figures for the corresponding portion of such party's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles in the country of such party's principal place of business and consistency by the chief financial officer, treasurer or chief accounting officer of such party; (c) simultaneously with the delivery of each set of financial statements of Borrower referred to in paragraphs (a) and (b) above, a certificate of the chief financial officer, treasurer or chief accounting officer of Borrower stating that, to the best of such officer's knowledge, no Default or Event of 62 Default exists on the date of such certificate, or if any Default or Event of Default has occurred, setting forth the details thereof and the action which Borrower is taking or proposes to take with respect thereto; (d) forthwith upon the occurrence of any Default or Event of Default reasonably known to Borrower, a certificate of the chief financial officer, treasurer or chief accounting officer of Borrower setting forth the details thereof and the action which Borrower is taking or proposes to take with respect thereto; (e) promptly, upon notice from TUEC, Fina, FSGC or Operator, as the case may be, of any development in such party's affairs, financial or otherwise, which may, in the reasonable judgment of such party, have a material adverse effect on the business, properties, condition (financial or otherwise) or operations, present or prospective, of such party, a copy of such notice (or if oral, a written summary thereof) for delivery to the Agent on the same or on the next Banking Day; (f) forthwith upon the filing by Borrower, and/or promptly upon receipt by Borrower of knowledge of the filing by TUEC, Fina or FSOC of any information or report with any Governmental Authority regarding the Facility, the Property, any of the Loan Instruments or Project Documents, or any of such party's obligations thereunder or regarding any material adverse change in the condition ("financial or otherwise) of such party, a copy of such information or report as may be reasonably obtainable by Borrower; (g) not less than forty-five (45) days prior to the commencement of each Operating Year, as defined in the O&M Contract, the Operating Budget proposed by Borrower for such Operating Year with a copy to the Independent Engineer; and (h) within a reasonable time after request therefor, such additional information regarding the business, properties, condition (financial or otherwise) and operations, present or prospective, of Borrower, TUEC, Fina, FSGC or Operator, as Agent may reasonably request and as may be reasonably obtainable by Borrower. 4.10 Liens. Other than as provided in this Agreement and in the Project Documents and other Loan Instruments, Borrower shall not create, assume or suffer to exist any lien on any asset now owned or hereafter acquired by it except (i) liens which, when aggregated with all Debt incurred in accordance with Section 63 4.17 and all voluntarily-incurred contingent liabilities not incurred in the ordinary course of business (and excluding all contractual obligations incurred in accordance with Section 4.18), do not exceed Five Hundred Thousand dollars ($500,000) in the aggregate at any one time outstanding, (ii) liens approved in advance by the Agent, such approval not to be unreasonably withheld or (iii) the following liens (collectively, the "Permitted Liens"): (a) liens for current taxes, assessments and governmental charges which are not delinquent and remain payable without penalty or are being contested in good faith by appropriate proceedings and for which adequate reserves, bonds or other security reasonably satisfactory to Agent has been provided; (b) purchase money security interests in real or personal property when the obligation secured is incurred for the purchase of such property and does not exceed one hundred percent (100%) of the lesser of cost or fair market value thereof at the time of acquisition, and the security interest does not extend beyond the property involved; (c) mechanics', materialmen's and similar liens which do not individually or in the aggregate materially interfere with the conduct of Borrower's business or which are contested in good faith by Borrower in appropriate proceedings and for which adequate reserves, bonds or security reasonably satisfactory to Agent has been provided; and (d) deposits or pledges to secure statutory obligations, or appeals; release of attachment, stay of execution or injunction; performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases; or for purposes of like general nature in the ordinary course of its business. 4.11 Maintenance of Records; Inspection. (a) At all times Borrower shall maintain financial records in accordance with generally accepted United States accounting principles consistently applied (except as disclosed therein) with those reflected in the Financial Statements referred to in Section 4.9 hereof and, at all reasonable times during normal business hours and as often as the Independent Engineer or Agent may reasonably request, permit any authorized representative designated by the Independent Engineer or Agent to visit and inspect the Property and the Facility, including Borrower's books, and to make extracts from such books and to discuss Borrower's affairs, finances and accounts with its officers and, upon reasonable notice and in the presence of an 64 officer of other authorized representative of the Borrower, its independent certified public accountants or other parties preparing statements for or on behalf of Borrower. (b) At Agent's request, Borrower shall permit the Independent Engineer to conduct an annual audit and review of the operation and maintenance of the Facility. Borrower agrees that the audit and review shall include all fuel requirements and gas supply arrangements relating to the Facility. Borrower agrees to pay all reasonable costs of Agent and Independent Engineer incurred as a result of such annual audits and reviews. 4.12 Consolidations, Mergers, Sales of Assets; Permitted Activities. (a) Borrower shall not dissolve, consolidate or merge with or into any other person, materially amend its charter or bylaws, sell, lease or otherwise transfer all or substantially all of its assets to any other person or form any subsidiary without the prior consent of the Agent. Borrower shall permit the transfer (by assignment, sale or otherwise) of any shares only upon prior notice to the Agent and upon prior approval by the Agent of all transferees (such approval not to be unreasonably withheld); provided, however, that Borrower shall not permit any such transfer if such transfer would violate any Law concerning the transfer of securities; provided further, that prior to such transfer Borrower shall deliver to Agent an opinion of counsel satisfactory to Agent to the effect that such shares are exempt from registration under all Laws applicable to such transfer or that such shares have been registered in compliance with such Laws; and provided further, that FSOC shall agree to indemnify the Term Lenders from any loss or liability incurred by Borrower or Term Lenders in connection with any violation of such Laws caused by such transfer. FSOC shall retain majority ownership of and controlling interest in the Borrower. Borrower shall not issue any new shares or warrants unless the Agent has provided its approval of the purchaser or other holder (which approval shall not be unreasonably withheld) and FSOC retains majority ownership of and a controlling interest in the Borrower. (b) Borrower shall not change its chief executive office nor adopt or change any trade name or fictitious business name without ninety (90) days' written notice to Agent. Borrower shall execute and deliver to Agent any additional documents or certificates necessary or advisable to reflect any permitted adoption of or change in principal place of business, trade name or fictitious business name. 65 4.13 Insurance. (a) Borrower shall maintain or cause to be maintained the required Insurance Policies. At Agent's request, Borrower shall cause Agent to be named as an additional insured or, if applicable, a lenders' loss payable (provided, however, that Agent shall be named as beneficiary of the worker's compensation policy), for the account of the Term Lenders, as their interest may appear, under said policies. Such insurance policies shall provide for at least thirty (30) days' written notice to Agent of cancellation, reduction in amount or material change in coverage. Evidence of payment of premiums for such policies shall be delivered to Agent at least thirty (30) days prior to the expiration thereof. (b) In the event of a casualty loss affecting the Facility or a condemnation of the Facility or the Property, if the restoration of the Facility or Property is feasible, in the reasonable opinion of the Independent Engineer, after deducting from any such insurance or condemnation proceeds (the "Proceeds") the reasonable expenses incurred by Agent in collecting and disbursing such Proceeds or otherwise in connection therewith, the Proceeds shall be released to Borrower from time to time in installments sufficient to pay for restoration as it progresses upon the following conditions: i. All payments required to be made hereunder in connection with the Term Loan continue to be made by Borrower in a timely manner. ii. Agent, prior to the initial release of Proceeds, receives evidence satisfactory to it that: a. The Proceeds are sufficient to complete the restoration of the Facility or the Property to the condition that existed immediately prior to the casualty, or Borrower deposits with Agent the amount of any deficiency or otherwise insures, in a manner reasonably acceptable to Agent, that such deficiency will be deposited in a timely manner; b. The value of the Property or the Facility after restoration will not be materially less than the value of the Property immediately prior to the casualty; and c. A restoration budget and work plan satisfactory in the reasonable judgment of the Agent has been prepared for the complete restoration of the Facility and/or the Property. 66 iii. Agent for all releases of Proceeds in addition to those required by sections (ii) and (iv) of this Section 4.13 receives: a. A certificate (the "Certificate") of Borrower approved by Agent dated not more than ten days prior to the application for such release, certifying that: 1. The sum then requested to be released either has been paid by Borrower and/or is justly due to contractors, subcontractors, materialmen, engineers, architects, or other persons (whose names and addresses shall be stated) who have rendered services or furnished materials in connection with the approved restoration budget and work plan, and stating the progress of the work up to the date of the Certificate; 2. The sum then requested to be released, plus all sums previously withdrawn, does not exceed the cost of the work insofar as actually accomplished up to the date of the Certificate, and that the remainder of the funds then held by Agent will be sufficient to pay in full for the completion of the work or Borrower deposits with Agent the amount of such deficiency or otherwise insures the availability of the deficient amount as aforesaid; 3. No part of the cost of the services and materials described in subsection 1 of this subsection has been or is being made the basis for the release of any part of the funds in any previous or then pending application; and 4. All materials and all property described in the Certificate are free and clear of all mortgages, liens, charges, or encumbrances, except those securing indebtedness due to persons (whose names and addresses and the several amounts due them shall be stated) specified in such certificate, which encumbrances will be discharged upon payment of such indebtedness, 67 except for the liens and security interest created in the Security Documents or except for mechanic's liens reserved or bonded; 5. There is no outstanding indebtedness known, after due inquiry, which is then due and payable for work, labor, services or materials in connection with the work which if unpaid, might become the basis of a vendors, mechanic's, laborer's, or materialman's statutory or other similar lien upon the Facility, the Property or any part thereof unless such indebtedness is reserved for; b. Borrower fulfills such additional conditions as Agent may reasonably impose to provide assurance that the Proceeds will be used to restore the Facility or the Property to the same condition as existed prior to the damage, including, without limitation, Agent's prior approval of plans and specifications for restoration, construction contracts for such restoration and Agent's requirements concerning periodic inspections of such restoration work as it progresses. C. If Agent receives an application by the fifth (5th) day of the month, the release of Proceeds shall be made on the last day of such month. iv. Agent receives, prior to the final release (in addition to that which is required by section iii of this Section 4.13): a. Evidence satisfactory to Agent that the restoration has been completed and the Facility and the Property conform to all applicable Governmental Requirements, unless such non- conformity would not impair the ability of the Borrower to meet its obligations under this Agreement or any of the security interests granted to the Term Lenders under any of the Security Documents; and b. A certification by the Independent Engineer that the restoration is complete to its reasonable satisfaction. 68 V. If the amount of Proceeds exceeds the amount necessary to effect restoration and reimburse Agent for its expenses, then such excess shall be paid over to Borrower after such restoration is completed as follows: a. Upon compliance with the foregoing provisions, Agent shall at Borrower's request, pay out of the funds held by it, to the persons named in the Certificate, the amounts stated in such Certificate to be due to them and/or shall pay to Borrower the amount stated in said Certificate to have been paid by Borrower. b. All business interruption insurance proceeds, to the extent paid, shall be jointly payable to Borrower and Agent and shall be deposited in the Project Control Account. 4.14 Taxes. Borrower shall pay and discharge all taxes, assessments and governmental charges upon it, its income and its properties prior to the date on which penalties are attached thereto, unless and to the extent only that (i) such taxes, assessments and governmental charges shall be contested in good faith and by appropriate proceedings by Borrower and (ii) adequate reserves are maintained by Borrower with respect, thereto. 4.15 Compliance with Laws. Borrower shall ensure that the Facility is operated and administered in accordance with all applicable Governmental Requirements, including without limitation all regulations and statutes governing environmental matters, unless such non-compliance would not impair (i) the ability of the Borrower to meet its obligations under this Agreement or (ii) any of the security interests granted to the Term Lenders under any of the Security Documents, and shall ensure that the FERC Qualifying Facility Certificate is maintained for the Facility. Borrower shall timely comply with all applicable Governmental Requirements unless such non-compliance would not impair (i) the ability of the Borrower to meet its obligations under this Agreement or (ii) any of the security interests granted to the Term Lenders under any of the Security Documents, and if available, deliver to Agent evidence thereof, and if not available, certify to Agent that Borrower is in such compliance. Borrower assumes full responsibility for the 69 compliance of the Plans and the Facility with all applicable Governmental Requirements and with sound and reasonable engineering practices and, notwithstanding any approvals by Term Lenders, they shall have no obligation or responsibility whatsoever for the Plans or any other matter incident to the Property or the design construction, testing, start-up or operation of the Facility. 4.16 Compliance with ERISA. Borrower shall not permit, with respect to any employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code of 1986, as amended (the "Code") and which is maintained by Borrower for the benefit of employees of Borrower: (i) any prohibited transaction or prohibited transactions under ERISA or the Code resulting in liability of Borrower exceeding in the aggregate Fifty Thousand Dollars ($50,000), (ii) any reportable event under ERISA, if upon termination of the plan or plans with respect to which one or more such reportable events shall have occurred there is or would be any liability of Borrower to the Pension Benefit Guaranty Corporation. 4.17 Other Debt. Borrower shall not incur any Debt, other than the Debt contemplated in this Agreement or in the O&M Contract, which, when aggregated with liens permitted pursuant to Section 4.10(i) and voluntarily-incurred contingent liabilities not incurred in the ordinary course of business (and excluding all contractual obligations incurred in accordance with Section 4.18), exceeds Five Hundred Thousand dollars ($500,000) in the aggregate at any one time outstanding, without the prior written consent of Agent; provided, that no such debt may be incurred unless such debt is fully subordinated to all of Borrower's obligations under this Agreement and the other Loan Instruments; and provided further, additional subordinated indebtedness shall be approved by the Agent if such indebtedness would be incurred on terms and conditions approved by the Agent, such approval not to be unreasonably withheld or delayed, and such indebtedness, when aggregated with all other such subordinated indebtedness of Borrower, would not, in the reasonable opinion of Agent, impair the ability of the Borrower to perform its obligations under this Agreement, the other Loan Instruments and the Project Documents. 70 4.18 Other Contracts. (a) Borrower shall become party to no contract or capital lease other than the Project Documents for the performance of any work on the Property or for the supplying of any labor, materials, equipment or services for the design, construction, testing, start-up or operation of the Facility except upon such terms and with such parties as shall be approved in writing by the Independent Engineer and Agent which consent shall not be unreasonably withheld or delayed; provided, however, that such approval shall not be required for contracts in connection with which all other parties to such contracts execute written consents in form and substance acceptable to Agent consenting to the assignment of such contracts to Agent as security and which: (i) are included in the Annual Budget and are to be performed within one year; or (ii) if not capable of performance within one year, involve payment by Borrower of less than Two Hundred Fifty Thousand dollars ($250,000) or which, when aggregated with all such contracts, involve payments of less than Seven Hundred Fifty Thousand dollars ($750,000). (b) Borrower will not suffer or permit any breach or default to occur in any of the obligations of Borrower under the Project Documents nor suffer or permit the termination, cancellation, modification (other than, in the case of gas supply arrangements only, any modification that does not or would not have an adverse impact on the commitment, deliverability, maturity, or pricing or other financial or economic terms of such arrangements) or, in the case of Insurance Policies, non-renewal of any of such documents by reason of any failure of Borrower to meet any requirement or, in the case of Insurance Policies, exercise any renewal option. Borrower will promptly notify Agent of any default by Borrower or by any other party to any of the Project Documents, upon reasonable knowledge of such default. Borrower will comply with all conditions of the Project Documents and will execute all documents necessary for the consummation of the transactions contemplated thereby. 4.19 Costs and Expenses. Borrower shall pay to Agent for the account of Term Lenders when due the Agency Fee and the LOC Fronting Fee, all costs and expenses in connection with the advance, the negotiation, preparation, execution and closing of this Agreement and related documents, the issuance of the Term 71 Notes, the exercise of any right, power or remedy, the enforcement of payment and other terms, including, without limitation, (a) all fees for filing or recording the Loan Instruments, (b) all reasonable fees and expenses of counsel to Co-Managers and to Agent, (c) all title insurance and title examination charges, including premiums for the Title Insurance, (d) all survey costs and expenses, (e) all premiums for the Insurance Policies, (f) all reasonable fees and expenses of the Independent Engineer, and (g) all other reasonable costs and expenses payable to third parties incurred by the Co-Managers, the Letter of Credit Bank and/or Agent and necessary in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, all renewals, extensions or modifications thereof. 4.20 Additional Documents. Borrower shall execute and deliver to Agent, from time to time as requested by Term Lenders, such other documents as shall reasonably be necessary to provide the rights and remedies to Term Lenders granted or provided for by the Loan Instruments or the Project Documents and to consummate the transactions contemplated therein. 4.21 No Liability of Term Lenders or Agent. Term Lenders, the Letter of Credit Bank and Agent shall have no liability, obligation or responsibility whatsoever, jointly or severally, with respect to the Property or the design, construction testing, startup or operation of the Facility except to advance and maintain the Term Loan pursuant to this Agreement and to issue and maintain Letters of Credit. Except as provided in the immediately preceding sentence, Term Lenders and Agent shall not be obligated to inspect the Property or the construction of the Facility, nor be liable for the performance or default of Borrower, FSOC, Fina, TUEC, Contractor, Operator or any other party, or for any failure to construct, complete, protect or insure the Property, the Facility or any other property of any other person, or for the payment of costs of labor, materials or services supplied for the design, construction, testing, start-up and operation of the Facility, or for the performance of any obligation of Borrower or of any other party to any of the Project Documents. Nothing, including without limitation the advancing and maintenance of the Term Loan or acceptance of any document or instrument, shall be construed as a representation or warranty, express or implied, to any party by Agent, the Letter of Credit Bank or by Term Lenders. 72 4.22 No Conditional Sale Contract, Etc. Except as otherwise provided in this Agreement, no materials, equipment or fixtures shall be supplied or purchased for the operation of the Facility pursuant to security agreements, conditional sale contracts, lease agreements or other arrangements or understandings whereby a security interest or title is retained by any party or the right is reserved or accrues to any party to remove or repossess any materials, equipment or fixtures intended to be utilized in the construction or operation of the Facility. 4.23 Defense of Actions. Upon the occurrence of an Event of Default, or upon the reasonable determination of Agent that an Event of Default is imminent, or with Borrower's prior approval, Agent may (but shall not be obligated to) commence, appear in or defend any action or proceeding purporting to affect the Term Loan, the Letters of Credit, the Property, the Facility or the respective rights and obligations of Term Lenders, Agent and any other person pursuant to this Agreement, any of the other Loan Instruments or any of the Project Documents. Term Lenders and/or Agent may (but shall not be obligated to) pay all necessary expenses, including reasonable attorneys' fees and expenses, incurred in connection with such proceedings or actions, which expenses Borrower hereby agrees to repay to Agent and Term Lenders promptly upon demand. 4.24 Assignment of Project Documents. As additional security for the payment of the Term Loan, Borrower hereby transfers and assigns to Agent for the account of Term Lenders all of Borrower's rights and interest, but not its obligations, in, under and to the Project Documents upon the following terms and conditions: (a) Neither this assignment nor any action by Agent or Term Lenders shall constitute an assumption by Agent or Term Lenders of any obligations under the Project Documents, and Borrower shall continue to be liable for all obligations of Borrower thereunder. Borrower hereby agrees to perform all of its obligations under the Project Documents and to indemnify and hold harmless Agent and Term Lenders against and from any loss, cost, liability or expense (including, but not limited to, reasonable attorneys' fees and expenses) resulting from any failure of Borrower to so perform. (b) Agent, upon the occurrence and continuation of an Event of Default, and expiration of the applicable grace period, if any, or upon the occurence of an event which with 73 the passage of time, the giving of notice or both would constitute an Event of Default, shall have the right at any time, but shall not be obligated, to take in its name or in the name of Borrower such reasonable action as Agent may determine to be necessary or advisable to cure any default under any Project Document or to protect the rights of Borrower or Term Lenders thereunder. Term Lenders and Agent shall incur no liability if any such reasonable action so taken by Agent or on its or their behalf shall prove to be inadequate or invalid, and Borrower agrees to hold harmless Agent and Term Lenders, should such action prove to be inadequate or invalid, against and from any loss, cost, liability or expense (including, but not limited to, reasonable attorneys' fees and expenses) incurred in connection with any such action. (c) Borrower hereby irrevocably constitutes and appoints Agent, upon an Event of Default, and the expiration of the applicable grace period, if any, with full power of substitution, as Borrower's attorney-in-fact, in Borrower's name or in Agent's name, to enforce all rights of Borrower under the Project Documents; provided, however, that Borrower shall not cancel or amend any Project Document or do or suffer to be done any act which would impair the security constituted by this assignment without the prior written consent of Agent. (d) This assignment shall inure to the benefit of Agent, Term Lenders, their respective successors and assigns, including any purchaser upon foreclosure of the Mortgage or other collateral, any receiver in possession of the Property or other collateral, and any corporation formed by or on behalf of Agent or Term Lenders which assumes Agent's and/or Term Lenders' rights and obligations under this Agreement. 4.25 Prohibition on Assignment of Borrower's Interest. Borrower shall not assign or encumber any interest of Borrower hereunder, under any other Loan Instrument, any of the Project Documents, the Facility or the Property, without the prior written consent of Agent. 4.26 Payment of Expenses Borrower shall promptly pay or cause to be paid when due all costs and expenses (except for such costs and expenses as are challenged by Borrower in good faith, the nonpayment of which, is the reasonable judgment of Agent and Independent Engineer, would not have a materially adverse effect on the Property, the Facility or on the operation thereof) incurred in connection with the Property and the Facility, including, without limitation, the reasonable fees and expenses of the Independent Engineer, and Borrower shall keep the Property, the 74 Facility and any funds due to Borrower free and clear of any liens, charges or claims other than the liens of the Mortgage and of the other Security Documents, the "Permitted Liens," as defined in Section 4.10, and other liens approved in writing by Agent, except for such liens, charges and claims as are contested by Borrower in good faith in appropriate proceedings and for which adequate reserves, bonds or other security reasonably satisfactory to Agent has been provided. 4.27 Restrictions and Annexation. Neither Borrower nor Fina shall impose any restrictive covenants or encumbrances upon the Property or execute or file any plat adversely affecting the Property. 4.28 Advertising by Agent, Term Lenders and Borrower. Borrower and Agent agree that none of Agent, Term Lenders nor Borrower shall refer to the financing of the Facility by Term Lenders, in any of Agent's, Term Lenders' or Borrower's advertising, without the consent of the other parties hereto. 4.29 Loan Participations. Borrower acknowledges and agrees that Term Lenders may, from time to time, sell or offer to sell on a pro rata basis interests in the Term Loan, the Letters of Credit and the Loan Instruments to one or more participants acceptable to Borrower (each a "Participant"); provided, however, that Borrower shall not unreasonably withhold such approval. Borrower hereby expressly approves as a Participant hereunder any participant under the Original Agreement; provided that any such participant which does not waive its right to receive a prepayment penalty as provided in Section 2.10 of the Original Agreement is hereby disapproved. Borrower authorizes Agent and Term Lenders, subject to the confidentiality obligations set forth in Section 7.16 hereof, to disseminate to any such Participant or prospective Participant any information Term Lenders or Agent possess pertaining to the Property, the Facility, the Loan Instruments and the Project Documents, including, without limitation, complete and current credit information on Borrower and on any of the other parties to any Loan Instrument or Project Document, without the consent of or notice to the Borrower. Borrower agrees that each Participant shall have all the rights granted to the Term Lenders hereunder, including, without limitation, those granted in Section 2.7 hereof. Borrower agrees to supply certain reasonably requested information, and to execute and deliver all such instruments and take all such further action as the Agent or Term Lenders may from time to time reasonably request 75 in connection with such participation arrangements. Agent shall notify Borrower of the name and address for notice of each new Participant, and of such Participant's proportionate interest in the Term Loan Commitment. 4.30 Notice of Litigation, Claims and Financial Change. Borrower shall timely respond to and inform Agent promptly, but no later than within five (5) Banking Days of receipt, of: (i) any litigation against Borrower or affecting the Property or Facility, or any such litigation known to Borrower involving any other party to any of the Loan Instruments or Project Documents which could have a material adverse effect upon the condition of Borrower or upon the Property or Facility or affect the ability of any other party to any of the Loan Instruments or Project Documents to perform its obligations thereunder or could cause an Event of Default; (ii) any claim or controversy which could become the subject of such litigation; (iii) any official notice or claim by any Governmental Authority received by Borrower or known to Borrower pertaining to the Property, the Facility, any of the Project Documents or any of the Loan Instruments having a material or substantial effect on any of the foregoing; (iv) any fire or other casualty or any notice of taking or eminent domain action or similar proceeding affecting the Property or Facility; and (v) any material adverse change in the financial condition of Borrower or, as soon as known by Borrower, of any other party to any of the Loan Instruments or Project Documents. 4.31 Indemnification. Borrower hereby indemnifies and holds harmless each Term Lender, the Letter of Credit Bank and Agent (each an "Indemnified Party") from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which any Indemnified Party may incur (or which may be claimed against any Indemnified Party by any person or entity whatsoever) by reason of, in connection with or in any way relating to this Agreement, any other Loan Instrument or any of the Project Documents, except for costs or expenses arising from commercially unreasonable, illegal or grossly negligent actions by such Indemnified Party. Borrower further agrees that, upon demand by any Indemnified Party, it will pay to such Indemnified Party any and all reasonable expenses incurred by such Indemnified Party in enforcing any rights under this Agreement, any other Loan Instrument or any of the Project Documents, including reasonable fees of counsel. Any Indemnified Party shall, as soon as possible after the receipt by it of notice of the actual or threatened commencement of any action in respect to which indemnity may be sought from 76 Borrower on account of the indemnity agreement contained herein, notify Borrower thereof, and Borrower shall have the right (but not the obligation) to participate in the defense of such action. Each Indemnified Party shall use its best efforts to cooperate as reasonably requested by Borrower in the defense of any such action. No Indemnified Party shall compromise or settle any action for which indemnification is or may be sought hereunder without the prior consent of Borrower, which consent shall not be unreasonably withheld. Nothing in this Section is intended to limit the Borrower's other obligations contained in this Agreement, the other Loan Instruments and the Project Documents. The provisions of this Section shall survive the payment in full of the Term Loan, the termination of all Letters of Credit, the release of the Mortgage and of all other collateral under the other Security Documents. 4.32 Right of Set-off, Liens. Upon the occurrence and upon the expiration of the applicable grace period, if any, and during the continuance of any Event of Default, Borrower hereby authorizes Agent and each Term Lender at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Agent or such Term Lender to or for the credit or the account of Borrower against any and all of the obligations of Borrower under any Loan Instrument irrespective of whether or not Agent or such Term Lender shall have made any demand hereunder and although such obligations may be contingent or unmatured. In the event that any Term Lender shall at any time receive any monies through exercise of its set-off rights as provided herein, such Term Lender shall be deemed to have received such payment as agent for and on behalf of all the Term Lenders and shall immediately advise Agent of the receipt of such funds and promptly transmit the full amount thereof to the Agent for prompt distribution to all the Term Lenders in accordance with their respective interests, as provided in this Agreement; provided, however, that such Term Lender shall be deemed not to have received, and Borrower shall be deemed not to have made to such Term Lender, any payment transmitted to Agent by such Term Lender pursuant to this Section. Prompt notification shall be provided to Borrower of the exercise of any rights under this Section 4.32. 4.33 Operating Budget. As of the time submitted, all future Operating Budgets submitted by Borrower shall contain complete, fair and accurate projections of the Projected Gross Revenues and Projected Operating Costs for each month of such Operating Budget. 77 4.34 Tax Benefits. Borrower shall remain at all times the beneficial owner of the Facility for purposes of the Code and applicable state and local tax Laws, and, as such, Borrower, either directly or through a subsidiary formed with the prior approval of Agent, shall retain all Borrower's Tax Benefits. Without limiting the foregoing, Borrower, as the beneficial owner of the Facility, will be entitled to the following deductions and credits provided by the Code to an owner of property: (i) deductions for cost recovery with respect to the Facility computed in accordance with Section 168(b) of the Code with the Facility having a basis at least equal to (A) the sum of the Borrower's cost with respect to the Facility, and such expenses incurred by the Borrower with respect to the transaction which are properly includible in the basis of the Facility, reduced by (B) the percentage set forth in Section 48(q) of the Code, (ii) deductions for interest paid or accrued with respect to the Term Loan as authorized by Section 163 of the Code, and (iii) deductions for such expenses of the transaction with respect to the Facility incurred by the Borrower which are deductible currently or amortized. Borrower agrees that neither it, nor any entity directly or indirectly controlled by, in control of, or under common control with Borrower, nor any officer, employee or agent of any of the above, will at any time take any action or file any returns, certificates or other documents inconsistent with Borrower's being treated as the beneficial owner of the Facility, and that each of such entities or persons will file such returns, take such actions and execute such documents as may be reasonable and necessary to facilitate accomplishment of the intent of this Agreement. Within thirty (30) days of the filing of each tax return of Borrower, Borrower shall deliver to Agent a certificate as to its compliance with the terms of this provision. 4.35 Fixed Rate Arrangement. As soon as is reasonably practicable, but in no event later than one (1) year from the date of this Agreement, Borrower shall select a Fixed Rate Interest arrangement for either (i) a portion of the Term Loan then outstanding equal to the greater of One Hundred Ten Million dollars ($110,000,000) or the amount of the First Advance; or (ii) exercise it rights pursuant to Section 2.14 to enter into an Interest Rate Hedge Agreement with respect to such amount. 78 4.36 Gas Supply Contracts. All gas supply arrangements entered into by Borrower in accordance with Section 2.3(l) of this Agreement, shall satisfy the Base Requirement set forth therein throughout the term hereof. 4.37 Use of Proceeds. The Borrower shall not, and shall not permit any subsidiary to, use the proceeds of any Advance (a) for any purpose which violates the provisions of Regulation G, U or X or (b) in connection with any acquisition of the common stock of any company (or securities convertible into or any options, warrants or other rights to acquire such common stock) constituting over five percent of such common stock or $15,000,000 in value, whichever is less, unless the board of directors of such company has approved such acquisition or has disclosed that it expresses no opinion and is remaining neutral toward such acquisition. 4.38 Tax Payments. Borrower shall not pay, and Agent shall not be required to release from the Accounts, any amounts for payment of income, franchise or similar taxes imposed by any federal, state or local taxing jurisdiction to any taxing authority or any affiliate of Borrower in excess of the amount of such taxes Borrower would be required to pay to the applicable taxing authority if such taxes were determined as if the Borrower were a company which did not join in the filing of a consolidated, combined or similar return with any affiliate of Borrower. 4.39 Environmental Issues. (a) For the purposes of this Section 4.39, all terms used in this Section 4.39 which are not otherwise defined in this Section are used as defined in that certain Amended and Restated Deed of Trust, Security Agreement and Assignment of Rents dated as of December 29, 1988 by Borrower in favor of Agent for the benefit of the Term Lenders. Unless the context otherwise specifies or requires, the following terms shall have the meaning herein specified: (i) "Hazardous Materials" shall mean (a) any "hazardous waste" as defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), as amended from time to time, and regulations promulgated thereunder; (b) any "hazardous substance" as defined by the Comprehensive Environmental Response, 79 Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.) ("CERCLA"), as amended from time to time, and regulations promulgated thereunder; (c) asbestos; (d) polychlorinated biphenyls; (e) any substance the presence of which on the Land is prohibited by any Legal Requirements; (f) any petroleum-based products; (q) underground storage tanks for storing any material in subparagraphs (a) - (f); and (g) any other substance which by any Legal Requirements requires special handling of any federal, state or local governmental entity in its collection, storage, treatment, or disposal. (ii) "Hazardous Materials Contamination" shall mean the contamination (whether presently existing or hereafter occurring) of the Improvements, facilities, soil, groundwater, air or other elements on or of the Land by Hazardous Materials, or the contamination of the buildings, facilities, soil, groundwater, air or other elements on or of any other property as a result of Hazardous Materials at any time (whether before or after the date of this Agreement) emanating from the Land. (iii) "Unauthorized" shall mean not in compliance with all Legal Requirements. (b) Grantor agrees to (i) give notice to Beneficiary immediately upon Grantor's acquiring knowledge of the presence of any Unauthorized Hazardous Materials on the Land or of any Hazardous Materials Contamination with a full description thereof; (ii) promptly comply with any Legal Requirements requiring the removal, treatment or disposal of such Hazardous Materials or Hazardous Materials Contamination and provide Beneficiary with satisfactory evidence of such compliance; and (iii) provide Beneficiary, within thirty (30) days after demand by Beneficiary, with a bond, letter of credit or other reasonable financial assurance evidencing to Beneficiary's satisfaction that sufficient funds are available to pay the reasonably estimated cost of removing, treating and disposing of such Hazardous Materials or Hazardous Materials Contamination required by Legal Requirements and discharging any assessments which may be established on the Land as a result thereof. (c) If Beneficiary shall ever have reason to believe that there are Unauthorized Hazardous Materials or Hazardous Contamination affecting any of the Land, Beneficiary (by its officers, employees and agents) at any time and from time to 80 time, either prior to or after the occurrence of an Event of Default, may contract for the services of persons (the "Site Reviewers") to perform environmental site assessments ("Site Assessments") on the Land for the purpose of determining whether there exists on the Land any environmental condition which could result in any liability, cost or expense to the owner, occupier or operator of such Land or any facility thereon arising under any state, federal or local law, rule or regulation relating to Hazardous Materials. The Site Assessments may be performed, at any time or times, upon reasonable notice, and under reasonable conditions established by Grantor which do not impede the performance of the Site Assessments. The Site Reviewers are hereby authorized to enter upon the Property for such purposes. The Site Reviewers are further authorized to perform both above and below the ground testing for environmental damage or the presence of Hazardous Materials on the Land and such other tests on the Property as may be necessary to conduct the Site Assessments in the reasonable opinion of the Site Reviewers. Grantor will supply to the Site Reviewers such historical and operational information in its possession regarding the Property as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments and will make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. On request, Beneficiary shall make the results of such Site Assessments fully available to Grantor, which (prior to an Event of Default) may at its election participate under reasonable procedures in the direction of such Site Assessments and the description of tasks of the Site Reviewers. The cost of performing such Site Assessments to the extent such costs are commercially reasonable or necessary in order to comply with Legal Requirements, shall be paid by Grantor upon demand of Beneficiary and any such obligations shall be secured by the Security Documents. (d) Regardless of whether any Site Assessments are conducted hereunder, if any Event of Default shall have occurred and be continuing or any remedies in respect of the Property are exercised by Beneficiary, Grantor shall defend, indemnify and hold harmless Beneficiary from any and all liabilities (including strict liability), actions, demands, penalties, losses, costs or expenses (including, without limitation, consultants fees, investigation and laboratory fees, reasonable attorneys' fees, expenses and remedial costs), suits, costs of any settlement or judgment and claims of any and every kind whatsoever which may now or in the future be paid, incurred or suffered by or asserted against Beneficiary by any person or entity or governmental agency for, with respect to, or as a direct or indirect result of, the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission or release from the Property of any 81 Hazardous Materials or any Hazardous Materials Contamination or arise out of or result from the environmental condition of the Land or the applicability of any Legal Requirements relating to Hazardous Materials (including, without limitation, CERCLA or any so-called federal, state or local "Superfund" or "Superlien" laws, statute, law, ordinance, code, rule, regulation, order or decree), except for costs and expenses to the extent caused by illegal or grossly negligent actions by Beneficiary, its officers, employees, and agents. (e) Beneficiary shall have the right but not the obligation, without in any way limiting Beneficiary's other rights and remedies, to enter onto the Land or to take such other actions as it deems necessary or advisable to clean up, remove, resolve or minimize the impact of, or otherwise deal with, any Hazardous Materials or Hazardous Materials Contamination on the Land following receipt of any notice from any person or entity asserting the existence of any Hazardous Materials or Hazardous Materials Contamination pertaining to the Land or any part thereof which, if true, could result in an order, notice, suit, imposition of a lien on the Land or other action and/or which, in Beneficiary's sole opinion, could jeopardize Beneficiary's security under the Mortgage, provided, however, that Beneficiary shall not take any action pursuant to this Section 4.39 unless Beneficiary shall have first given Grantor the opportunity to take such action and Beneficiary has determined in its reasonable discretion that Grantor is not diligently and prudently proceeding to take such actions. All reasonable costs and expenses paid or incurred by Beneficiary in the exercise of any such rights shall be secured by the Security Documents and shall be payable by Grantor upon demand. ARTICLE 5 - RIGHTS AND REMEDIES OF TERM LENDERS 5.1 Events of Default, Each of the following events and occurrences shall constitute an Event of Default under this Agreement: (a) Any indebtedness of Borrower evidenced by any of the Loan Instruments or any reimbursement obligation related to a Letter of Credit is not paid when due, whether by acceleration or otherwise; provided, however, that if such payment is made within five (5) Banking Days of the date when due, the failure to make such payment shall not constitute an event of default. 82 (b) Any covenant by Borrower in this Agreement, any of the other Loan Instruments or any of the Project Documents (other than Project Documents (xvi) and (xvii)) is not fully and timely performed, and such failure or violation shall not be remediable or, if remediable, shall continue unremedied for a period terminating on the thirtieth (30th) day or such longer period as shall be determined by Agent in its sole discretion after Borrower knows or reasonably ought to know of the occurrence thereof or shall continue unremedied for a period terminating on the twenty-fifth (25th) day after notice of such event of default by Agent to Borrower, whichever is earlier to occur. (c) Any statement, representation or warranty by Borrower in this Agreement, any of the other Loan Instruments, any of the Project Documents, any Financial Statement or any other writing delivered to Term Lenders or Agent in connection with the Term Loan is materially false, misleading or erroneous as of the time made or deemed to be made; (d) Any event of default, as defined in any other Loan Instrument or in any of the Project Documents, shall occur, any period permitted therein for the remedy of such default shall expire, and (i) any such default is not cured or waived by the other party or parties to such document (provided, that Borrower, prior to waiving any such default, shall have obtained the consent of Agent, which consent shall not be unreasonably withheld) and (ii) Borrower shall not contest such claimed event of default in good faith in appropriate proceedings with adequate reserves, bonds or other security reasonably satisfactory to Agent (provided, however, that an event of default under Project Document (iv) shall not constitute an event of default hereunder unless an event of default also exists under Project Document a (v)). (e) The cessation of the operation of the Facility or of related activity on the Property for more than fifteen (15) consecutive days, or the operation of the Facility at less than fifty per cent (50%) of Firm Capacity, as defined in the Turnkey Contract, for more than three hundred (300) days, except for scheduled maintenance periods, without the written consent of Agent or the Independent Engineer, such consent not to be unreasonably withheld, other than due to Uncontrollable Force, as defined in the TUEC Agreement and in the O&M Contract, for the period provided in each such contract. (f) Failure of the Facility, Property or Borrower to comply with the Plans, any applicable Governmental Requirements (unless such nonconformity would not impair (i) the ability of the Borrower to meet its obligations under this Agreement or (ii) any of the security interests granted to the Term Lenders 83 under any of the Security Documents) or any Insurance Policy requirements; an Event of Default under this subsection (f), or under the TUEC Agreement or the Steam Agreement shall be waived if it is waived by the other parties to such agreements or such event of default, if remediable, shall tie remedied on or prior to the thirtieth (30th) day after the Borrower knows or reasonably ought to know of occurrence thereof, twenty-five (25) days after Agent gives notice of such event of default, whichever is earlier to occur; or any modification (not previously approved by the Agent) of any such agreements or requirements which, in the reasonable judgment of the Agent or the Independent Engineer, has a material adverse effect on the ability of the Borrower to meet its obligations under this Agreement or on the compliance by the Facility, the Property, the Borrower or any other party to any of the Project Documents with such requirements. (g) Failure of Borrower to maintain all authorizations, consents, approvals, registrations, exemptions, permits and licenses with or from Governmental Authorities which are then necessary for the operation of the Facility and, if such failure is remediable, remains unremedied beyond the time period allowed by such Governmental Authority to remedy such failure, or to maintain the FERC Qualifying Facility Certificate. (h) The Borrower or any other party to any of the Project Documents (other than Project Documents (xvi) and (xvii) (1) does not generally pay its debts as they become due or admits in writing its inability to pay its debts or makes a general assignment for the benefit of creditors; or (2) commences any case, proceeding or other action seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any Debtor Relief Laws; or (3) in any involuntary case, proceeding or other action commenced against it which seeks to have an order for relief entered against it, as debtor, or seeks reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any Debtor Relief Law, (i) fails to obtain a dismissal of such case, proceeding or other action within sixty (60) 84 days of its commencement, or (ii) converts the case from one chapter of the Federal Bankruptcy Code to another chapter, or (iii) is the subject of an order for relief; or (4) conceals, removes or permits to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them, or makes or suffers a transfer of a substantial portion of its property which would be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or makes any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or suffers or permits while insolvent, any creditor to obtain a lien upon any of its property through legal proceedings which is not vacated within sixty (60) days from the date thereof; or (5) has a trustee, receiver, custodian or other similar official appointed for or take possession of all or any part of its property or has any court take jurisdiction of any of its property, which action remains undismissed for a period of sixty (60) days (except where a shorter period is specified in the immediately following subparagraph (6)); or (6) fails to pay or to have stayed any final money judgment rendered against such person, in an amount which would impair Borrower's ability to meet its obligations under this Agreement, within fifteen (15) days of entry of such judgment; or (7) fails to have discharged within a period of ten (10) days any attachment, sequestration or similar writ on Borrower (or, if on any other party, any attachment, sequestration or similar writ in an amount which would impair Borrower's ability to meet its obligations under this Agreement) levied upon any property of such person. 85 Provided, however, that in connection with any party other than Borrower to any of the Project Documents, the Event of Default shall be waived if: (i) such party has fully and continues to fully comply with all its obligations under such Project Document or provides for the assumption of its obligations under such Project Document by a party reasonably acceptable to the Agent within thirty (30) days of such Event of Default and in connection with such assumption provides adequate assurance of future performance of such obligations to Agent or (ii) Borrower, within thirty (30) days of such event of default, executes, with a party reasonably acceptable to Agent, a replacement Project Document, in form and substance acceptable to Agent. (i) Title to all or any part of the Property or the Facility (other than obsolete or worn personal property replaced by adequate substitutes of equal or greater value than the replaced items when new) shall become vested in any party other than the party named as owner thereof in the applicable Security Document, whether by operation of Law or otherwise, unless permitted in this Agreement. (j) Without the prior written consent of Agent, the Borrower or the owner of the Property hereafter grants any easement or dedication, files any plat, declaration or restriction or enters into any lease or sub-lease concerning the Property for the purposes set forth in the Lease Agreement, which may materially impair the use of the Property, and such grant, filing, declaration or lease is not capable of being declared void ab initio, or is not so declared (or remedied in a manner that is reasonably satisfactory to Agent), within thirty (30) days from the date Agent gives notice to Borrower to do so. (k) Abandonment of the Property or the Facility by Borrower. (1) Failure of the Borrower, Operator, TUEC or Fina, as the case may be, to maintain the required Insurance Policies; provided that such event of default shall be waived so long as such Insurance Policy is unavailable through no fault of Borrower and the coverage afforded under the relevant 86 Insurance Policies is the maximum amount reasonably commercially obtainable in the insurance market at such time. (m) Any person obligated to pay any part of the indebtedness evidenced by any of the Loan Instruments, any party to any of the Project Documents, or the holder of any lien, security interest or assignment relating to the Property, the Facility or any other asset of Borrower, institutes foreclosure or other proceedings for the enforcement of its remedies thereunder and (i) such proceedings are not dismissed within fifteen (15) days of institution or (ii) Borrower does not contest such proceedings in good faith through appropriate procedures and, in the event of (i) or (ii), adequate reserves, bonds or other security reasonably satisfactory to Agent is not provided. (n) The priority and effectiveness of the lien and/or the security interests created by the Security Documents is in any way impaired or invalidated or any person commences any action to have any Security Document, or any portion thereof, declared void or voidable, or commences any similar action, and (i) such action is not dismissed within sixty (60) days or (ii) Borrower does not contest such proceedings in good faith through appropriate procedures and, in the event of (i) or (ii), adequate reserves, bonds or other security reasonably satisfactory to Agent is not provided. (o) The liquidation, termination, merger or dissolution of Borrower or of any other party to any of the Project Documents (other than Project Documents (xvi) and (xvii)), unless, for any such event involving an entity other than Borrower, Agent is reasonably satisfied within thirty (30) days that such event will not have a material adverse effect on the Property, Facility or ability of such party to perform its obligations when due under such agreement. (p) The termination before maturity, cancellation, modification (excluding immaterial modifications to ancillary work papers and similar items) or, in the case of Insurance Policies, non-renewal of any of the Project Documents without the Agent's prior written consent. (q) Failure of Borrower to maintain an agent for service of process in the County of New York, State of New York for more than five (5) days. 5.2 Consequences of Event of Default. (a) If an Event of Default occurs and has not been remedied during the applicable grace period, if any, Agent, for the account of the Term Lenders, may in its sole discretion 87 take all actions necessary to cure such Event of Default, and/or declare, by giving notice to Borrower, the entire amount of Borrower's obligations to Term Lenders under this Agreement and the other Loan Instruments to be immediately due and payable, irrespective of any other provision of such agreements. If an event of failure or violation constitutes an Event of Default under more than one of the provisions of Sections 5.1, Agent and Term Lenders may take all actions and remedies provided in this Section 5.2 upon expiration of the shortest grace period, if any, provided herein; provided, however, that Agent and Term Lenders shall exercise their rights under this Section 5.2 in a commercially reasonable manner, considering, inter alia, the material adverse consequences of such Event of Default to the Borrower, the Property, the Facility and the rights of the Agent and Term Lenders hereunder and under the other Loan Instruments. (b) In the event that Borrower's obligations shall become due and payable by acceleration as provided in paragraph (a) above, all sums payable shall, upon the giving of such notice to Borrower by Agent, become immediately due and payable without presentment, demand, protest or notice of any kind other than the notice specifically required by this Section, all other notice being expressly waived by Borrower, and Term Lenders shall have the right to take all funds in the Accounts and to otherwise enforce their security interests as provided herein and in the Security Documents. Borrower shall furthermore indemnify Agent, the Letter of Credit Bank and Term Lenders for all costs, expenses and losses resulting from any Event of Default and for all costs, expenses and losses incurred by them in curing such Event of Default and/or in proceeding to enforce their lien on and security interest in the collateral under the Security Documents. (c) Borrower hereby appoints Agent as the attorney-in-fact of Borrower, upon the occurrence of an Event of Default and the expiration of the applicable grace period, if any, with full power of substitution, and in the name of Borrower, if Agent elects to do so, to: (i) execute all applications and certificates in the name of Borrower which may be required for operation of the Facility, (ii) endorse the name of Borrower on any checks or drafts, representing proceeds of the Insurance Policies, or other checks or instruments payable to Borrower with respect to the Property or Facility, (iii) do every act with respect to the operation of the Facility which Borrower may do, and (iv) prosecute or defend any action or proceeding incident to the Property or Facility. The power-of-attorney granted hereby is a power coupled with an interest and irrevocable. Agent and Term Lenders shall have no obligation to undertake any of the foregoing actions, and if 88 they take any such action they shall have no liability to Borrower for the sufficiency or adequacy thereof. (d) Any funds of Term Lenders used for any purpose referred to in this Article 5 shall constitute a part of the Term Loan secured by the Term Loan Instruments and shall bear interest at the highest then-applicable Default Interest Rate. ARTICLE 6 - AGENT 6.1 Appointment. Each of the Term Lenders hereby appoints Agent to act as its agent under this Agreement and to act as collateral agent under the Security Documents as provided therein, and irrevocably authorizes Agent to take such action on such Term Lender's behalf under the provisions of this Agreement, the Security Documents and any other agreements and instruments referred to herein and to exercise such powers hereunder and thereunder as are specifically delegated to Agent and such powers as are reasonably incidental thereto. Agent shall exercise the same care hereunder as it exercises in connection with similar transactions for its own account in which no other lender participates. In performing its function and duties hereunder and under the Security Documents Agent shall act solely as the agent of the Term Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower or any other party to any of the Project Documents. 6.2 Majority Lenders. Agent will to the extent practicable under the circumstances consult with the Term Lenders prior to taking action on their behalf under this Agreement and in acting as their Agent under the Security Documents. Agent will not take any action contrary to the written direction of the Majority Lenders and will take any lawful action in accordance with the provisions of this Agreement prescribed in a written direction of the Majority Lenders. Agent may decline to take any action except upon the written direction of the Majority Lenders and Agent may obtain a ratification by the Majority Lenders of any action taken by it under this Agreement. In each case Agent shall have no liability to Borrower (other than for gross negligence or willful misconduct) or any of the Term Lenders for any action taken by it upon the direction of the Majority Lenders or if ratified by the Majority Lenders, nor shall Agent have any liability for any failure to act unless Agent has been instructed to act by the Majority Lenders. The action of the 89 Majority Lenders shall bind all the Term Lenders hereunder, except in respect of matters specifically requiring consent of or action by all the Term Lenders. Notwithstanding anything herein to the contrary, Agent need not take any action on behalf of the Term Lenders unless and until it is indemnified to its satisfaction for any and all consequences of such action. 6.3 Liability and Credit Appraisal. Neither Agent, in its capacity as Agent, nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted by it or them hereunder, or in connection herewith, except for its or their gross negligence or willful misconduct. The Agent shall not be responsible for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity or enforceability of this Agreement, the Term Notes, the other Loan Instruments, the Project Documents or any other document executed in connection herewith, or be required to make any inquiry concerning the performance or observance by the Borrower of any of the terms, provisions or conditions of this Agreement, the Term Notes, the other Loan Instruments or the Project Documents. Each Term Lender represents and warrants to Agent that it has independently without reliance on the Agent made its own credit investigation and appraisal of Borrower on the basis of such documents and information as it has deemed appropriate and that it has entered into this Agreement on the basis of such independent appraisal, and each Term Lender represents that it will continue to make its own credit appraisal. The Term Lenders agree to indemnify and hold Agent harmless from and against any and all liabilities, damages, penalties, judgments, suits, expenses and other costs of any kind or nature whatsoever imposed on, incurred by or asserted against Agent in respect of its obligations hereunder, except for its gross negligence or willful misconduct. 6.4 Reliance by Agent. Agent shall be entitled to rely upon any communication or document believed by it to be genuine and correct and to have been signed, sent or made by the proper person or persons and to act upon the advice of legal counsel and other experts selected by it concerning all matters pertaining to this Agreement and its duties hereunder and shall not be liable to any of the other parties hereto for any of the consequences of such reliance. Agent may rely for the purposes of the giving of notice or the disbursement of funds on the name and address of each Term Lender in Section 7.1 or as notified to Agent pursuant to Section 7.1 hereof. 90 6.5 Other Banking. Agent, in its capacity as a Term Lender, shall have the same rights, powers and obligations hereunder as any other Term Lender, specifically including the right to give or deny consent to any action requiring consent or direction of the Majority Lenders. Agent and its affiliates may, without liability to account to any Term Lender, engage in any kind of banking, trust or other business with Borrower as if it were not such Agent or affiliate. In addition, Agent shall be entitled to receive from the Borrower its portion of any fee in connection with this transaction without any liability to account therefor to any of the other Term Lenders except as Agent may have expressly agreed. 6.6 Payments, Notices and Determinations by Agent. (a) Agent shall promptly distribute to each of the Term Lenders in like funds upon receipt each Term Lender's pro rata share of all amounts of principal and interest, and each Term Lender's pro rata or other agreed share of all fees and all other amounts received by Agent from Borrower hereunder, or from any party under the Security Documents, on behalf of the Term Lenders. If at any time Agent makes available to any Term Lender amounts due from Borrower hereunder which Borrower fails to make available to Agent, such Term Lender shall on request forthwith refund such amounts to Agent together with interest thereon at the rate which is equal to the cost of funds to Agent for such period. (b) In the event that any Term Lender shall at any time receive any non pro rata payment from any source in respect of the Term Loans in violation of the requirement of this Agreement that Borrower make such payment to Agent, such Term Lender shall be deemed to have received such payment as agent for and on behalf of all the Term Lenders and shall immediately advise Agent of the receipt of such funds and promptly transmit the full amount thereof to Agent for prompt distribution among all the Term Lenders in accordance with their respective interests as provided in this Agreement; provided, however, that such Term Lender shall be deemed not to have received, and Borrower shall be deemed not to have made to such Term Lender, any payment transmitted to Agent by such Term Lender pursuant to this Section. (c) Agent shall promptly notify the Term Lenders by telex of each Interest Period chosen by Borrower, the Term Loan Interest Rate for each Interest Period (and the relevant LIBOR, Short Term Rate, Fixed Offered Rate or Federal Funds Rate), the date of any expected payment and all other notices transmitted by Borrower. Determinations of interest rates and amounts of 91 interest, Default Interest and other sums due hereunder and under the Term Loan based upon the provisions of this Agreement and contained in notices from Agent shall be conclusive and binding on Borrower and the Term Lenders, absent manifest error in computation or transmission. (d) Agent will maintain all records as to amount, type and value of collateral pledged and assigned under the Security Documents. Upon request of any Term Lender, Agent will give a statement to such Term Lender with respect to the types and amounts of collateral held pursuant to the Security Documents, and Agent will give prompt notice of any Event of Default under the Security Documents of which it obtains knowledge. (e) It is understood that Agent may not have resort to more than its pro rata share of the collateral without the consent in writing of all of the Term Lenders and, in any case, may have no resort to the collateral except as provided in the Security Documents. 6.7 Successor Agent. Subject to the appointment and acceptance of a successor Agent as provided below, Agent may resign at any time either under this Agreement or under the Security Documents by giving written notice thereof to the Term Lenders and Borrower, and Agent may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent acceptable to Borrower. If no successor Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Term Lenders, appoint one of the other Term Lenders as successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provision of this Article 6 shall continue in effect for such Agent's benefit in respect of any actions taken or omitted by it while it was acting as Agent hereunder. 92 ARTICLE 7 - GENERAL TERMS AND CONDITIONS 7.1 Notices. All notices, demands, requests, and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given (i) when presented personally, (ii) when transmitted by telex to the number specified below and the proper answerback is received, or (iii) three (3) Banking Days after being deposited in a regularly maintained receptacle for the United States Postal Service, postage prepaid, registered or certified, return receipt requested, addressed to the respective party, as the case may be, at the following addresses, or such other address as any party may from time to time designate by written notice to the others as herein required. The telecopy (facsimile) numbers provided below are for the convenience of the parties only. Transmission by telecopy shall constitute provision of notice under this Agreement only if receipt thereof is acknowledged by the recipient. If to Borrower: Power Resources, Inc. Five Post Oak Boulevard Suite 1400 Houston, Texas 77027 Attention: President Telex: Telecopy: If to KOP: Kansallis-0sake-Pankki 575 Fifth Avenue, 36th floor New York, New York 10017 Attention: Telex: 424843 Telecopy: (212) 972-4557 If to CS: Credit Suisse 100 Wall St., 14th floor New York, New York 10005 Attention: Specialty Finance Telex: 23249 Telecopy: (212) 943-1598 If to Term Lenders: To KOP and to CS 93 If to Agent: Credit Suisse 100 Wall St., 14th floor New York, New York 10005 Attention: Specialty Finance Telex: 23249 Telecopy: (212) 943-1598 7.2 Amendments and Waivers. No amendment or waiver of any provision of this Agreement nor consent by Term Lenders or Agent to any departure by Borrower therefrom shall in any event be effective unless the same shall be in writing and signed by Agent and the Majority Lenders. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of Agent and/or the Term Lenders to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof (except as provided above) nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 7.3 Election of Remedies. Agent, acting on behalf of all the Term Lenders, shall have all of the rights and remedies granted in the Loan Instruments and available at law or in equity, and these same rights and remedies may be pursued separately, successively or concurrently against Borrower, or any collateral under the Loan Instruments, at the sole discretion of Agent. 7.4 Severability. Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non-authorization, without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. 7.5 Form and Substance. All documents, certificates insurance policies and other items required under this Agreement to be executed and/or delivered to Agent or Term Lenders shall be in form and substance reasonably satisfactory to such party or parties. 94 7.6 Limitation on interest. All agreements between Borrower and Term Lenders, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of acceleration of the maturity of any indebtedness governed hereby or otherwise, shall the interest contracted for, charged or received by Term Lenders exceed the maximum amount permissible under applicable law. if, from any circumstance whatsoever, interest would otherwise be payable to Term Lenders in excess of the maximum lawful amount, the interest payable to Term Lenders shall be reduced to the maximum amount permitted under applicable law. If from any circumstance the Term Lenders shall ever receive anything of value deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive interest shall be applied to the reduction of the principal of the Term Loan and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of the Term Loan such excess shall be refunded to Borrower. All interest paid or agreed to be paid to Term Lenders shall, to the extent permitted by applicable law, be amortized, prorated allocated and spread throughout the full period until payment in full of the principal of the Term Loan (including the period of any renewal or extension thereof) so that interest thereon for such full period shall not exceed the maximum amount permitted by applicable law. This paragraph shall control all agreements between the Borrower and Term Lenders. 7.7 No Third Party Beneficiary. This Agreement is for the sole benefit of Agent, Term Lenders and Borrower and is not for the benefit of any third party. 7.8 Borrower In Control. In no event shall Agent's or Term Lenders' rights and interests under the Loan Instruments be construed to give Agent or Term Lenders the right to, or be deemed to indicate that Agent or Term Lenders are in control of the business, management or properties of Borrower or have power over the daily management functions and operating decisions made by Borrower. 7.9 Number and Gender. Whenever used herein, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. 95 7.10 Captions. The captions, headings, table of contents and arrangements used in this Agreement are for convenience only and do not and shall not be deemed to affect, limit, amplify or modify the terms and provisions hereof. 7.11 Applicable Law and Jurisdiction. (a) This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York. (b) (i) Borrower hereby expressly and irrevocably agrees and consents that any legal suit, action or proceeding arising out of or relating to this Agreement and the transactions contemplated herein may be instituted by Term Lenders in any State or Federal court sitting in the County of New York, State of New York, United States of America and, by the execution and delivery of this Agreement, Borrower expressly waives any objection which it may have now or hereafter to the laying of the venue or to the jurisdiction of any such suit, action or proceeding, and irrevocably submits generally and unconditionally to the jurisdiction of any such court in any such suit, action or proceeding. (ii) In the case of the courts of the State of New York or of the United States sitting in the County of New York, New York, Borrower hereby irrevocably designates, appoints and empowers, The Prentice Hall Corporation System, Inc. (the "Process Agent", which has consented thereto) with offices on the date hereof at 1 Gulf & Western Plaza, New York, New York 10023-7773, or successor acceptable to the Term Lenders, as agent to receive for and on behalf of Borrower service of process in the County of New York. Borrower further agrees that such service of process may be made on Process Agent by personal service of a copy of the summons and complaint or other legal process in any such legal suit, action or proceeding on Process Agent, or by any other method of service provided for under the applicable laws in effect in the County of New York, and Process Agent is hereby authorized to accept such service for and on behalf of Borrower, and to admit service with respect thereto. (iii) Upon service of process being made on Process Agent as aforesaid, a copy of the summons and complaint or other legal process served shall be mailed by the Process Agent to Borrower by registered mail, return receipt requested, at its address referred to in this Article 7, or to such other address as Borrower may notify Process Agent in writing. Service upon Process Agent as aforesaid shall be deemed to be 96 personal service on Borrower and shall be legal and binding upon Borrower for all purposes, notwithstanding any failure of Process Agent to mail copies of such legal process thereto, or any failure on the part of Borrower to receive the same. (iv) Borrower agrees that it will at all times continuously maintain an agent to receive service of process in the County of New York on its behalf with respect to this Agreement. In the event that for any reason Process Agent or any successor thereto shall no longer serve as agent for Borrower to receive service of process in the County of New York on its behalf or shall have changed its address without notification thereof to Agent or Term Lenders, Borrower will immediately after having knowledge thereof, irrevocably designate and appoint a substitute agent and advise Agent and Term Lenders thereof. (c) Nothing contained in subsection (b) hereof shall preclude Agent, for the account of Term Lenders, from bringing any legal suit, action or proceeding arising out of or relating to this Agreement in the courts of any place where Borrower or any of its property or assets may be found or located. To the extent permitted by the applicable laws of any such jurisdiction, Borrower hereby irrevocably submits to the jurisdiction of any such court and expressly waives, in respect of any such suit, action or proceeding, the jurisdiction of any court or courts which now or hereafter, by reason of its present or future domicile, or otherwise, may be available to it. 7.12 Continuing Liability. Borrower agrees to operate the Facility pursuant to the Plans and in compliance with all Governmental Requirements, unless such noncompliance would not impair (i) the ability of the Borrower to meet its obligations under this Agreement or (ii) any of the security interests granted to the Term Lenders under any of the Security Documents. If Borrower does not cause the Facility to be so operated or if the operation thereof is not in such compliance, Term Lenders shall have the option to operate the Facility so as to remedy such failure. If Term Lenders elect to operate the Facility or take such other action as may be necessary to remedy such failure, Borrower promises to pay to Term Lenders, in addition to any other amounts which may be owing under any of the Loan Instruments, all sums expended by Term Lenders to operate the Facility in such manner, and such amounts owing to Term Lenders shall be payable on demand and shall bear interest at the then-applicable Term Loan Interest Rate. In addition, if Term Lenders shall advance any funds on behalf of Borrower to any Governmental Authority to assure such operation of the 97 Facility, Borrower shall pay to Term Lenders all amounts advanced by Term Lenders for such purpose together with interest on such amount at the Default Interest Rate, when requested by Term Lenders. 7.13 Certain Calculations. All calculations of the amount required in the Debt Protection Account, of the amount required in the Maintenance Reserve Account, of Debt Service Coverage Ratio, of Discretionary Cash Flow, of Gross Revenues, of Net Revenues, of Operating Costs, of Projected Gross Revenues, of Projected Net Revenues and of Projected Operating Costs shall be made by Borrower, in accordance with the terms of this Agreement, in form and substance satisfactory to Agent. In the event any such calculation is reasonably rejected by Agent, the Independent Engineer shall make such calculation in accordance with the provisions of this Agreement and the relevant definition, for the relevant period. The calculation, and the assumptions used in making such calculation, of the Independent Engineer shall be final absent manifest error. 7.14 Continuing Lien. (a) The liens and security interests granted in the Loan Instruments secure all indebtedness and all obligations of Borrower owed to Agent and Term Lenders in connection with the Property, the Facility, the Loan Instruments and the transactions contemplated herein and therein, of whatever kind or character, whether now owing, hereafter arising or hereafter to be performed (collectively, the "Loan Obligations"). (b) The liens and security interest granted in the Loan Instruments also secure all indebtedness and all obligations of Borrower, Agent and/or Term Lenders arising under any agreements among or between Borrower, Agent and/or Term Lenders and any third-party, or any Governmental Authority having jurisdiction over the Property or the Facility, in connection with the Property, the Facility, the Loan Instruments and the transactions contemplated herein and therein, of whatever kind or character, whether now owing, hereafter arising or hereafter to be performed (collectively, the "Assurance Obligations"). (c) Notwithstanding anything to the contrary in any of the Loan Instruments, if at the time the principal balance of the Term Loan is fully paid and no Letters of Credit are outstanding (the "Pay-off Date") any of the Loan Obligations or Assurance Obligations remains to be paid or performed, Agent and Term Lenders, subject to paragraph (d) below, shall not be obligated to release any collateral remaining subject to the 98 Security Documents, and such collateral shall continue to secure the payment and performance of the Loan Obligations and Assurance Obligations remaining as of the Pay-off Date. (d) Agent shall provide to Borrower, within thirty (30) Banking Days of the Pay-off Date, a list of the Loan Obligations and Assurance Obligations remaining as of such date, and of the collateral that Agent intends to retain as security for the payment and performance of such obligations. Borrower may, at any time thereafter, request release of such collateral and the substitution thereof with other collateral (the "Other Collateral"). Agent shall timely accept such substitution provided the Other Collateral is acceptable, in value and quality, in the reasonable judgment of Agent. 7.15 Consent. Unless otherwise specified as being within the sole discretion of Agent, Term Lenders or Borrower, whenever the consent or approval of Agent, Term Lenders or Borrower is required herein, such consent or approval shall not be unreasonably withheld or delayed. 7.16 Confidentiality of Information. (a) Agent and each Term Lender agrees to preserve the confidentiality of and shall not, without the prior written consent of Borrower, make any unauthorized use of any written information made available to any of them in connection with this Agreement, which is marked "Confidential" or "Proprietary" or is otherwise clearly identified as not to be made public. Agent and each Term Lender agrees to use its best efforts to preserve the confidentiality of any other written information made available to it in connection with this Agreement which is identified as of a proprietary nature. For purposes of this Section 7.16, proprietary information includes but is not limited to (i) the terms of the Project Documents and Loan Instruments, (ii) all documents, data, drawings, studies, projections, plans and other information which relates to economic benefits to Borrower or any party to the Project Documents or costs of design, construction or operation of the Facility, including, without limitation, the cost and quantities of fuel and information of the type described in Section 4.9 or 4.11, and (iii) all plans, drawings, documents, studies and other information relating to design, construction and operation of the Facility. (b) Borrower acknowledges and agrees that Agent and/or Term Lenders may disclose such proprietary information to participants or prospective participants in the Term Loan Commitment. Agent and Term Lenders acknowledge and agree that 99 such disclosure shall be made only to parties that have executed an agreement to be bound by the confidentiality obligations set forth herein. (c) The confidentiality obligations set forth in this Section shall not apply to any proprietary information that (i) was already known to the receiving party at the time of its disclosure by the disclosing party, as provable by prior written records; (ii) is now or may hereafter become part of the public domain, other than through the failure of the receiving party to fulfill its obligation hereunder; or (iii) is disclosed to the receiving party by a third party having no direct or indirect secrecy obligation to the disclosing party with respect to the disclosed confidential information. Agent and Term Lenders shall also be free to disclose any such information or data to the extent and only to the extent (x) required by applicable Law, and (y) during the course of or in connection with any litigation, governmental investigation, arbitration or other proceedings based upon or in connection with the subject matter of this Agreement, including without limitation, the failure of the transactions contemplated hereby to be consummated. (d) The obligations of Agent and each Term Lender under this Section 7.16 with respect to confidential information of Borrower, shall expire three (3) years after the final Term Loan Repayment Date and, with respect to confidential information of entities other than Borrower, shall expire upon the expiration of Borrower's confidentiality obligations with respect to such information. 7.17 Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. BORROWER: POWER RESOURCES, INC. By: /s/ J. Donald Dacey ------------------------------ Name: J. Donald Dacey Title: Chief Financial Officer 100 TERM LENDERS: KANSALLIS-OSAKE-PANKKI By: /s/ Martha P. Toll-Reed --------------------------------- Name: Martha P. Toll-Reed Title: Assistant Vice President CREDIT SUISSE By: /s/ Tony K. Muoser --------------------------------- Name Tony K. Muoser Title: Assistant Vice President By: /s/ Marcus K. Cozihus --------------------------------- Name: Marcus K. Cozihus Title: Assistant Vice President AGENT: CREDIT SUISSE By: /s/ Tony K. Muoser ----------------------------------- Name: Tony K. Muoser Title: Assistant Vice President By: /s/ Marcus K. Cozihus --------------------------------- Name: Marcus K. Cozihus Title: Assistant Vice President 101 Amendment No. 1 Amended and Restated Term Loan Agreement This Amendment No. 1 ("Amendment No. 1"), entered into as of March 1, 1989, to the Amended and Restated Term Loan Agreement dated December 30, 1988 (the "Amended Term Loan Agreement") among Credit Suisse and Kansallis-Osake- Pankki as Lenders, Power Resources, Inc. as Borrower, and Credit Suisse as Agent. W I T N E S S E T H : WHEREAS, Agent, Lenders and Borrower have entered into the Amended Term Loan Agreement; and WHEREAS, the parties wish to amend certain provisions of the Amended Term Loan Agreement as set forth herein. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Amended Term Loan Agreement is hereby amended as follows: 1. Section 4.13 is amended to add subsections (c), (d) and (e) following subsection (b), to read in their entirety as follows: "(c) Upon the occurrence of a casualty loss affecting the Facility or a condemnation of the Facility or the Property, the Agent shall establish a special escrow account in the name of the Borrower, in trust for the Agent (for the benefit of the Lenders), TUEC and the Borrower (the "Proceeds Account"). All Proceeds shall be deposited in the Proceeds Account, and all monies at any time in the Proceeds Account are hereby irrevocably pledged by Borrower to Agent (for the benefit of the Lenders) and TUEC. Upon the establishment of the Proceeds Account, the Borrower shall execute any agreements or documents reasonably requested by the Agent to grant and perfect a first-priority security interest in favor of the Agent (for the benefit of the Lenders) in the monies in the Proceeds Account to secure all obligations of the Borrower hereunder and under the other Loan Instruments. Borrower hereby authorizes Agent to make withdrawals from the Proceeds Account pursuant to the terms of this Section 4.13. The Agent agrees to provide the Borrower and TUEC copies of all account statements in regard to the Proceeds Account. If the Independent Engineer reasonably determines that a restoration of the Facility or Property is feasible pursuant to Section 4.13(b) but for a deficiency in the amount of the Proceeds and the Agent reasonably determines that with additional funds in the amount of such deficiency the restoration could be completed in accordance with the provisions of Section 4.13(b), and if such deficiency is not deposited by the Borrower, then the Agent shall give TUEC notice of such deficiency, and TUEC shall have the right within twenty-five (25) days of such notice to offer to deposit funds into the Proceeds Account to cover such deficiency or to otherwise insure, in a manner reasonably acceptable to the Agent, that the amount of such deficiency will be deposited in a timely manner. If the Agent agrees in its reasonable discretion to accept such funds, TUEC shall deposit such funds into the Proceeds Account within thirty (30) days of the notice of deficiency or in the timely manner referred to above, and upon their deposit such funds shall be disbursed as Proceeds in accordance with Section 4.13(b) above. "(d) If Proceeds are not disbursed for the restoration of the Facility or the Property pursuant to Section 4.13(b) above, the Agent agrees that, upon payment in full of all amounts owed to the Agent and the Lenders pursuant to this Agreement and the other Loan Instruments, the Agent shall disburse to TUEC from any monies remaining in the Proceeds Account any amounts owed to TUEC pursuant to the terms of the TUEC Agreement and shall then disburse any remaining monies to the Borrower. "(e) All payments to be made to Borrower pursuant to Section 4.13(b)(v) above shall be made by the Agent after it disburses to TUEC any amounts owed to TUEC pursuant to the terms of the TUEC Agreement." 2. Section 7.16 is amended to reletter subsection (d) to become subsection (e) and to add a new subsection (d), to read in its entirety as follows: 2 "(d) Notwithstanding anything to the contrary herein, with respect to the TUEC Agreement the parties hereto agree to comply with the confidentiality provisions set forth in Sections 16.01, 16.02 and 16.03 of the TUEC Agreement; provided, however, that the parties hereto shall be permitted to disclose the TUEC Agreement during the course of or in connection with any litigation, governmental investigation, arbitration or other proceedings based upon or in connection with the subject matter of this Agreement, except that in any such disclosure the parties hereto shall comply with the requirement under Section 16.03(b) of the TUEC Agreement to use reasonable efforts to restrict public access to the information disclosed by way of protective order or otherwise." Except as specifically provided in this Amendment No. 1, no other amendments, revisions or changes to the Amended Term Loan Agreement are made or permitted hereby. All other terms and conditions of the Amended Term Loan Agreement remain in full force and effect and apply fully to this Amendment No. 1. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers hereunto duly authorized as of the date first above written. BORROWER: POWER RESOURCES, INC. By: /s/ J. Donald Dacey -------------------------------- Name: J. Donald Dacey Title: CFO TERM LENDERS: KANSALLIS-OSAKE-PANKKI By: /s/ Martha P. Toll-Reed -------------------------------- Name: Martha P. Toll-Reed Title: Assistant Vice President 3 CREDIT SUISSE By: /s/ Markus K. Christen -------------------------------- Name: Markus K. Christen Title: DVP By: -------------------------------- Name: Title: AGENT: CREDIT SUISSE By: /s/ Markus K. Christen -------------------------------- Name: Markus K. Christen Title: DVP By: -------------------------------- Name: Title: NY:7450P Amendment No. 2 Amended and Restated Term Loan Agreement This Amendment No. 2 ("Amendment No. 2") to the Amended and Restated Term Loan Agreement dated as of December 30, 1988, as amended by Amendment No. 1 dated as of March 1, 1989 (the "Amended Term Loan Agreement"), among Credit Suisse and Kansallis-Osake-Pankki as Term Lenders, Power Resources, Inc. as Borrower, and Credit Suisse as Agent, is entered into as of April 28 1989. WITNESSETH: WHEREAS, Term Lenders, Borrower and Agent have entered into the Amended Term Loan Agreement; and WHEREAS, the parties wish to amend certain provisions of the Amended Term Loan Agreement as set forth herein. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Amended Term Loan Agreement is hereby amended as follows: 1. The definition of the term "Insurance Policies" set out in Article 1 is deleted and replaced with the following definition: "The term 'Insurance Policies' means the insurance policies specified in Exhibit N to this Agreement, the insurance policies specified in Article XIV of the TUEC Agreement, the insurance policies specified in Article XIII of the Steam Agreement and such other insurance policies as Agent may reasonably require and are reasonably commercially available for risks and/or contingencies that are not covered to the reasonable satisfaction of Agent by existing policies and are customary for comparable projects of similar nature and size. All Insurance Policies shall (1) conform to the relevant provisions of Exhibit N, the TUEC Agreement and/or the Steam Agreement; (2) be issued by companies and in form and substance reasonably satisfactory to Agent; (3) have Agent, for the account of the Term Lenders, named as an additional insured or, if applicable, a lenders' loss payable (provided, however, that Agent and Term Lenders shall be named as beneficiaries of the worker's compensation policy); and (4) have a provision giving Agent thirty (30) days' prior notice of cancellation or of material change in the coverage." 2. The definition of the term "LIBOR" set out in Article 1 is deleted and replaced with the following definition: "The term 'LIBOR' means, for each Advance (or where the context so requires, the aggregate of the Advances then outstanding), for Interest Periods of one (1), three (3), six (6) and twelve (12) months, as selected by Borrower, or such other period as requested by Borrower and approved by Agent, for the principal amount of the Term Loan then outstanding, the per annum rate of interest at which dollar deposits in the amount of such outstanding principal amount are, or would be, offered for such Interest Period in the London interbank market at 11 a.m. London time two (2) Banking Days prior to the commencement of such Interest Period, as reported in the Reuter's Monitor for such date under the page code "LIBOR," and in case of variations in rates, the arithmetic average thereof rounded upward if necessary expressed as a percentage rounded to five (5) decimal places, calculated by Agent; provided, however, that if such reported rate is unavailable, "LIBOR" shall mean, for each Interest Period, for each Advance (or, where the context so requires, the aggregate of Advances then outstanding), the per annum rate of interest at which dollar deposits in the amount of such Advance are, or would be, offered by KOP and CS to prime banks in the London interbank market at 11 a.m. London time two (2) Banking Days prior to the commencement of such Interest Period, and in the case of variations in rates, the weighted average thereof rounded upward if necessary expressed as a percentage rounded to five (5) decimal places, calculated by Agent. 3. The definition of the term "O&M Contract" set out in Article 1 is amended by deleting the date "December 30, 1988" from such definition and replacing such date with the date "as of September 30, 1988". 2 4. The definition of the term "Required Maintenance Amount" set out in Article 1 is deleted in its entirety. 5. Section 2.3(l) is deleted in its entirety and is hereby replaced with the following provision: "(1) Borrower shall have contracted, in the aggregate, for either (i) a minimum of 12,800,000 MM BTUs for each remaining year of this Agreement or (ii) such amount of natural gas as may from time to time be reasonably deemed necessary by the Co-Managers, after consultation with Borrower, or as Borrower may reasonably recommend, subject to the reasonable approval of the Co-Managers in consultation with the Independent Engineer, to meet in a timely manner all of its obligations under the TUEC Agreement and this Agreement (the "Base Requirement"). The Base Requirement may be provided from one or more of the following sources: "(i) Natural Gas Clearinghouse Inc., pursuant to that certain contract, dated as of December 11, 1986, by and between Natural Gas Clearinghouse Inc. and FSOC, as the same has been assigned and may be amended from time to time (the "Natural Gas Clearinghouse Contract"); "(ii) Certain Qualified gas reserves currently owned or controlled by FSGC or FSOC and more fully described on Exhibit G hereto, which, if owned, shall be pledged or, if controlled, shall be dedicated to the Facility until such time and to the extent necessary to fulfill the Base Requirement. For purposes of this Section 2.3(l), the term "Qualified" shall mean such natural gas reserves or natural gas supply arrangements as are reasonably approved by the Independent Engineer and the Agent; and "(iii) Qualified natural gas reserves or natural gas supply arrangements as and when the same are acquired and/or entered into by FSGC, a wholly owned subsidiary thereof or an affiliate thereof, including, without limitation, that certain Purchase and Sale Agreement, dated November 21, 1986, by and between Borrower and Fina. "At Borrower's request and expense, the Agent shall promptly release from dedication any 3 and all of the gas reserves in excess of the Base Requirement ("Excess Reserves"); provided, however, that all of the gas reserves which remain subject to dedication will contain sufficient unproduced natural gas to meet the Base Requirement (as reasonably determined by the Independent Engineer) after release of the Excess Reserves. Borrower also shall have the right to substitute from time to time other leases, agreements and properties, including gas purchase contracts or other supply arrangements with third parties, for those subject to dedication, and Agent shall promptly execute a release from dedication in recordable form of all natural gas produced from or attributable to such substituted gas reserves; provided, however, that such new gas reserves shall be Qualified gas reserves; and provided further, that all of the gas reserves which are subject to dedication will contain sufficient unproduced natural gas to meet the Base Requirement (as reasonably determined by the Independent Engineer) after such substitution is effected. Any interests, leases, agreements and properties that Borrower proposes for substitution hereunder are subject to the approval of Independent Engineer and Agent in accordance with this provision. Such substitution shall occur either by (i) amendment of currently recorded dedication agreements to reflect such substitution or (ii) execution of new dedication agreements (in form and substance reasonably acceptable to Agent and the other parties thereto) dedicating such new interests, leases, agreements and properties and filing of such amendment or new dedication agreements in the counties where the new interests, leases, agreements and properties are located and filing a release of dedication with respect to the released gas reserves. Any releases required herein from Agent shall not be unreasonably delayed. "All arrangements for the supply of natural gas to the Facility shall (i) be on terms and conditions reasonably satisfactory to the Co-Managers, (ii) be sufficient to supply the Facility's Base Requirement; (iii) include the execution and delivery of transportation agreements as deemed necessary and reasonably approved by Agent and Independent Engineer; and (iv) during any given year, provide for the sale 4 of natural gas at a price not in excess of the annual weighted average price set forth opposite such year as provided on Exhibit H hereto. "Anything in this Section 2.3(l) to the contrary notwithstanding, in the event that the Independent Engineer reasonably determines that (i) the arrangements then in place for the supply of natural gas to the Facility are insufficient to meet the Base Requirement or the requirements of Section 4.36 or (ii) adjustments of the Base Requirement pursuant to this Section 2.3(l) or a change in the criteria for establishing the Base Requirement has rendered the then-existing arrangements for the supply of gas insufficient to meet the Base Requirement, Borrower shall within six (6) months from the date of notice of such determination make any additional arrangements for the supply of gas as are necessary to meet the Base Requirement or the requirements of Section 4.36. Such six (6) month grace period will be available only if the Borrower is able to establish to the Independent Engineer's reasonable satisfaction that Borrower has made arrangements assuring the delivery of natural gas to the Facility for a 365-day period in an amount not less than the amount determined for such period in calculating the Base Requirement at a price not in excess of that specified on Exhibit H; and" 6. Section 2.3(n) is hereby renumbered as Section 2.3(m). 7. Section 4.4(b) is deleted in its entirety and is hereby replaced with the following provision: "(b) The Agent shall deposit and apply funds in the Maintenance Reserve Account in accordance with this provision. When requested by the Borrower, amounts may be withdrawn from the Maintenance Reserve Account for budgeted and non-discretionary Operating Costs, or any other reasonable expense in connection with the Property or the Facility, and deposited in the Special Operating Account. On each Term Loan Repayment Date, the Agent shall withdraw from the Project Control Account and deposit into the Maintenance Reserve Account, in accordance with Section 4.1 hereof, an amount equal to one-fourth (1/4) of the amount set forth on Exhibit M to this 5 Agreement, as the same may be amended from time to time by the Borrower with the consent of the Agent and the Independent Engineer, for the calendar year in which such Term Loan Repayment Date occurs, plus any amounts previously payable into the Maintenance Reserve Account pursuant to this provision which were not so deposited, plus any amounts withdrawn or disbursed from the Maintenance Reserve Account for non-budgeted Operating Costs." 8. Section 4.9(g) is amended by deleting the word "and" at the end of such provision, and Section 4.9(h) is renumbered as Section 4.9(i). A new paragraph is added immediately following Section 4.9(g) reading as follows: "(h) not less than forty-five (45) days prior to the commencement of each Operating Year (as defined in the O&M Contract) beginning with Operating Year 1996, a dedicated reserve report containing the following information: "(1) An itemized list of all properties currently pledged or dedicated to the satisfaction of the Base Requirement; "(2) With respect to each property so itemized, the name(s) of the record-title owner(s) thereof. If such record-title owner is FSOC or FSGC, then the recording information reflecting such ownership; if such owner is someone other than FSGC, then a description of the contractual relationship between such owner and FSGC which gives rise to the control by FSGC of any gas produced from such property; "(3) With respect to each such property, the quantity of proven reserves (subdivided into proved developed producing, proved behind pipe, and proved undeveloped categories) assigned thereto by FSGC's internal or outside reserve engineers; and "(4) With respect to each property for which proved behind pipe or proved undeveloped reserves are assigned, a description of FSGC's development plans for such reserves; and" 6 9. Section 4.15 is deleted in its entirety and is hereby replaced with the following provision: "4.15 Compliance with Laws. "Borrower shall ensure that the Facility is operated and administered in accordance with all applicable Governmental Requirements, including without limitation all regulations and statutes governing environmental matters, unless such non-compliance would not impair (i) the ability of the Borrower to meet its obligations under this Agreement, (ii) any of the security interests granted to the Term Lenders under any of the Security Documents or (iii) the operation of the Facility in accordance with the performance standards under Article VIII of the O&M Agreement and in accordance with the TUEC Agreement, and shall ensure that the FERC Qualifying Facility Certificate is maintained for the Facility. Borrower shall timely comply with all applicable Governmental Requirements, unless such non-compliance would not impair (i) the ability of the Borrower to meet its obligations under this Agreement, (ii) any of the security interests granted to the Term Lenders under any of the Security Documents or (iii) the operation of the Facility in accordance with the performance standards under Article VIII of the O&M Agreement and in accordance with the TUEC Agreement, and if available, deliver to Agent evidence thereof, and if not available, certify to Agent that Borrower is in such compliance. Borrower assumes full responsibility for the compliance of the Plans and the Facility with all applicable Governmental Requirements and with sound and reasonable engineering practices and, notwithstanding any approvals by Term Lenders, they shall have no obligation or responsibility whatsoever for the Plans or any other matter incident to the Property or the design construction, testing, start-up or operation of the Facility." 10. Section 4.36 is deleted in its entirety and is hereby replaced with the following provision: "4.36 Gas Supply Arrangements. "Borrower shall at all times during the term hereof maintain gas supply arrangements 7 which are, to the reasonable satisfaction of Term Lenders, sufficient in form and substance to satisfy the Base Requirement. Without limiting the foregoing, Borrower acknowledges and agrees that at any time after the date which is one (1) year prior to the date of expiration of the Natural Gas Clearinghouse Inc. Contract, or at any time during which such contract is not in full force and effect, upon the reasonable recommendation of the Independent Engineer taking into account any term remaining under the Natural Gas Clearinghouse Contract and any other existing Qualified gas supply arrangements pursuant to Section 2.3(l)(iii) above, Term Lenders may require that any portion, or all, of the gas reserves which are to be utilized under Section 2.3(l)(ii) necessary to supply the gas required by the Facility for a period of up to two (2) years as determined in calculating the Base Requirement, at a price not in excess of that specified on Exhibit H, must be categorized by the Independent Engineer as proved developed producing reserves." 11. Exhibit D to the Amended Term Loan Agreement is deleted in its entirety and is replaced with the document attached to this Amendment No. 2 labeled as Exhibit D. 12. The document attached to this Amendment No. 2 labeled as Exhibit N is incorporated in the Amended Term Loan Agreement as Exhibit N thereto. Except as specifically provided in this Amendment No. 2, no other amendments, revisions or changes to the Amended Term Loan Agreement are made or permitted hereby. All other terms and conditions of the Amended Term Loan Agreement remain in full force and effect and apply fully to this Amendment No. 2. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers hereunto duly authorized as of the date first above written. BORROWER POWER RESOURCES, INC. By: /s/ illegible ---------------------------- Name: Title: CFO 8 TERM LENDERS KANSALLIS-OSAKE-PANKKI By: /s/ William S. Bennett ------------------------------ Name: William S. Bennett Title: Assistant Treasurer By: /s/ Michael R. Chalian ----------------------------- Name: Michael R. Calian Title: First Vice President CREDIT SUISSE By: /s/ illegible ------------------------------ Name Title: By: ------------------------------ Name Title: AGENT CREDIT SUISSE By: /s/ illegible --------------------------------- Name Title: By: ----------------------------------- Name: Title: NY:7862P 9 EXHIBIT "D" SAMPLE CALCULATION OF DEBT SERVICE COVERAGE RATIO A. Net Revenues 1. Gross Revenues: -- TUEC Payments -- Interest -- Other Total: 2. Less Operating Costs: -- O&M Costs -- Fuel Costs -- Insurance -- Taxes -- Contributions to Maintenance Reserve Account in accordance with Exhibit M and amounts in payment of contributions previously payable in accordance with Exhibit M which were not so deposited -- Other Total: TOTAL NET REVENUES: B. Debt Service -- Principal -- Interest TOTAL DEBT SERVICE: FORMULA A Debt Service Coverage Ratio = ---- B EXHIBIT "N" INSURANCE COVERAGE (a) Owner shall provide and maintain the following insurance coverages provided that the required limits may be satisfied by any combination of primary or excess insurance in Owner's sole discretion: (i) insurance for so-called "all risk" property damage or destruction in an amount not less than the cost of replacement of the Facility; (ii) boiler and machinery breakdown coverage; (iii) Comprehensive General Liability Insurance or equivalent form as offered, including premises-operations, independent contractors, products-completed operations, broad form property damage including completed operations, blanket broad form contractual liability, and blanket explosion, collapse and underground damage (XCU) coverage. The policy shall contain limits of at least $1,000,000 combined single limit each occurrence and in the aggregate where applicable; (iv) Comprehensive Automobile Liability Insurance for all owned, non-owned and hired automobiles with limits of liability of at least $1,000,000 combined single limit; (v) Excess liability insurance or equivalent form as offered following the terms of the primary insurance set forth in subsection (a)(iii) and (iv) above, with a combined single limit of $20,000,000 per occurrence and in the aggregate where applicable; and (vi) Worker's Compensation Insurance in accordance with statutory requirements. (b) Owner shall provide and maintain the following insurance coverages covering the operations of the Operator provided that the required limits may be satisfied by any combination of primary or excess insurance in Owner's sole discretion: (i) Comprehensive General Liability Insurance or equivalent form as offered, including premises-operations, independent contractors, products-completed operations, broad form property damage including completed operations, blanket broad form contractual liability, and blanket explosion, collapse and underground damage (XCU) coverage. The policy shall contain limits of at least $1,000,000 combined single limit each occurrence and in the aggregate where applicable; (ii) Comprehensive Automobile Liability Insurance for all owned, non-owned and hired automobiles with limits of liability of at least $1,000,000 combined single limit; (iii) Excess liability insurance or equivalent form as offered following the terms of the primary insurance set forth in subsections (a)(i) and (ii) above, with a combined single limit of $20,000,000 per occurrence and in the aggregate where applicable; and (iv) Worker's Compensation Insurance in accordance with statutory requirements. AMENDMENT NO. 3 Amended and Restated Term Loan Agreement This Amendment No. 3 ("Amendment No. 3") to the Amended and Restated Term Loan Agreement dated as of December 30, 1988, as amended by Amendment No. 1 dated as of March 1, 1989 and Amendment No. 2 dated as of April 28, 1989 (the "Amended Term Loan Agreement"), among Credit Suisse and Kansallis-Osake-Pankki as Term Lenders, Power Resources Inc. as Borrower, and Credit Suisse as Agent, is entered into as of June 1, 1990. WITNESSETH: WHEREAS, Term Lenders, Borrower and Agent have entered into the Amended Term Loan Agreement; and WHEREAS, the parties wish to amend certain provisions of the Amended Term Loan Agreement as set forth herein; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Amended Term Loan Agreement is hereby amended as follows: 1. The definition of the term "L/C" set forth in Article 1 is amended by replacing the words "Section 4.3(g)" with the words "Section 4.3(h)". 2. Section 2.13 is deleted in its entirety and is replaced with the following: "2.13 Letters of Credit. "Notwithstanding any provision of this Agreement to the contrary, neither the Agent, the Term Lenders nor the Letter of Credit Bank shall have any obligation under this Agreement to issue or to fund a Letter of Credit for the benefit of the Borrower. All references in this Agreement to the terms 'Letter of Credit,' 'Letter of Credit Bank,' 'LOC Fee,' 'LOC Fronting Fee' and 'LOC Reimbursement Obligation' (other than those references in this Section 2.13) shall be deemed to be deleted from this Agreement in their entirety." Except as specifically provided in this Amendment No. 3, no other amendments, revisions or changes to the Amended Term Loan Agreement are made or permitted hereby. All other terms and conditions of the Amended Term Loan Agreement remain in full force and effect and apply fully to this Amendment No. 3. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers hereunto duly authorized as of the date first above written. BORROWER POWER RESOURCES, INC. By: /s/ J. Donald Dacey ------------------------------- Name: J. Donald Dacey Title: Senior Vice President TERM LENDERS KANSALLIS-OSAKE-PANKKI By: /s/ Michael Hudson ------------------------------- Name: Michael Hudson Title: Vice President By: /s/ Pekka Salo -------------------------------- Name: Pekka Salo Title: Assistant Vice President CREDIT SUISSE By: /s/ Bruce R. Brown -------------------------------- Name: Bruce R. Brown Title Deputy Vice President By: /s/ Bruce W. Hurd ---------------------------------- Name: Bruce W. Hurd Title: Assistant Treasurer AGENT CREDIT SUISSE By: /s/ Bruce R. Brown -------------------------------- Name: Bruce R. Brown Title: Deputy Vice President By: /s/ Bruce W. Hurd -------------------------------- Name: Bruce W. Hurd Title: Assistant Treasurer AMENDMENT NO. 4 Amended and Restated Term Loan Agreement This Amendment No. 4 ("Amendment No. 4") to the Amended and Restated Term Loan Agreement dated as of December 30, 1988, as amended by Amendment No. 1 dated as of March 1, 1989, Amendment No. 2 dated as of April 28, 1989 and Amendment No. 3 dated as of June 1, 1990 (the "Amended Term Loan Agreement"), among Credit Suisse and Kansallis-Osake-Pankki as Term Lenders, Power Resources, Inc. as Borrower, and Credit Suisse as Agent, is entered into as of April 15, 1991. W I T N E S S E T H : WHEREAS, Term Lenders, Borrower and Agent have entered into the Amended Term Loan Agreement; and WHEREAS, the parties wish to amend certain provisions of the Amended Term Loan Agreement as set forth herein; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Amended Term Loan Agreement is hereby amended as follows: 1. Article 1 as amended to add the following: "Standby Facility Commitment Letter. The term "Standby Facility Commitment Letter" means that certain Standby Facility Commitment Letter, dated April 15, 1991, between Borrower and FSOC." 2. Section 4.3(c) is deleted in its entirety and replaced with the following: "(c) If the Debt Protection Account does not contain the Debt Protection Amount, Agent shall withdraw from the Project Control Account and deposit into the Debt Protection Account on each Term Loan Repayment Date, in accordance with Section 4.1 hereof, up to sixty-six percent (66%) or, if the most recently reported Debt Service Coverage Ratio, as calculated pursuant to Section 4.2 hereof, is below one and one-fifth (1.20), up to one hundred percent (100%), of the Discretionary Cash Flow of the quarter ending on such Term Loan Repayment Date, until the Debt Protection Account contains the Debt Protection Amount; provided, however, that if Agent withdraws any money from the Debt Protection Account to pay Debt Service, Operating Costs or any other reasonable expense in connection with the Property or the Facility, Borrower shall thereafter deposit into the Debt Protection Account, on each Term Loan Repayment Date, eighty percent (80%) of the Discretionary Cash Flow of the quarter ending on such Term Loan Repayment Date, until an amount has been deposited in the Debt Protection Account which, together with interest earned on the amount remaining in the Debt Protection Account, is equal to the withdrawn monies; and thereafter deposit into the Debt Protection Account on each Term Loan Repayment Date up to sixty-six percent (66%) or, if the most recently reported Debt Service Coverage Ratio, as calculated pursuant to Section 4.2 hereof, is below one and one-fifth (1.20), up to one hundred percent (100%), of the Discretionary Cash Flow of the quarter ending on such Term Loan Repayment Date until the Debt Protection Account contains the full Debt Protection Amount; provided further, that if any calculation of the Debt Service Coverage Ratio, as calculated pursuant to Section 4.2 hereof, is below one and one-fifth (1.20), Borrower's Discretionary Cash Flow shall be utilized as provided in such Section 4.2 prior to making the withdrawals and transfers required hereunder." 3. Section 4.4(b) is amended by adding the following sentence after the second sentence thereof: "When requested by Borrower, amounts shall be withdrawn from the Maintenance Reserve Account and paid to FSOC in repayment of amounts owing to FSOC under the Standby Facility Commitment Letter in accordance with the terms of such Standby Facility Commitment Letter." 4. Section 4.4. is amended to add subsection (g), to read in its entirety as follows: "(g) Amounts may be drawn by Borrower pursuant to the Standby Facility Commitment Letter and may be applied during the term thereof only for the purpose of providing funds for and to the extent of any cost overruns incurred in connection with the performance of the Maintenance Program (as defined on the Standby Facility Commitment Letter) or to the payment of Borrower's Debt Service obligations, provided that Agent shall have first applied to the payment of such Debt Service obligations all funds on deposit in the Debt Protection Account available for the payment thereof." 2 5. Section 4.17 is deleted in its entirety and replaced with the following: "4.17 Other Debt. Borrower shall not incur any Debt, other than the Debt contemplated in this Agreement or in the O&M Contract or incurred pursuant to the Standby Facility Commitment Letter, which, when aggregated with any Debt outstanding under the Standby Facility Commitment Letter, liens permitted pursuant to Section 4.10(i) and voluntarily-incurred contingent liabilities not incurred in the ordinary course of business (and excluding all contractual obligations incurred in accordance with Section 4.18), exceeds Five Hundred Thousand dollars ($500,000) in the aggregate at any one time outstanding, without the prior written consent of Agent; provided, that no such debt may be incurred unless such debt is fully subordinated to all of Borrower's obligations under this Agreement and the other Loan Instruments; and provided further, additional subordinated indebtedness shall be approved by the Agent if such indebtedness would be incurred on terms and conditions approved by the Agent, such approval not to be unreasonably withheld or delayed, and such indebtedness, when aggregated with all other such subordinated indebtedness of Borrower, would not, in the reasonable opinion of Agent, impair the ability of the Borrower to perform its obligations under this Agreement, the other Loan Instruments and the Project Documents." Except as specifically provided in this Amendment No. 4, no other amendments, revisions or changes to the Amended Term Loan Agreement are made or permitted hereby. All other terms and conditions of the Amended Term Loan 3 Agreement remain in full force and effect and apply fully to this Amendment No. 4. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers hereunto duly authorized as of the date first above written. BORROWER POWER RESOURCES, INC. By: /s/ ILLEGIBLE ------------------------------ Name: ILLEGIBLE Title: EVP-CEO TERM LENDERS KANSALLIS-OSAKE-PANKKI By: /s/ Martha P. Toll-Reed ------------------------------ Name: Martha P. Toll-Reed Tit1e: Assistant Vice President By: /s/ Nicholas A. Matacchieri ------------------------------ Name: Nicholas A. Matacchieri Title: Assistant Treasurer CREDIT SUISSE By: /s/ Tony K. Muoser ------------------------------ Name: Tony K. Muoser Title: Associate By: /s/ Bruce W. Hurd ------------------------------ Name: Bruce W. Hurd Title: Associate 4 AGENT CREDIT SUISSE By: /s/ Tony K. Muoser ------------------------------ Name: Tony K. Muoser Title: Associate By: /s/ Bruce W. Hurd ------------------------------ Name: Bruce W. Hurd Title: Associate 5 AMENDMENT NO. 5 TO AMENDED AND RESTATED TERM LOAN AGREEMENT This Amendment No. 5 (this "Amendment") to the Amended and Restated Term Loan Agreement, dated as of December 30, 1988, as amended by Amendment No.1, dated as of March 1, 1989, as further amended by Amendment No. 2, dated as of April 28, 1989, as further amended by Amendment No. 3, dated as of June 1, 1990 and as further amended by Amendment No. 4, dated as of April 15, 1991 (as so amended, the "Amended Term Loan Agreement"), among Credit Suisse and Merita Bank Ltd, Grand Cayman Branch (formerly Kansallis-Osake- Pankki) as Term Lenders, the other Term Lenders named therein, Power Resources, Inc., as Borrower, and Credit Suisse, as Agent, is entered into as of June 29, 1995. RECITALS WHEREAS, Term Lenders, Borrower and Agent have entered into the Amended Term Loan Agreement; WHEREAS, the parties wish to amend certain provisions of the Amended Term Loan Agreement as set forth herein; and WHEREAS, capitalized terms used but not defined herein shall have the meanings given to such terms in the Amended Term Loan Agreement. AGREEMENT NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Amended Term Loan Agreement is hereby amended as follows: 1. Amendment of Certain Definitions. The following definitions contained in Article I of the Amended Term Loan Agreement are hereby amended as follows: a. The definition of "Accounts" is amended so that the existing definition is deleted in its entirety and replaced with the following: The term "Accounts" means the Additional Collateral Account, the Debt Protection Account, the Maintenance Reserve Account, the Project Control Account, the Special Operating Account and the Subordinated Fuel Component Account. b. The definition of "Operating Costs" is amended (i) by adding the words "(other than the Subordinated Fuel Component)" immediately after the words "fuel costs" in the sixth line of such definition, and (ii) by adding the words "or the Subordinated Fuel Component" prior to the period at the end of the last sentence of such definition. c. The definition of "Project Documents" is amended so that the existing subsection (viii) thereof is deleted in its entirety and replaced with the following: (viii) Gas Sale and Purchase Agreement, dated June 29, 1995, between Dreyfus and Borrower (the "Dreyfus Agreement"); Security Agreement dated June 29, 1995 between FSGC and Borrower; Consent and Agreement dated June 29, 1995, among Dreyfus, Borrower and Agent; the consent by Westar Transmission Company (formerly Cabot Gas Supply Corporation), a Delaware corporation, or any successor thereto, to the assignment and collateral assignment of any gas transportation arrangements by FSGC and Borrower, respectively; and all other gas supply arrangements and pledges or dedications of Qualified gas reserves and substitutes therefor. d. The definition of "Projected Operating Costs" is amended by adding the words "(other than the Subordinated Fuel Component)" immediately after the words "fuel costs" in the sixth line of such definition, and (ii) by adding the words "or the Subordinated Fuel Component" immediately prior to the period at the end of the last sentence of such definition. 2. Certain Additional Definitions. The following definitions are hereby added to Article I of the Amended Term Loan Agreement in appropriate alphabetical order: a. Dreyfus. The term "Dreyfus" means Louis Dreyfus Natural Gas Corp., an Oklahoma corporation. b. Extraordinary Capital Expenditure. The term "Extraordinary Capital Expenditure" means (i) any unforeseen, necessary capital expenditure in connection with the operation and maintenance of the Facility not anticipated in the Operating Budget and not capable of being funded from funds available in the Maintenance Reserve Account or, if Borrower shall so direct, any expenditure which, if an appropriate amount were then on deposit in the Maintenance Reserve Account, could be paid in accordance with Section 4.4(b) hereof and, (ii) any amounts due and payable to Dreyfus under the Dreyfus Agreement which result from any period of suspended gas delivery pursuant to Section 13.2(b) of the Dreyfus Agreement. c. Subordinated Fuel Component. The term "Subordinated Fuel Component" means the amount described as the "Subordinated Fuel Component" in the Gas Supply Agreement, dated December 30, 1988 between FSGC and Borrower, as amended by Amendment No. 1, dated March 1, 1989, Amendment No. 2, dated May 19, 1989, and Amendment No. 3, dated June 29, 1995. d. Subordinated Fuel Component Account. The term "Subordinated Fuel Component Account" means the interest bearing account established by Borrower with the Agent in accordance with the terms of Section 4.4A of this Agreement. 3. Payment of Subordinated Fuel Component. Section 4.1(f) of the Amended Term Loan Agreement shall be replaced in its entirety with the following: (f) From and after the date of the First Advance, Agent shall, on the last day of each month, after making the withdrawals specified in subpart (e) above, withdraw from the 2 Project Control Account, and transfer, in accordance with the terms of this Agreement and in the following order, (1) into a Maintenance Reserve Account maintained by Borrower with the Agent (Account No. 19960504) (the "Maintenance Reserve Account"), any deposits due and payable on such date, (2) into the Debt Protection Account, any amounts due and payable on such date, and (3) into the Subordinated Fuel Component Account, an amount equal to the Subordinated Fuel Component then due and not yet paid to FSGC. 4. Amendment to Project Control Account. Section 4.1(g) of the Amended Term Loan Agreement shall be replaced in its entirety with the following: (g) From and after the date of the First Advance, Agent shall, after making withdrawals specified in subpart (f) above, withdraw from the Project Control Account on each Term Loan Repayment Date, and apply in accordance with the terms of this Agreement and in the following order, the Debt Service due and payable on such date, and, any deposits to the Additional Collateral Account due and payable on such date; provided, however, that if any Letters of Credit issued pursuant to Section 2.13 hereof are outstanding on such Term Loan Repayment Date, the Agent shall provide for a retainage in the Project Control Account on such Term Loan Repayment Date of an amount determined by the Agent to be equal to the LOC Fees accrued as of such date on the borrowing supported by such Letters of Credit. 5. Subordinated Fuel Component Account. The following new Section 4.4A is hereby added to the Amended Term Loan Agreement: 4.4A Subordinated Fuel Component Account. (a) On or prior to the date hereof, Borrower shall open, and shall thereafter maintain in accordance with the provisions hereof, an account with the Agent (Account No. 19960507) for the purpose of providing for Extraordinary Capital Expenditures in connection with the operation and maintenance of the Facility, for the purpose of providing for the payment of Debt Service, and for the purpose of the replenishment of the Debt Protection Account, in the event Borrower has insufficient funds available to satisfy any such Extraordinary Capital Expenditure and Debt Service requirements (the "Subordinated Fuel Component Account"). Monies in the Subordinated Fuel Component Account may be invested in Permitted Investments by Borrower. (b) If, at any time and from time to time, after making the deposits and withdrawals in the order specified in Section 4.1, the Agent determines that (A) the Project Control Account does not contain sufficient funds to make the Debt Service payments required under Section 4.1(g) and, in accordance with the terms of Section 4.3(b) hereof, withdraws money from the Debt Protection Account to pay Debt Service in such amount, determined by Agent, as is necessary to cover such Debt Service shortfall, or (B) the Debt Protection Account has on deposit therein an amount which is less than the then applicable Debt Protection Amount, then, in either such case, to the extent funds are then on deposit in the Subordinated Fuel Component Account, the Agent shall withdraw from the Subordinated Fuel Component Account for deposit into the Debt Protection Account such amount as is necessary to fully replenish the Debt Protection Account up to the then applicable Debt 3 Protection Amount. If, at any time and from time to time, after making all applications required pursuant to the preceding sentence and/or as may otherwise be required to be made pursuant to Section 4.1 hereof, funds remain on deposit in the Subordinated Fuel Component Account and the Agent determines that the Project Control Account and the Maintenance Reserve Account do not contain sufficient funds to satisfy Extraordinary Capital Expenditure requirements in connection with the operation and maintenance of the Facility, then, to the extent funds are then remaining on deposit in the Subordinated Fuel Component Account, the Agent shall withdraw from the Subordinated Fuel Component Account such amount, determined by Agent, as is necessary to cover such Extraordinary Capital Expenditure shortfall and apply such amount to (or provide such amount to the Borrower for application to) the payment of such Extraordinary Capital Expenditure shortfall. (c) So long as no Event of Default (or event that with the passage of time, the giving of notice or both, would constitute an Event of Default) has occurred and is continuing, then on the second Term Loan Repayment Date following October 1, 1995 and on each Term Loan Repayment Date thereafter, subject to the proviso below in this paragraph (c), fifty percent (50%) of all funds then on deposit in the Subordinated Fuel Component Account shall be released to FSGC, or to such other person as the Agent shall be legally required to make such delivery, so long as (i) the Debt Service due and payable on the applicable Term Loan Repayment Date has been paid in full, (ii) the amount on deposit in the Debt Protection Account is equal to or exceeds the then applicable Debt Protection Amount, and (iii) all Extraordinary Capital Expenditure requirements in connection with the operation and maintenance of the Facility, whether then payable or then identified, have been satisfied or provided for in full; provided, however, any such release to FSGC or such other person shall be made only if, and then only to the extent that, after giving effect to such release, an amount equal to the aggregate of the Subordinated Fuel Component otherwise due to FSGC for the immediately preceding three (3) month period remains on deposit in the Subordinated Fuel Component Account. (d) Borrower hereby irrevocably authorizes Agent, in Borrower's name or in Agent's name, to make withdrawals from the Subordinated Fuel Component Account pursuant to the terms of this Agreement. (e) Borrower hereby pledges to Agent and the Term Lenders and grants to them a security interest in the Subordinated Fuel Component Account and all monies on deposit therein (including the interest paid on such amount) for the purpose of securing all of Borrower's obligations to them under this Agreement and under the other Loan Instruments. (f) At any time when an Event of Default shall have occurred and is continuing, and the applicable grace period, if any, shall have expired, Agent may apply any monies in the Subordinated Fuel Component Account to the payment of Borrower's obligations to the Term Lenders and Agent in such order of application as the Agent may determine in its sole discretion. Borrower shall provide Agent with the authorization necessary to effectuate such transactions. Prompt notification shall be provided by Agent to Borrower of the exercise of any such rights. 4 (g) Upon payment in full of all obligations of Borrower to Agent and the Term Lenders under this Agreement and the other Loan Instruments, the monies on deposit in the Subordinated Fuel Component Account, together with the interest paid thereon, if any, will be released to Borrower, or to such other person as the Agent shall be legally required to make such delivery. 6. Governing Law. This Amendment shall be governed by and construed and interpreted in accordance with the laws of the State of New York, without reference to principles of conflicts of laws (other than Section 5-1401 of the New York General Obligations Law). 7. No Other Amendments. Except as specifically provided in this Amendment, no other amendments, revisions or changes to the Amended Term Loan Agreement are made or permitted hereby. All other terms and conditions of the Amended Term Loan Agreement remain in full force and effect and apply fully to this Amendment. 8. Paragraph Headings. Paragraph headings have been inserted in this Amendment as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Amendment and shall not be used in the interpretation of any provision of this Amendment. 9. Counterparts. This Amendment may be executed in one or more duplicate counterparts and when signed by all of the parties listed below shall constitute a single binding agreement. 10. Amended Term Loan Agreement. From and after the date hereof, whenever referred to in any Project Document, "Amended Term Loan Agreement" shall mean the Amended Term Loan Agreement as amended by this Amendment. 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers hereunto duly authorized as of the date first written above. BORROWER: Power Resources, Inc., a Texas corporation By: /s/ Mario H. Young, Jr. ------------------------------------ Name: Mario H. Young, Jr. Title: Senior Vice President TERM LENDERS: Credit Suisse By: /s/ Guy R. Cirincione ------------------------------------ Name: Guy R. Cirincione Title: Member of Senior Management By: /s/ Suzanne Leon ------------------------------------ Name: Suzanne Leon Title: Associate Merita Bank Ltd, Grand Cayman Branch By: /s/ Gerald Chelius ------------------------------------ Name: Gerald Chelius Title: Senior Vice President By: /s/ Nicholas A. Matacchieri ------------------------------------ Name: Nicholas A. Matacchieri Title: Vice President 6 Bank Austria Aktiengesellschaft By: /s/ J.A. Scay ------------------------------------ Name: J.A. Scay Title: Vice President By: /s/ Mark Nolan ------------------------------------ Name: Mark Nolan Title: Assistant Vice President Union Bank of Bavaria (Bayerische Vereinsbank) By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: Fuji Bank, Limited By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: 7 Z-Laenderbank Austria By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: Union Bank of Bavaria (Bayerische Vereinsbank) By: /s/ Marianne Weinzinger ------------------------------------ Name: Marianne Weinzinger Title: Vice President By: /s/ James A. Lagergren ------------------------------------ Name: James A. Lagergren Title: Assistant Vice President Fuji Bank, Limited By: /s/ Thomas Boylan ------------------------------------ Name: Thomas Boylan Title: Vice President By: ------------------------------------ Name: Title: 7 Gentra Limited By: /s/ P.R. Marsh ------------------------------------ Name: P.R. Marsh Title: Director By: /s/ M.A. Ferguson ------------------------------------ Name: M.A. Ferguson Title: Director - Credit Management Agent: Credit Suisse By: /s/ Guy R. Cirincione ------------------------------------ Name: Guy R. Cirincione Title: Member of Senior Management By: /s/ Suzanne Leon ------------------------------------ Name: Suzanne Leon Title: Associate 8 EX-10.27 7 AMENDED AND RESTATED POWER SALES AGREEMENT (SALTON SEA UNIT V) AMENDED AND RESTATED POWER SALES AGREEMENT This Amended and Restated Power Sales Agreement ("Power Agreement") is made effective as of this lst day of November, 1998 ("Effective Date"), by and between CalEnergy Minerals LLC ("Buyer"), having an office at 302 South 36th Street, Suite 400-L, Omaha, Nebraska 68131, and Salton Sea Power L.L.C. ("Seller"), having an office at 302 South 36th Street, Suite 400-K, Omaha, Nebraska 68131. INTRODUCTION 1. Seller proposes to construct and operate Seller's Plant and Buyer proposes to construct and operate Buyer's Plant. 2. Buyer requires electrical energy in order to operate Buyer's Plant. Buyer desires to purchase electrical energy from Seller, and Seller is willing to sell electrical energy to Buyer, subject to the terms and conditions of this Power Agreement. 3. For and in consideration of the mutual promises and covenants hereinafter set forth, and for other good and valuable consideration, including payment of ten dollars from Buyer to Seller, the receipt and sufficiency of which is hereby acknowledged, Buyer and Seller agree as follows: SECTION 1.0 GENERAL 1.1 Amendment. From and after the date hereof, the terms of that certain Power Sales Agreement dated as of October 13, 1998 by and among Buyer and Seller (the "Original Agreement") shall be amended and restated in their entirety to read as set forth in this Power Agreement and the terms of this Power Agreement shall govern and control the rights and obligations of the parties, notwithstanding any conflict between the terms of this Power Agreement and the Original Agreement. 1.2 Definitions. Capitalized terms used herein and not defined herein shall have the meanings set forth in Exhibit A hereto, which Exhibit A is hereby incorporated by reference, and shall include the plural as well as the singular. 1.3 Certain References. Unless otherwise specified, all references in this Power Agreement to Sections, Exhibits and other subdivisions are references to the Sections, Exhibits and other subdivisions of this Power Agreement. Unless otherwise specified, all references in this Power Agreement to "herein", "hereunder", "hereof", or words of similar import are references to this Power Agreement as a whole and not to any particular Section, Exhibit or other subdivision. 1 SECTION 2.0 SALE AND PURCHASE OF ELECTRICITY 2.1 Sale and Purchase of Electricity. Subject to all the terms and conditions of this Power Agreement, Seller shall sell and deliver to Buyer, and Buyer shall purchase from Seller for the consideration provided herein, at the Power Delivery Points, the full requirements for electrical energy of Buyer's Plant. Buyer shall have no obligation to design, construct, operate or maintain Buyer's Plant so as to use any particular quantity of electricity. 2.2 Initial Conditions Precedent. Seller's obligations to sell and deliver, and Buyer's obligations to purchase and pay for, electrical energy hereunder shall be subject to satisfaction of the following conditions precedent: (i) Buyer shall desire electricity for testing or operation of all or a portion of Buyer's Plant; and (ii) Seller's Plant shall be ready to commence commercial operation. 2.3 Quantity. Notwithstanding any provision herein to the contrary, (i) Seller shall not sell more than its Power Production Capacity over any sixty minute period, and (ii) Seller shall have no obligation to deliver or make available power at any time in excess of the Peak Demand and Seller's obligation to make available or deliver power shall be limited to delivering such power up to the Peak Demand that Buyer calls upon for the operation of Buyer's Plant at the Power Delivery Points. 2.4 Electrical Energy Specifications. 2.4.1 The electrical energy delivered by Seller to Buyer hereunder shall be in the form of three-phase alternating current at a frequency of approximately 60 Hertz. 2.4.2 The voltage of the power delivered by Seller to Buyer shall be the Applicable Voltage unless otherwise agreed by the Parties in writing. 2.5 Interruptions by Seller. Subject to Section 2.2, Seller may interrupt deliveries of power and associated energy hereunder for a Forced Outage, a Scheduled Outage or Force Majeure as provided under Section 9.0. Seller shall use its best efforts to minimize Forced Outages or Force Majeure outages and Seller shall submit notice to Buyer in writing of any impending shutdown as soon as is reasonably practicable, and at least seven (7) days in advance of any Scheduled Outage. 2.6 Backup, Makeup and Emergency Power. Buyer shall make such arrangements as it deems appropriate for Backup Power, Emergency Power and Makeup Power all at Buyer's own expense. Such arrangements shall not unreasonably interfere with the performance by either Party 2 hereunder. Seller shall have no obligation to provide Backup Power, Emergency Power and Makeup Power. SECTION 3.0 TERM AND TERMINATION 3.1 Term. This Power Agreement shall commence on the Effective Date and, unless terminated earlier in accordance with the terms hereof, shall continue in effect for a period until thirty-three (33) years from the date of initial deliveries hereunder, and thereafter shall continue in effect unless and until terminated by a Party by written notice to the other Party given at least 120 days prior to the date such termination is to become effective. SECTION 4.0 PRICE AND PAYMENTS 4.1 Energy Payment. The price for electrical energy purchased and received by Buyer hereunder shall be the Applicable Price. Buyer shall pay to Seller a monthly energy payment based upon (i) the electrical energy purchased and received by Buyer hereunder in each hour of such month and (ii) the Applicable Price; provided, however, such monthly payment shall be reduced by the Transmission Cost Adjustment Factor. If any of the elements used to calculate the Applicable Price or Transmission Cost Adjustment Factor ceases to exist, becomes unavailable or is changed so that the energy payment does not reasonably reflect the net price available to Seller for short term sales of electricity by Seller to the California Power Exchange at Mirage, less transmission costs and line losses to deliver such electricity to Mirage ("Available Price"), the Parties shall negotiate in good faith in an effort agree on other elements in order to establish a mechanism for calculating a price that is comparable to the Available Price or Transmission Cost Adjustment Factor. 4.2 Invoicing and Payment. 4.2.1 Seller shall render to Buyer, after the end of each Billing Month, one or more invoices setting forth the charges as specified in this Section 4.0 for such Billing Month and for charges, if any, for any prior Billing Month that have not been previously invoiced. Buyer shall pay all amounts owing within thirty (30) days following receipt of Seller's invoices for such amounts. 4.2.2 If Buyer in good faith disputes the amount of any invoice delivered by Seller, or any part of it, Buyer shall promptly notify Seller in writing of the amount in dispute and the reasons therefor. 4.2.3 Should Buyer fail to make the full amount of any payment when due (including any amount disputed in good faith), interest at the Interest Rate shall accrue on the unpaid portion from the date the payment was due until payment is made. If any amount paid by Buyer to Seller is subsequently determined to be an overcharge by Seller, then Seller shall repay 3 such amount overcharged plus interest at the Interest Rate on such overcharge from the date the payment was received by Seller until repayment is made. 4.2.4 If Buyer fails to pay (not including the withholding of payment disputed in accordance with Section 4.2.2) the full amount of any payment within thirty (30) days after the payment is due, Seller, upon ten (10) days' prior written notice and in addition to any other remedies Seller may have, may suspend service hereunder until the amount due (inclusive of interest) has been paid in full. SECTION 5.0 METERING 5.1 Location. Subject to Section 5.4.1, Seller shall meter power and associated energy at the Power Delivery Points. 5.2 Tests. Not less frequently than once each year, Seller shall make tests and inspections of meters it installs. At the request of Buyer, Seller shall make additional tests or inspections. Buyer shall pay all costs resulting from additional tests requested by Buyer if such tests show the meters to be accurate within two percent (2%). 5.3 Conclusive Measurement. Invoices based on readings of metering instruments found to be in error by not more than two percent (2%) shall not be corrected. Invoices based on readings of metering instruments found to be in error by more than two percent (2%), either fast or slow, shall be corrected and credits or debits shall be made to Buyer's account on the assumption that such error commenced at the midpoint of the period from the last previous inspection and test to the current inspection and test. All such measurements (with any corrections required hereunder) shall be deemed conclusive as to the amount of power delivered hereunder. 5.4 Other Meters. 5.4.1 Seller may use meters installed by IID or another utility to measure power delivered hereunder in lieu of installing meters itself. In such case, at the election of Seller, meter readings, inspections and tests, adjustments shall be made in accordance with the procedures of IID or such utility, as applicable. At the request of Seller, Buyer shall use best efforts to cause IID to (i) measure any power delivered hereunder that is delivered through the facilities of IID and (ii) to provide to Buyer a monthly statement of such deliveries, which statement Buyer shall promptly provide to Seller. 5.4.2 Buyer may install and use such additional meters as it may desire at its own expense, provided that such meters do not interfere with Seller's equipment or the ability of Seller to perform its obligations hereunder. Such meters shall not be the basis for billing unless the meters used by Seller shall fail entirely. Buyer shall allow Seller access to any such meters and the recorded readings therefrom. 4 SECTION 6.0 INTERCONNECTION 6.1 Installation. Seller shall be responsible, at its sole cost, for constructing, and installing, or causing to be constructed or installed, all necessary transformers, switches, protective devices and other electrical equipment at Seller's Plant necessary to deliver power sold hereunder at the Power Delivery Point(s) in accordance with good industry practices. Buyer shall be responsible, at its sole cost, for constructing, and installing, or causing to be constructed or installed, all necessary transformers, switches, protective devices and other electrical equipment at Buyer's Plant necessary to receive power sold hereunder at the Power Delivery Point(s) in accordance with good industry practices. Notwithstanding the foregoing, Seller shall remain responsible for its obligations under the Construction Agreement. Buyer and Seller will consult with each other regarding the design, construction and operation of such equipment. 6.2 Maintenance. Seller shall be responsible, at its sole cost, for operating and maintaining the electrical equipment at Seller's Plant. Buyer shall be responsible, at its sole cost, for operating and maintaining the electrical equipment at Buyer's Plant. SECTION 7.0 DISTURBANCES AND CORRECTIVE EQUIPMENT 7.1 Equipment. Buyer shall not utilize, or allow to be utilized, any equipment, appliance, or device that tends to unreasonably adversely affect Seller's equipment or its interconnection to IID. Buyer shall maintain a reasonable electrical balance between the phases at the Power Delivery Points. 7.2 Protective Devices. Buyer shall also install and maintain other suitable Protective Apparatus in order to afford reasonably adequate protection to Seller's equipment and IID against adverse conditions or disturbances originating at Buyer's Plant and to protect Buyer's Plant from any disturbances originating at Seller's Plant or IID. Such Protective Apparatus shall comply with the applicable industry standards relating to such equipment. 7.3 Power Factor Correction. Unless otherwise agreed by the Parties, Buyer shall maintain a minimum power factor of .85 at Buyer's Plant, and shall install such power factor correction equipment as may be required for such purpose. Seller shall be responsible for providing reactive power as may be required to compensate for Buyer's reactive power consumption to the extent Buyer operates above such minimum power factor level. SECTION 8.0 SCHEDULING 8.1 Scheduling. 5 8.1.1 Buyer shall provide Seller with a good faith estimate of the quantity of electricity Buyer expects to take hereunder during each hour of a calendar day, which estimate shall be provided to Seller no later than two hours prior to the deadline for Seller to submit to the California Power Exchange Seller's proposed deliveries of electricity in the California Power Exchange day-ahead market for such calendar day; provided, however, if Buyer fails to submit such an estimate for any calendar day, Buyer's good faith estimate for such day shall be deemed to be the estimate applicable, or deemed to be applicable, for the prior calendar day. The actual quantities taken by Buyer hereunder may be either higher or lower than the applicable foregoing estimate; provided, however, for each hour on any calendar day that the actual quantities of electricity taken by Buyer hereunder are greater than Buyer's foregoing good faith estimate for such hour by more than one (1) megawatt hour, Buyer shall pay to Seller the Applicable Unscheduled Demand Amount, if any. Seller shall not supply more than its Power Production Capacity during any 60 minute period, as a result of the foregoing or any other provision of this Agreement, and thus Buyer shall be solely responsible for arrangements for Makeup Power. Seller shall make a reasonable effort to minimize the Applicable Unscheduled Demand Amount when practicable, including revisions to schedules when it has advance notice of unscheduled demand. If Buyer's demand is less than the good faith estimate under Section 8.8.1, Seller shall have the option to either resell such amount for its own account or reduce generation, but shall not recover any loss resulting therefrom. 8.1.2. In addition to the foregoing estimate, Buyer shall provide Seller, as Seller may reasonably request from time to time, good faith estimates of the quantities of electricity Buyer expects to take hereunder. The Parties may agree to such other scheduling procedures as may be appropriate from time to time. 8.2 Ramp Up and Down. Buyer shall use reasonable efforts to schedule and implement each ramp up of power demand and ramp down of power demand at a rate consistent with prudent operation and maintenance of Seller's Generation Equipment. Buyer shall give reasonable advance notice of significant changes in demand to assist Seller in operating its Generation Equipment. 8.3 Maintenance. Seller will be entitled to schedule Scheduled Outages, and during such periods, will not be required to supply power from its Generation Equipment or otherwise. Seller will use reasonable efforts to schedule Scheduled Outages on a schedule which will result in a minimum interruption of Buyer's operations. By the last day of each year, Seller and Buyer shall each provide the other Party with a forecast of its expected maintenance schedule for the next year and shall cooperate in coordinating such maintenance schedules so that they coincide to the extent practicable. SECTION 9.0 FORCE MAJEURE 9.1 Force Majeure. 6 9.1.1 If either Party because of Force Majeure is unable to perform its obligations under this Power Agreement, that Party shall be excused from whatever performance is affected by the Force Majeure to the extent so affected, except as to obligations to pay money, provided that: (i) the non-performing Party, within ten (10) days after discovering the Force Majeure, gives the other Party notice describing the particulars of the occurrence; (ii) the suspension of performance is of no greater scope and of no longer duration than is required by the Force Majeure; and (iii) the non-performing Party uses its due diligence to remedy its inability to perform. 9.1.2 When the non-performing Party is able to resume performance of its obligations under this Power Agreement, that Party shall give the other Party written notice to that effect. 9.1.3 Nothing in this Power Agreement shall require (as a condition to claiming Force Majeure or otherwise) the settlement of any strike, walkout, lockout, or other labor dispute on terms which, in the sole judgment of the Party involved in the dispute, are contrary to its interest. It is understood and agreed that the settlement of strikes, walkouts, lockouts, or other labor disputes shall be at the sole discretion of the Party having the difficulty. 9.1.4 In the event a Party is unable to perform due to action by a Governmental Authority, this Power Agreement shall be amended to comply with the legal change which caused the non-performance, but only if this Power Agreement may be amended without creating a material adverse effect for either Party. 9.2 Notice of Labor Disputes. Whenever there exists an actual or potential labor dispute which is reasonably likely to delay or prevent a Party's timely performance hereunder, such Party shall give notice thereof to the other Party as promptly as practicable. SECTION 10.0 COMPLIANCE WITH LAWS 10.1 Compliance with Laws. Each Party shall each comply with all applicable laws, regulations, orders, permits and other rules of duly-constituted Governmental Authority to the extent applicable to such Party's performance hereunder. SECTION 11.0 DEFAULT AND REMEDIES 7 11.1 General. Subject to Section 11.4 hereof, the remedies reserved to Buyer or Seller herein shall be cumulative and in addition to all other or further remedies provided by law. 11.2 Non-Waiver. Failure of either Party at any time to require performance by the other Party of any provision of this Power Agreement shall not be deemed a continuing waiver of that provision or a waiver of any other provision of this Power Agreement. 11.3 Event of Default. 11.3.1 An "Event of Default" under this Power Agreement shall be deemed to exist upon the occurrence of any one or more of the following events: (i) Failure by either Party to make payment of any amounts due to the other Party under this Power Agreement and that failure continues for a period of thirty (30) days after written notice of nonpayment; or (ii) Failure by either Party to perform fully any other material provision of this Power Agreement and (A) such failure continues for a period of thirty (30) days after written notice of nonperformance from the other Party or (B) if within thirty (30) days the non-performing Party commences and proceeds with due diligence to cure the failure and the failure is not cured within ninety (90) days or the period of time agreed to by the Parties in writing as being necessary for the Party to cure the failure with all due diligence; or (iii) If by order of a court of competent jurisdiction, a receiver or liquidator or trustee of either Party or of any of the property of either Party shall be appointed and such receiver or liquidator or trustee shall not have been discharged within a period of sixty (60) days; or if by decree of such a court, either Party shall be adjudicated bankrupt or insolvent or any substantial part of the property of such Party shall have been sequestered or such decree shall have continued undischarged and unstayed for a period of sixty (60) days after the entry thereof; or if a petition to declare bankruptcy or to reorganize either Party pursuant to any of the provisions of the Federal Bankruptcy Code, as it now exists or as it may hereafter be amended or pursuant to any other similar state statute applicable to such Party, as now or hereafter in effect, shall be filed against such Party and shall not be dismissed within sixty (60) days after such filing; or (iv) If either Party shall file a voluntary petition in bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any similar law; or without limitation of the generality of the foregoing, if either Party shall file a petition or answer or consent seeking relief or assisting in seeking relief in a proceeding under any of the provisions of the Federal Bankruptcy Code, as it now exists or as it may hereafter be amended or pursuant to any other similar state statute applicable 8 to such Party, as now or hereafter in effect, or an answer admitting the material allegations of a petition filed against it in such a proceeding; or if either Party shall make a general assignment for the benefit of its creditors; or if either Party shall admit in writing its inability to pay its debts generally as they become due; or if either Party shall consent to the appointment of a receiver(s), trustee(s) or liquidator(s) of it or of all or of any part of its property. 11.3.2 During any Event of Default, the Party other than the Party in default shall have the rights: (i) To terminate this Power Agreement; and (ii) Subject to Section 11.4 hereof, to pursue any other remedy provided under this Power Agreement or now or hereafter existing at law or in equity or otherwise. 11.4 Consequential Damages. Notwithstanding any other provision of this Power Agreement, neither Party shall be liable to the other Party for any special, consequential or punitive damages hereunder. SECTION 12.0 DISPUTE RESOLUTION 12.1 Matters to Be Arbitrated. Any dispute, controversy or claim arising under or in connection with this Power Agreement shall be settled by arbitration in accordance with this Section 12.0. 12.2 Procedure for Arbitration. 12.2.1 Matters subject to arbitration shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended, on the date of this Power Agreement, which Rules are deemed to be incorporated by reference into this clause. If there is a conflict between the provisions of this Power Agreement and the provisions of the Commercial Arbitration Rules of the American Arbitration Association, the provisions of this Power Agreement shall prevail. The place of arbitration shall be Omaha, Nebraska, or such other location as may be agreed upon by the Parties. The arbitration shall be the sole and exclusive forum for resolution of the dispute or controversy and the award shall be final and binding. Judgment thereon may be entered by any court having jurisdiction. 12.2.2 A Party may demand arbitration by delivering a written notice thereof to the other Party setting forth a complete, concise statement of the issue(s) in dispute, the amount involved and the remedy requested. 9 12.2.3 The number of arbitrators shall be three (3), each of whom shall be disinterested in the dispute and shall have no connection with any Party. Unless the three (3) arbitrators have been appointed by agreement of the Parties within thirty (30) days after the date on which any Party requests the settlement of any dispute by arbitration pursuant to this Section 12, the American Arbitration Association shall appoint the three (3) arbitrators referred to above. The appointing authority may appoint from among nationals of any country, whether or not a Party is a national of that country. SECTION 13.0 ASSIGNMENT 13.1 Assignments with Consent. Subject to Section 13.2, neither Party shall voluntarily assign its rights nor delegate its duties under this Power Agreement without the written consent of the other Party, except in connection with the sale or transfer of substantially all of its properties. Consent for assignment shall not be withheld unreasonably. 13.2 Assignments without Consent. 13.2.1 Each Party shall have the right, without the consent of the other Party, but upon prior written notice to the other Party, to assign all of its rights and interests (but not its obligations) under this Power Agreement to one of its Affiliates. 13.2.2 Each Party shall have the right, without the consent of the other Party, but upon prior notice to the other Party, to assign all of its rights and interests (but not its obligations) under this Power Agreement as collateral security for loans or other indebtedness. Each Party shall execute such additional documents, including a consent to assignment or similar document, as may be reasonably requested by the other Party in connection with such a financing transaction. SECTION 14.0 OTHER PROVISIONS 14.1 Notices. All notices and other communications required or authorized under this Power Agreement shall be given in writing either by personal delivery, registered mail, or overnight or other courier or delivery service, addressed to the respective Party at the addresses indicated below: To Seller: Salton Sea Power L.L.C. 302 South 36th Street Suite 400-K Omaha, NE 68131 Attn: General Counsel To Buyer: CalEnergy Minerals LLC 302 South 36th Street Suite 400-L 10 Omaha, NE 68131 Attn: General Counsel Notice or communication shall be deemed effective upon receipt. Either Party may change its address from time to time by giving written notice of such change to the other Party. 14.2 Choice of Law This Power Agreement shall be governed by and construed in accordance with the internal law, but not the conflicts of law rules, of California. 14.3. Severability If any provision of this Power Agreement is held invalid, such provision shall be deemed deleted and this Power Agreement construed to give effect to the remaining provisions hereof. In the event any provision of this Power Agreement is declared invalid or unenforceable, the Parties shall promptly negotiate in good faith a new provision(s) to eliminate the invalidity or unenforceable provision and to restore this Power Agreement as near as possible to its original intent and effect. 14.4 Modifications. No modification, amendment, extension, renewal, rescission, termination or waiver of any of the provisions contained herein, or any future representation, promise or condition in connection with the subject matter hereof, shall be binding upon either Party unless in writing and signed by an officer on its behalf. 14.5 Headings. Headings used in this Power Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions. 14.6 Entire Agreement. This Power Agreement contains the entire agreement between the Parties with respect to the subject matter hereof, and all prior agreements in connection with the subject matter hereof that are not incorporated herein are not binding upon either of the Parties. 14.7 Counterparts. This Power Agreement may be executed in any number of counterparts, and each counterpart shall have the same force and effect as the original instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 11 IN WITNESS WHEREOF, the Parties hereto have executed this Power Agreement as of the date first written above. SALTON SEA POWER L.L.C., a Delaware limited liability company By: CE Salton Sea Inc., a Delaware corporation, its manager By: /s/ Douglas L. Anderson ------------------------------------ Name: Douglas L. Anderson ---------------------------------- Title: Assistant Secretary --------------------------------- CALENERGY MINERALS LLC, a Delaware limited liability company By: Salton Sea Minerals Corp., a Delaware corporation, its manager By: /s/ Douglas L. Anderson ------------------------------------ Name: Douglas L. Anderson ---------------------------------- Title: Assistant Secretary --------------------------------- 12 EXHIBIT A TO POWER AGREEMENT DEFINITIONS For the purposes of this Power Agreement, the following terms shall have the following meanings assigned to them: "Affiliate" means, with respect to a Party, any person, partnership, joint venture, corporation, or other form of enterprise which directly or indirectly controls, is controlled by, or is under common control with, such Party. For purposes of the preceding sentence, "control" means possession, directly or indirectly, of the power to direct or cause direction of management and policies through ownership of voting securities, contract, voting trust, or otherwise. It is understood and agreed that control of a company can be exercised by another company or companies if such latter company or companies owns shares carrying more than 50% of the votes exercisable at a general meeting (or its equivalent) of the first mentioned company, and a particular company is deemed to be indirectly controlled by a company or companies (the parent company or companies) if a series of companies can be identified beginning with the parent company or companies and ending with the particular company so related that each company of the series except the parent company or companies is directly controlled by one or more of the companies in the series. "Applicable Unscheduled Demand Amount" means, for any hour during which Buyer takes more than the applicable good faith estimate under Section 8.1.1, the net loss incurred by Seller, if any, as a result of such unscheduled demand, not to exceed any applicable imbalance charges incurred by Seller due to its failure to deliver quantities it had scheduled in reliance on the good faith estimate. The net loss to Seller shall equal its actual out of pocket costs due to a failure to deliver scheduled amounts (not to exceed applicable imbalance charges) minus the Applicable Price for such unscheduled demand. "Applicable Price" means (i) the product of the PX Price for the applicable time period, the applicable Generator Meter Multiplier, and the Loss Factor, minus (ii) the applicable Usage Charges. "Applicable Voltage" means, in the case of the Power Delivery Point identified in clause (i) of the definition thereof, approximately 92,000 volts, and, (ii) in the case of the Power Delivery Point identified in clause (ii) of the definition thereof, approximately 13,800 volts. "Backup Power" means power to operate a facility supplied when the principal source of power is, or is reasonably expected to be, interrupted or curtailed due to a Forced Outage, Scheduled Outage, Force Majeure or otherwise. "Buyer's Plant" means (i) Buyer's proposed ion exchange, solvent extraction, electrowinning, casting, and related facilities used in connection with the extraction and production of zinc from geothermal brine, to be located in the SSKGRA, (ii) subsequent additions to or expansions of the 13 facilities referred to in clause (i), and (iii) all electrical equipment on Buyer's side of the Power Delivery Points, including all protective equipment Buyer is required to provide. "Billing Month" means a period between successive meter readings. "Construction Agreement" means the Construction Agreement between Seller and IID, dated April 14, 1998, as amended from time to time. "Emergency" means an actual or imminent condition or situation which jeopardizes the integrity of Seller's Generation Equipment. "Emergency Power" means the amount of power required to safely shut down and/or maintain the facility in readiness for production which is supplied when the principal source of power is, or is reasonably expected to be, interrupted or curtailed due to Forced Outage, Scheduled Outage, Force Majeure or otherwise. "Force Majeure" means any cause or condition, other than Forced Outages, beyond the reasonable control of and without the fault or negligence of the Party claiming Force Majeure which causes the Party to be unable to perform its obligations, which by exercise of due foresight such Party could not reasonably have been expected to avoid and which the Party is unable to overcome by the exercise of due diligence. Such an occurrence may include, but is not limited to: acts of God; labor disputes; sudden or abnormal actions of elements, earthquake, fire; actions or inactions by Governmental Authorities; inability to obtain on reasonably acceptable terms any public or private license, permit, or other authorization that may be required to conduct operations; the necessity for compliance with any applicable law, regulation, ordinance, or resolution or order of any Governmental Authority; any restrictions upon, delays in receiving, or failures to receive any permits, licenses, or approvals from any Governmental Authority; explosion, breakage, or accident to facilities; partial or entire failure of electricity or transmission under an electricity supply or transmission agreement; inability after diligent effort to obtain workmen or material; exhaustion of or change in the nature, properties, or composition of the geothermal brine supply to the extent it is no longer economically feasible to recover zinc; or any other similar cause. "Forced Outage" means any outage of the Generation Equipment or any related generation, transmission or distribution facilities resulting from an Emergency, design defect, inadequate construction, operator error, interruption in fuel supply, or a breakdown or unplanned shutdown of the mechanical, electrical or other equipment, or of any electrical transmission or distribution facilities, that fully or partially curtails the electrical output of Seller's Plant. "Generation Equipment" means the turbines, generators, pipes, control equipment, metering, protective equipment, switches, transmission or distribution lines owned by Seller to serve Buyer's Plant, and any ancillary or related equipment and facilities owned by Seller or others. 14 "Generator Meter Multiplier" means the generator meter multiplier used by the ISO to determine net deliveries of power at Mirage, or any other factor used to account for transmission losses for deliveries at Mirage. "Governmental Authority" means any federal, state, or local governmental body or any political sub-division, agency, sub-agency or instrumentality thereof, including, without limitation, any legislature, the courts and any quasi-adjudicative bodies with jurisdiction. "IID" means Imperial Irrigation District, a political sub-division of the State of California. "Interest Rate" means, for any month, the sum of (i) the U.S. Prime Bank Lending Rate, as published in The Wall Street Journal for the first business day of the month for which interest is being calculated and (ii) two hundred (200) basis points, but in no event greater than the maximum interest rate allowed by law. "Loss Factor" means the percentage that results when (i) the percentage then in effect for transmission losses used by IID for transmission service for Seller's Plant to Mirage is subtracted from (ii) 100%. "Makeup Power" means power which is used to supply demand of a facility in excess of Peak Demand. "Mirage" means the point of interconnection of the facilities of IID and the facilities of Southern California Edison Company ("SCE") at SCE's Mirage substation. "Party" or "Parties" means Buyer and Seller, their successors or permitted assigns. "Peak Demand" means net generation capacity of Seller's Plant but not greater than the lesser of 49,000 kilowatts measured on an instantaneous basis or the Power Production Capacity. "Power Delivery Point(s)" means (i) the point of interconnection between Seller's Plant and the facilities of IID at Seller's Plant site, (ii) the point of interconnection between the Seller's Plant and the portion of Buyer's Plant commonly known as the Region I IX Plant. and (iii) such other point(s) as Seller and Buyer may agree to in writing from time to time. "Power Production Capacity" means the amount of power which is produced from time-to-time using Seller's generator, net of auxiliary loads as defined by the regulations under the Public Utility Regulatory Policy Act and interpretations thereof. "Protective Apparatus" means all relays, meters, power circuit breakers, synchronizers, and other control devices as shall be agreed to by the Parties in accordance with the requirements of Buyer as necessary for proper and safe operation of the Generation Equipment as it interfaces with Buyer's Plant. 15 "PX Price" means, for any month, the day-ahead price for the hour in which a sale occurs as applicable to sales of electricity on the California Power Exchange at Mirage. "Scheduled Outage" means an outage of Generation Equipment for inspection, testing, repair, overhaul, modification, construction or maintenance of a facility or for other pre-planned reasons. "Seller's Plant" means all of Seller's 49 MW (net) geothermal power generation plant and related facilities proposed to be located in Imperial County, California, and all electrical equipment on Seller's side of the Power Delivery Point, including protective equipment Seller is required to supply. "SSKGRA" means the Salton Sea Known Geothermal Resource Area. "Transmission Cost Adjustment Factor" means, for any month, an amount per kWh electrical energy purchased and received by Buyer hereunder equal to (i) the then applicable Transmission Service Charge under Seller's transmission service agreement with IID for transmission service for Seller's Plant, expressed in dollars per kilowatt - month divided by (ii) 730. "Usage Charges" means charges imposed for delivery of power at Mirage during periods of congestion under the ISO Tariff or any replacement tariff, which charges shall be allocated per kWh purchased and received by Buyer. 16 EX-10.29 8 AMENDMENT NO. 2 TO POWER PURCHASE AGREEMENT CONFIDENTIAL MATTER AMENDMENT NO. 2 TO POWER PURCHASE AGREEMENT BETWEEN NEW YORK STATE ELECTRIC & GAS CORPORATION AND SARANAC POWER PARTNERS. L.P., THIS AMENDMENT made this 24th day of February 1994, by and between New York State Electric & Gas Corporation, a New York corporation having an office for the transaction of business in Binghamton, N.Y. ("Buyer"), and Saranac Power Partners, L.P., a Delaware limited partnership having an office for the transaction of business in Houston, Texas ("Seller"), amends that power purchase agreement between Buyer and Seller dated April 27, 1990 and amended August 29, 1991 (the "Agreement"). WITNESSETH: WHEREAS, Buyer submitted to Seller a proposal for the amendment of the Agreement to provide for, among other things, Buyer's ability to schedule the operation of Seller's cogeneration facility to be located in Plattsburgh, New York (The "Plant"); and WHEREAS, it is the objective of Buyer to obtain among other ratepayer benefits, increased operating flexibility associated with the ability to schedule the Plant; and WHEREAS, Buyer and Seller, pursuant to a letter of intent dated March 1, 1993, as amended, have met to negotiate the terms of such an amendment to the Agreement; and WHEREAS, as a result of those successful negotiations, Buyer and Seller desire to amend hereby the Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration given by one party to the other, the sufficiency of which each party acknowledges, Buyer and Seller agree as follows: 1. A new article, designated as Article XXI, is added to the Agreement and shall read as follows: Article XXI - Scheduling of Plant (1) Scheduling. Beginning with the latter of (a) the effective date of Amendment No. 2 to this Agreement or (b) the Commercial Operation Date, through the remaining term of this Agreement, and notwithstanding anything in this Agreement to the contrary, Buyer shall have the right to schedule the operation of the Plant in accordance with the scheduling instructions and operating procedures contained in Exhibit I to this Agreement; provided, however, that in no event shall Seller be required to operate the Plant in a manner inconsistent with (i) maintaining the Plant's status as a qualifying facility, as required by Section 1.1(b) of Article I hereof, and (ii) operating the Plant in conformity with all laws and governmental rules, regulations and permits applicable to the Plant and Seller during the Term of this Agreement; provided further, however, that if Seller's operation of the Plant consistent with constraints (i) and (ii) above, or Seller's failure to comply with the scheduling directions given by Buyer pursuant to this Article XXI, results in Seller failing to reduce the electric generation of the Plant in any Gas Supply Year for less than the number of megawatt hours scheduled by Buyer for that Gas Supply Year in accordance with the terms hereof (The "Requested Scheduling"), then Seller shall credit Buyer with the difference between the Requested Scheduling and the number of megawatt hours of electric generation reduction provided by Seller for that Gas Supply Year, which credit shall be applied toward the following - 2 - Gas Supply Year, and Buyer shall be permitted to schedule the generation of the Plant in the following Gas Supply Year for 200,000 megawatt hours plus the number of megawatt hours credited from the prior Gas Supply Year. In The event that the number of megawatt hours available for scheduling by Buyer in any Gas Supply Year exceeds 240,000 megawatt hours, Buyer shall provide written notice of said exceedance on or before that date which is sixty (60) days after the commencement of a Gas Supply Year. Upon Seller's receipt of said written notice, Seller and Buyer shall engage in good faith negotiations for a period of sixty (60) days in order to finalize an amendment to this Agreement restoring to Buyer scheduling and other rights commensurate with those embodied in Amendment No. 2 to this Agreement. If Seller and Buyer fail to so finalize such an amendment within such sixty (60) day period, then Buyer shall have the option, in addition to other remedies and rights under this Agreement, to rescind Amendment No. 2 to this Agreement and, upon such rescission, Buyer's right to curtail the electric generation of the Plant shall be reinstated to the extent said right was waived under Amendment No. 2 to this Agreement; provided, however, that such option shall only apply if Buyer notifies Seller within sixty (60) days of the expiration of the sixty (60) day period for finalizing an amendment of its intent to rescind Amendment No. 2; provided, further, that any notice to rescind Amendment No. 2 pursuant to this Article XXI shall be in writing and any such notice shall state that the rescission of Amendment No. 2 shall be effective as of the last day of the first month that ends at least ten (10) business days after Seller receives such written notice. (2) Waiver of Curtailment Rights. Buyer shall not curtail Seller during the term of this Agreement pursuant to Article X hereof, or otherwise, due to the existence of conditions satisfying the requirements of section 292.304(f) of the PURPA regulations or pursuant To any order issued by the Commission in Cases 92-E-0814 and 88-E-081 that (i) interprets said section 292.304(f) and (ii) permits (utility-specific) curtailment. Neither Buyer nor Seller shall commence or join any judicial or regulatory proceeding seeking to overturn Amendment No. 2 to this Agreement. 2. A new exhibit is added to the Agreement, and is attached hereto as Appendix A. This exhibit shall be entitled "Exhibit I - Operating Procedures," and shall be incorporated into and made a part of the Agreement. - 3 - 3. The first full paragraph of Article III of the Agreement is deleted in its entirety and is replaced with the following text: Seller agrees to deliver and make available to Buyer, and Buyer agrees to purchase from Seller, except as otherwise provided in this Agreement, all of the electric energy and capacity produced or made available by the Plant at the delivery point during the term of this Agreement, including any extension or renewal thereof, at the following rates: (a) the purchase price for "Actual Generation" (as defined in Exhibit J) shall be the applicable rate set forth in Exhibit B to this Agreement. (b) the purchase price for "Available Generation" (as defined in Exhibit J) shall be the applicable rate set forth in Exhibit J to this Agreement. (c) to the extent that Seller delivers to the delivery point an amount of energy associated with more than 240 MW of capacity, as averaged over a five (5) minute period ("Excess Energy"), then Buyer shall pay for said Excess Energy at a rate equal to the lower of (i) ninety-five percent (95%) of Seller's Variable Cost at the time said energy was delivered, or (ii) eighty percent (80%) of Buyer's avoided energy cost as designated in Buyer's Service Classification No. 10 tariff, as the same may be amended or superseded ("SC-10"), which avoided energy cost shall not include the minimum rate referenced in Section 66-c of the New York Public Service Law. Buyer's avoided energy cost shall be calculated at a Transmission level (115 kV) and shall be time-differentiated (namely, separated into on-peak and off-peak rates). Seller shall not receive, and Seller hereby waives, any capacity payment for said Excess Energy and any energy payment for said Excess Energy greater than that rate provided under this subparagraph (c); provided, however, that if Buyer requests that Seller deliver Excess Energy to the delivery point, then Buyer shall pay a rate for such Excess Energy equal to the greater of (i) one hundred and five percent (105%) of Seller's Variable Cost at the time said energy is delivered, and (ii) eighty percent (80%) of Buyer's avoided energy cost as designated in SC-10. - 4 - 4. The first paragraph of Article IV of the Agreement is revised to read as follows, Buyer shall pay Seller via wire transfer, or such other agreed upon payment method, for the electric energy and capacity delivered or made available during the preceding calendar month, applying the price terms set forth in Article III. Buyer shall make said payment to Seller's account at such bank as Seller may from time to time designate in writing on or before the twenty-fifth (25th) day of each month. Buyer shall make said payment provided that Seller shall notify Buyer in writing, at least thirty (30) days in advance of a required payment hereunder, of any change in the account to which such payment is to be directed, and that, during any period that the Lenders (as defined in Exhibit B) hold a security interest in the Plant, such notice shall not be effective unless accompanied by a written authorization signed by a representative of the Lenders. Along with this payment, Buyer shall enclose a statement explaining how the payment amount was calculated. 5. The text of the Article V entitled "Price for Electricity Sold to Buyer" is deleted in its entirety and replaced by "Reserved." 6. The third paragraph of Article XI of the Agreement is deleted in its entirety. 7. A new exhibit is added to the Agreement, and is attached hereto as Appendix B. This exhibit shall be entitled "Exhibit J - Payment for Available Generation," and shall be incorporated into and made a part of the Agreement. 8. A new exhibit is added to the Agreement, and is attached hereto as Appendix C. This exhibit shall be entitled "Exhibit K - Payment for Start-Up Costs," and shall be incorporated into and made a part of the Agreement. - 5 - A new article, designated Article XXII, is added to the Agreement and shall read as follows: Article XXII - Reactive Power Support Seller shall provide to Buyer, upon Buyer's request, up to 40,000 MVAR - hours of reactive power support during each Gas Supply Year during the term of this Agreement. Buyer understands that, while the Plant's VAR capability varies with ambient temperature, in no event shall Seller be able to provide reactive power support from each of Seller's three (3) generators in excess of a power factor of 0.85 in the lag (namely, providing reactive power support to Buyer's system) and unity in the lead; provided, however, that in no case shall Seller be required to provide to Buyer MVAR in excess of the maximum level the Plant can generate without reducing The Plant's ability to generate 240 MW net output as measured at the delivery point, as said maximum level is designated in the D-curve provided by Seller hereunder. As part of the monthly statement provided by Buyer to Seller pursuant to Article IV of this Agreement, Buyer shall provide a written report of the amount of reactive power support provided by Seller during the prior month. Seller shall provide to Buyer, no later than thirty (30) days prior to the Date of Commercial Operation, the D-curve for each of the Plant's generators, which D-curves shall be updated by Seller and provided to Buyer on or before each January 1 during the term of this Agreement. Seller shall provide said reactive power support (a) upon Buyer's telephonic request to the Plant control room, followed by a confirming facsimile notice, the form of which facsimile notice shall be finalized by Seller and Buyer within ten (10) days following the execution by Seller and Buyer of Amendment No. 2 to this Agreement, and (b) without compensation from Buyer. Buyer's requests for reactive power support shall specify the magnitude of the VAR support to be provided by Seller. Unless Seller determines that, for Plant security reasons, the Plant must operate at some other power factor, Seller shall operate the Plant at the power factor capability requested by Buyer until otherwise notified by Buyer. - 6 - 10. A new article, designated Article XXIII, is added to the Agreement and shall read as follows; Article XXIII - Coordination of Maintenance Notwithstanding any other provision of this Agreement to the contrary, Seller shall provide to Buyer, on or before September 1st of each year during the term of this Agreement, a five-year schedule of maintenance outages for the Plant, which schedule shall provide (a) the duration of each outage and (b) the extent to which said maintenance outage(s) for the first year of said schedule may be rescheduled by Buyer, either earlier or later. Should the extent to which said maintenance outage can be rescheduled, either earlier or later, be equal to or less than one and one-half (1/1/2) months, Seller shall provide all documentation and information reasonably requested by Buyer supporting Seller's inability to reschedule the maintenance outage more than one and one-half (1/1/2) months. Seller shall schedule and coordinate these planned outages with Buyer and shall use reasonable efforts to conduct all deferable maintenance during Buyer's off-peak periods, which shall be defined as (a) those periods other than 7:00 am to 10:00 pm, Monday through Friday, and (b) the following holidays: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Subject to the limitations in rescheduling as specified by Seller in accordance with the above paragraph, Buyer shall have the right to modify the first-year of the five-year schedule of maintenance outages submitted by Seller, without compensation to Seller, by providing written notice to Seller no later than sixty (60) days prior to the earlier of (a) the date the outage is being rescheduled by Buyer to commence, and (b) the date the outage was scheduled by Seller To commence. If Buyer provides less than sixty (60) days' written notice to Seller of its intent to modify Seller's maintenance schedule, Buyer shall compensate Seller for any incremental charges reasonably incurred by Seller under its fuel supply agreements and for Seller's other reasonably incurred incremental costs; provided, however, that Seller shall provide to Buyer, by facsimile transmission, a statement detailing these incremental charges within two (2) business days of Seller's receipt of Buyer's written notice. Seller's failure to provide this statement timely shall be deemed as an acceptance by Seller of Buyer's direction to modify the maintenance schedule without - 7 - compensation from Buyer. Buyer shall have the right to rescind the notice to Seller within two (2) business days of Buyer's receipt of Seller's statement of incremental charges. In no event shall Seller be required to take any action to implement a revision to the maintenance schedule until Buyer's right to rescind has expired, Seller may modify its schedule of planned outages at any time subject to Buyer's consent, which consent shall not be unreasonably withheld. Seller shall provide to Buyer in writing the expected duration of a forced outage within forty-eight (48) hours after the start of the outage. 11. A new article, designated as Article XXIV, is added to the Agreement and shall read as follows: Article XXIV - Right of First Refusal Buyer shall have a right of first refusal with respect to the sale by Seller of any additional capacity, and associated energy, produced by the Plant above 240 MW (the "Additional Capacity"). Seller shall notify Buyer in writing of its receipt of any acceptable, bona fide offer from a third party for the purchase of all or part of the Additional Capacity. Within thirty (30) days from the date of its receipt of said notice from Seller, Buyer may provide written notice to Seller that it will purchase the Additional Capacity pursuant to the terms of said third party offer. If Buyer provides said notice to Seller, Buyer and Seller shall immediately commence negotiations for a power purchase agreement to memorialize the terms of said third party offer, If Buyer does not provide said notice to Seller, Seller may accept said third party offer and Buyer shall be deemed to have provided any written approval of such sale of power to a third party that might otherwise be required under Articles XII and XIII of this Agreement. Seller shall not sell any Additional Capacity to a third party unless Buyer has failed to exercise its right of first refusal hereunder, - 8 - 12. A new article, designated Article XXV, is added to the Agreement and shall read as follows: Article XXV - Fuel Remarketing Obligations Seller hereby acknowledges and agrees that, to the extent that Seller's fuel supplies exceed that amount of fuel that is needed (a) to operate the Plant consistent with maintaining its status as a qualifying facility, as required by Section 1.1(b) of Article 1 hereof, (b) to operate the Plant in compliance with its various governmental permits and authorizations (as in effect from time to time) and good utility and engineering practices, and (c) to operate the Plant so as to comply with Seller's obligations to supply steam to Seller's steam host, either party may undertake the exploration of various means for utilizing such excess fuel supplies for purposes other than consumption at the Plant for the mutual benefit of Seller and Buyer. Buyer hereby acknowledges and agrees that any means of utilizing Seller's fuel supplies that would require Seller to become a gas corporation under the New York State Public Service Law or would subject Seller to regulation by the New York State Public Service Commission or other federal or state governmental agency, or result in a reduction of net revenue to Seller, would not be to the mutual benefit of the Seller and Buyer and will not be undertaken under this Article XXV. Both parties agree to cooperate in good faith in exploring such mutually beneficial endeavors, which cooperation shall include (a) subject to any confidentiality restrictions or provisions, Seller providing to Buyer all information and documents pertaining to Seller's existing fuel supply and transportation arrangements reasonably required by Buyer and (b) the negotiation and execution of all necessary documents and agreements as reasonably requested by either party in connection with the exploration of such alternatives. Seller and Buyer agree that the expenses either party incurs to consummate the ultimate transaction(s) contemplated hereunder, along with the benefits of the transaction(s) hereunder, shall be subject to negotiation by the parties as to their allocation. The parties hereto acknowledge and agree that the consummation of any transaction that may be contemplated by this Article XXV, and the obligation of the parties with regard thereto, is subject to and specifically conditioned upon (aa) The negotiation and execution of acceptable agreements in form and content acceptable To each party, in their respective reasonable discretion, (bb) the receipt of any required - 9 - governmental approval(s), and (cc) the receipt of necessary consents, in form and content acceptable to Seller and its counsel, of Seller's constituent partners, Seller's Lenders, Seller's fuel suppliers (currently Shell Canada Limited) and, if required, the consent of Seller's gas transporter and steam host. Nothing in this Article XXV shall be construed so as to require Seller to violate the confidentiality provisions of its fuel supply and transportation arrangements with third parties. 13. A new article, designated XXVI, is added to the Agreement and shall read as follows: Article XXVI - No Partnership or Agency Relationship This Agreement shall not be interpreted or construed to create an association, joint venture or partnership between the parties hereto or to impose any partnership obligations or liability upon either party. Further, neither party (nor such party's employees, representatives, agents and subcontractors) shall have any right, power or authority to enter into any agreement or undertaking for or on behalf of, to act as or be an agent or representative of, or to otherwise bind the other party. It is covenanted and agreed that neither party shall act or make any representation to any person or persons whomsoever to the effect that such party, its agents, representatives, or subcontractors is the agent or agents of the other party. 14. The second to last sentence of the second paragraph of Exhibit B - Performance Guarantee, which appears on page B-25 of the Agreement, shall be revised to read as follows: The capacity factor calculation will exclude curtailments made in accordance with Article X by subtracting the curtailed MWHRS from the maximum possible MWHRS, and will be performed using Potential Generation (as defined in Exhibit J) as the numerator in the appropriate formula(s). To the extent that the unavailability of the Plant would, absent this provision, result in (a) the Plant failing a capacity factor test under this Exhibit B - Performance Guarantee, with the attendant reduction in the rate paid by Buyer for electricity and (b) The Seller not receiving payment for Available Generation, then Buyer may be compensated for such - 10 - unavailability in an amount equal to the greater of either (a) the payments withheld to Seller pursuant to Article XXI due to said unavailable generation for such unavailability or (b) the reduction in the rate payable by Buyer for electricity pursuant to Exhibit B Performance Guarantee, but not both. Upon performing the capacity factor tests pursuant to Exhibit B - Performance Guarantee of the Agreement, Buyer shall compare any resulting reduction in rates that Buyer is permitted to initiate as a result of Seller's failure, if any, to satisfy said capacity factor test against the amount of payments withheld from Seller during the period over which the capacity factor test was performed. If the capacity factor test rate reduction is greater than the amount of withheld payments, then Buyer may initiate a reduction in the rates payable to Seller for electricity for that period of time necessary to recover the positive difference between the reduction allowed under Exhibit B and the withheld payments for unavailable generation. If the capacity factor test reduction is less than the amount of withheld payments, then Buyer shall not be permitted to initiate any reduction in rates payable to Seller for electricity. 15. The third through seventh paragraphs of Exhibit B - Pricing Description are revised to read as provided in Appendix D hereto. 16. The third paragraph of Exhibit B - security language - 8. Security for Front-Load is revised by inserting the parenthetical "(assuming the Plant's power was sold under a must-run contract)" after "such payments", where it appears in the second sentence. 17. This Amendment, and each of the new articles and exhibits added to the Agreement, shall become effective when executed by Buyer and Seller, subject to a condition subsequent of Seller's constituent limited partners ("Limited Partners") and Lenders' consents. In the event that the Limited Partners' and Lenders' consents are not obtained within ninety (90) days after the effective date of this Amendment, or the Limited Partners or Lenders insist on any material modification to - 11 - this Amendment as a condition to its consent, Buyer may Terminate this Amendment upon written notice to Seller without any liability by Buyer to Seller. Seller shall submit this Amendment to the Limited Partners and Lenders promptly after the Amendment is fully executed and Seller shall use its reasonable efforts (a) to obtain the Limited Partners' and Lenders' consents and (b) to keep Buyer apprised of Seller's discussions with such entities regarding requests for such consents. The Limited Partners and Lenders may consent to all or part of this Agreement, and this Amendment shall survive to the extent to which the Limited Partners' and Lenders grant their consents, provided, however, that the Limited Partners and Lenders must consent, to (a) the entirety of proposed Article XXI of the Agreement, and related provisions, as proposed in paragraphs 1, 2, 4, 5, 6, 7, 8 and 9 of this Amendment, and (b) identical terms. 18. Notwithstanding Article XIX of the Agreement, Buyer and Seller hereby agree that the effectiveness of this Amendment is not contingent upon, or otherwise subject to, the approval of the New York State Public Service Commission. 19. Except as otherwise modified by this Amendment, the terms of the Agreement remain unchanged and in full force and effect. 20. Seller and Buyer agree that this Agreement constitutes Confidential Matter as defined in the Confidentiality Agreement between Seller and Buyer, and Seller agrees to support any request for trade secret protection for this Amendment made by Buyer to the New York Public Service Commission. - 12 - IN WITNESS WHEREOF, Buyer and Seller have caused this Amendment to be executed as of the day and year first above written. NEW YORK STATE ELECTRIC & GAS CORPORATION /s/ Jack H. Roskoz ------------------------------------- Jack H. Roskoz Senior Vice President - Electric Business Unit SARANAC POWER PARTNERS, L.P. By: Saranac Energy Company, Inc. Its General Partner By /s/ Martin H. Young --------------------------------- Name: Martin H. Young Title: Senior Vice President and Chief Financial officer - 13 - APPENDIX A EXHIBIT I - OPERATING PROCEDURES A. Information To be Supplied by Seller to Buyer a. At least thirty (30) days prior to the Commercial Operation Date, and on or before each January 15 thereafter during the term of this Agreement, Seller shall provide to Buyer in writing an estimate of the Variable Cost for that calendar year. Following the Commercial Operation Date, on or before the fifteenth (15th) day of each month during the term of this Agreement, Seller shall provide to Buyer in writing an updated estimate of the Variable Cost for the upcoming month. Seller shall furnish to Buyer, with the estimates provided to Buyer hereunder, those documents and data used by Seller to calculate the estimate of the yearly or monthly Variable Cost. b. Within ninety (90) days after the effective date of this Amendment, Seller shall provide to Buyer a heat rate curve designating the Plant's heat rate for the following load levels based on the average monthly ambient temperatures expected at the Plant site: operation at 100% of the maximum net output that can safely and reliably be achieved under expected operating conditions (but in no event greater than 240 MW), 75% of such level, 100% of the maximum net output that can safely and reliably be achieved under expected operating conditions with one of the Plant's gas-fired turbines shut down, and 75% of such level (such outputs correspond to the I - 1 following nominal outputs: 240, 187, 115 and 90 MW based on the average ambient temperatures expected at the Plant site). The set of heat rate curves shall identify a heat rate curve applicable to each month of the calendar year taking into account the expected average ambient temperature for each month. On or before each January 15 after the Commercial Operation Date and before the expiration of the term of this Agreement, Seller shall provide updated versions of said heat rate curves based on testing of the Plant's heat rate during the prior calendar year and, as appropriate, revised estimates of expected average monthly ambient temperatures. The Plant's heat rate shall be tested during normal Plant operating conditions. Buyer shall be afforded the opportunity to have a representative present at any heat rate test of the Plant. Seller shall provide to Buyer a two (2) week written notice of any heat rate test of the Plant. Buyer shall have the right to review the data used by Seller to create the heat rate curves provided To Buyer hereunder. B. Buyer's Scheduling instructions a. Commencing on the date that Seller receives the consent of its Lenders and Limited Partners to this Amendment, by no later than the Scheduling Deadline (as defined herein) for each Gas Day (as defined herein), Buyer shall notify Seller of the expected schedule for the Plant for such Gas Day (the "Schedule"). For the purposes of this Agreement: (1) a Gas Day shall be the Twenty-four (24) hour period beginning at the time specified for the commencement of a "day" by the tariff issued I - 2 by Seller's gas transporter (for gas delivered to the United States' border with Canada at a point near Napierville, Quebec, Canada and applicable to Seller's gas supply) and ending at the same time on the following day; (2) the Scheduling Deadline for any particular Gas Day shall be 11:00 A.M. Eastern Time of the business day prior to the Gas Nomination Deadline for such Gas Day, adjusted forward or back in concert with any changes in the Gas Nomination Deadline; provided, however, that adjustments related to a change in the Gas Nomination Deadline shall not increase the time span between the Gas Nomination Deadline and the start of the associated Gas Day by more than six (6) hours; and (3) the Gas Nomination Deadline for any particular Gas Day shall be the deadline for notifying Seller's gas transporter of the amount of gas to be transported during such Gas Day, as such deadline is established in the tariff issued by Seller's gas transporter for gas delivered to the United States border with Canada at a point near Napierville, Quebec, Canada and applicable to Seller's gas supply. Currently, Seller's gas transporter is TransCanada PipeLines Limited; a Gas Day commences each day at 8 A.M. Eastern Standard Time and ends at 8 A.M. the following day; and the Gas Nomination Deadline is 11 A.M. Mountain Time of the day prior to the day on which a Gas Day commences. Seller agrees to promptly notify Buyer in the event that Seller's gas transporter amends its tariff in a manner that affects the Scheduling Deadline or the period covered by a Gas Day. I - 3 b. The Schedule shall be transmitted by Buyer to Seller by facsimile, and receipt of which shall be confirmed by telephonic message from Seller to Buyer. The Schedule shall be transmitted to Seller on a form to be finalized by Seller and Buyer within ten (10) days following the execution of Amendment No. 2 to the Agreement by Seller and Buyer. The Schedule shall include the operating levels for the applicable period (Gas Day), which shall be either 100% of the maximum net output that can safely and reliably be achieved under actual operating conditions (but in no event greater than 240 MW), 75% of such level, 100% of the maximum net output that can safely and reliably be achieved under actual operating conditions with one of the Plant's gas-fired turbines shut down, and 75% of such level (such output levels correspond to the following nominal outputs: 240, 187, 115 and 90 MW, based on the average ambient temperatures expected at the Plant site). The Schedule shall be consistent with the provisions of this Exhibit I. Should Buyer fail to provide a Schedule to Seller, Seller shall operate the Plant at its discretion (not to exceed 240 MW) until such period (Gas Day) as Seller receives a timely Schedule from Buyer. On the twentieth (20th) day of each month during the term of this Agreement, Buyer shall provide to Seller in writing a preliminary schedule for operation of the Plant for the upcoming month. Buyer shall have the right to modify this preliminary monthly schedule pursuant to this section b. c. Buyer shall have the right to request a modification of the previously scheduled operating level of the Plant for any particular period (Gas Day), or remaining I - 4 part thereof, by providing telephonic notice to Seller no later than five and one-quarter (5 1/4) hours prior to the commencement of the hour for which the change in the Schedule is being requested by Buyer, provided that said scheduling directive is consistent with the provisions of this Exhibit I. Buyer may make its request in the form of a direction to Seller to implement the modification to the schedule for said Gas Day provided that the incremental costs to be incurred by Seller are equal to or less than an amount specified by Buyer. d. In the event Buyer requests a modification to a scheduled operating level of the Plant pursuant to subparagraph c above, Seller shall promptly use reasonable efforts to obtain the approval of its non-affiliated gas suppliers and transporters (currently, Shell Canada Limited and TransCanada PipeLines Limited, respectively) and determine its costs of complying with such a request. If Seller succeeds in obtaining the consent of its non-affiliated gas suppliers and transporters and Seller reasonably determines that its cost of complying with such request would not exceed the upper bound on costs, if any, previously specified by Buyer, then Seller shall modify the Plant's operation to match Buyer's request and promptly notify Buyer of the same. Buyer shall reimburse Seller for all incremental costs reasonably incurred by Seller as a result of such change, but in no, event shall those costs exceed the ceiling on incremental costs, if any, specified by Buyer and furnished to Seller in writing in advance of such modification as provided for by subparagraph c above. If Seller is unable to obtain The consent of its non-affiliated gas suppliers and transporters or I - 5 Seller reasonably determines that its cost of complying with such request would exceed the upper bounds on costs, if any, previously specified by Buyer, then (i) Seller shall promptly so notify Buyer, (ii) Seller shall not be required to modify its operation to match Buyer's request. and (iii) any megawatt-hours included in any such request shall not be used in determining Requested Scheduling and the number of megawatt-hours Buyer requested for the purposes of Article XXI(1), except to the extent that such MWHs were scheduled by Buyer prior to such request. e. Upon one (1) hours' telephonic notice to Seller, Buyer may request a modification in the scheduled operating level of the Plant from 240 MW to 187 MW, or from 187 MW to 240 MW, for a particular hour in a Gas Day provided said scheduling change(s) do not result in a modification of the volume of gas nominated for Seller for said Gas Day, and Seller shall comply with that request without requiring reimbursement from Buyer for incremental costs, and provided further that said rescheduling does not eliminate the required eight (8) consecutive hour operating period of the Plant at 240 MW. f. Buyer's scheduling directions to Seller shall be subject to the following parameters: i. Buyer may schedule the Plant to operate at any of the following levels: 100% of the maximum net output that can safely and reliably be achieved under actual operating conditions (but in no event greater than 240 MW), 75% of such level, 100% of the maximum net output that can safely and reliably be achieved I - 6 under actual operating conditions with one of the Plant's gas-fired turbines shut down, and 75% of such level (such output levels correspond to the following nominal outputs: 240 MW, 187 MW, 115 MW, and 90 MW based on average ambient temperatures expected at the Plant site); provided, however, that during any Gas Day, Buyer may schedule the Plant to operate at either 240 or 187 MW for each hour of that Gas Day provided The Plant operates at 240 MW during said Gas Day for a period of at least eight (8) consecutive hours; ii. the start-up time for a gas turbine shall be two (2) hours if a cold start (which is defined as after a shutdown of four (4) hours or more) is scheduled, and one (1) hour if a hot start (which is defined as after a shutdown of less than four (4) hours) is scheduled; iii. in the event that (1) Seller's gas transporter's tariff(s) covering the transportation of Seller's fuel is amended, revised or otherwise changed, and (2) Seller notifies Buyer in writing of such amendment, revision or change, Buyer thereafter shall not schedule the Plant in a manner that would cause Seller to violate or breach any nomination requirement(s) contained in the tariff of Seller's transporter, as in effect from time to time; provided, however, that if said amendment, revision or change to the tariff of Seller's fuel transporter has a material and adverse impact on Buyer's ability to schedule the operation of the Plant, Buyer and Seller shall commence good faith negotiations, upon Seller's receipt of written notice from Buyer requesting same, and continue same for a period of sixty (60) days for an amendment to this I - 7 Agreement restoring to Buyer scheduling and other rights commensurate with those embodied in Amendment No. 2 to this Agreement. If Seller and Buyer fail to so finalize such an amendment Within said sixty (60) day period, Then Buyer shall have the option to, in addition to other remedies and rights under this Agreement, to rescind Amendment No. 2 to this Agreement, and upon such rescission Buyer's right to curtail the electric generation of the Plant shall be reinstated to the extent said right was waived under Amendment No. 2 to this Agreement; provided, however, that such option shall only apply if Buyer notifies Seller within sixty (60) days of the expiration of the sixty (60) day period for finalizing an amendment of its intent to rescind Amendment No. 2; provided, further, that any notice to rescind Amendment No. 2 pursuant to this Exhibit I shall be in writing and any such notice shall state that the rescission of Amendment No. 2 shall be effective as of the last day of the first month that ends at least ten (10) business days after Seller receives such written notice; iv. the minimum scheduled downtime for a gas turbine shall be eight (8) hours, and the minimum run time between gas turbine start and stop shall be eight (8) hours; v. Seller shall endeavor to transition between operating states as quickly as is reasonably feasible, based on equipment specifications, operating conditions, project contracts and other relevant limiting factors. The expected average minimum ramp rate shall be 1,000 KW per minute (up or down) except that for transitions between generating states that do not require a gas turbine start, the I - 8 expected ramp rate will be up to 5,000 KW per minute (up or down), as requested by Buyer; vi. provided that Seller's auxiliary boiler has not been unavailable for more than ten (10) days in the Gas Supply Year in which Buyer schedules the Plant hereunder, which unavailability shall be verified by Buyer through its inspection of Seller's documents relating to the outages of its auxiliary boiler, Buyer shall not schedule the Plant so as to require Seller to take a turbine off-line during periods in which Seller's auxiliary boiler is temporarily unavailable for operation, whether due to maintenance or otherwise for reasons beyond Seller's reasonable control; vii. the maximum number of gas turbine starts during any calendar year shall be 50; provided, however, that a start Of a gas turbine following a forced outage or scheduled outage shall not constitute a start for purposes of this section vii; and viii. except as provided in Article XXI(1) of this Agreement, the maximum reduction in the Plant's electric output that can be scheduled by Buyer during any gas supply year ("Gas Supply Year") is 200,000 megawatt hours. For the purposes of this Agreement, a Gas Supply Year shall mean (1) in the case of the first Gas Supply Year, the period commencing at 12:00:01 a.m. on the Commercial Operation Date and concluding with the last day of the calendar month that encompasses a period of at least twelve (12) full, consecutive calendar months but less than thirteen (13) full, consecutive calendar months, and (2) thereafter, the period I - 9 commencing at 12:00:01 a.m. on the first day immediately following the last day of the prior Gas Supply Year and continuing for twelve (12) full, consecutive calendar months. The amount of reduction in electric output scheduled by Buyer shall be calculated by determining the difference, in each hour that the Plant is available for scheduling, between 240 megawatts (or such lower maximum operating state that the Plant could have achieved during said hour if the Plant had not been scheduled by Buyer) and The output scheduled by Buyer for that hour; provided that Plant's scheduled output shall never be deemed to exceed 240 megawatts and that, in any hour That the Plant was available for scheduling but was not scheduled by Buyer, the scheduled output shall be deemed to have been 240 megawatt hours. The sum of all such calculations for each hour since The start of the current Gas Supply Year shall represent The total amount of reduction to which the 200,000 megawatt hour (or such higher number as provided in Article XXI(1) upper limit applies. g. (i) If Buyer schedules the Plant at a level below 240 MW (the "Initial Level"), and then schedules the Plant to achieve a higher generating level (the "Requested Level") and the Plant (aa) cannot comply with this subsequent direction, the Plant will be deemed to have been unavailable at an operating level above the Initial Level for the time period from the hour the Plant was scheduled to commence operating at the Requested Level to the hour the Requested Level is achieved and no compensation shall be paid by Buyer for Available Generation above the Initial Level of operation I - 10 during that deemed period of unavailability, or (bb) is able to return only to an operating level less than the Requested Level but more than the Initial Level (the "Interim Level"), the Plant will be deemed to have been unavailable at an operating level above the Interim Level for the time period from the hour the Plant was scheduled to commence operating at the Requested Level to the hour the Requested Level is achieved and no compensation shall be paid by Buyer for Available Generation above the Interim Level during that deemed period of unavailability. (ii) If Seller is unable To comply with Buyer's scheduling directions involving a Requested Level of 240 MW and an Initial Level of 187 MW, as such inability is described in subparagraphs (aa) and (bb) of paragraph (i), more than twenty percent (20%) of the time such directions have been given in the twelve (12) month period preceding a failure to follow such a direction, then the period of unavailability for such failure shall be deemed to have commenced at the hour that the Plant was scheduled To operate at the Initial Level of 187 MW. (iii) If Seller is unable to comply with Buyer's scheduling directions involving an Initial Level less than 187 MW (namely, involving the complete shut-down of one of the Plant's gas-fired generators), as such inability is described in subparagraphs (aa) and (bb) of paragraph (i), more than twenty percent (20%) of the time such, directions have been given in the twelve (12) month period preceding a failure to follow such a direction or, if less than ten (10) such directions have been given in said twelve (12) month period, more than twenty percent (20%) of the last ten (10) such directions I - 11 given to Seller, then the period of unavailability for such failure shall be deemed to have commenced at the hour that the Plant was scheduled to operate at the Initial Level. h. Seller shall immediately notify Buyer if (i) Seller elects to perform maintenance that would interfere with Buyer's ability to schedule the Plant within the bounds of this Agreement, or (ii) the Plant is otherwise unavailable, during any period that Buyer has directed the Plant to operate at a level other than 240 MW If the Plant is derated by Seller for any reason, Seller shall notify Buyer immediately via facsimile transmission to Buyer's chief system dispatcher or such person's designee of the commencement and cessation hour for such derating period. To the extent that such derating is not the result of force majeure, or otherwise excused under the terms of this Agreement, and such derating conflicts with Buyer's ability to schedule the Plant as otherwise provided for by this Agreement, the Potential Generation (as defined in Exhibit J) of the Plant during this period shall be adjusted by Buyer accordingly, i. Notwithstanding any other provision of this Amendment, Seller shall not be required to comply with any Schedule supplied by Buyer to the extent that such Schedule would interfere with: (a) EPC performance testing for establishing project completion during the first six (6) months following the Commercial Operation Date; (b) DMNC testing, as required by this Agreement, as amended; and (c) testing in accordance with industry practices following major Plant overhauls and repairs; I - 12 provided however, that (aa) with respect to subparagraph (a) above, Seller shall provide prompt telephonic and written notice to Buyer upon the completion of such EPC performance testing, and (bb) with respect to subparagraph (c) above, Seller shall (aaa) provide prompt telephonic and written notice to Buyer upon the commencement and completion of all such major Plant overhauls and repairs, (bbb) limit such testing to no more than three (3) months, and (ccc) provide prompt telephonic and written notice to Buyer upon the completion of such testing. I - 13 APPENDIX B EXHIBIT J - PAYMENT FOR AVAILABLE GENERATION Provided that Buyer scheduled the operation of the Plant for said monthly billing pursuant to Article XXI of this Agreement, Buyer shall make a monthly payment to Seller for Available Generation equal to the monthly summation of the following formula calculated for each hour during the said billing period: Payment for Available Generation = AVG x (CR - (.95 x VC)) where AVG = Available Generation, shall be equal to PG - AG. PG = Potential Generation, is the number of KWH the Plant could have produced for said hour had the Plant been available and operated at the Potential Capacity (as defined on page J-2). AG = Actual Generation, shall be the number of KWH that are both scheduled for delivery by Buyer (based on the output state chosen by Buyer) and actually produced by the Plant and delivered to the delivery point for said hour, which amount shall not exceed 240 MW net when averaged over a five (5) minute period. CR = Contract Rate, shall be the rate specified in Exhibit B of this Agreement. APPENDIX C EXHIBIT K PAYMENT FOR START-UP COSTS In addition to payments for Actual Generation and Available Generation, Buyer shall pay Seller an amount for each start-up of a gas turbine requested by Buyer pursuant to Article XXI of this Agreement equal to five thousand dollars ($5,000.00) for calendar year 1994, which amount shall escalate at a compounded rate of four (4) percent each calendar year as set forth below: Calendar Year Start-Up Cost ------------- ------------- 1994 $ 5,000.00 1995 5,200.00 1996 5,408.00 1997 5,624.32 1998 5,849.29 1999 6,083.26 2000 6,326.60 2001 6,579.66 2002 6,842.85 2003 7,116.56 2004 7,401.22 2005 7,697.27 2006 8,005.16 2007 8,325.37 2008 8,658.38 2009 9,004.72 2010 9,364.91 2011 9,739.50 APPENDIX D With regard to Period A, all electricity delivered by Seller to Buyer during peak hours shall constitute Class I electricity. In addition, all electricity delivered by Seller to Buyer during off-peak hours shall constitute Class I electricity up to a maximum number of off-peak KWh such that the ratio of peak to off-peak hours in the then current billing period shall equal the ratio of Potential Peak Generation to Class I off-peak KWh delivered during The same period. (Kilowatt hours of Potential Peak Generation shall be calculated by summing the Potential Generation (as defined in Exhibit J) in each peak hour of the relevant billing period). Except as otherwise as provided below, any electricity delivered during off-peak in excess of that maximum number of off-peak KWh shall be considered Class II electricity and shall be paid for at a rate equal to Buyer's off-peak short-run avoided cost as defined in Exhibit H. If the number of KWh delivered during the off-peak hours in any billing period is less than the maximum off-peak permitted for Class I, the difference between such maximum permitted amount and the amount actually delivered shall be tracked in a notional account. In The event that in later billing periods, there is an excess of off-peak KWh hours in comparison to the maximum Class I off-peak KWh permitted, such additional off-peak KWh shall also be paid for at the Class I rate up to any amount then in the notional account and the notional account will be reduced by the additional KWh paid for at the Class I rate, With regard to the offset to be applied during Period A, no offset shall be applied through the end of 1994 (the period during which LRAC is less than 6 cents/KWh under the Commission's current estimate). Instead, the period between commencement of commercial operation to the end of 1994 shall be used to establish the Plant's base output. Specifically, a second notional account shall be used to track (1) the total number of Class I KWh purchases by Buyer through the end of 1994 plus the total amount of Available Generation (as defined in Exhibit J) paid for based on a Contract Rate (as defined in Exhibit J) equal to the Class I electricity rate through the same period less Variable Cost (as defined in Exhibit J), and (2) the total number of hours from the time of commercial operation through the end of 1994. The first number will then be divided by the second to compute the Plant's Base Output. Commencing in January 1995 and for each monthly billing period thereafter through the end of Period A, the sum of the Potential Generation of the Plant for each hour of the current monthly billing period and the preceding eleven monthly billing periods shall be divided by the total number of hours in the same twelve monthly billing periods less any hours of Force Majeure outages in the same period; the resulting number shall be referred to as the Plant's "Current Output." If the Plant's Current Output is less than the Plant's Base Output, then an offset in the amount of that difference times twelve times the difference between Buyer's short-run avoided cost as defined in Exhibit H and six cents/KWh times the number of hours in the then current billing period shall be applied to the amount due from Buyer during that billing period; provided, however, that if six cents/KWh exceeds Buyer's short-run avoided cost as defined in Exhibit H, then no offset shall be applied. In any monthly billing period that an offset is applied, the Plant's total Potential Generation for the corresponding period shall be deemed to equal the Plant's Base Output times the number of hours in that period for the purpose of all future calculations of offsets. EX-10.30 9 (POWER PURCHASE) AGREEMENT AGREEMENT THIS AGREEMENT dated July 30, 1986, by and between FALCON SEABOARD OIL COMPANY, a Texas corporation with offices in Houston, Harris County, Texas, hereinafter called "Cogenerator" and TEXAS UTILITIES ELECTRIC COMPANY, a Texas corporation with offices in Dallas, Dallas County, Texas, hereinafter called "Company," acting herein through its Texas Utilities Generating Company division; In consideration of the promises herein made, Cogenerator agrees to produce, deliver and sell to Company, and Company agrees to take and purchase from Cogenerator, all electrical capacity and energy generated by Cogenerator at its hereinafter-described Plant, net of that required for operation of the Plant, subject to the terms and conditions contained herein, as follows: ARTICLE I - DEFINITIONS 1.01 Parties. As used herein, the term "parties" means Cogenerator and Company and, subject to Section 11.03, their successors and assigns. 1.02 Other Definitions. Other terms defined herein and the section containing such definition are listed below: Annual Capacity Factor 7.06(a) Backdowns 5.13 Billing Capacity 7.05 Cogenerator Interconnection Facilities 3.02 Cogenerator Substation 3.01 Commercial Operation 2.04 Commercial Paper Rate 7.03 Construction Power and Energy 4.01 Early Payments 10.08 -1- Emergency 5.06 Firm Capacity 5.10 Host 2.02 Initial Firm Capacity 5.10 Interconnection Facilities 3.02 Maintenance Power and Energy 4.02 Partial Commercial Operation 2.04 Peak Days 7.06(d) Peak Hour Capacity Factor 7.06(c) Peak Hours 7.06(d) Peak Month Capacity Factor 7.06(b) Peak Months 7.06(d) Peak Hour Months 7.06(d) Plant 2.01 Qualifying Cogeneration Facility 2.02 Spinning Reserve 5.04(a) Tested Capacity 5.12 Trial Energy 4.03 Uncontrollable Forces 12.03 WACOG Hours 7.08(b) Weighted Average Cost of Fuel 4.03 Weighted Average Cost of Gas 7.08(b) ARTICLE II - CONSTRUCTION OF THE PLANT 2.01 Cogenerator to Construct. Cogenerator will, at its sole cost and expense, design, construct and complete, on land near Big Spring, Howard County, Texas, a cogeneration facility consisting of two gas-combustion turbines and one steam turbine with a net electrical generating capacity of approximately 106 megawatts (MW) together with all necessary and desirable buildings, equipment and facilities, hereinafter referred to as the "Plant". The Plant will be designed and constructed in compliance with legal and regulatory, including environmental, -2- requirements. Cogenerator will, at its expense, obtain all necessary permits and licenses for construction and operation of the Plant and make all arrangements for fuel, cooling water and other supplies used in the Plant and for disposition of waste materials from the Plant. The Plant will have an alternate fuel supply and the capability of start up without a supply of electric power and energy. 2.02 Qualifying Cogeneration Facility. The Plant will be designed, constructed, completed and thereafter operated so that it will, at all times, be a "Qualifying Cogeneration Facility" as that term is defined in Section 3(18) of the Federal Power Act, as amended [16 USCA 796(18)] and regulations thereunder. Neither the Plant nor its operation shall be altered or modified so that it ceases to be a Qualifying Cogeneration Facility. The host facility will be a refinery owned by Fina Oil and Chemical Company ("Host"). 2.03 Company Comments and Approval. (a) Plans for the initial design and construction of the Plant, the Cogenerator Substation, and the Cogenerator Interconnection Facilities, including Cogenerator's facilities interconnecting the Plant and the Cogenerator Substation, shall be submitted to Company for its comments at least thirty (30) days prior to letting of bids for construction. Plans submitted to Company will be schematics or single-line drawings and not detailed construction drawings, unless more detail is requested by Company. Company may inform Cogenerator of its opinion of said plans, but Company's comments or failure to comment shall not waive any of Company's rights or Cogenerator's obligations under this agreement or applicable law. Company shall be deemed to have waived its right to comment on such plans if it fails to comment thereon within thirty (30) days after receipt of the last member of a complete set of plans for the construction of the Plant, Cogenerator Substation and Cogenerator Interconnection Facilities or a discrete portion thereof. Cogenerator will advise Company when a set of plans is complete. -3- (b) Design and construction of the portions of the Plant, the Cogenerator Substation, and Cogenerator Interconnection Facilities, including Cogenerator's facilities interconnecting the Plant with the Cogenerator Substation, and of any modification or alteration thereof as well as Cogenerator's methods of operating the same, described in Exhibit 2.03, are subject to the prior approval of Company. Such approval is limited to that which provides the Company with reasonable assurance that the Plant and Cogenerator Substation will operate reliably, in synchronism with Company's system, without material disturbance to or material adverse effect on Company's system, and in accordance with the provisions of Article V. 2.04 Commercial Operation. (a) It is anticipated that the Plant will begin Commercial Operation on or before June 1, 1988, and Partial Commercial Operation on or before June 1, 1987. As used herein, "Commercial Operation" means that construction of the Plant has been substantially completed, trial operations of the Plant have been completed, the twenty-four (24) hour test required in Section 5.10 has been completed, and the Plant is available for normal and continuous operation. "Partial Commercial Operation" as used herein means that construction of the gas turbines and necessary related facilities has been substantially completed, trial operations thereof have been completed, the twenty-four hour test required in Section 5.10 has been completed and the gas turbines are available for normal and continuous operation. The dates of Commercial Operation and Partial Commercial Operation shall be determined by Cogenerator but the Partial Commercial Operation date shall not, unless otherwise agreed, be later than six (6) months after the first trial operation. The first trial operation shall be on the date that power and energy is first generated by the Plant. -4- (b) Failure by Cogenerator to begin Commercial Operation on or before December 31, 1988 shall constitute an act of default under this Agreement, and, in addition to other remedies at law or provided in this Agreement, Company shall have the option to immediately terminate, upon written notice, this Agreement upon such failure. If the date of Commercial Operation shall occur later than June 1, 1988, then the monthly capacity payments otherwise payable to Cogenerator under Article VII shall be reduced by fifty percent (50%) of the daily capacity payment for each day that the Commercial Operation date is later than June 1, 1988; such reduction shall be only on The difference between Firm Capacity at Commercial Operation and Firm Capacity at Partial Commercial Operation. Reductions for any such delay will be applied to the first capacity payment or payments coming due after the date of Commercial Operation. (c) If the date of Partial Commercial Operation shall occur later than July 1, 1987, then the monthly Capacity Payments otherwise payable to Cogenerator under Article VII shall be reduced by twenty-five percent (25%) of the daily capacity payment for each day that the Partial Commercial Operation date is later than July 1, 1987. Reductions for any such delays will be applied to the first capacity payment or payments coming due hereunder. No such reduction shall be made in Capacity Payments if the delay in Partial Commercial Operation is the result of an intervention in proceedings filed by Cogenerator seeking a construction permit for the Plant from the Texas Air Control Board or a PSD permit from the Environmental Protection Agency, and: (i) Cogenerator has timely filed such application and thereafter prosecuted same in good faith and with due diligence; and (ii) The Intervenor is not associated with or assisted by Cogenerator. -5- ARTICLE III - ELECTRIC SUBSTATION AND TRANSMISSION FACILITIES 3.01 Cogenerator Substation. Cogenerator will, at its expense, construct or modify an electric substation near the Plant as depicted in Exhibit 3.01 attached hereto and made a part hereof for all purposes, including all transformers, switches, breakers, meters and other facilities and equipment (the "Cogenerator Substation"). 3.02 Interconnection Facilities. Company will, if necessary, and at Cogenerator's expense, also modify its existing switching station and transmission facilities and construct new transmission and/or distribution facilities as depicted in Exhibit 3.01 attached hereto and made a part hereof for all purposes so as to connect the Cogenerator Interconnection Facilities with Company's 138kv transmission system. Such modifications to the existing switching station or transmission facilities and the new transmission and/or distribution facilities are hereinafter referred to as "Interconnection Facilities". Cogenerator will, at its expense, construct the Cogenerator Interconnection Facilities, being the facilities interconnecting the Cogenerator Substation with the Interconnection Facilities. 3.03 Communication and Telemetry. The Cogenerator Substation, Cogenerator Interconnection Facilities and the Interconnection Facilities will include, and Company shall design, install and control, the telemetering, communications and data acquisition equipment and automatic switching control facilities necessary for effective integration of the Plant, Cogenerator Substation and Interconnection Facilities with Company's System. Such equipment shall include communication and data transmission (telemetering) facilities and control equipment operable from the Texas Utilities System Operating Center ("TUSOC"), and/or any alternate location designated by Company, including but not limited to: -6- (a) One full period voice circuit (an off-premise extension for TUSOC's PBX); (b) One telemetering circuit to Company to record Plant net generation at TUSOC; (c) One remote terminal unit (RTU) on a separate communication circuit to the TUSOC computer with instantaneous MW and megavolt- ampere reactive (MVAR) load and hourly megawatt-hour (MWH) readings, bus voltage and switchyard and generator breaker positions. (d) One RTU on a separate communication circuit to TUSOC or other Company control center for control of and status indication for the transmission line breaker(s) in the Interconnection Facilities. Construction or modification of the Cogenerator Substation, Cogenerator Interconnection Facilities and Interconnection Facilities will include, as appropriate, installation of communication, telemetering and control equipment from the Cogenerator Substation to the Plant. 3.04 Cogenerator Approval. Company's design of and construction standards for the Interconnection Facilities are subject to review and approval of Cogenerator; such approval is limited to that which provides Cogenerator with reasonable assurance that the Interconnection Facilities are in accordance with Exhibit 3.01 and will operate reliably without adverse effect on the Plant. Cogenerator will be deemed to have waived its right to approve such design and construction standards unless it otherwise advises Company within thirty (30) days after receipt of plans therefor or for a discrete portion thereof. 3.05 Completion. Company and Cogenerator will coordinate construction of the Interconnection Facilities with construction of the Cogenerator Substation, Cogenerator Interconnection Facilities and Plant so that such facilities will be available by April 13, 1987 for testing and trial operations of the Plant. Such completion may be advanced, as agreed by Cogenerator and -7- Company, if necessary to provide power and energy for construction of the Plant. 3.06 Easements. Cogenerator will, at its own expense, cause Host to execute and deliver easements or other instruments satisfactory to both parties, conveying land or rights in land to Company (or to Cogenerator with the right to assign to Company) as required for the Interconnection Facilities, including communications, telemetering and control facilities. 3.07 Construction Costs. Cogenerator will reimburse Company for the construction costs incurred in the modification and/or construction of the Interconnection Facilities and installation of the communications and telemetry equipment described in Section 3.03 in accordance with Section 3.12(a). Company's construction costs shall be determined in accordance with (i) - (vi) of Subsection 3.12(d). Attached hereto as Exhibit 3.07 is Company's estimate of said construction costs. Cogenerator acknowledges that the actual construction costs may be higher or lower than the estimate. 3.08 Maintenance. Unless otherwise provided by separate agreement, Company will patrol, maintain and repair the Interconnection Facilities, and Company's metering, telemetering, communication, data acquisition equipment, and automatic switching control facilities, from and after completion of construction thereof, and Cogenerator will reimburse Company for its costs thereof in accordance with Section 3.12(b), (c) and (d). Cogenerator will also pay the costs of replacing any of said equipment which, in the reasonable opinion of Cogenerator and Company, becomes obsolete or inadequate for then current utility operations and practices. 3.09 Billing. Except as otherwise provided in Section 3.12, bills for sums due under this Article III may be rendered monthly or upon occurrence, as in the case of equipment replacement. All bills shall be due and payable within twenty (20) days after the date thereof. Cogenerator may question or contest any -8- such billings, including Company's costs so billed. No such question or contest will extend the due date for any payment. 3.10 Ownership. (a) The Cogenerator Substation, the Cogenerator Interconnection Facilities and the Interconnection Facilities, except for those facilities described in Exhibit 3.10, shall be the property of Cogenerator. Company shall install, own and maintain the metering, telemetering, communications lines and facilities, data acquisition equipment, and automatic switching control facilities in and on the Cogenerator Substation, Cogenerator Interconnection Facilities, and Interconnection Facilities. Company will also own the facilities described in Exhibit 3.10. (b) Company shall have the exclusive right to operate and control the Interconnection Facilities. In addition, Company may utilize the Interconnection Facilities in the conduct of its business, including use to provide service to other customers and, for such purposes, may construct, at its own expense, alter or enlarge the same and add taps and interconnections thereto. (c) The Cogenerator Substation and Cogenerator Interconnection Facilities, by reason of their interconnection with Company's transmission system, will necessarily be involved with providing service to Company's other customers. Company may, at its own expense, install, maintain and operate transformers, switches, lines and other facilities and equipment in the Cogenerator Substation to provide service to its other customers. (d) Cogenerator shall not be responsible for any costs incurred by Company in reconstructing, altering, modifying or enlarging the Cogenerator Substation and Interconnection Facilities for the purpose of providing service to other customers nor any increased costs of inspection, maintenance and repair resulting therefrom. -9- (e) At the termination of this Agreement, Cogenerator shall, at. its own expense, remove the Interconnection Facilities and restore the premises to its condition as it existed prior to installation of said Interconnection Facilities; provided, however, that if termination occurs by reason of the default of Cogenerator, then the Interconnection Facilities are subject to purchase or lease by Company under Article XV and shall not be removed by Cogenerator until the time for exercise of the option provided in Section 15.01 has passed. 3.11 Facilities Between Plant and Cogenerator Substation. Cogenerator shall, at its expense, install, maintain and operate facilities necessary to transmit power and energy generated at the Plant to the Cogenerator Substation and to receive Maintenance and Construction Power and Energy furnished by Company at the Cogenerator Substation and transmit same to the Plant. 3.12 Payment. (a) To reimburse Company for modifying and constructing the Interconnection Facilities and all telemetering, metering, communication and data acquisition equipment and automatic switching control facilities, Cogenerator will pay to Company, before the beginning of construction, Company's estimated construction costs described in Section 3.07, to be adjusted to actual costs after completion of construction. Sums due Company under this section may be paid in periodic installments if, before the beginning of construction, the parties reach agreement as to such installment payments and Cogenerator furnishes security satisfactory to Company. (b) To reimburse Company for routine inspection of the Interconnection Facilities, and Company's telemetering, metering, communications and data acquisition equipment and automatic switching control facilities, Cogenerator will pay to Company monthly, beginning May 1, 1987, the sum of Nine Hundred dollars ($900.00), as adjusted pursuant to subsection (c) -10- below. Company will periodically provide justification of the amount of such expense, if requested by Cogenerator. Exhibit 3.12 attached hereto delineates which services are included in routine inspections and which are not. (c) At June 1st of each year during the term of this Agreement, the monthly amount specified in subsection (b) above shall be adjusted as set forth in this subsection to reflect increases in the Bureau of Labor Statistics of the United States Department of Labor Transportation and Public Utilities Electric Services average hourly earnings using May, 1986 as the base period. The average hourly earnings numbers referred to in sub-subsection (i) below will be taken from this SIC Code 491, except as set forth in sub-subsection (ii) below: (i) The adjustments in the monthly amount shall be determined by multiplying the dollar amount specified by a fraction, the numerator of which is the average hourly earnings number for December of the last calendar year prior to the adjustment and the denominator of which is the average hourly earnings number for the month of May, 1986. (ii) If SIC Code 491 is discontinued during the term of this Agreement, the remaining adjustments called for in this subsection shall be made using the formula set forth in sub-subsection (i) above, but substituting in the average hourly earnings number for the Electric, Gas and Sanitary Services ("SIC Code 49") for the average hourly earnings numbers of the SIC Code 491. If both SIC Code 491 and SIC Code 49 are discontinued during the term of this Agreement, the remaining adjustments called for in this subsection shall be made using the statistics of the Bureau of Labor Statistics of the United States Department of Labor that are most nearly comparable to SIC Code 491 and as agreed by the parties. If the -11- Bureau of Labor Statistics of the United States Department of Labor ceases to exist or ceases to publish statistics concerning the purchasing power of the dollar during the term of this Agreement, the remaining adjustments called for in this subsection shall be made using the most nearly comparable statistics published by a recognized financial authority selected by Company and Cogenerator. (d) To reimburse Company for maintenance of the Interconnection Facilities and the communication and other equipment described in Section 3.03, Cogenerator shall pay Company's Maintenance Costs, which shall be actual costs incurred by Company plus a percentage equal to fifteen percent (15%) of such costs. Actual costs shall include but are not necessarily limited to the following: (i) Material - Materials will be priced at Company store issue or purchase order price in effect when materials are removed from stores plus a material handling cost for supervision, labor and expenses incurred in the operation and maintenance of Company's storerooms. The material handling cost shall be the same as used by Company for its own accounting purposes. The material handling cost is a percentage recalculated periodically; therefore, percentages may vary from time to time. (ii) Payroll - Labor and services, including engineering and technical support services, of Company personnel will be priced at the then current rate of pay to the employees performing the work at regular rates or overtime rates as applicable plus all labor-related expenses such as retirement, insurance, vacation, taxes, etc. All labor-related expenses shall be the same as used by Company for its own accounting purposes. The labor-related expenses -12- are recalculated periodically; therefore, percentages may vary from time to time. (iii) Transportation - Transportation will be priced at the cost per mile and/or per hour dependent upon the type of equipment being used in accordance with the rates Company charges for such use for its own accounting purposes. The per mile and/or per hour rate is recalculated periodically; therefore, charges may vary from time to time. (iv) Contractors' Expense - Contractors' expense will consist of the costs billed Company by the contractors and can be on a unit cost or a bid basis. Unit cost prices are renegotiated periodically, thus cost per unit may vary from time to time. Contractor's Expense will be approximately equal to then prevailing market rates for similar work. (v) Miscellaneous Expense - This will include actual expenditures incurred which are not included in (i) through (iv) above. Examples of this type cost are crew lodging and travel expense, laboratory tests and equipment rental. In the event that Company furnishes its own major tools or major equipment in the performance hereof, Company will charge a rate for the use of same equal to the fair market rental value of such major tools or major equipment at the time and place same are so used. (vi) General Engineering Overhead - General Engineering Overhead is a percentage charge applied to the sum of (i) - (v) to recover Company's costs of design, engineering, supervision, and other applicable costs and overhead. The charge shall be the same as applied by Company to determine its costs of its new construction and is currently 13%. The -13- charge is redetermined periodically in accordance with Company's established accounting procedures using the uniform system of accounts prescribed by the Federal Energy Regulatory Commission. (e) Any leased communication facilities shall be obtained and operated at Cogenerator's expense. ARTICLE IV - CONSTRUCTION, MAINTENANCE AND TRIAL ENERGY 4.01 Construction Power. By separate agreement with either Cogenerator or its contractor, Company, acting through its Texas Electric Service Company division, will furnish electric power and energy required for construction of the Plant ("Construction Power and Energy") upon its standard terms and conditions and at its rates from time to time in effect. Such separate agreement may require payment for installation of temporary facilities if Construction Power and Energy is required in advance of completion of the Cogenerator Substation and Interconnection Facilities. 4.02 Maintenance Power. From and after Commercial Operation, if Cogenerator so elects, Company will furnish Cogenerator with Maintenance Power and Energy at its applicable rates and riders and in accordance with its Service Rules and Regulations from time to time in effect. As used herein, "Maintenance Power and Energy" is the electric power and energy required at the Plant for operation of auxiliary equipment, lighting, maintenance and start-up when the Plant is not generating or is generating insufficiently therefor. 4.03 Trial Energy. It is anticipated that power and energy will be generated by the Plant prior to Partial Commercial Operation during tests and trial operations; power and energy so generated is hereinafter called "Trial Energy". Provided that the Cogenerator Substation, Cogenerator Interconnection Facilities, and Interconnection Facilities are complete and subject to establishment of a mutually satisfactory schedule therefor, -14- Company will, at Cogenerator's request and upon receipt of advance notice, purchase all Trial Energy net of that used for operation of the Plant. Company will pay Cogenerator for the Trial Energy at a rate equal to Company's Weighted Average Cost of Fuel, as defined in Exhibit 4.03, for all kwh delivered to Company as metered on the Company side of the Cogenerator Substation. Payments for Trial Energy will be made monthly unless Cogenerator elects to defer receipt of such payments and so notifies Company. There will be no capacity payments for Trial Energy. 4.04 Metering. Construction Power and Energy, Maintenance Power and Energy, and Trial Energy shall be delivered and metered on the Company side of the Cogenerator Substation, unless otherwise agreed. ARTICLE V - OPERATION OF THE PLANT 5.01 Operator. Cogenerator will operate and maintain, at its sole expense, the Plant, Cogenerator Substation, and Cogenerator Interconnection Facilities. 5.02 Duties. All electric power and energy generated at the Plant and delivered to Company shall have a nominal frequency of 60 Hz and shall have the frequency, voltage and other properties and characteristics from time to time established for operation of Company's electric system. Cogenerator will maintain and operate the Plant, Cogenerator Substation, Cogenerator Interconnection Facilities and facilities interconnecting the Plant to the Cogenerator Substation (i) so as reasonably to prevent the likelihood of a disturbance affecting or impairing Company's system, and; (ii) so as to maintain, within the design capability of the Plant, power factor and voltage as from time to time requested by Company, and (iii) in compliance with all legal and regulatory requirements, including environmental requirements. Cogenerator will also maintain an adequate inventory of spare parts to minimize Plant unavailability due to repair or overhaul. -15- 5. 03 Tests. Prior to the dates of Commercial Operation and Partial Commercial Operation, Cogenerator shall perform or allow Company to perform, as specified, the following tests on the Plant after reasonable notice to Company. Such tests will be at Cogenerator's expense, but Company will bear expenses incurred in observing the performance of such tests. Company shall subsequently have the right to require that each of these tests be performed after any malfunction of the equipment which that test is designed to evaluate and be performed at least annually thereafter. Each party has the right to reasonable advance notice of, and to have personnel present during tests performed by the other party. The party performing the test will furnish to the other party written results of the tests. The tests are: (a) A trip test by Cogenerator of the Plant's protective relay schemes that trip the 138 kV circuit breakers connecting the Plant to the Company's electric system. (b) An operational test by Cogenerator of the Plant's protective relaying for each generating unit and main step-up transformer. (c) A test by Cogenerator of each generating unit's start-up durations under each of the following conditions: (1) After an overnight shutdown (8 hours in length). (2) As soon as possible after a full unit trip. Durations shall be measured from the time that notification to restart was given for (1), or from the time that the unit trip occurred for (2), until the unit is synchronized and when it reaches full load. These starting durations shall be verified for both the combustion turbines and the steam turbine. It is not intended that Cogenerator guarantee those start-up durations. This information is needed only for day-to-day system operational and planning purposes. If -16- sufficient operational data is available to verify the above-described starting durations, actual testing may be waived by Company. (d) Verification by Cogenerator of the speed of each generating unit's normal response rate for both load increase and decrease. Each steam turbine shall be capable of load increase or decrease at the rate of at least 5%/minute from minimum to maximum capacity. Combusion turbines shall have a response rate of at least 200%/minute. (e) Verification by Cogenerator of each generating unit's ability to operate under leading and lagging power factor conditions with the Automatic Voltage Regulator in service. For example, if a unit is designed to operate at a 0.9 power factor it shall be verified that it is capable of operation at either a leading or lagging 0.9 power factor. (f) Verification by Cogenerator of the ability of each generating unit to respond to upsets in system frequency. Each unit's governor should provide a 5% droop response outside a (+-) .03 Hz deadband to frequency disturbances. The response is relevant to the period of time from occurrence of the disturbance to reaching of reset frequency, usually 7 to 10 seconds. Governors must begin responding within 0.5 seconds after frequency exceeds the (+-) .03 Hz deadband. A 5% droop response will provide 3-1/3% of the unit's capability per 0.1 Hz deviation in frequency. To be considered a successful response, the unit must provide the increased or decreased output in response to changes in frequency and maintain the new output in accordance with the 5% droop curve until the frequency returns to normal within the deadband. Data will be gathered for each disturbance experienced for use in verification of each unit's response. 5.04 Operation Requirements. (a) The Plant will be operated in synchronism with Company's system and subject to and -17- in compliance with the then-current established guidelines of the Electric Reliability Council of Texas (ERCOT) and subject to directions of TUSOC. Compliance with such guidelines and directions, other than those prescribing frequency and other standards for the Company's transmission and generation system and other systems with which it is interconnected, will not impair operation of the Plant (and delivery of power and energy therefrom to Company's transmission system) at a level equal to Firm Capacity except for emergencies or reliability matters involving Company's system. Without limiting the foregoing, Cogenerator will comply with any ERCOT-approved guideline for responsive reserves. The current ERCOT guidelines state that Cogenerator shall operate the Plant in such a manner as normally to provide for a spinning reserve of no less than 6% of the nominal capacity rating of units on line (Released Capability). This spinning reserve provides for the Automatic Governor Response to system frequency disturbances as specified in section 5.03(f), or for manual increase by the unit operator as requested by TUSOC. The Plant must be able to maintain operation at this increased level of capability for a minimum of eight (8) hours following each disturbance or request. (b) Generators at the Plant shall not go off-line because of a decline in system frequency until system frequency has declined to a level below 58.5 Hz, and shall include equipment providing for automatic trip at or below 58.0 Hertz with 1/2 second delay. (c) The Plant shall be equipped with automatic controls for both frequency and voltage response, and Cogenerator shall notify Company at any time when such automatic controls malfunction or are out of service. (d) Cogenerator shall staff the control room of the Plant with a qualified operator during all hours when the Plant and/or Cogenerator Substation is in operation or is electrically connected to Company's system. -18- (e) Company shall promptly notify Cogenerator's operator of any outage or malfunction of equipment and facilities on the Company System that would prohibit or limit Company's receipt of power and energy generated by the Plant or any other condition affecting operation of the Plant. Cogenerator shall report performance of the Plant to Company utilizing the then-current standard Generating Availability Data System ("GADS") methodology of the North American Electric Reliability Council ("NERC") and in a format and medium acceptable to Company. All GADS data is to be reported on a monthly basis and is to be delivered to Company no later than forty-five (45) days after the end of the appropriate report month. Cogenerator hereby authorizes Company to publish the GADS data. In addition, Cogenerator shall supply to Company sufficient data in a format and medium acceptable to Company to permit calculation of Peak Hour Capacity Factor within fifteen (15) days after the end of the month. (f) Cogenerator shall obtain prior approval of TUSOC for any closing of main circuit breakers of the Plant, whether for testing or for operations, and of any planned outage of, or limitation on, generation by the Plant, which approval shall not be unreasonably withheld. (g) Cogenerator shall keep maintenance records of the generating equipment and control and protective equipment at the Plant, which records shall be available to Company for inspection at all reasonable times. (h) Cogenerator shall report to TUSOC, on a timely basis, those items and/or conditions necessary for TUSOC's internal planning and compliance with TUSOC's guidelines in effect from time to time. The information supplied shall include, without limitation, the following: 1. status (on or off line) within 15 minutes; -19- 2. daily plan for the next day, including capability released and available for operation; 3. overhaul or scheduled outage plans for the year (updated weekly); 4. any scheduled or planned transmission or switchyard clearances or maintenance plans for the next twelve (12) months (updated weekly); 5. time and cause of outage of Cogenerator's generators or circuit breakers included in the Plant; 6. monthly generation estimates by August 1 for the next calendar year; 7. prompt updates of the monthly generation estimates when any changes are anticipated; and 8. at least thirty days prior to each calendar quarter, an order-of-magnitude generation estimate for the next twelve (12) month period. 5.05 Required Disconnection. (a) Cogenerator shall immediately open the electrical connection between the Plant and the Interconnection Facilities when requested by the Company for any of the following reasons: (i) To facilitate maintenance or repair of any of the Company's facilities or system or Cogenerator's facilities being maintained by Company which requires such open connection as determined solely by Company in the exercise of its engineering judgment, provided that Company diligently proceeds with said repairs or maintenance; or (ii) An emergency exists on Company's or ERCOT's system which requires such open connection as determined solely by the Company in the exercise of its engineering judgment and Company diligently proceeds to correct or remedy said emergency to the extent such is reasonable; or -20- (iii) Inspection of the Cogenerator generating and/or protective equipment reveals a hazardous condition, or a lack of proper maintenance which requires the immediate opening of the connection, as reasonably determined solely by the Company in the exercise of its engineering judgment; or (iv) Cogenerator's facilities are operating, as determined solely by the Company in the reasonable exercise of its judgment, in a hazardous manner or operating such that they are interfering with the Company's customers or the operation of the Company's system to the extent that the immediate opening of the connection is required, as determined solely by Company in the reasonable exercise of its judgment; or (v) Upon termination of the Agreement. While reasonable effort will be made to provide prior notice, the Company reserves the right to require opening of the electrical connection or open the connection itself without prior notice for any of the aforesaid reasons, provided, that after-the-fact Company must show, upon request of Cogenerator, that it was reasonable to require or make such opening of the connection without prior notice. Where prior notice is not given, the Company will promptly notify Cogenerator of all openings of the electrical connections. Company will reimburse Cogenerator for Capacity Payments not otherwise paid because Company required opening of the connections between the Plant and the Interconnection Facilities under (iii) or (iv) above in violation of the provisions of this subsection; Company's compliance with or breach of the provisions of this subsection shall be based upon circumstances known to Company's dispatchers or other supervisory operating personnel at the time an immediate disconnection was ordered. Cogenerator shall likewise exercise reasonable effort to provide prior notice to Company of all unscheduled openings of the connection and all unscheduled complete or partial outages of -21- the Plant and, where prior notice is not given, shall promptly notify the Company of all such openings of the connection and all such partial or complete outages of the Plant. Once the cause requiring the opening of the electrical connection has been removed, then the parties will cooperate to promptly close the electrical connection between the Plant and the Interconnection Facilities. (b) Cogenerator shall immediately open the electrical connection between the Plant and the Interconnection Facilities upon request by Company when inspection of the Plant has revealed a lack of the maintenance records required by this agreement, Cogenerator has been notified of such lack, and such lack has not been corrected within thirty (30) days after such notice. 5.06 Plant Maintenance. As soon as practicable and not later than the date of Commercial Operation of the Plant, Cogenerator will furnish Company with its long-term preventive maintenance program for each major item of equipment of the Plant reflecting planned outages for inspection, repair, maintenance and overhaul. After Partial Commercial Operation, similar programs will be provided by Cogenerator for equipment in service. Such program will be based, at least in part, on manufacturer's recommendations and may be altered from time to time by reason of later manufacturer's releases pertaining to major items of equipment of the Plant and experience of Cogenerator in operating the Plant; Cogenerator will promptly advise Company of any such changes. The specific times for planned outages of the Plant will be scheduled annually in advance by agreement of the parties so as to coordinate planned outages of the Plant with planned outages of Company's generating facilities, of generating facilities of others interconnected with Company's system and of the Cogenerator Substation, Interconnection Facilities, and Company's transmission facilities involved in receipt of power and energy from the Plant. Each party will, if requested, endeavor to reschedule planned outages -22- of any such facilities to accommodate the needs of the other party. Cogenerator may also request a transmission or substation clearance, but any such clearance must be scheduled by Company, except in an emergency. As used in this section, an emergency is a condition that is imminently likely to endanger life or property. 5.07 Delivery of Power. All power and energy generated by the Plant, net of that required for operation of the Plant, shall be delivered to and taken by Company, subject to the following and to other provisions of this Agreement. Power and Energy so delivered shall be metered at the Cogenerator Substation on the Company side of the transformers. Cogenerator will supply and sell and Company will take and pay for energy from the Plant delivered by Cogenerator to Company and Firm Capacity subject to the following: (a) Cogenerator shall not be required to furnish energy in excess of Firm Capacity. (b) Company shall not be required to take or pay for Firm Capacity or energy it is permitted to refuse under the terms hereof. (c) Cogenerator shall not be entitled to payment for deliveries of capacity in excess of Firm Capacity. (d) Cogenerator shall at any time, upon Company's request, increase deliveries of Energy up to a maximum rate of delivery equal to the Firm Capacity (or up to 90% of Firm Capacity when Cogenerator is affected by fuel supply limitations), except to the extent that output of the Plant is unavailable because of uncontrollable force, forced outage or scheduled maintenance. (e) Cogenerator shall, during an emergency and if requested by Company, supply such power as the Plant is able to generate and Company is able to receive. If Cogenerator has previously scheduled an outage, and such outage occurs or would occur coincident with an emergency, Cogenerator shall make all -23- good faith efforts to reschedule the outage or, if outage has occurred, expedite the completion thereof. (f) Company shall not be required to purchase energy at a capacity in excess of Firm Capacity, but, if maintenance of Capacity Factors at the levels set forth in Section 7.05 is in jeopardy, Company will credit Capacity Factor calculations with energy in excess of Firm Capacity reduced at Company's request. 5.08 No Other Interconnection; Intrastate Commerce Operations. (a) The Plant, Cogenerator Substation, Cogenerator Interconnection Facilities and facilities transmitting power and energy generated at the Plant to the Cogenerator Substation shall not be interconnected with the facilities of any entity, other than Company, which generates, transmits or distributes electric power and energy until: (i) Cogenerator shall have notified Company in writing of the proposed interconnection including all pertinent details including but not limited to those requested by Company; and (ii) Company shall have consented thereto in writing. Company shall not unreasonably withhold such consent unless such interconnection would cause a breach of subsection (b). (b) Cogenerator represents and warrants: (i) that Cogenerator will not directly or through connections with other entities transmit, sell or deliver electric energy generated at the Plant (other than power or energy delivered to Company or its successors and assigns) in interstate commerce; and (ii) that Cogenerator will not directly or through connections with other entities transmit, sell or deliver Maintenance Power and Energy or Construction Power -24- and Energy delivered by Company under this Agreement in interstate commerce; and (iii) that Cogenerator will open all electrical connections controlled by it which are necessary to prevent transmission of electric energy generated at the Plant (and not delivered to Company) or Maintenance or Construction Power and Energy delivered by Company under this Agreement in interstate commerce. (c) It is understood and agreed that if Cogenerator transmits, sells, delivers, purchases or receives electric energy in interstate commerce or maintains any interconnection therefor, Company shall, in addition to any other remedies it may have, including the remedies specified below, have the option to immediately terminate this Agreement. (d) Company may immediately suspend receipt of power and energy from, or delivery of power and energy to, the Plant if this Section is violated. It is further agreed that it will be impossible to measure in terms of money the damages which may or will accrue to Company by reason of any failure in the performance of the obligations of this Section, and, for that reason, among others, the parties agree that, in case of any such failure, Company will be irreparably damaged in the event that this Agreement is not specifically enforceable and, accordingly, the parties agree to specific performance of the Agreement set forth in this Section in addition to any other remedies which may exist. If Company shall institute proceedings to enforce the provisions of this Section, Cogenerator hereby waives any claim or defense that an adequate remedy at law exists. -25- (e) Nothing contained in this section shall preclude the utilization of connections for the transmission of electric energy in interstate commerce (i) under bona fide emergencies pursuant to the provisions of Section 202(d) of the Federal Power Act, or (ii) pursuant to orders of the Federal Energy Regulatory Commission, applicable to Company, under Sections 210, 211 and 212 of the Federal Power Act requiring the establishment, maintenance, modification or utilization of any such connection which may be involved. 5.09 No Alterations. The design of the major items of equipment of the Plant and Cogenerator Substation will not be materially altered or modified without prior written consent of Company. Company may inform Cogenerator of its opinions of such alterations, but Company's comments on such alterations shall not waive any of Company's rights under this Agreement or applicable law. Company shall be deemed to have consented to any proposed alterations or modifications if it fails to comment thereon within 30 days after receipt from Cogenerator of a complete set of plans for such alteration or modification or a discrete portion of such alteration or modification. 5.10 Firm Capacity. At or prior to both Commercial Operation and Partial Commercial Operation, Initial Firm Capacity of the Plant shall be established by agreement in writing of the parties after a twenty-four (24) hour performance test in accordance with Exhibit 5.10 attached hereto conducted by Cogenerator with the participation and under the observation of Company, the results of which shall be considered in establishing Initial Firm Capacity. Determination of Initial Firm Capacity (or of Firm Capacity in the event of subsequent tests in accordance with the procedures of this Section) will consider the results of performance tests and anticipated operating procedures and guidelines, with due regard for avoiding a level of generation that might advance deterioration of the Plant or result in increased maintenance and repair. The determination of Initial Firm Capacity -26- will be in accordance with Exhibit 5.10. Initial Firm Capacity shall be net of auxiliary equipment and other electrical requirements of the Plant which are supplied by the Plant. Based upon the design of the Plant, but subject to performance tests and operating guidelines, it is estimated that the Initial Firm Capacity at Commercial Operation will be approximately 106 MW and approximately 80 MW at Partial Commercial Operation. References in this Agreement to "Firm Capacity" mean Initial Firm Capacity as determined under this Section unless Cogenerator has exercised its rights under Section 5.11 to change Firm Capacity, in which case "Firm Capacity" means the amount so designated by Cogenerator. 5.11 Redetermination of Firm Capacity. At any one time after the date of Commercial Operation, but not later than May 31, 1989, Cogenerator has the unilateral right, upon six months' written notice to Company, to change Firm Capacity to the then current Tested Capacity, but not to less than Initial Firm Capacity nor greater than 110% of the Initial Firm Capacity determined under Section 5.10; provided, that Cogenerator must, prior to implementation of the new Firm Capacity, conduct another test in accordance with the procedures of Section 5.10 to verify that the proposed change in Firm Capacity is justified. The effect of any changes in Firm Capacity under this Section will be prospective only. 5.12 Tested Capacity. Tested Capacity will be determined from time to time by the parties in accordance with this Section. (a) Company may, not more than once each month, conduct an unscheduled four hour test of the capacity of the Plant, using installed meters. Representatives of Company may be present at the Plant when such test is conducted. if the results of such test, as adjusted, indicate the Plant -27- has failed to maintain generation of Firm Capacity, then Company may request a test pursuant to subsection (b). (b) Company, subject to subsection (a), or Cogenerator may, at any time, request another twenty-four (24) hour performance test of the Plant, but there shall be no more than one test per calendar month. Determination of Tested Capacity shall be in accordance with Section 5.10. A determination of Tested Capacity shall be effective as of the first day of the calendar month in which the performance test is completed. Company shall be given reasonable prior notice of any performance test and shall have the right to have representatives present during any performance test. If Company determines that the performance test was conducted in a manner or under conditions that make the results of the test unrepresentative or inaccurate, then, upon a written notice to Cogenerator within ten (10) days after such test results are provided to Company in the performance test final report, in which Company specifies the defects in the test and requests a retest, Cogenerator will rerun the test with the defects corrected within a reasonable time after the notice. Results of any such retest shall be retroactive to the date of the original test. If the results of a performance test show that Tested Capacity is less than Firm Capacity then, Billing Capacity (as defined at Section 7.05) shall be reduced as set out in Section 7.05, and shall remain so reduced until a subsequent performance test conducted in accordance with the procedures of Section 5.10. establishes that Tested Capacity equals or exceeds Firm Capacity. 5.13 Backdown. (a) Cogenerator will, upon request of Company, reduce the level of generation of the Plant as requested by Company, which reduction may be accomplished, at Cogenerator's option, either by taking a unit or units off-line or by reducing -28- the operating level of the unit or units on-line ("Backdowns"). Backdowns pursuant to this subsection shall not reduce generation of the Plant below 38% of Firm Capacity after Commercial Operation or below 50% of Firm Capacity prior to Commercial Operation. In any twelve (12) consecutive months the aggregate amount of all such Backdowns shall not exceed that number of megawatthours (MWH) equal to fifty percent (50%) of Firm Capacity times 2000 hours. (b) So long as there is no decrease in the amount per kwh due Cogenerator (Capacity Payments plus Energy Payments for twelve consecutive months divided by the amount, in kwh, of Energy sold by Cogenerator hereunder during such months), Backdowns in any twelve month period may exceed the amount set forth in (a) shown, but all Backdowns in excess of such amount shall be deemed not to have occurred for the purpose of computing Annual Capacity Factor, Peak Month Capacity Factor, and Peak Hour Capacity Factor for purposes of the Capacity Payment; in addition, appropriate adjustments will be made in determining the amount of WACOG kwh under Section 7.08(b)(ii)because of Backdowns in excess of the amount stipulated in (a) above. (i) Backdowns, pursuant to this subsection (b) shall not be of such magnitude as to jeopardize the Plant's continuing to be a Qualifying Cogeneration Facility; Cogenerator will notify Company if such qualification appears to be in jeopardy and will, if requested, present evidence of such jeopardy. (ii) Backdowns pursuant to this subsection (b) will be coordinated so as not to unreasonably conflict with Cogenerator's operating practices and Host's steam requirements. -29- (c) The amount of each Backdown shall be measured based upon the generation level at the time of the request. Company will promptly advise Cogenerator when it may increase generation or resume normal generation. ARTICLE VI - OTHER AGREEMENT FOR ELECTRIC SERVICE 6.01 Description. Company presently provides electric power and energy to Host's refinery near Big Spring pursuant to agreement or agreements between Host and Texas Electric Service Company, a division of Company. 6.02 No Effect. The agreements for electric service described in Section 6.01 as heretofore and hereinafter amended, shall remain in full force and effect and are not hereby amended or altered. Company's obligations to deliver power and energy to Host pursuant to such agreements are not contingent upon generation of power and energy at the Plant. Cogenerator's obligations to generate power and energy at the Plant shall not be suspended by reason of Company's interruption of electric service to Host. ARTICLE VII - PAYMENTS TO COGENERATOR 7.01 Monthly Payments. Beginning on the date of Partial Commercial Operation, Company shall pay Cogenerator monthly for power and energy in accordance with this Article and with Article X. 7.02 Billinq Determinants. The billing determinants for the payments to Cogenerator shall be: (a) total net energy (in kwh) generated by the Plant and delivered to Company each month as metered on the Company side of the Cogenerator Substation (billing kwh), except as otherwise provided in Section 7.08 (b)(ii) with respect to WACOG kwh. (b) Billing Capacity (billing kW). -30- If there be a partial calendar month following the date of Partial Commercial Operation, the billing kW shall be in the proportion that the number of days in such month from and including the date of Partial Commercial Operation bears to the total number of days in such month. A similar proration shall be made for any partial calendar month at the expiration or other termination of this Agreement. 7.03 Initial Capacity Factors. (a) For a period beginning on the date of Partial Commercial Operation and ending after the expiration of six (6) full calendar months after the date of Partial Commercial Operation for the purposes of Section 7.05 of this Agreement (but not for any other Section) (i) Annual Capacity Factor shall be deemed to be equal to 65.00%, (ii) Peak Month Capacity Factor shall be deemed to be equal to 75.00%, and (iii) Peak Hour Capacity Factor shall be deemed to be equal to 82.00%. These deemed Capacity Factors have no effect whatsoever on the calculation of the various Capacity Factors under Section 7.06 at any time and apply to Section 7.05 only through the end of six (6) full calendar months after Partial Commercial Operations. (b) After the expiration of six (6) full calendar months after the date of Partial Commercial Operation, if the Capacity Factors have failed to be equal to, or to exceed, the deemed Capacity Factors specified in Subsection (a) at any time during said period, then an adjustment to the previous capacity payments shall be made pursuant to Section 7.05 as if no Capacity Factors had been deemed whatsoever. The adjustment shall equal the difference between (i) the capacity payments actually made and (ii) the capacity -31- payments that would have been made if no Capacity Factors had been deemed pursuant to Subsection (a). Such adjustment will be calculated after the exclusion of any month or months so elected by Cogenerator pursuant to Section 7.04. Any such adjustment shall bear interest at the Commercial Paper Rate from the end of the sixth full calendar month after the date of Partial Commercial Operation and shall be repayable in twelve equal monthly installments beginning on the last day of the seventh full calendar month after the date of Partial Commercial Operation. As used in this Agreement, "Commercial Paper Rate" means the lesser of (i) the interest rate on 30-day high grade unsecured notes sold through dealers by major corporations as such rate is published in The Wall Street Journal or (ii) the highest rate permitted by applicable law, in effect on the first business day of each calendar month in which interest accrues hereunder. 7.04 Exclusion of Months. Prior to the end of the seventh full calendar month after the date of Partial Commercial Operation, Cogenerator shall notify Company in writing which month or months (not to exceed two) immediately following the date of Partial Commercial Operation that Cogenerator chooses to exclude from the calculation of Annual Capacity Factor, Peak Month Capacity Factor and Peak Hour Capacity Factor; provided, that such excluded month or months, if any, must be the first full calendar month or the first two full calendar months after the date of Partial Commercial Operation. If Cogenerator makes no such notification, then no calendar months will be so excluded. 7.05 Billing Capacity. The Billing Capacity shall be determined in megawatts and rounded to two decimal points for each month after the date of Partial Commercial Operation in -32- accordance with this Section. Billing Capacity is equal to Firm Capacity except as follows: (a) If the Annual Capacity Factor, as determined at the end of any month in accordance with Section 7.06, is less than 65.00%, then the Billing Capacity for such month shall be equal to zero; or (b) If the Peak Month Capacity Factor, as determined at the end of any month in accordance with Section 7.06, is less than 75.00%, then the Billing Capacity for such month shall be reduced proportionally by five percent (5%) of Firm Capacity for each one percent (1%) by which Peak Month Capacity Factor is less than 75% (eg., if Peak Month Capacity Factor is 72.95%, Billing Capacity is 89.75% of Firm Capacity); or (c) If the Peak Hour Capacity Factor, as determined at the end of any month in accordance with Section 7.06, is less than 82.00%, then the Billing Capacity for such month shall be reduced proportionally by five percent (5%) of Firm Capacity for each one percent (1%) by which Peak Hour Capacity Factor is less than 82.00%; or (d) If, on request of Company made when Company's system or generation facilities are operating under other than normal conditions or when any of Company's gas fired generating units are using oil as fuel, Cogenerator is unable to generate energy in any month at a rate of not less than 90% of Firm Capacity (less capacity not available because of forced outage, scheduled maintenance, or uncontrollable force other than limitation of fuel supply), due to fuel supply limitations, whether or not such fuel supply limitations are caused by an uncontrollable force during the first 480 hours following Company's request and thereafter unless such limitation is caused by uncontrollable force, then the Billing Capacity will be reduced as follows: -33- (i) the first time that such limited generation occurs for a total of two hours within any consecutive seventy-two hours, Billing Capacity for the month will be reduced by five percent (5%) of Firm Capacity; (ii) once condition (i) above has occured, if such limited generation occurs for an additional two hours, Billing Capacity for the month will be reduced by an additional two and one half percent (2 1/2%) of Firm Capacity; (iii) for each additional hour of such limited generation in the same month, Billing Capacity for the month will be reduced by an additional one percent (1%) of Firm Capacity; and (iv) if enough hours of such limited generation occur to reduce Billing Capacity for the month to zero, then additional hours of such limited generation during the month will operate to reduce Billing Capacity for the following month or months at the rate of one percent (1%) of Firm Capacity for each additional hour of such limited generation. (e) If Tested Capacity is less than Firm Capacity, then, Billing Capacity shall be reduced proportionately by two percent (2%) of Firm Capacity for each one percent (1%) of Firm Capacity by which Tested Capacity is less than Firm Capacity, for the period of time during which Tested Capacity is less than Firm Capacity. (f) Any partial reductions of Billing Capacity pursuant to (b), or (c) above are not additive, but only the largest reduction shall apply (e.g., if Peak Month Capacity Factor is 72.95% and Peak Hour Capacity Factor is 80.00%, then Billing Capacity equals 89.75% of Firm Capacity); however, a reduction of Billing Capacity pursuant to (d) or 34- (e) above is additive with reductions under (b) and (c) above (e.g., if Peak Month Capacity Factor is 72.95%, Peak Hour Capacity Factor is 80.00%, and Tested Capacity is 89.00 megawatts while Firm Capacity is 90.00 megawatts for fifteen (15) out of the thirty (30) days in the month, then Billing Capacity equals 87.25% of Firm Capacity). 7.06 Definition of Capacity Factors. (a) Annual Capacity Factor shall be determined by dividing the total net energy (in mwh) delivered to Company during the current month and the prior 11 months, by the product of the number of hours in such month and the prior 11 months and the Firm Capacity (in mW) as determined at the end of the prior month. If less than 12 full calendar months have occurred since the date of Partial Commercial Operation or the end of any months excluded by Cogenerator pursuant to Section 7.04, whichever is later, the Annual Capacity Factor shall be determined using only such lesser number of months. (b) Peak Month Capacity Factor shall be determined by dividing the total net energy (in mwh) delivered to Company during (i) the current month, if it be a Peak Month, and the last six prior Peak Months, or (ii) the last seven prior Peak Months if the current month is not a Peak Month, by the product of the number of hours in such seven Peak months and Firm Capacity for the immediately preceding month. If less than seven full calendar Peak Months have occurred since the date of Partial Commercial Operation or the end of any months excluded by Cogenerator pursuant to Section 7.04, whichever is later, then Peak Month Capacity Factor will be determined by using only said lesser number of months. If no calendar Peak Months have occurred since the date of Partial Commercial Operation and any months excluded by Cogenerator pursuant to Section 7.04, then Peak Month Capacity Factor shall be deemed to be 75.00%. -35- (c) Peak Hour Capacity Factor shall be determined by dividing the total net energy (in mwh) delivered to Company during Peak Hours of Peak Days in (i) the current month, if it be a Peak Hour Month, and the last six prior Peak Hour Months, or (ii) the last seven prior Peak Hour Months if the current month is not a Peak Hour Month, by the product of the number of Peak Hours in Peak Days in such seven Peak Hour Months and Firm Capacity for the immediately preceding month. If less than seven calendar Peak Hour Months have occurred since the date of Partial Commercial Operation or at the end of any months excluded by Cogenerator pursuant to Section 7.04, whichever is later, then Peak Hour Capacity Factor will be determined by using the Peak Hours in Peak Days in such lesser number of Peak Hour Months. If no Peak Hour Months have occurred since the date of Partial Commercial Operation and any months excluded by Cogenerator pursuant to Section 7.04, then Peak Hour Capacity Factor shall be deemed to be 82.00%. (d) "Peak Months," and "Peak Hour Months" as used in this Section, are the months of January, February, June, July, August, September and December. "Peak Days" means all weekdays in the months of January, June, July, August, September, and all week days in the periods of December 16 through 31 and February 1 through 15; week days excludes Saturdays and Sundays. "Peak Hours" means the hours of 8:00 a.m. through 10:00 p.m. of Peak Days in the months of June, July, August and September and the hours of 6:00 a.m. through 10:00 p.m. of Peak Days in the months of January, February and December. Peak Months, Peak Hour Months, Peak Days and Peak Hours in a calendar year may be changed by Company (but the number of Peak Months, Peak Hour Months, Peak Days and Peak Hours may not be increased) upon not less than three months' written notice to Cogenerator or as -36- agreed by the parties; provided, that such change, for all purposes under this Agreement, will be applied prospectively. (e) Each of the above-described Capacity Factors shall be expressed as a percentage and rounded to two decimal points. (f) If months both before and after the date of Commercial Operation are considered in computing Annual, Peak Month or Peak Hour Capacity Factors, then the net energy delivered during all such months shall, in lieu of contrary provisions of subsections (a) - (c) , be divided by the sum of the products of: (i) the number of hours in the applicable number of months and partial months preceding the date of Commercial Operation multiplied by Firm Capacity at the end of the last month preceding the date of Commercial Operation; and (ii) the number of hours in the applicable number of months and partial months after the date of Commercial Operation, multiplied by Firm Capacity at the end of the month immediately preceding the month for which such determination is being made; if, however, Commercial Operation has not occurred at the end of the prior month, then substitute Firm Capacity at the end of the month for which such determination is being made. 7.07 Adjustments to Capacity Factors. (a) Computations of Annual, Peak Month and Peak Hour Capacity Factors shall be made as provided in this Article based upon total net generation of the Plant metered on the Company side of the Cogenerator Substation for the applicable period even though actual generation of the Plant may have been affected by uncontrollable forces (except as -37- provided in (b) below) or by Cogenerator's or Company's suspension of performance as authorized by Sections 5.05, 5.06, 5.08, 12.01 or 13.03 of this Agreement or a reduction in generation made at Company's request pursuant to Section 5.13. Provided, however, that computations of Peak Month Capacity Factor and Peak Hour Capacity Factor will not be affected by any reductions of generation made at Company's request pursuant to Section 5.13, i.e., said Factors will be calculated as if the amount and level of reduction had not occurred. Similarly, computations of Peak Month Capacity Factor, Peak Hour Capacity Factor and Annual Capacity Factor will not be affected by (i) any reductions of generation made at Company's request to construct or maintain facilities pursuant to section 3.10(b) or (c) solely to serve other customers, (ii) reductions in excess of 150 hours per year made at Company's request pursuant to section 5.05(a)(i), (iii) backdowns made pursuant to Subsection 5.13(b), (iv) reductions in generation resulting from Company's opening of electrical connections in violation of subsection 5.05(a)(iii) or 5.05(a)(iv), (v) reductions in generation in excess of twenty-five (25) hours in any consecutive twelve-month period made pursuant to subsection 5.05(a)(ii), or (vi) reductions in generation pursuant to Section 5.07(f). (b) if Uncontrollable Forces is applicable and is declared by Cogenerator, the Capacity Factors applicable immediately before the occurrence of the Uncontrollable Force shall remain unchanged for so long as such Uncontrollable Force continues in accordance with the terms hereof. If Uncontrollable Force is applicable and is declared by Cogenerator, Company shall not be required to make any Capacity Payment for the months or any portions thereof during which the Uncontrollable Force conditions existed. -38- 7.08 Prices Company's payments to Cogenerator shall be based on the billing kwh and billing kW as set out above and the following: (a) Capacity Payments will be made at the following rates: Calendar Year $/kw/month ------------- ---------- 1987 10.75 1988 11.13 1989 11.52 1990 11.92 1991 12.33 1992 12.77 1993 13.21 1994 13.68 1995 14.16 1996 14.65 1997 15.16 1998 15.69 1999 16.24 2000 16.81 2001 17.40 2002 18.00 2003 18.63 (b) Energy Payments. (i) Energy payments shall be based on the following schedule: Calendar Year cents/kwh ------------- --------- 1987 2.10 1988 2.17 1989 2.25 1990 2.33 1991 2.41 -39- 1992 2.49 1993 2.58 1994 2.67 1995 2.77 1996 2.86 1997 2.96 1998 3.07 1999 3.17 2000 3.28 2001 3.40 2002 3.52 2003 3.64 (ii) Provided, however, that for any month after 1988 in which the Annual Capacity Factor is 72.5% or greater, billing kwh in excess of 72.5% of the product of the Firm Capacity for the current month and the number of hours in the current month ("WACOG kwh") shall be paid for at 99% of the Company's Weighted Average Cost of Gas rather than at the above rates in accordance with Exhibit 7.08(b)(ii). "Weighted Average Cost of Gas" will be determined on an after-the-fact basis using a heat rate of 10,300 btu/kwh and the Company's average cost of gas for the month in which the energy was delivered. The monthly energy constituting WACOG kwh, if any, shall be determined by the applicable formula and be subject to the limitations set forth below: If B is greater than FC x 1000, then: NG (FC x H x .725) - (B - (FC x 1000)) P = ------ - [ ----------------------------------- ] M M If B is less than FC x 1000, then: NG FC x H x .725 P = ------ - [ ------------- ] M M -40- where: P is the monthly energy constituting WACOG kwh. NG is net generation of the Plant for the current month and the prior eleven months or such lesser number of full calendar months as have elapsed since the later of Commercial Operation or December 31, 1988. B is the Backdown, in kwh, in the current and prior eleven months or such lesser number of full calendar months as have elapsed since Commercial Operation or December 31, 1988, whichever is later. FC is Firm Capacity. H is the number of hours in the current and prior eleven months or such lesser number of full calendar months as have elapsed since the later of Commercial Operation or December 31, 1988. M is 12 or such lesser number equal to the number of full calendar months including the current month which have elapsed since the later of Commercial Operation or December 31, 1988. Limitation: Notwithstanding the results of the foregoing, Company shall have no obligation to pay for any more WACOG kwh than is actually generated. 7.09 Payments Subject to PUC Action. The payments from the Company as specified in Section 7.08 have been established by the parties based upon laws, regulations and rules in effect during negotiation of this Agreement and applicable to purchases of power and energy from a Qualifying Cogeneration Facility. Such payments do not exceed estimates of Company's avoided costs in PUC Docket No. 6065 over the term of this Agreement, computed by Company using its best efforts in accordance with such laws, rules and regulations. It is the intention of the parties that -41- such payments, as herein established, shall be in effect and observed during the term of this Agreement. Notwithstanding the foregoing, if at any time during the term of this Agreement, the Public Utility Commission of Texas, other than in a proceeding initiated by Company or Cogenerator for the purpose of requesting or obtaining such alteration, alters the rate for the purchase of energy and capacity which can be paid by Company to Cogenerator pursuant to this Agreement or the amounts allowed to be recouped from Company's retepayers, then such payments shall be adjusted to the rate allowed by the Commission. Prior to the time that any such order becomes final, Company may, at its option, suspend any affected portion(s) of payment obligations hereunder pending appeal, approval of a superseding order, modified rules or tariff for Company, or other action that would permit payments herein provided. Amounts so suspended shall be held in escrow for payment to the appropriate party when the order becomes final. During such suspension, Cogenerator may, at its option, do either one or both of the following: (i) sell the energy and capacity for which payment has been suspended to Host or others so long as such sale does not violate any other provision of this Agreement; or (ii) sell all or part of the energy for which payment has been suspended to Company. Payment for non-firm energy so sold to Company shall be based on Company's avoided energy costs computed according to the most recent methodology filed by Company with the Public Utility Commission of Texas as required by its substantive Rule 23.66. Any such payments are subject to regulatory action and recoupment in accordance with this section and Section 7.10. If the regulatory authority determines that amounts held in escrow should be paid to Cogenerator or its ruling has that effect, then any amounts paid to Cogenerator for non-firm energy during the period of suspension shall be subtracted from escrow funds to be paid to Cogenerator. -42- If the amount disallowed by the final order is more than nominal (the parties agreeing that a reduction of 5% or more is more than nominal without prejudice to the right of Cogenerator to assert that a lesser reduction is more than nominal) Cogenerator may terminate this Agreement upon notice given within thirty (30) days after the order becomes final. Nothing herein contained shall obligate Company to wheel energy and capacity to any entity other than another utility nor to any utility if such wheeling would subject Company to regulation under the Federal Power Act. Any wheeling to another utility will be in accordance with, and subject to Cogenerator's compliance with PUC Substantive Rule 23.66. 7.10 Recoupment. Company's obligations to make payments to Cogenerator pursuant to this Article are conditioned upon the Company's being permitted by the Public Utility Commission of Texas to fully recoup from Company's ratepayers through a Purchased Power Cost Recovery Factor Clause or other authorized rate or charges all of the payments made to Cogenerator. Any sums recouped by Company from its ratepayers and which are subsequently disallowed by the Public Utility Commission and charged back to Company including any interest or other sums added to the amount disallowed, other than in a proceeding initiated by Company or Cogenerator for the purpose of requesting or obtaining such disallowance, shall be paid by Cogenerator to Company or setoff or credited against subsequent payments owed by Company to Cogenerator. Amounts payable by Cogenerator to Company under this Section shall bear interest at the Commercial Paper Rate from the date the sums disallowed are charged back to Company until the date they are paid by Cogenerator or set off against Cogenerator's payment obligations. At the request of Cogenerator, Company will consider arrangements for payment of -43- sums due in periodic installments; any such arrangement will be upon such terms and at such rate of interest as may be agreed. Unless or until terminated under section 7.09, future rates for capacity and energy will be adjusted to the levels allowed by the Public Utility Commission to be charged to ratepayers for purchases under this Agreement. ARTICLE VIII - COGENERATOR NOT A UTILITY 8.01 Cogenerator Not a Utility. Cogenerator does not hereby dedicate the Plant and related facilities nor the electrical output of the Plant to serving the public and nothing herein contained shall be construed or interpreted as constituting Cogenerator a public utility. Instead, Cogenerator intends to be a private entity owning and operating the Plant as a Qualifying Cogeneration Facility. 8.02 Company Is a Utility. Company does not hereby dedicate its system or any part thereof to Cogenerator nor does it hereby alter its status as a public utility providing service to its customers including those described in Section 6.01. ARTICLE IX - PERMITS, REGULATIONS AND CONTINGENCIES 9.01 Subject to Regulation. This Agreement, including amounts to be credited against billings to Cogenerator, may be subject to regulation by applicable regulatory authorities having jurisdiction. Construction of the Interconnection Facilities may be subject to prior approval of the Public Utility Commission of Texas. 9.02 Application for Permits. Each party shall, promptly after execution hereof, apply for any and all permits, licenses and regulatory approvals required for its performance hereof. 9.03 Certificate of Convenience and Necessity Not Obtained. If Company is unable to obtain, in form and substance satisfactory to it, a certificate of convenience and necessity or -44- an amendment to its existing certificate of convenience and necessity, if required, for construction of the Interconnection Facilities, either party may terminate this Agreement on written notice to the other. 9.04 Fuel Supply Not Obtained. If Cogenerator is unable to obtain written contracts for a fuel supply (including back-up fuel) satisfactory to Company, then Company may, at any time prior to September 15, 1986, terminate this Agreement upon written notice to Cogenerator. To the extent that Cogenerator elects to provide fuel from its own reserves, such reserves must be dedicated to supplying the Plant so that such dedication will be binding upon Cogenerator's successors and assigns. Company may terminate by the aforesaid date if the amount or dedication of such reserves or arrangements (or contracts) for transportation thereof are not satisfactory. 9.05 Third Party Contracts Unsatisfactory. If any of the contracts described in Section 15.08 contain provisions unsatisfactory to Company, (excluding provisions contained in a draft approved by Company) then Company may, within thirty days after receipt of such contract, terminate this Agreement upon written notice to Cogenerator unless such contract is amended to Company's satisfaction. 9.06 Effect of Termination. Upon termination under this Article, neither party shall have any further obligation to the other under the terms and provisions hereof except that Cogenerator will pay Company for any costs incurred by Company to the date of termination for design, construction and removal of the Interconnection Facilities including the costs of cancelling any orders for materials and the costs of any materials under any non-cancellable orders other than materials which Company may readily use for other purposes. 9.07 Subject to Applicable Laws. This Agreement is also subject to applicable federal, state and local laws, ordinances, rules and regulations. Nothing herein contained shall be con- -45- strued as a waiver of any right to question or contest any such law, ordinance, rule or regulation or asserted regulatory jurisdiction. 9.08 Changes in Contracts. Fuel supply and transportation contracts and third party contracts described in Sections 9.04 and 15.08, approved or deemed approved by Company shall not be altered, amended or terminated without Company's prior written consent. 9.09 Termination by Cogenerator. (a) Cogenerator may terminate this Agreement by written notice to Company if any of the following events have not occurred by the dates set forth in (c) below: (i) Execution by Cogenerator and Host of an enforceable Steam Sale and Purchase Agreement, satisfactory to Company, whereby Host will be obligated to purchase sufficient steam from Cogenerator for the Plant to be a Qualified Cogeneration Facility; (ii) Execution of an enforceable Construction Agreement, satisfactory to Company, by Cogenerator and its equipment vendor for construction of the Plant; (iii) Cogenerator's obtaining a firm commitment from a lender to finance construction of the Plant and containing such terms and provisions as are acceptable to Cogenerator, in its discretion. (b) Cogenerator may terminate this Agreement by written notice to Company if, by October 15, 1986 or such later date as may be agreed in writing by the Parties, Cogenerator has not entered into a loan agreement with its lender pursuant to its firm commitment. (c) The date specified in (a) above shall be the latest of September 15, 1986, such subsequent day as may be agreed in writing by the Parties or 30 days after Company's receipt of a final draft of the agreements described in (i) and (ii) of (a) above. -46- (d) Written notice of termination pursuant to this Section shall be given not later than the date specified in (b) or (c), as applicable. (e) Cogenerator shall make every reasonable effort to execute the agreements and to obtain the commitment described above. ARTICLE X - METERS, RECORDS AND BILLINGS 10.01 Metering by Company. Company will, at Cogenerator's expense, install and maintain meters on the Company side of the Cogenerator Substation to measure power and energy (i) delivered by Company to Cogenerator and (ii) delivered by Cogenerator to Company. The Company shall have the right to inspect, test and read its meters and measuring equipment at all times. The Company shall, at Cogenerator's expense, inspect and test all meters and measuring equipment upon their installation and on a scheduled basis at least once every year thereafter. Meters will also be inspected at any other reasonable time upon the request of Cogenerator; the cost of such inspections will be borne by Cogenerator. If such meters and measuring equipment are found to be not within the standards established by the American National Standards Institute, Incorporated, such meters and measuring equipment will be repaired or replaced at Cogenerator's expense. If a meter or other measuring equipment fails to register or, upon test, is found to be not within the accuracy standards established in the latest revision of Standard C12.1 of the American National Standards Institute, Incorporated, an adjustment, estimated by the Company, shall be made correcting a11 measurements made by such an inaccurate meter or measuring equipment for: (a) the actual period during which inaccurate measurements were made, if such period can be determined or, if not, (b) the period immediately preceding the test of the meter or measuring equipment equal to one-half the time -47- from the date of the last previous test of such meter or measuring equipment, provided that the period covered by any such correction shall not exceed six months. Company shall give Cogenerator reasonable advance notice of any such tests, and Cogenerator shall have the right to observe the test and to conduct its own tests to verify the Company's procedures and results. 10.02 Metering by Cogenerator. Cogenerator will install and maintain meters to measure all pertinent fuel and electrical parameters of the Plant as set forth in Exhibit 10.02 attached hereto. Cogenerator shall, at its own expense, inspect and test such meters at least once each year, or at any other reasonable time at Company's request and at Company's expense. Cogenerator shall repair or replace any meters found to be not within the accuracy standards of the American National Standards Institute, Incorporated. Cogenerator shall give Company reasonable advance notice of any such test, and Company shall have the right to observe the test and to conduct its own tests to verify Cogenerator's procedures and results. 10.03 Records. Company shall maintain meter records and other records needed to reflect power and energy generated at the Plant and delivered to Company. Company will also maintain complete records of its costs and expenses chargeable to Cogenerator pursuant to Article III hereof. Cogenerator shall maintain meter records and other records needed to reflect power and energy generated at the Plant and records of all pertinent fuel and electrical parameters of the Plant. Such records will be maintained in accordance with generally accepted accounting procedures consistently applied and will be subject to inspection and audit by the other party during normal business hours upon reasonable advance notice. 10.04 Interest on Past Due Bills. Any bills rendered by Company hereunder (specifically excluding any billings for construction or maintenance power and energy) which are not paid -48- when due and any payments due by Company to Cogenerator pursuant to Article VII which are not paid when due shall bear interest, compounded monthly, from the due date until paid, at the Commercial Paper Rate. 10.05 Corrections. Billings and payments shall be subject to correction for a period of one (1) year from the date thereof. 10.06 Metering Expense. Cogenerator will pay to Company monthly, beginning at the conclusion of the first month of trial operation of the Plant, the sum of Three Hundred Sixty dollars ($360.00) for al1 associated meter reading, processing and administrative cost. At June lst of each year during the term of this Agreement, the monthly amount shall be adjusted as set forth in Section 3.12 (c)(i) and (ii) to reflect increases in the Bureau of Labor Statistics of the United States Department of Labor Transportation and Public Utilities Electric Services average hourly earnings using May 1986 as the base period. The average hourly earnings numbers referred to in Section 3.12 (c)(i) will be taken from this SIC Code 491, except as set forth in Section 3.12(c)(ii). 10.07 Billing. Within thirty (30) days after the end of a month, Company shall render to Cogenerator a statement detailing all amounts due from Company to Cogenerator and all amounts due from Cogenerator to Company for said calendar month, based upon data from Company's telemetry equipment: (a) The statement will contain payment by Company to Cogenerator of the sum due, if any, from Company to Cogenerator. (b) Company may offset sums due or to become due from Cogenerator against sums payable by Company to Cogenerator after (i) the date of termination pursuant to Section 7.09, (ii) the date Company gives Cogenerator notice of default, (iii) the date Company gives Cogenerator notice of termination pursuant to Section 13.03 or 18.03 or (iv) the date Cogenerator makes an assignment for the benefit of -49- creditors or becomes insolvent or the date a receiver is appointed to take possession of the Plant. Sums so offset shall be paid to Cogenerator if Cogenerator cures its default within thirty days after the date of Company's notice of default or termination. (c) If the statement shows a net amount due from Cogenerator to Company, payment shall be due twenty (20) days after said statement is sent. (d) On a regular monthly basis, Company will read the meters and correct the previous billing for any differences in the substation meters and the telemetry equipment. At Cogenerator's request, Company wil1 substantiate any such differences. In the event of any such differences the substation meters shall determine the correct billing. 10.08 Early Payments. In the event that this Agreement is terminated prior to the end of its original term as specified in Section 11.01, then Early Payments made by Company to Cogenerator will be refunded according to the Schedule attached hereto as Exhibit 10.08. Said refund will be due thirty (30) days after termination and, if not paid when due, will bear interest at the Commercial Paper Rate. At the request of Cogenerator, Company will consider arrangements for payment of sums due in periodic installments; any such arrangement will be upon such terms and at such rate of interest as may be agreed. The amount of "Early Payments" consists of all capacity payments made by Company to Cogenerator in excess of the amount of such payments that would have been made had such payments been scheduled to start in 1989 and escalate at a 7.07% annual rate. To secure the refund of such Early Payments, Cogenerator shall furnish a surety bond, or other security, which may include pledge or encumbrance of properties or fuel reserves, satisfactory to Company, on or before the date of Partial Commercial Operation in an amount equal to the maximum amount of Early Payments which could be made -50- under this Agreement given the date of Partial Commercial Operation. Cogenerator may from time to time reduce the amount of its bond or other security to an amount equal to its then remaining potential liability for refund of Early Payments as specified in Exhibit 10.08. ARTICLE XI - TERM AND OTHER PROVISIONS 11.01 Term. This Agreement shall be effective from its date and shall continue thereafter until the September 30th which occurs first after fifteen (15) years after the date of Commercial Operation, at which time it shall automatically terminate. 11.02 Amendment. This Agreement may be amended at any time, but only upon written agreement of the parties. 11.03 Assignment. (a) This Agreement shall not be assigned nor shall the Plant, Cogenerator Substation, Cogenerator Interconnection Facilities or any major items of equipment thereof or any of Cogenerator's fuel supply for the Plant be sold or transferred, in whole or in part, by either party without the prior written consent of the other (which consent will not be unreasonably withheld but Company may require security satisfactory to Company for transferee's performance of Cogenerator's obligations hereunder, including without limitation, under Sections 3.12, 10.08 and 13.05). (b) A party shall be deemed to have consented to a proposed assignment if it does not otherwise advise the party requesting consent within thirty days after receipt of such request; (c) Consent of the other party shall not be required for: (i) Assignment of this Agreement in whole or in part by Company to Texas Utilities Company or any wholly owned subsidiary of Texas Utilities Company; (ii) Assignment of this Agreement by Cogenerator to any subsidiary, parent or successor entity whose voting securities are at least fifty-one percent owned by Cogenerator; -51- (iii) Assignment of this Agreement by Cogenerator for collateral security purposes to aid in providing financing for the Plant, Cogenerator Substation, and Cogenerator Interconnection Facilities or Cogenerator's obligations hereunder, provided that any such assignment will require the lender to assume the obligations of this Agreement if lender operates the Plant directly or to require assumption of this Agreement by any lessee or purchaser of the Plant from the lender; (iv) Sale by Cogenerator of any major item of equipment which has been replaced. A "major item of equipment" is any equipment or facility (excluding fuel supply reserves and contracts and fuel transportation agreements) required for reliable operation of the Plant and delivery of power and energy to Company; (v) Transfer by Cogenerator of an undivided interest in the Plant, Cogenerator Substation, Cogenerator Interconnection Facilities, major item of equipment or Fuel Supply so long as Cogenerator retains an undivided interest therein. (vi) Transfer to Company pursuant to Article XV. (d) No assignment of this Agreement without consent under Subsection (c) shall release the assignor from liability hereunder; (e) Subject to the foregoing provisions of this section, the provisions of this Agreement shall be binding upon, and inure to the benefit of the successors and assigns of the parties hereto. 11.04 Company Organization. References herein to a division of Company are for convenience only and reflect the current organization of Company. Company may designate other of its divisions to perform or receive a benefit hereunder and may -52- reorganize its divisions or discontinue its divisions entirely. All provisions hereof imposing an obligation or conferring a benefit upon a division of Company shall be binding upon or inure to the benefit of Company. 11.05 No Waiver. Failure of a party to insist, on any occasion, upon strict performance of this Agreement shall not be a waiver of the right to insist upon strict performance of any provision on any other occasion. ARTICLE XII - OUTAGES AND UNCONTROLLABLE FORCE 12.01 Outages. (a) The parties recognize that the Plant, Cogenerator Substation, Cogenerator Interconnection Facilities, Interconnection Facilities and Company's transmission system will be subject, from time to time, to scheduled outages for construction, maintenance, repairs and inspection and to unscheduled outages caused by breakage or malfunction of equipment, machinery and facilities, or by storm or other casualty. Receipt of power and energy generated at the Plant may be interrupted or curtailed by either party because of such scheduled or unscheduled outages of the Plant, Interconnection Facilities, Cogenerator Substation, Cogenerator Interconnection Facilities and related transmission lines and facilities. (b) Receipt of power and energy generated at the Plant may also be interrupted or curtailed by Company or Cogenerator because of other outages or conditions but only to prevent possible injury to persons and possible damages to facilities and equipment, to prevent jeopardy to reliability of its system, to maintain the security requirements of ERCOT, or as otherwise authorized by this Agreement. (c) Cogenerator and Company will promptly give notice to the other of any unscheduled outage. Company and -53- Cogenerator will, as far in advance as practical, schedule outages of the Plant and of other facilities affecting receipt by Company of electric power and energy generated at the Plant. (d) Each party will, however, use due diligence so that delivery and receipt of power and energy generated at the Plant may be resumed. 12.02 Liability. Neither party shall be liable to the other for interruptions or curtailments; of the delivery or receipt of power and energy generated at the Plant by reason of any of the causes set forth in Section 12.01 even though caused, in whole or in part, by the negligence of a party. Such interruptions or curtailments may, however, affect calculation of capacity factors or payments under Article VII, cause a party to be in default hereunder or authorize termination of this agreement. 12.03 Uncontrollable Force. (a) Provided that notice is given as required in subsection (b) below, a party shall not be considered to be in default with respect to any obligation under this Agreement (other than an obligation to pay sums due and other than as provided in (d) below) if it is prevented from fulfilling such obligation by reason of an Uncontrollable Force for a period of up to six (6) months in length. The term "Uncontrollable Forces" shall be deemed for the purposes of this Agreement to mean storm, tornado, flood, lightning, earthquake, fire, explosion, civil disturbance, acts of God, sabotage, war, national emergency or restraint by a court or public authority, which such party could not reasonably have been expected to avoid by exercise of due diligence and foresight. Uncontrollable Forces shall also include delays in receipt of generator rotor, generator stator, main power transformer or steam turbine caused by damage or loss in shipping. The failure of a party's facilities which is caused by an act or event other than storm, tornado, flood, lightning, earthquake, fire, explosion, civil -54- disturbance, acts of God, sabotage, or war, is not an "uncontrollable force". The term "Uncontrollable Forces" does not include changes in market conditions, including but not limited to changes that affect the cost or availability of Cogenerator's supply of fuel or alternate supplies of fuel. A party shall exercise due diligence to remove any disability to its performance caused by Uncontrollable Forces with reasonable promptness. After a party's failure to perform due to an Uncontrollable Force has continued for six (6) months, then the Uncontrollable Force shall cease to excuse the failure to perform, and the party failing to perform shall thereafter be in default of this Agreement. (b) A party may not assert an Uncontrollable Force as an excuse for a default unless the party suffering the Uncontrollable Force notifies the other party in writing within fourteen (14) days after the commencement of the failure or inability to perform which was caused by the Uncontrollable Force. The notice shall specify the nature of the Uncontrollable Force and the date of its commencement. (c) If Cogenerator is prevented from performance by breakdown or malfunction of equipment requiring replacement of a generator stator, generator rotor, main power transformer or steam turbine, Cogenerator may so advise Company within the time limits specified in Subsection (b). If Company agrees on the need for such replacement so that Cogenerator may perform under this Agreement, then the equipment breakdown or malfunction shall be deemed to have been caused by Uncontrollable Force. If Company does not agree, the question of the need for such replacement may be submitted to arbitration under Article XIX, by request made within 45 days after date of notice given pursuant to Subsection (b). If Cogenerator believes that replacement of the rotor, stator or transformer cannot be completed within six (6) months, Cogenerator may so notify Company in writing, and the parties will negotiate in good faith to extend the six (6) month -55- period set out in (a) above for the time necessary to make the replacement, but not to exceed eighteen (18) months. If no agreement is reached within thirty (30) days after the written notice, then either party may submit the issue of the length of time necessary to make the replacement to binding arbitration under Article XIX by request made within 45 days of the date of Cogenerator's notice that replacement will require more than six months, but under no circumstances shall the six (6) month period under (a) above be extended to greater than eighteen (18) months. (d) If Cogenerator shall violate Section 5.08(b), Company may exercise the rights afforded in Section 5.08(c) and (d) even though Cogenerator's violation is the result of Uncontrollable Force. 12.04 Cogenerator's Indemnification of Company. This Agreement is for the benefit of the parties hereto and shall not be construed to confer any rights or benefits on any third party. (a) Without limiting the foregoing, Cogenerator further agrees to defend, protect, indemnify, and save harmless Company, its agents, servants, officers, directors, and employees, from and against all claims, expenses, demands, judgments, and causes of action of every kind and character for personal injury or death or damage to property of Cogenerator, Cogenerator's agents, servants, and employees, as well as Cogenerator's contractors and the agents, servants, and employees of Cogenerator's contractors, whether or not arising from the sole or concurrent negligence or fault of Company, its agents, servants, officers, directors, or employees or independent contractors directly responsible to Company, arising out of or incident to this Agreement, including, but not limited to, (i) any condition of Cogenerator's premises, (ii) separate operations being conducted on Cogenerator's premises, or (iii) the imperfection, whether latent or patent, of any material or equipment furnished by Company; Cogenerator may purchase and install, to Company's specifications, such material or equipment in lieu of Company's furnishing the same. -56- (b) Cogenerator shall defend, protect, indemnify, and save harmless Company and its officers, directors, agents, servants, and employees from and against any and all claims, expenses, demands, judgments, causes of action of every kind and character whatsoever arising in favor of any person or entity (other than Cogenerator, Cogenerator's contractors a and the agents, servants, and employees of Cogenerator or Cogenerator's contractors, as provided in the preceding subsection), except that arising from the sole negligence or fault of Company, its agents, servants, officers, directors, or employees or independent contractors directly responsible to Company, including but not limited to claims, demands, judgments, causes of action on account of personal injuries or death, or damage to property arising out of or incident to this Agreement; it is the clear and unequivocal intent of the parties hereto that Cogenerator's obligation to defend, protect, and save harmless Company shall be full and complete, with the only exception being that Company shall not be entitled to indemnification under this Subsection (b) for claims, demands, expenses, judgments, and causes of action resulting from Company's sole negligence. (c) Cogenerator will also indemnify Company from any suits, claims, demands, or damages of any such entity arising from Company's termination of this Agreement according to its terms, or agreement with Cogenerator for modification or termination hereof. (d) Cogenerator will also indemnify Company from any of its costs and expenses, including reasonable attorney's fees, arising from any claim, demand or suit as to which Company is hereby indemnified. 12.05 No Consequential Damages. Neither party shall be liable to the other for loss of earnings, revenues, or indirect or consequential damages or injury which may occur, in whole or in part, as a result of the breach of any provision hereof. Neither loss of sales price of power and energy or cost of -57- replacement power and energy are indirect or consequential damages under this Agreement. ARTICLE XIII - DEFAULT 13.01 Default. As used in this Article XIII, "default" shall mean the failure of a party to make any payment or perform any obligation in the time and manner provided in this Agreement. No default shall exist where such failure to discharge obligations (other than the payment of money) is the result of an uncontrollable force as defined in Section 12.03 and for the period set forth therein. 13.02 Notice of Default. Upon failure of a party hereto to make a payment or to perform any obligation required hereunder, the other party shall give written notice of such default to the party in default. The party in default shall have thirty (30) days within which to cure a default involving payment of money and, if cured within such time, the default specified in such notice shall cease to exist. A party may make a payment "under protest" by so notifying the other party in a written notice accompanying the payment. Any refund of an amount paid "under protest" shall bear interest at the Commercial Paper Rate from the date of payment until the date of refund. If a party in default of any obligation other than the payment of money shall commence work or other efforts to cure such default within thirty (30) days after receipt of such notice and shall thereafter prosecute such curative work with reasonable diligence until such curative work is completed, and if as a result thereof such default is cured within ninety (90) days or such longer period as the party not in default may agree, then the default specified in such notice shall cease to exist. Even though cured, a defaulting party shall not be excused thereby for any damages arising by or during such default. 13.03 Remedy for Default. If a default is not cured as provided in Section 13.02, the party not in default may suspend -58- performance hereof. The party in default may, after expiration of the period set forth in Section 13.02, remedy such default and pay the party or parties not in default its losses or damages, subject to the limitations of Section 12.05. Such losses or damages may include the net cost of replacement power and energy, incurred by Company, or the loss to Cogenerator caused by the failure of Company to take power and energy, and related costs incurred by the non-defaulting party in respect to such default plus interest at the Commercial Paper Rate in effect on the first day of each month that interest accrues hereunder; thereupon such default shall cease to exist. If such default is not cured within six (6) months after the notice specified in Section 13.02, the party not in default may terminate this Agreement by written notice to the other; such termination shall not, however, impair or terminate the remaining provisions of this Article XIII. The remedy provided by this Section is in addition to other remedies provided elsewhere in this Agreement. 13.04 Good Faith Negotiations. If a default is not cured as provided in Section 13.02, 13.03, or 18.03, then the parties will, on the request of either Party and whether or not this Agreement has otherwise been terminated, meet and negotiate in good faith for resolution of the breach and damages occurring or to occur therefrom. If requested by either party, the parties wil1 negotiate concerning the sale or lease of the Plant, Cogenerator Interconnection Facilities and Cogenerator Substation to Company or the right of Company to operate the same. If this Contract be terminated pursuant to Articles XIII or XVIII, Company will, at Cogenerator's request, negotiate in good faith with Cogenerator for Company's purchase of firm power and energy from the Plant if: (i) such purchase can be made without material adverse effects, including adverse economic effects, on Company; -59- (ii) The Plant retains its status as a Qualifying Facility; (iii) Cogenerator's facilities, including the Plant, Cogenerator Substation, Cogenerator Interconnection Facilities and fuel supply meet the requirements of this agreement; and (iv) Company has been made whole for all damages it may have sustained by reason of Cogenerator's default hereunder. 13.05 Liquidated Damages. The parties acknowledge that any damages for replacement power and energy will be extremely difficult to calculate accurately in the event this Agreement is terminated. Therefore, Cogenerator's liability for replacement power and energy under this Agreement shall equal ten percent (10%) of the payments for capacity and energy that would have been made during the period between the termination of this Agreement and the end of the remaining term of this Agreement if no termination had occurred if the Plant operated at a sixty-five percent (65%) annual capacity factor continuously for such period and without applying any of the adjustments to Billing Capacity specified in subsections (a) through (f) of Section 7.05. Said amount shall be discounted to present value using a discount rate of 11.51% per annum and shall bear interest at the Commercial Paper Rate from the date of termination. Said amount, both principal and accrued interest, shall be due and payable ninety (90) days after the date of termination. At the request of Cogenerator, Company will consider arrangements for payment of sums due in periodic installments; any such arrangement will be upon such terms and at such rate of interest as may be agreed. The amount payable hereunder is intended by the parties to be liquidated damages and not a penalty. Exhibit 13.05 shows the amount of such damages for a termination in each year of this Agreement. 13.06 Exclusion of Liability. Neither party, by review, comment, failure to comment, or approval of any plans and specifications for construction, operation or maintenance of, any -60- facilities under this Agreement, assumes any responsibility or liability for damages or physical injury to: (1) either party's real or personal property or electrical equipment, (2) the real or personal property of third persons or corporations not a party to this Agreement, including, but not limited to, Host, (3) any persons who may come in contact with or upon either party's facilities, and (4) any other persons or property, real or personal. 13.07 Bankruptcy or Insolvency. In the event of a party's bankruptcy or insolvency, or in the event of the initiation of any proceedings, voluntary or involuntary, against a party under the bankruptcy or insolvency laws, or in the event of a party's inability to meet its debts in the ordinary course of business, the other party may terminate this Agreement immediately upon written notice; provided, however, there shall be no right to terminate hereunder if, within ten (10) days from the receipt of such written notice to terminate, the debtor in possession, trustee, receiver or custodian of the party in bankruptcy or insolvency, whichever is obligee under this Agreement, in writing affirms this Agreement and demonstrates to the other party's reasonable satisfaction the ability to fulfill its or their obligations under this Agreement. 13.08 Inadvertent Operating Default. (a) If Company shall give notice pursuant to Section 13.02 or 18.03 of Cogenerator's default and such default is of the nature described in subsection (h) below, Cogenerator may, within thirty (30) days after the date of such notice or such longer period as may be agreed, present evidence to the Company that: (i) such default was not the result of the willful or reckless act or willful or reckless omission of Cogenerator, it being understood and agreed that an act or omission resulting from Cogenerator's inadvertence, mistake or negligence shall in no event be deemed willful or reckless; -61- (ii) after completion of corrective work or efforts by Cogenerator, the Plant and Cogenerator will be able to perform in accordance with this Agreement; and (ii) Cogenerator is ready and able to promptly begin and thereafter diligently pursue corrective work or efforts to cure such default. (b) If such evidence is satisfactory to Company, Company's right to terminate this Agreement for such default shall be suspended until the first to occur of the following: (i) completion of Cogenerator's corrective work or efforts (and tests pursuant to Section 5.12, if applicable,) reveal that the Plant and Cogenerator can perform in accordance with this Agreement; (ii) expiration of the period when Cogenerator would have completed corrective work or efforts by exercise of due diligence; (iii) Failure of Cogenerator to pay sums due under subsection (d) within thirty (30) days after billing therefor; or (iv) expiration of the term hereof. (c) During the period that Company's right to terminate is suspended, power and energy to replace generation from the Plant will be provided by Company if it can reasonably do so. To the extent that Company does not do so, Company will (except for periods when Company elects not to provide or purchase replacement power) attempt, in good faith, to purchase replacement power and energy from third parties; provided, however, that Company has no obligation to make any purchase which might subject it to regulation under the Federal Power Act. (d) During the period of suspension, no sums will be paid Cogenerator hereunder. Cogenerator will pay Company -62- monthly, the amount, if any, by which the cost of replacement power and energy exceeds sums that would have been paid Cogenerator for power and energy hereunder. (e) Costs of replacement power purchased from third parties shall be the purchase price therefor, plus any costs of interconnection, wheeling, and losses. The costs of replacement power and energy provided by Company shall be calculated as follows: (i) capacity cost per kW per year shall be equal to the original cost per kW of Company's most recently added peaking unit times the Company's weighted average cost of capital as determined in its most recent rate case, grossed up for Federal income taxes; and (ii) energy cost per kwh shall equal Company's incremental energy cost as determined by Company's production costing study then in effect. (f) If the Plant and Cogenerator can perform in accordance with this Agreement at expiration of the period that Company's riqht to terminate is suspended and if Cogenerator has paid Company all sums due under this section, then Cogenerator shall be deemed to have cured such default. (g) If the Plant or Cogenerator cannot perform in accordance with this Agreement at expiration of the period that Company's right to terminate is suspended or Cogenerator has failed to pay sums due under (d) above, then Company may immediately terminate this Agreement, without obligation under Section 13.04. Upon such termination, Cogenerator shall be liable to Company for sums due under Section 10.08 but shall have no liability under Section 13.05. (h) Defaults to which this section applies are those involving Cogenerator's failure to deliver power and -63- energy, to maintain minimum Capacity Factors as required by Section 18.01 (j) or to comply with provisions of Section 5.02 or 5.04. Without limiting the foregoing, defaults under Sections 5.05(a), 5.08, 9.08, 11.03, under Articles XIV, XV, XVII, and failure to correct an Uncontrollable Force (other than an Uncontrollable Force affecting operation or ability to operate the Plant) within the time prescribed by Section 12.03, are not defaults to which this section applies. (i) This section does not apply to termination by Company pursuant to Sections 2.04, 5.08 or 9.05. Article XIV - Insurance 14.01 Proof of Coverage. Cogenerator shall require that its insurance carriers provide to Company proof of insurance as required by Section 14.05 in the form of two (2) copies of an insurance certificate form acceptable to Company. All policies shall be written with insurers acceptable to Company and the certificates received not less than thirty (30) days prior to beginning construction at the site of the Plant. Such certificates shall provide that there will be sixty (60) days' written notice given to Company of any change in or cancellation of any policy upon which a certificate is required of Cogenerator by this Article hereof. All coverages required of Cogenerator shall be in full force and effect during the term of this Agreement. 14.02 Policies. All policies shall be written on an occurrence basis, unless an occurrence basis policy becomes unavailable, and shall include Company, its directors, officers, agents, servants, employees and/or independent contractors directly responsible to Company as additional insureds. All policies shall contain an endorsement (if such terminology is not in the printed form) that Cogenerator's policy shall be primary in all instances regardless of like coverages, if any, carried by Company. 14.03 Certificates. All certificates shall be furnished to Company and shall be subject to the approval and acceptance of Company. -64- 14.04 Limitation of Liability. Cogenerator's liability under this Agreement is not limited to the amount of in coverage required herein. 14.05 Coveraqe and Limits of Liability. Cogenerator sole expense shall maintain the following types of cover limits of liability, provided that the required limits satisfied by any combination of primary or excess insure Cogenerator's sole discretion. If general public liability coverage is not commercially available in the amounts specified, Cogenerator will provide such amount of coverage as is commercially available; Cogenerator will, at Company's request, provide evidence of such unavailability. Type of Coverage Limits of Liability Insurance Policy (a) Workers' Compensation Insurance Statutory (b) Employer's Liability Insurance $20,000,000 per occ (c) Comprehensive General Public Liability Insurance $20,000,000 per occ Including: Coverage for damage caused by blasting, collapse, underground damage or explosion; Independent Contractors; Products, Completed Operations; Personal Injury; Contractual Public Liability and Property Damage covering liability assumed in the Agreement; and Excess Employer's Liability. -65- (d) Comprehensive Automobile Liability $20,000,000 per occurrence Including: Coverage for all owned, hired or non-owned licensed automotive equipment. 14.06 Insurance on Plant. Cogenerator agrees to obtain insurance acceptable to Company against property damage or destruction in an amount not less than the cost of replacement of the Plant. Company shall be named an additional insured on all such insurance policies. Cogenerator shall promptly notify Company of any loss or damage to the Plant. Company may make proof of loss if Cogenerator fails to do so within fifteen (15) days of the casualty. Proceeds from said casualty insurance policies shall be paid into a trust account with Company and Cogenerator and any other named insureds as Trustees. Disbursements from that trust account may be used for repairing or replacing the insured property or in the event that Cogenerator decides that the insured property cannot be economically repaired or replaced, the amount, including accumulated interest, in the trust account shall be disbursed to the Trustees as their interests appear. 14.07 Release and Waiver. Cogenerator agrees to release, and will require its insurers (by policy endorsement) to waive their rights of subrogation against Company, its directors, officers, agents, servants, employees and/or independent contractors directly responsible to Company for loss under the policies of insurance described herein, damages to Cogenerator's properties and/or any other loss sustained by Cogenerator, whether insured or not; save and except for damages for which Cogenerator does not indemnify Company under Section 12.04 of this Agreement. -66- Article XV - Option to Purchase and/or Lease 15.01 Option. If Company terminates this Agreement by reason of the default of Cogenerator or shall suspend receipt of power and energy from the Plant pursuant to Section 5.08 for a period of ninety (90) days or more, then Company may, at its option, purchase (if Cogenerator owns the Plant) or lease (if Cogenerator is lessee of the Plant) the Plant, Cogenerator Substation and Cogenerator Interconnection Facilities as hereinafter provided. (a) Company may exercise any option herein granted upon giving written notice to Cogenerator not later than one hundred twenty (120) days after the date of the notice to terminate this Agreement as hereinabove provided or at any time when Company is suspending receipt of power and energy pursuant to Section 5.08 and such suspension has been in effect for ninety (90) days or more. (b) If Cogenerator shall receive a bona fide offer for purchase of the Plant during such option period and if it shall notify Company of such offer, the aforesaid option period shall be reduced to 45 days from the date Company receives notice from Cogenerator of such other offer. (c) If Cogenerator shall have given notice pursuant to (b) above and if Company shall not have received regulatory approval for its purchase of the Plant within ninety days (or such longer period as the parties may agree) after the date of Company's notice exercising the option to purchase, then Cogenerator may conclude the transaction described in its notice under Section 15.01(b), free of any rights of Company to purchase under Article XV or Article XVII, unless Company shall notify Cogenerator, prior to the expiration of such ninety day or longer period, that Company will consummate the transaction described in its exercise of such option whether or not regulatory approval is obtained. -67- 15.02 Information. During any period when exercise of the foregoing option is pending, Company may request information as to the Plant, its costs of construction and operations including fuel costs, and other information pertinent to exercise of any such option. Cogenerator will promptly furnish the information so requested. If Cogenerator fails or refuses to furnish, within thirty (30) days after a request, any information requested by Company in writing within forty-five (45) days after commencement of the option period, then the option period is extended so that it will expire no sooner than thirty (30) days after receipt by Company of the requested information. If the option period is shortened pursuant to Section 15.01(b), the option period will be extended for a period of 15 days after Company's receipt of information requested within 25 days of the commencement of the option period or the date of the notice given under Section 15.01(b), whichever is later. 15.03 Manner of Exercise. Company may exercise any option granted in this Article by written notice to Cogenerator given prior to the end of the option period. If Company fails to give notice within such term, such option will terminate. 15.04 Closing Date. If Company exercises the aforesaid option to purchase or lease, then such purchase or lease will be closed within sixty (60) days after the date of Company's notice exercising such option; provided, however, Company may defer the closing for not to exceed ninety (90) additional days or for such period as the parties may agree, in order that Company may obtain regulatory approval of such purchase or lease. If final regulatory approval is not obtained by the date for closing, as extended, or if such approval is not satisfactory to Company, it may withdraw its exercise of such option without penalty or other liability unless Company has waived regulatory approval under Section 15.01(c). 15.05 Closing. At such closing, Cogenerator will transfer its rights in and to the Plant, Cogenerator facilities intercon- -68- necting the Plant and the Cogenerator Substation, the Cogenerator Substation, Cogenerator Interconnection Facilities and the necessary land and land rights then being utilized by Cogenerator to Company by appropriate transfer documents, including instruments of assignment of leaseholds and easements or general warranty of fee interest, and will assign to Company (and Company will assume) such contracts and contract rights relating to operation of the Plant, including but not limited to fuel supply contracts and gas transportation contracts, and gas reserves dedicated to this agreement as Company may elect in its exercise of such option. Necessary land and land rights shall include, to the extent that Cogenerator then has rights in same: (a) the Plant site and sufficient adjoining land for operation and maintenance of the Plant including fuel handling and storage, together with easements for ingress and egress, rail transportation, electric transmission and distribution facilities, communication lines and other utility services, if the Plant is to be transferred; and (b) easements for the Cogenerator Substation including the right of ingress and egress, if the Cogenerator Substation is to be transferred. 15.06 Payment. Unless otherwise agreed, the purchase price to be paid in cash or by assumption of either Cogenerator's liability on indebtedness secured by a lien or security interest in the property being purchased or Cogenerator's lease obligations on property being leased, will be fair market value, as determined by an appraisal. The minimum purchase price will be equal to Cogenerator's liability on indebtedness, both principal and interest, secured by a lien on or security interest in the property being purchased. Market value will be determined in accordance with industry standards for similar facilities; current use and the value of Plant license and permits may be considered. No value will be attributed by reason of this agreement other than to consider the operating capability of the -69- Plant. Market value of the property being sold will be determined by an appraiser or appraisers qualified to appraise such facilities. If a party, in good faith, disagrees with the market value determined by the appraiser, the question of market value may be submitted to arbitration under Article XIX by request made within 45 days after receipt of the appraisal. The time for actions required by this Article XV shall be suspended during arbitration proceedings, beginning with the notice of arbitration. Upon closing, Company shall no longer be entitled to liquidated damages under Section 13.O5 for any and all defaults of Cogenerator, but Company shall be entitled to actual damages from date of default to date of closing as determined pursuant to the principles set forth in Section 13.08(c), (d) and (e). 15.07 Assignment of Option. Provided that Company shall remain obligated to pay the purchase price or rental for the Plant, Cogenerator Interconnection Facilities and Cogenerator Substation, Company may assign such option, before or after its exercise, to any wholly-owned subsidiary of Texas Utilities Company or to any such subsidiary and one or more third parties or to a partnership, corporation or other entity owned by any such subsidiary and one or more third parties. 15.08 Third Party Contracts. Cogenerator will include, in al1 of its contractual agreements concerning ownership, financing, or leasing of the Plant, Cogenerator Substation, Cogenerator Interconnection Facilities and facilities interconnecting the Plant and Cogenerator Substation, the necessary land and land rights as defined in Section 15.05 and contracts relating to operation of the Plant, including but not limited to fuel-supply contracts and gas transportation contracts, provisions satisfactory to Company which will allow Company the option either to purchase the subject property and assume any indebtedness or to assume any lease or lease-purchase or other contracts. In addition, all such contractual agreements will be expressly made -70- subject to this Agreement and to Company's rights under this Agreement. Cogenerator will promptly submit drafts of all such contracts to Company as they are received or produced by Cogenerator. A draft will be deemed satisfactory to Company if it fails to otherwise advise Cogenerator within thirty (30) days after receipt of such draft. Final, signed copies of all such contracts will be furnished by Cogenerator to Company. Cogenerator will also advise Company when all such contracts have been furnished Company. 15.09 Post-Option Operations. After exercising its option, Company may operate the Plant in any manner it sees fit, including but not limited to operating the Plant as a peaking unit. Further, Company shall never be obligated to furnish any steam to Host or to any other person or entity, but Company will endeavor to comply with Cogenerator's contractual obligations to supply steam to Host, to operate and maintain the Plant, to purchase fuel for the Plant, and for Plant services, if and to the extent such compliance can be accomplished under applicable laws and regulations, without material adverse effects including economic effects on Company. Article XVI - Confidentiality 16.01 Scope. Each party agrees, for itself, its subsidiaries and affiliated corporations, and their directors, officers, employees and representatives, including, without limitation, attorneys, accountants and consultants, to keep confidential (i) this Agreement, (ii) all negotiations concerning this Agreement, and (iii) all documents, data, drawings, studies, projections, plans and other information, whether written or oral, which relate to economic benefits to or amounts payable by either party pursuant to this Agreement or costs of design, construction, operations of the Plant, including, without limitation, cost and quantities of fuel. In addition, Company will keep confidential all plans, drawings, documents, studies and other information relating to design, construction and operation of the Plant. -71- 16.02 Confidential. "Confidential", as used herein, means that information or a document, including the content, substance or effect of such information or document shall not be disclosed, discovered or distributed to any other person, firm, organization or entity except pursuant to the valid order of an administrative or judicial officer having jurisdiction, which order will be opposed unless opposition with respect thereto is waived by the undersigned and except as hereinafter provided. No party shall be required to oppose any order requiring disclosure by appeal, separate legal proceeding or extraordinary measures in any judicial or administrative proceeding unless the other party, after notice agrees to pay the costs of such opposition. 16.03 Exceptions. Either party may, without violating this Article, disclose matters which are made confidential by this Agreement: (a) to actual or prospective co-owners, lenders, underwriters and others involved in financing transactions and arrangements for a party, or its subsidiaries, affiliates or parent, or to actual or prospective fuel suppliers, provided, that the party making the disclosure obtains, as a condition precedent to the disclosure, a confidentiality agreement with the person or entity to whom the disclosure is being made with terms substantially the same as this Article. (b) to governmental officials and parties involved in any proceeding whereby either party is seeking a permit, certificate or other regulatory approval or order necessary or appropriate to carry out this Agreement; provided, that the party making the disclosure will exercise reasonable efforts to restrict public access to the information disclosed by way of protective order or otherwise. (c) to governmental officials or the public as required by any law, regulation or order, including, without limitation, laws or regulations requiring disclosure of -72- financial information, information material to financial matters and filing of financial reports; provided, that the party making the disclosure will exercise reasonable efforts to restrict public access to the information disclosed by way of protective order or otherwise. Company may also disclose amounts paid or credited Cogenerator hereunder as necessary to state and recover its costs in regulatory proceedings. Any disclosure permitted by this Section will be only to the extent necessary or required. 16.04 Warranty. Each party warrants and represents that as of the date of this Agreement it has made no disclosures, to the best of its knowledge, which would violate that Confidentiality Agreement between the parties dated October 7, 1985. Article XVII - First Refusal 17.01 Notice of Sale or Lease. During the term of this Agreement and for one (1) year after termination of this Agreement, Cogenerator shall not sell, lease or dispose of the Plant or Substation to any person, firm, corporation or other entity unless it shall first give written notice to Company and thereafter comply with the following provisions of this Article. 17.02 Contents of Notice. Any notice given pursuant to Section 17.01 shall specify or include the following, as applicable: (a) identity of the proposed transferee and its relation, if any, to Cogenerator; (b) description of the proposed transfer as including or not the Plant, the Cogenerator Substation, or Cogenerator Interconnection Facilities or; (c) purchase price or other considerations for such transfer; (d) contracts or agreements to be assumed on any transfer including, without limitation, contracts for fuel and contracts with respect to credits to -73- Cogenerator or its successors for power and energy delivered under this Agreement. 17.03 Option to Purchase. Company shall have the option to purchase or lease the Plant, Cogenerator Interconnection Facilities and/or the Cogenerator Substation as specified in the notice from Cogenerator, exercisable by giving Cogenerator written notice within forty-five days after receipt of the notice given by Cogenerator. Company will endeavor, to the extent practicable, to expedite its exercise or non-exercise of such option. Provided that Company shall remain obligated to pay the purchase price or lease rental, Company may assign such option, before or after its exercise, to any wholly-owned subsidiary of Texas Utilities Company or to any such subsidiary and one or more third parties or to a partnership, corporation or other entity owned by any such subsidiary and one or more third parties. 17.04 Closing. If final regulatory approval for acquisition by Company is not obtained by the date for closing, as extended, or if such approval is not satisfactory to Company, it may withdraw its exercise of such option without penalty or other liability. If regulatory approval is not received within ninety (90) days (or such longer period as may be agreed) after Company's notice of exercise of such option, Cogenerator may consummate the transaction described in its Notice given pursuant to Sections 17.01 and 17.02, free of Company's rights to purchase under this Article XVII, unless Company shall notify Cogenerator, prior to the expiration of such ninety (90) day or longer period, that Company will consummate purchase of the Plant whether or not regulatory approval is obtained. After Company has exercised its option and after its obligation to purchase is no longer subject to obtaining regulatory approval, Company shall have an additional 90 days to close the sale and transfer. At closing, the Plant and/or the Cogenerator Substation and necessary land and land rights will be transferred by deed, assignment of leasehold, assignment or grant of rights of way, as appropriate, and other -74- appropriate instruments of transfer with general warranty. Necessary land and land rights shall include: (a) the Plant site and sufficient adjoining land for operation and maintenance of the Plant including fuel handling and storage, together with easements for ingress and egress, rail transportation, electric transmission and distribution facilities, communication lines and other utility services, if the Plant is to be transferred, and b) easements for the Cogenerator Substation and Cogenerator Interconnection Facilities including the right of ingress and egress, if is to be transferred. Unless otherwise agreed, the purchase price will be payable in cash at closing. All contracts to be assigned to and assumed by the proposed transferee, as set forth in the notice to Company of the proposed sale, shall be assigned to Company and Cogenerator's obligations which arise thereunder after closing shall be assumed by Company. 17.05 Price. If Company exercises the foregoing option, the purchase price for the Plant, Cogenerator Interconnection Facilities and/or the Cogenerator Substation shall be: (a) the amount specified in the notice given pursuant to Section 17.02 if payable in cash, whether in one or more installments; or (b) the market value of any securities described in such notice if the purchase price is not payable in cash or in securities having a readily ascertainable market value; or (c) the fair market value of the consideration described in such notice, if not payable in cash or in securities having a readily ascertainable market value. If the parties disagree on the fair market value of the consideration, the issue of fair market value may be submitted to arbitration under Article -75- XIX by request made within forty-five days of Company's notice of exercise of the option. The times for actions required by this Article XVII shall be suspended during arbitration proceedings, beginning with the notice of arbitration. 17.06 Partial Sales. Company's right of first refusal as set forth in this Article shall also apply to any sale of an undivided interest in the Plant and Substation. 17.07 Option Not Exercised. If Company does not exercise the option to purchase within the time herein specified then Cogenerator may sell the Plant, Cogenerator Interconnection Facilities and Cogenerator Substation to the proposed transferee provided that such transfer is closed within six months after Company's refusal or deemed refusal to purchase and provided that consent to assignment of this Agreement shall be required pursuant to Section 11.03. If such consent is given, then Cogenerator shall have no liability hereunder for events occurring after the assignment and the provisions of this Article XVII shall apply to any subsequent act or transfer of the Plant and Substation by Cogenerator's transferee, its successors and assigns. If Company does not exercise the option here granted and Cogenerator does not transfer the Plant, Cogenerator Interconnection Facilities and Substation to the transferee named in its notice, the provisions of this Article will apply to any subsequent transfer or lease by Cogenerator. Article XVIII - Representations and Warranties of the Parties 18.01 Cogenerator's Representations and Warranties. In addition to the other representations, obligations, and warranties of Cogenerator provided herein, Cogenerator hereby represents and warrants unconditionally to Company that: (a) Cogenerator is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. -76- (b) Cogenerator has full corporate power and lawful authority to accomplish, execute and fulfill all of its obligations and duties hereunder. (c) The making and performance by Cogenerator of this Agreement have been duly authorized by all necessary corporate action and will not: (i) violate any provision of any law, rule, regulation, order, writ, judgment, decree, determination or award presently in effect having applicability to Cogenerator; (ii) violate any provision of the Articles of Incorporation or Bylaws of Cogenerator, or (iii) result in a breach of or constitute a default under any mortgage, indenture or bank loan or credit agreement or any other material agreement or instrument to which Cogenerator is a party or by which it or its property is presently bound or affected. (d) All authorizations, permits, consents, approvals, licenses or exemptions of, and filings or registrations with, any court or governmental agency or other authority, domestic or foreign, necessary to permit Cogenerator to execute and deliver, and to perform its obligations under this Agreement, will have been obtained or made at Cogenerator's sole expense on or before the commencement of trial operation of the Plant (except an operating permit from the Texas Air Control Board which will be applied for as soon as practicable, but not later than sixty (60) days after operation of the Plant commences and such application shall be diligently pursued) and Cogenerator is not, and will not be, in violation or default in any respect of or under any law, rule, regulation, order, writ, judgment, decree, determination or award, and is not, and will not be in violation of or default under any mortgage, indenture, agreement or instrument. (e) Cogenerator possesses or will before the commencement of trial operations, possess the necessary expertise, technology, manpower, equipment, financial resources -77- and experience to fulfill all of Cogenerator's obligations hererunder. (f) The Plant is a Qualifying Facility, as that term is used and defined in 18 CFR (Code of Federal Regulations) 292 as of the date of the signing of this Agreement, and Cogenerator will provide certification by the FERC of such qualifying status pursuant to 18 CFR 292.207(b) prior to both Partial Commercial Operation and Commercial Operation. Within thirty days after the date hereof, Cogenerator will furnish Company with a legal opinion of its counsel that the Plant is self qualified as a Qualifying Facility. Cogenerator covenants that it will exert its best efforts to maintain said Plant as a Qualifying Facility. (g) Cogenerator will comply in a timely manner with all of the terms, provisions and conditions of this Agreement throughout the term hereof. (h) Cogenerator shall maintain throughout the term hereof a reliable fuel supply for the Plant sufficient for such facility to meet the energy and capacity requirements provided herein. (i) Cogenerator shall maintain an alternate fuel supply sufficient to operate the Plant at full load for at least five days. (j) Beginning with the date of Commercial Operation, Cogenerator will deliver energy to Company at a rate such that its Annual Capacity Factor will be equal, as a minimum, to fifty percent (50.00%) and that its Peak Month Capacity Factor will be equal, as a minimum, to fifty percent (50.00%), and that its Peak Hour Capacity Factor will be equal, as a minimum, to fifty percent (50%). 18.02 Company's Representations and Warranties. Company hereby represents and warrants unconditionally to Cogenerator that: -78- (a) Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. (b) The making and performance by Company of this Agreement have been duly authorized by all necessary corporate action and will not: (i) violate any provision of any law, rule, regulation, order, writ, judgment, decree, determination or award presently in effect having applicability to Company, (ii) violate any provision of the Articles of Incorporation or Bylaws of Company; or (iii) result in a breach of or constitute a default under any indenture or bank loan or credit agreement or any other material agreement or instrument to which Company is a party or by which it or its property is presently bound or affected. (c) All authorizations, permits, consents, approvals, licenses or exemptions of, and filings or registrations with, any court or governmental agency or other authority, domestic or foreign, necessary to permit Company to execute and deliver, and to perform its obligations under, this Agreement will have been obtained or made on or before the commencement of trial operation of the Plant, and Company is not in violation or default in any material respect of or under any law, rule, regulation, order, writ, judgment, decree, determination or award and is not in violation of or default under any mortgage, indenture, agreement or instrument to which Company is a party or by which it or its property is presently bound or affected. (d) Company possesses the necessary expertise, technology, manpower, equipment, financial resources and experience to fulfill all of Company's obligations hereunder. (e) Company will comply in a timely manner with all of the terms, provisions and conditions of this Agreement throughout the term hereof. -79- 18.03 Misrepresentation; Breach of Warranty; Fulfillment of Obligations. In the event either party hereto materially breaches any warranty provided in this article, or fails to fulfill any material obligation provided in this article, or if any material representation given in this article is discovered to have not been accurate when made, then the party to whom such representation or warranty was made, or to whom such obligation was due, may invoke the procedures set forth in Article XIII for default. If Cogenerator shall fail to meet the requirements of Section 18.01(j), Company may, in addition to any other remedies which may be available at law or in equity or under this Agreement, terminate this Agreement upon thirty (30) days' written notice to Cogenerator (such thirty (30) days commencing with the date of Cogenerator's receipt of such notice), if, by the end of said thirty (30) day period, Cogenerator has not cured such default. Article XIX - Arbitration 19.01 Scope. As concluded by the parties hereto upon the advice of counsel, and as evidenced by the signatures of the parties hereto, it is agreed that questions as to rights and obligations arising under the terms of Section 12.03(c) and valuation issues arising under Sections 15.06 and 17.05 of this Agreement are subject to arbitration, and such arbitration shall be governed by the provisions of the Texas General Arbitration Act, Articles 224 through 238-6 of the Texas Revised Civil Statutes. 19.02 Demand. If a dispute should arise under this Agreement, either party may make a demand for arbitration by filing a demand in writing with the other within the time limits prescribed in such sections. 19.03 Selection of Arbitrator. The parties hereto may agree upon one arbitrator, but in the event that they cannot so agree, there shall be three arbitrators, one named in writing by each of -80- the parties within ten (10) days after demand for arbitration is made, and a third to be chosen by the two so named within thirty (30) days after demand for arbitration is made. Should either party refuse or neglect to join in the appointment of the arbitrators, they shall be appointed in accordance with the provisions of Article 226 of the Texas Revised Civil Statutes. 19.04 Hearings. All arbitration hearings conducted hereunder, and all judicial proceedings to enforce any of the provisions hereof, shall take place in Dallas County, Texas, and shall commence within thirty (30) days after the arbitrator or arbitrators have all been selected. The hearing before the arbitrators of the matter to be arbitrated shall be at the time and place within said County as is selected by the arbitrators. Notice shall be given and the hearing conducted in accordance with the provisions of Articles 228, 229 and 320 of the Texas Revised Civil Statutes. At the hearing any relevant evidence may be presented by either party, and the formal rules of evidence applicable to judicial proceedings shall not govern. The arbitrator or arbitrators shall have the power to determine the question or questions as set forth in Sections 12.03(c), 15.06 and 17.05. The arbitrator or arbitrators shall have no power to amend or alter provisions of this Agreement. The arbitrators shall hear and determine the matter and shall execute and acknowledge their award in writing and deliver a copy thereof to each of the parties by registered or certified mail. 19.05 Decision Binding. If there is only one arbitrator, his or her decision shall be binding and conclusive on the parties. If there are three arbitrators, the decision of any two shall be binding and conclusive. The submission of a dispute to the arbitrators and the rendering of their decision shall be a condition precedent to any right of legal action on the dispute. A judgment confirming the award of the arbitrators may be rendered by any court having jurisdiction; or such court may vacate, modify, or correct the award in accordance with the provisions of the Texas General Arbitration Act. -81- 19.06 Failure to Make Timely Decision. If the arbitrators selected pursuant to Section 19.03 hereof shall fail to reach an agreement within thirty (30) days after conclusion of the hearing, they shall be discharged, and three new arbitrators shall be appointed and shall proceed in the same manner, and the process shall be repeated until a decision is finally reached by two of the three arbitrators selected. 19.07 Costs. The costs and expenses of arbitration, including the fees of the arbitrators, shall be borne by the losing party or in such proportions as the arbitrators shall determine. Article XX - Miscellaneous 20.01 Notices. Any notice required or authorized by this Agreement shall be in writing and personally delivered or sent by certified mail, return receipt requested, postage prepaid, to: If to Company: Mr. Michael D. Spence, President Texas Utilities Generating Company Skyway Tower 400 North Olive St., L.B. 81 Dallas, TX 75201 If to Cogenerator: Mr. David H. Dewhurst, President Falcon Seaboard Oil Company 2200 Post Oak Blvd., Suite 509 Houston, Texas 77056 The person to receive notices or the address for such notices may be changed by written notice of one party to the other. Such written notice is effective upon the earlier of (i) actual receipt, or (ii) three (3) days after mailing. Routine operational notices and communications and notices during an emergency or other unforeseen event may be made in person or by telephone. 20.02 No Rights of Third Parties. This Agreement is intended for the benefit of the parties. Nothing in this Agree- -82- ment shall be construed to create any duty to, any standard of care with reference to, or any liability to, any person not a party to this Agreement, including specifically, but not limited to, Host Corporation. 20.03 No Partnership. This Agreement shall not be interpreted or construed to create an association, joint venture, or partnership between the parties or to impose any partnership obligation or liability upon either party. Neither party shall have any right, power or authority to enter in any agreement or undertaking for, or act on behalf of, or to act as or be an agent or representative of, or to otherwise bind, the other party. 20.04 Captions. The captions of the various articles and sections of this Agreement are for convenience and reference only and shall not limit or define any of the terms and provisions hereof. 20.05 Complete Agreement. This Agreement embodies the complete agreement between the parties hereto and supersedes all other oral or written understandings and agreements. Each party acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been relied upon or made by any party, or anyone on behalf of a party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. 20.06 Choice of Laws. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Texas. -83- 20.07 Venue. Venue for any disputes arising under this Agreement shall lie exclusively in Dallas County, Texas. Cogenerator's payment obligations to Company under this Agreement are payable in Dallas County, Texas. 20.08 Severability. If any term or provision of this Agreement, or the application thereof to any person or circumstance, shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. -84- EXECUTED on the date first above written. FALCON SEABOARD OIL COMPANY By /s/ David H. Dewhurst -------------------------------- Title President TEXAS UTILITIES GENERATING COMPANY, a Division of Texas Utilities Electric Company By /s/ Michael D. Spence -------------------------------- Title President -85- FIRST AMENDMENT TO AGREEMENT THIS AGREEMENT, dated December 23, 1986, by and between FALCON SEABOARD OIL COMPANY hereinafter called "Cogenerator" and TEXAS UTILITIES ELECTRIC COMPANY, hereinafter called "Company", acting through its Texas Utilities Generating Company division: W I T N E S S E T H: The parties have heretofore entered into an Agreement dated July 30, 1986, hereinafter called the "Agreement" for the sale by Cogenerator and the purchase by Company of electric power and energy. Cogenerator desires to increase the electric generating capacity of the Plant and Company is agreeable thereto. Therefore, in consideration of the premises and of the promises herein made, the parties hereby agree as follows: 1 Section 2.01 of the Agreement is hereby amended to strike "106" and to substitute therefor as the approximate net electrical generating capacity of the Plant, "190". 2 The following exhibits attached hereto, to-wit: 2.03 (Revised) 3.01 (Revised) 3.07 (Revised) 3.10 (Revised) 3.12 (Revised) 10.08 (Revised), and 13.05 (Revised) are hereby substituted for Exhibits 2.03, 3.01, 3,07, 3.10, 3.12, 10.08, and 13.05, respectively, attached to the Agreement. All references in the Agreement to Exhibits 2.03, 3.01, 3.07, 3.10, 3.12, 10.08, and 13.05 are hereby changed to refer to the respective Exhibits attached hereto. 3 Section 2-04 of the Agreement is amended to add thereto a subsection (d) as follows: "(d) If Company shall fail to substantially complete the second phase of the Interconnection Facilities as described in Section 3.02(c) so that the same are in operation on or before March 1, 1988, then the dates December 31, 1988 and June 1, 1988 set forth in (b) above shall each be extended by the same number of days as elapse between March 1, 1988 and the date the second phase of the Interconnection Facilities are in operation." 4 Section 3.02 of the Agreement is amended to read as follows; 3.02 Interconnection-Facilities. "(a) COMPANY, will, at Cogenerator's expense, also modify its existing switching station and transmission facilities and construct new transmission and/or distribution facilities as depicted in Exhibit 3.01 (Revised) attached hereto and made a part hereof for all purposes so as to connect the Cogenerator Interconnection Facilities with Company's transmission -2- system. Such modifications to the existing switching station and transmission facilities and the new transmission and/or distribution facilities are hereinafter referred to as "Interconnection Facilities. "(b) The Interconnection Facilities will consist of and be constructed in two phases. The first phase will include those facilities shown in Exhibit 3.01 (Revised) appropriate to interconnect Cogenerator's Interconnection Facilities with Company's 138 kv transmission system. The first phase of the Interconnection Facilities will have a capacity of approximately 140 MW. "(c) The second phase will consist of a 345 kv substation, transmission line, and related facilities required to receive the estimated electrical capacity of the Plant at Commercial Operation and for tests and trial operations of the Plant, including the steam turbine, prior to the date of Commercial operation. "(d) Company will apply for and obtain a Certificate of Convenience and Necessity from the Public Utility Commission of Texas and thereafter obtain necessary easements and rights-of-way for the second phase. Company has preliminarily determined upon three possible routes for the transmission line which is a part of the second phase. At the time of execution hereof, Company intends to apply for a Certificate for -3- the most favorable route; the estimated construction costs in Exhibit 3.07 (Revised) are for that route, Company may select a different route, either before or after filing an application for the required Certificate, if its initial application is denied or if, in Company's judgment, a Certificate for one of the other routes is more likely to be granted, is more likely to engender a prompt decision by the Commission, is more likely to avoid costs, expenses or delays in obtaining rights-of-way, or will avoid construction problems which will make the more favored route more expensive than the estimated costs in Exhibit 3.07 (Revised). Congenerator hereby consents to Company's selection of an alternate route, realizing that an alternate route may increase the costs of Interconnection Facilities "(e) Cogenerator will, at its expense, construct the Cogenerator Interconnection Facilities, being the facilities interconnecting the Cogenerator Substation with the Interconnection Facilities." 5 Section 3.05 of the Agreement is amended to read as follows: "3.05 Completion. Company and Cogenerator will coordinate construction of the first phase of the Interconnection Facilities with construction of the Cogenerator Substation, Cogenerator Interconnection Facilities and -4- Plant so that such facilities will be available by May 15, 1997 for testing and trial operations of the Plant. Such completion may be advanced, as agreed by Cogenerator and Company, if necessary to provide power and energy for construction of the Plant. Company will endeavor to complete the second phase of the Interconnection Facilities by March 1, 1988, but will not be in default if completion occurs after such date." 6 Section 3.12(b) is amended to read as follows: "(b) To reimburse Company for routine inspection of the Interconnection Facilities, and Company's telemetering, metering, communications and data acquisition equipment and automatic switching control facilities, Cogenerator will pay to Company monthly, beginning May 1, 1987, the sum of One Thousand Two Hundred Dollars ($1,200.00); such payment will increase to One Thousand Five Hundred Dollars ($1,500.00) per month beginning on the first day of the first month following the date that the second phase of the Interconnection Facilities are completed and in operation. Such monthly payments will be adjusted pursuant to subsection (c) below. Company will periodically provide justification of the amount of such expense, if requested by Cogenerator. Exhibit 3.12 attached hereto delineates which services are included in routine inspections and which are not." -5- 7 Section 5.07(f) of the Agreement is amended to read as follows: "(f) Prior to the time that the second phase of the Interconnection Facilities is completed and ready for operation, Cogenerator will not generate and deliver power and energy to Company in excess of the maximum safe capacity of the first phase Interconnection Facilities, estimated to be 140 MW. Notwithstanding any contrary provisions, Company shall have no obligation to receive or pay for power and energy generated at the Plant in excess of the maximum safe capacity of the first phase Interconnection Facilities until the second phase of such Interconnection Facilities is complete and ready for operation." 8 The first sentence of Section 5.03 of the Agreement is amended to read as follows: "Prior to the dates of Commercial Operation and Partial Commercial Operation and again subsequent to placing of the second phase of the Interconnection Facilities in service (if the second phase is completed after Commercial Operation), Cogenerator shall perform or allow Company to perform, as specified, the following tests on the Plant after reasonable notice to Company. If the second phase is completed after Commercial operation, Company shall grant Cogenerator a credit on applicable Capacity Factors for the time period Cogenerator must cease generating energy and capacity to perform the following tests." -6- 9 Subsection (a) of Section 5.03 of the Agreement is amended to read as follows: "(a) A trip test by Cogenerator of the Plant's protective relay schemes that trip the 138 kv or 345 kv circuit breakers connecting the Plant to the Company's electric system." 10 Section 5.10 of the Agreement is amended to substitute "190" for "106" as the estimated Initial Firm Capacity at Commercial Operation and to substitute "133" for "80" as the estimated Initial Firm Capacity at Partial Commercial Operation. 11 The second sentence of Section 5.13 (a) of the Agreement is amended to read as follows; "Backdowns pursuant to this subsection will not reduce generation of the Plant below 80% of the capacity of one gas turbine, as determined during Firm Capacity tests, plus generation of the steam turbine with one gas turbine operating at 80% of Firm Capacity without supplemental firing; the estimated generation at such level is 79 MW." 12 The Agreement is amended by adding thereto a new Section 5.14 as follows: "5.14 Excess Energy. Cogenerator may generate and deliver energy in excess of Firm Capacity in any hour (Excess Energy) and Company will accept and purchase same, subject to the following: -7- "(a) Company may refuse to accept Excess Energy when it interrupts or curtails receipts of energy under other provisions hereof, including Sections 5.05, 5.06, 5.07, 5.08, 5.13, 12.01 and 13.03. "(b) In addition to the provisions of (a) above, Company may refuse to accept Excess Energy, in hours other than Peak Hours, for up to 3000 hours in any twelve (12) consecutive months. The parties agree to make a good faith effort to determine a reasonable notice period for Company to refuse to accept Excess Energy, but, in no event, shall such notice period be Less than six hours." 13 That portion of Section 7.02 of the Agreement, preceding the last two sentences of such Section, is amended to read as follows: "7.02 Billing Determinants. The billing determinants for the payments to Cogenerator shall be: "(a) total net energy (in kwh) generated by the Plant and delivered to Company each month, less Excess Energy generated by the Plant and delivered to the Company each month, as metered on the Company side of the Cogenerator Substation (billing kwh), except as otherwise provided in Section 7.08 (b)(ii) with respect to WACOG kwh. "(b) Billing Capacity (billing kw). "(c) total Excess Energy (in kwh) generated by the Plant and delivered to Company during each hour and totalled for each month (Excess Energy kwh) -8- 14 Section 7.07 of the Agreement is amended to read as follows: "7.07 Adjustments to Capacity Factors. "(a) Computations of Annual, Peak Month and Peak Hour Capacity Factors shall be made as provided in this Article based upon total net generation of the Plant metered on the Company side of the Cogenerator Substation for the applicable period even though actual generation of the Plant may have been affected by uncontrollable forces (except as provided in (b) below) or by Cogenerator's or Company's suspension of performance as authorized by Sections 5.05, 5.06, 5.08, 12.01 or 13.03 of this Agreement or a reduction in generation made at Company's request pursuant to Section 5.13. Provided, however, that computations of Peak Month Capacity Factor and Peak Hour Capacity Factor will not be affected by any reductions of generation made at Company's request pursuant to Section 5.13, i.e., said Factors will be calculated as if the amount and level of reduction had not occurred. Similarly, computations of Peak Month Capacity Factor, Peak Hour Capacity Factor and Annual Capacity Factor will not be affected by (i) any reductions of generation made at Company's request to construct or maintain facilities pursuant to Section 3.10(b) or (c) solely to -9- serve other customers, (ii) reductions in excess of 150 hours per year made at Company's request pursuant to section 5.05(a)(i), (iii) backdowns made pursuant to Subsection 5.13(b), (iv) reductions in generation resulting from Company's opening of electrical connections in violation of subsection 5.05(a)(iii) or 5.05 (a) (iv), or (v) reductions in generation in excess of twentv-five(25) hours in any consecutive twelve-month period made pursuant to subsection 5.05 (a) (ii). "(b) If Uncontrollable Forces declared by Cogenerator causes cessation or curtailment of generation of power and energy by the Plant, then, except as provided in (c) below, the Capacity Factors applicable Immediately before the occurrence of the Uncontrollable Force shall remain unchanged for so long as such Uncontrollable Force continues in accordance with the terms hereof, and (ii) Company shall not be required to make any Capacity Payment for the months or any portions thereof during which the Uncontrollable Force conditions existed. "(c) During any period of Uncontrollable Forces, declared by Cogenerator, which reduces the Plant's net generating capability by more than twenty-five percent (25%) of Firm Capacity for fourteen consecutive days or longer, Cogenerator may elect, by written notice to Company, to have Annual, Peak Month and Peak Hour -10- Capacity Factors determined as provided in this Agreement but with the following modifications: "(i) only periods of time (hours, months, and partial months) and generation of energy occurring after Cogenerator's election will be considered; calculations will be made from the date of such election as if it occurred immediately following Partial Commercial Operation except that Sections 7.03 and 7.04 shall not be applicable; "(ii) Firm Capacity shall be reduced by the same percentage as the percentage reduction in net generating capability of the Plant caused by Uncontrollable Forces. At the request of either party, the net generating capability of the Plant during a period when such capacity is reduced by Uncontrollable Forces may be determined by the test for determining Firm Capacity in Section 5.10. During any calendar month which includes any part of the period when Capacity Factors are calculated pursuant to this subsection: (i) "WACOG kwh" as defined in Section 7.07(b)(ii) shall be deemed to be zero, if Company believes, in its sole discretion, that generating capability of the Plant materially exceeds the stated reduced capability during the period of Uncontrollable Forces, and (ii) Capacity Payments will be -11- at eighty percent (80%) of the otherwise applicable rate." 15 That portion of Section 7-08 of the Agreement preceding (a) is amended to read as follows: "7.08 Prices. Except as provided in Section 7.08A, Company's payments to Cogenerator shall be based on the billing kwh, billing kw, and Excess Energy kwh as set out above and the following: 16 That portion of subsection 7.08 (b) (i) of the Agreement preceding the schedule is amended to read as follows: "(i) Energy payments for billing kwh shall be based on the following schedule: 17 Subsection 7.08(b) of the Agreement is amended to add a new subdivision (iii) as follows: "(iii) Payments for Excess Energy kwh shall be at the lesser of WACOF or Company's avoided energy costs. Company's avoided energy costs are determined by calculating by time period, using Company's economic dispatch model, or comparable methodology, the difference between the costs of the total energy furnished by both Company and Cogenerator, computed as though the energy furnished by Cogenerator had been furnished by Company, and the actual cost of energy furnished by Company" -12- 18 The Agreement is amended to add a new section 7.08A as follows: "7.08A. Alternate Prices. "(a) During the period commencing on the later of (i) the date that the steam turbine at the Plant is ready for trial operation or (ii) March 1, 1988, and ending on the date that the second phase of the Interconnection Facilities is complete and ready for operations, Company's payments to Cogenerator shall be based on billing kwh, billing kw, and Excess Energy kwh as set out above and the following, in lieu of the provisions of Section 7.03: "(b) Capacity payments will be made at the following rates: Calendar Year $/kw/month ------------- ---------- 1988 12.68 1989 13.12 1990 13.58 1991 14.06 1992 14.55 1993 15.06 1994 15.58 -13- "(c) Energy Payments "(i) Energy Payments for billing kwh shall be based on the following schedule: Calendar Year cents/kwh ------------- --------- 1988 2.36 1989 2.45 1990 2.53 1991 2.62 1992 2.71 1993 2.31 1994 2.91 "(ii) For months after 1988, the provisions of Section 7.08(b)(ii) with respect to WACOG kwh shall also apply to determine sums payable to Cogenerator. "(iii} Payments for Excess Energy kwh shall be in accordance with Section 7.08(b)(iii). "(d) During the period, if any, that this Section is applicable, Company will also compute the monthly payments that would have been made to Cogenerator if the amount of the payments had been determined under Section 7.08. The excess of payments made under this section over the amount of payments computed under Section 7.08 together with interest shall be repaid to -14- Company by Cogenerator over a period of months equal to the number of months that this Section is applicable. The excess amounts will bear interest from the date paid by Company until repaid by Cogenerator at a variable rate each month equal to the lesser of (i) the prime rate of RepublicBank Dallas, N.A. on the first business day of each month or (ii) the maximum lawful rate. Notwithstanding the provisions of Section 10.07(b), Company may deduct sums due it under this Section from payments due Cogenerator." 19 The parties acknowledge that Company has not breached Section 9.02, Section 16.02(c) or other provisions of the Agreement by not heretofore applying for a Certificate of Convenience and Necessity for the Interconnection Facilities. Company will make such application promptly after execution hereof. 20 Section 9.03 of the Agreement is hereby deleted and cancelled. 21 Section 11.01 of the Agreement is amended to read as follows: "11.01 Term. "(a) This Agreement shall be effective from its date and shall continue thereafter until the September 30th which occurs first after fifteen (15) years after the date of Commercial Operation. -15- "(b) Company may, at its option and subject to (c) and (d) below, extend the term of this Agreement beyond the expiration date set forth in (a) for such period as Company may elect but not to exceed a period equal to the total of all periods of Uncontrollable Forces of fourteen (14) consecutive days or longer duration declared by Cogenerator. For purposes of such extension, a period of Uncontrollable Forces causing only a partial curtailment of operation of the Plant shall be equal to the product of the period of such Uncontrollable Force and the percentage reduction in generation. "(c) Company may exercise the option to extend by written notice to Cogenerator, specifying the period of such extension. Such notice shall be given two (2) years prior to expiration of the term set forth in (a) above or, if later, within thirty (30) days after the end of a period of Uncontrollable Force. Company may extend the term for events of Uncontrollable Forces occurring during the last two (2) years of the term set forth in (a) even though it did not elect to extend for periods of Uncontrollable Forces occurring prior to such last two (2) years. Likewise, if Company gives notice to extend two (2) years or more prior to the expiration of the term set forth in (a), it may elect, within the time limits set forth herein, to further -16- extend the term for periods of Uncontrollable Forces thereafter occurring. "(d) Company's election to extend the term of this agreement may be cancelled and rescinded if Cogenerator will be subject to regulation as a public utility during such extension. If sale of steam from the Plant is required to avoid such regulation, then Cogenerator will, promptly after receipt of Company's notice of extension, use all reasonable efforts to reach agreement for sale of steam during the extension. If no such agreement is reached and if such extension would subject Cogenerator to regulation, then either Party may cancel the proposed extension of the term hereof by written notice to the other given within six (6) months after Company's notice of extension but not later than sixty (60) days prior to expiration of the term set forth in (a) above; if Company gives notice under (c) in the last ninety (90) days of the term, notice of cancellation may be given within thirty (30) days after the date of Company's notice. "(e) This Agreement shall automatically terminate at expiration of the term or any extension thereof." 22 Subsections (a) and (c) of Section 12.03 of the Agreement are amended to read as follows: -17- "12-03 Uncontrollable Force. "(a) Provided that notice is given as required in subsection (b) below, a party shall not be considered to be in default with respect to any obligation under this Agreement (other than an obligation to pay sums due and other than as provided in (d) below) if it is prevented from fulfilling such obligation by reason of an Uncontrollable Force for a period of up to six (6) months in Length, unless such period is extended as hereinafter provided. A party will not, in its sole judgment, unreasonably refuse an extension if failure to perform extends beyond six months even though due diligence is used. The term "Uncontrollable Forces" shall be deemed for the purposes of this Agreement to mean storm, tornado, flood, lighting earthquake, fire, explosion, civil disturbance, acts of God, sabotage, war, national emergency, restraint by a court or public authority, nuclear explosion or radioactive contamination, which such party could not reasonably have been expected to avoid by exercise of due diligence and foresight. Uncontrollable Forces shall also include delays in receipt of generator rotor, generator stator, main power transformer or steam turbine caused by damage or loss in shipping. The failure of a party's facilities Which is caused by an act or event -18- other than storm, tornado, flood, lightning, earthquake, fire, explosion, civil disturbance, acts of God, sabotage, war, national emergency, restraint by a court or public authority, nuclear explosion or radioactive contamination, is not an Uncontrollable Force. The term "Uncontrollable Forces" does not include changes in market conditions, including but, not limited to changes that affect the cost or availability of Cogenerator's supply of fuel or alternate supplies of fuel. A party shall exercise due diligence to remove any disability to its performance caused by Uncontrollable Forces with reasonable promptness. After a party's failure to perform due to an Uncontrollable Force has continued for six (6) months, or such longer period as the party whose performance is not affected by Uncontrollable Forces may agree in writing, then the Uncontrollable Force shall cease to excuse the failure to perform, and the party failing to perform shall thereafter be in default of this Agreement." "(c) If Cogenerator is prevented from performance by breakdown or malfunction of equipment requiring replacement or major repair of a generator stator, generator rotor, main power transformer or steam turbine, Cogenerator may so advise Company within the time limits specified in Subsection (b). As used in this -19- section, "major repair" shall be a repair having a cost of not less than twenty-five percent (25%) of the inflation-adjusted original cost of the specific item of equipment to be repaired. If Company agrees on the need for such replacement or repairs and that such repairs are a major repair so that Cogenerator may perform under this Agreement, then the equipment breakdown or malfunction shall be deemed to have been caused by Uncontrollable Force. If Company does not agree, the question of the need for such replacement or repairs or whether repairs are a major repair may be submitted to arbitration under Article XIX, by request made within 45 days after date of notice given pursuant to Subsection (b). If Cogenerator believes that replacement or major repair of the rotor, stator or transformer cannot be completed within six (6) months, Cogenerator may so notify Company in writing, and the parties will negotiate in good faith to extend the six (6), month period set out in (a) above for the time necessary to make the replacement, but, not to exceed eighteen (18) months. If no agreement is reached within thirty (30) days after the written notice, then either party may submit the issue of the length of time necessary to make the replacement or major repair to binding arbitration under Article XIX by request made -20- within 45 days of the date of Cogenerator's notice that replacement or major repair will require more than six months, but under no circumstances shall the six (6) month period under (a) above be extended to greater than eighteen (18) months." 23 This Agreement is amended to add a new Section 12.06 as follows: "12.06 Waiver. Both Parties waive all rights and remedies which would otherwise be available to them pursuant to the Texas Deceptive Trade Practices-Consumer Protection Act, Texas Business and Commerce Code Section 17.41, et seq., except for Section 17.55A. This waiver shall not otherwise alter or affect any of a Party's rights or remedies at law. For the purpose of this Section, each party represents that (i) it is a business consumer with assets of five million or more, (ii) it has experience and knowledge in financial and business matters that enable it to evaluate the merits and risks of this Agreement, and (iii) it is not in a significantly disparate bargaining position with respect to this Agreement." 24 The Agreement is amended to add thereto a new Article XVA as follows: -21- "Article XVA - Additional Option to Purchase "15A.01 Option. In addition to the option granted in Article XV, at the expiration of the term of this Agreement, Company may, at its option, purchase the Plant as hereinafter provided. Company may exercise any option herein granted upon giving written notice to Cogenerator not later than one hundred eighty (180) days prior to the expiration of the term of this Agreement. "15A.02 Information. During the period beginning one (1) year prior to expiration of the term hereof and ending five (5) months later, Company may request information as to the Plant, its costs of construction and operations including fuel costs, and other information pertinent to exercise of this option. Cogenerator will promptly furnish the information so requested. If Cogenerator fails or refuses to furnish, within thirty (30) days after a request, any information requested by Company in writing within the aforesaid period, then the time for exercise of the option is extended so that it will expire no sooner than thirty (30) days after receipt by Company of the requested information. "15A.03 Manner of Exercise. Company may exercise the option granted in this Article by written notice to Cogenerator given on or prior to the date specified in Section 15A.01 as extended by Section 15A.02. If Company fails to give notice on or before such date, such option will terminate. -22- "15A.04 Closing Date. "(a) If Company exercises the aforesaid option to purchase under Section 15A.01, then such purchase will be closed on the later of (i) the first business day following expiration of this Agreement or (ii) fifteen days after determination of market value under Section 15A.06. "(b) If final regulatory approval is not obtained by the date for closing, as extended, or if such approval is not satisfactory to Company, it may withdraw its exercise of such option without penalty or other liability. If the closing date is extended beyond expiration of the term hereof, then this agreement shall continue, at Cogenerator's sole option, in full force and effect according to its terms until the closing date or withdrawal by Company of its exercise of such option, whichever first occurs. During such extension or any part thereof when sale of electric power and energy from the Plant would subject Cogenerator to regulation as a public utility, Cogenerator shall have no obligation to generate and sell power and energy from the Plant nor Company to receive or pay for same. "15A.05 Closing. At such closing, Cogenerator will convey the Plant, Cogenerator facilities interconnecting the Plant and the Cogenerator Substation, the Cogenerator -23- itself and the necessary land and land rights, as Section 15.05, to Company by instruments of easements or general warranty of fee interest. will also assign to Company (and Company will assume) such contracts and contract rights relating to operation of the Plant, fuel supply contracts and gas transportation contracts, as Company and Cogenerator may agree after Company's exercise of the option. "15A.06 Payment. If Company elects to exercise its purchase option under Section 15A.01 the purchase price for such conveyance shall be the market value of the property being purchased as defined in Section 15.06. If the parties have not agreed upon market value by ninety (90) days prior to expiration of this Agreement, then either Company or Cogenerator may, within thirty (30) days thereafter, give written notice to the other requesting determination of such amount or value by appraisal, in accordance with Section 15.06 and Article XIX. "15A.07 Miscellaneous. "(a) The option in this Article may be assigned in accordance with Section 15.07. "(b) Provisions with respect to the option granted in this Article shall be included in Cogenerator's agreements in accordance with Section 15.8.9 "(c) Section 15.09 shall be applicable if Company exercises the option in this Article granted. -24- 15A.08 Negotiations. If Company does not exercise the option provided in this Article XVA, then at Cogenerator's written request given within thirty (30) days after expiration of the period for Company's exercise of such option, Company will use reasonable efforts to negotiate with Cogenerator to purchase power and energy from the Plant." 25 Section 18.01(f) of the Agreement is amended to read as follows: "(f) The Plant (with the increased capacity as provided in the First Amendment) is a Qualifying Facility, as that term is used and defined in 18 CFR (Code of Federal Regulations) 292 as of the date of the signing of this Agreement, and Cogenerator will provide certification by the PBRC of such qualifying status pursuant to 18 CFR 292.207(b) prior to both Partial Commercial Operation and Commercial Operation. Within thirty days after the date of the First Amendment hereto, Cogenerator will furnish Company with a legal opinion of its counsel that the Plant (with the increased capacity as provided in the First Amendment) is self qualified as a Qualifying Facility. Cogenerator covenants that it will exert its best efforts to maintain said Plant as a Qualifying Facility." -25- As herein amended, the Agreement shall remain in full force and effect. EXECUTED on the date first above written. FALCON SEABOARD OIL COMPANY By /s/ David H. Dewhurst --------------------------------------- Title President --------------------------------------- TEXAS UTILITIES ELECTRIC COMPANY By /s/ Michael D. Spence --------------------------------------- Michael D. Spence, President Texas Utilities Generating Company SECOND AMENDMENT TO AGREEMENT THIS AGREEMENT, dated May 27, 1988, by and between FALCON SEABOARD OIL COMPANY, hereinafter called "Cogenerator" and TEXAS UTILITIES ELECTRIC COMPANY, hereinafter called "Company", W I T N E S S E T H: The parties have heretofore entered into an agreement dated July 30, 1986, for the sale by Cogenerator and purchase by Company of electric power and energy. Such agreement, as amended, is hereinafter called the "Agreement". In consideration of the agreements herein made, the parties hereby agree as follows: 1 Section 2.04 of the Agreement is hereby amended to add thereto a Subsection (e) as follows: "(e) Partial Operating Period shall mean the period of time beginning on the date of Partial Commercial Operation and ending on the date of Commercial Operation." 2 The Agreement is amended to add thereto a new Section 3.13 as follows: "3.13 Reimbursement of Company Costs. (a) From and after July, 1987, Cogenerator shall reimburse Company fully for all actual costs incurred by Company in connection with this Agreement in obtaining regulatory approvals, contract administration, and dispatching. Costs for regulatory approval and contract administration will be payable only if incurred at the request of Cogenerator. Costs of dispatching will not exceed $600.00 per month. Such actual costs shall include, without limitation: (i) Payroll - Labor and services; (ii) Costs and fees billed to Company by outside contractors, consultants, and attorneys; (iii) Miscellaneous Expense. (b) Company shall bill Cogenerator monthly for such costs, and payment by Cogenerator to Company shall be due within thirty (30) days after the date the bill is sent. (c) Company may offset amounts due hereunder against amounts due to Cogenerator hereunder." 3 Section 5.07 of the Agreement is amended by adding thereto a Subsection (g) as follows: "(g) During the Partial Operating Period (subject to other provisions hereof, such as Sections 5.05, 5.06, 5.08, 12.01 and 13.03), Cogenerator may deliver 55 MW of -2- electrical capacity and associated energy at all times and will deliver such additional electrical capacity and energy, up to Firm Capacity, and for such periods as Company may, from time to time, request. Company shall not request, nor will Cogenerator be obligated for, deliveries of Energy during any month in the Partial Operating Period to the extent such deliveries exceed, in the aggregate, the energy that would be produced by operating the Plant at 82% of Firm Capacity during the hours of 8:00 A.M. to 10 P.M. of each weekday (Monday through Friday) during such month. In the event Cogenerator delivers energy, other than Trial Energy, to Company in contravention of this subsection, said energy shall be excluded from billing kWh and from calculation of all capacity factors under this Agreement." 4 Section 5.13 of the Agreement is amended to add thereto Subsections (d) and (e) as follows: "(d) The preceding provisions of this section are not applicable during the Partial Operating Period. During that Period, 55 MW of capacity and energy are not subject to backdown pursuant to this section and capacity and energy in excess of 55 MW will be delivered by Cogenerator only at Company's request as specified in Section 5.07(g). -3- (e) During Backdowns, TU Electric may, at its option, notify Cogenerator that TU Electric is willing to accept energy at generation levels in excess of the level otherwise allowed during the Backdown and at a price based on a discount from prices set forth in Section 7.08 ('Discount Energy'). If Cogenerator is willing to sell Discount Energy, it shall notify TU Electric of that fact and of the price of such energy on a spot gas basis. If TU Electric finds such price to be satisfactory, it shall so notify Cogenerator, and Cogenerator shall thereafter sell and deliver during such Backdown, and TU Electric shall purchase and receive, such Discount Energy. Discount Energy shall be accounted for as if the unit or units were backed down." 5 Section 5.14 of the Agreement is amended to add thereto a Subsection (c) as follows: "(c) Excess energy will not be delivered during the Partial Operating Period unless requested by Company." 6 That portion of Section 7.02 of the Agreement, preceding the last two sentences of such Section, is amended to read as follows: "7.02 Billing Determinants. The billing determinants for the payments to Cogenerator shall be: -4- (a) total net energy (in kwh) generated by the Plant and delivered to Company each month, less Excess Energy and Discount Energy generated by the Plant and delivered to the Company each month, as metered on the Company side of the Cogenerator Substation (billing kwh), except as otherwise provided in Section 7.08(b)(ii) with respect to WACOG kwh. (b) Billing Capacity (billing kw). (c) total Excess Energy (in kwh) generated by the Plant and delivered to Company during each hour and totalled for each month (Excess Energy kwh). (d) Discount Energy delivered in a month pursuant to agreement as specified in Section 5.13(e)." 7 Section 7.03 of the Agreement is amended to read as follows: "7.03 Initial Capacity Factors. (a) For a period beginning on the date of Partial Commercial Operation and ending after the expiration of six (6) full calendar months after the date of Partial Commercial Operation for the purposes of Section 7.05 of this Agreement (but not for any other Section), Annual Capacity Factor shall be deemed to be equal to 82.00%. This deemed Capacity Factor has no effect whatsoever on the calculation of the various Capacity Factors under Section 7.06 at any time and applies to Section 7.05 -5- only through the end of six (6) full calendar months beginning on the date of Partial Commercial Operation. (b) After the expiration of six (6) full calendar months after the date of Partial Commercial Operation, if the Annual Capacity Factor has failed to be equal to, or to exceed, the deemed Capacity Factor specified in Subsection (a) at any time during said period, then an adjustment to the previous capacity payments shall be made pursuant to Section 7.05 as if no Capacity Factors had been deemed whatsoever. The adjustment shall equal the difference between (i) the capacity payments actually made and (ii) the capacity payments that would have been made if no Capacity Factors had been deemed pursuant to Subsection (a). Such adjustment will be calculated after the exclusion of any month or months so elected by Cogenerator pursuant to Section 7.04. Any such adjustment shall bear interest at the Commercial Paper Rate from the end of the sixth full calendar month after the date of Partial Commercial Operation and shall be repayable in twelve equal monthly installments beginning on the last day of the seventh full calendar month after the date of Partial Commercial Operation. As used in this Agreement, "Commercial Paper Rate" means the lesser of (i) the interest rate on 30-day high grade unsecured notes sold through dealers by major corporations as such rate is published in The Wall -6- Street Journal or (ii) the highest rate permitted by applicable law, in effect on the first business day of each calendar month in which interest accrues hereunder." 8 Section 7.04 of the Agreement is amended to read as follows: "7.04 Exclusion of Months. Prior to the end of the seventh full calendar month after the date of Partial Commercial Operation, Cogenerator shall notify Company in writing which month or months (not to exceed two) immediately following the date of Partial Commercial Operation that Cogenerator chooses to exclude from the calculation of Annual Capacity Factor; provided, that such excluded month or months, if any, must be the first full calendar month or the first two full calendar months after the date of Partial Commercial Operation. If Cogenerator makes no such notification, then no calendar months will be so excluded." 9 Subsections (b), (c), and (f) of Section 7.05 of the Agreement are amended to read as follows: "(b) After expiration of the Partial Operating Period, if the Peak Month Capacity Factor, as determined at the end of any month in accordance with Section 7.06 is less than 75.00%, then the Billing Capacity for such -7- month shall be reduced proportionally by five percent (5%) of Firm Capacity for each one percent (1%) by which Peak Month Capacity Factor is less than 75% (e.g., if Peak Month Capacity Factor is 72.95%, Billing Capacity is 89.75% of Firm Capacity); or (c) After expiration of the Partial Operating Period, if the Peak Hour Capacity Factor, as determined at the end of any month in accordance with Section 7.06, is less than 82.00%, then the Billing Capacity for such month shall be reduced proportionally by five percent (5%) of Firm Capacity for each one percent (1%) by which Peak Hour Capacity Factor is less than 82.00%; or" "(f) Any partial reductions of Billing Capacity pursuant to (b), (c), or (g) of this section are not additive, but only the largest reduction shall apply (e.g., if Peak Month Capacity Factor is 72.95% and Peak Hour Capacity Factor is 80.00%, then Billing Capacity equals 89.75% of Firm Capacity); however, a reduction of Billing Capacity pursuant to (d) or (e) above is additive with reductions under (b), (c), or (g) (e.g., if Peak Month Capacity Factor is 72.95%, Peak Hour Capacity Factor is 80.00%, and Tested Capacity is 89.00 megawatts while Firm Capacity is 90.00 megawatts for fifteen (15) out of the thirty (30) days in the month, then Billing Capacity equals 87.25% of Firm Capacity)." -8- 10 Section 7.05 of the Agreement is amended to add thereto a new Subsection (g) as follows: "(g) During the Partial Operating Period, if the Annual Capacity Factor, as determined at the end of any month in accordance with Section 7.06, is less than eighty-two percent (82.00%), then the Billing Capacity for such month shall be reduced proportionally by five percent (5%) of Firm Capacity for each one percent (1%) by which Annual Capacity Factor is less than eighty-two percent (82.00%);" 11 Subsections (a), (b), and (c) of Section 7.06 of the Agreement are amended to read as follows: "7.06 Definition of Capacity Factors. (a)(i) During the Partial Operating Period, Annual Capacity Factor shall be determined by dividing the total net energy (in kWh) delivered to Company under this Agreement during the specific hours when deliveries of capacity and energy are requested by Company in the current month and the prior eleven (11) months, by the sum of the products of the number of hours in specific incremental time periods and the capacity level requested by Company from Cogenerator in said incremental time periods. Hours in which Company -9- has not requested or is not entitled to request Cogenerator to deliver capacity and energy shall be excluded. If less than twelve (12) full calendar months have occurred since the date of Partial Commercial Operation the Annual Capacity Factor shall be determined using only such lesser number of months. (ii) After expiration of the Partial Operating Period, Annual Capacity Factor shall be determined by dividing the total net energy (in mwh) delivered to Company during the current month and the prior 11 months, by the product of the number of hours in such month and the prior 11 months and the Firm Capacity (in mW) as determined at the end of the prior month. If less than 12 full calendar months have occurred since the date of Commercial Operation or the end of any months excluded by Cogenerator pursuant to Section 7.04, whichever is later, the Annual Capacity Factor shall be determined using only such lesser number of months. (b) Peak Month Capacity Factor shall be determined by dividing the total net energy (in mwh) delivered to Company during (i) the current month, if it be a Peak Month, and the last six prior Peak Months, or (ii) the last seven prior Peak Months if the current -10- month is not a Peak Month, by the product of the number of hours in such seven Peak Months and Firm Capacity for the immediately preceding month. If less than seven full calendar Peak Months have occurred since the expiration of Partial Operating Period or the end of any months excluded by Cogenerator pursuant to Section 7.04, whichever is later, then Peak Month Capacity Factor will be determined by using only said lesser number of months. If no calendar Peak Months have occurred since the expiration of Partial Operating Period and any months excluded by Cogenerator pursuant to Section 7.04, then Peak Month Capacity Factor shall be deemed to be 75.00%. (c) Peak Hour Capacity Factor shall be determined by dividing the total net energy (in mwh) delivered to Company during Peak Hours of Peak Days in (i) the current month, if it be a Peak Hour Month, and the last six prior Peak Hour Months, or (ii) the last seven prior Peak Hour Months if the current month is not a Peak Hour Month, by the product of the number of Peak Hours in Peak Days in such seven Peak Hour Months and Firm Capacity for the immediately preceding month. If less than seven calendar Peak Hour Months have occurred since the expiration of Partial Operating Period or at the end of any months excluded by Cogenerator pursuant to Section 7.04, whichever is later, then Peak Hour -11- Capacity Factor will be determined by using the Peak Hours in Peak Days in such lesser number of Peak Hour Months. If no Peak Hour Months have occurred since the expiration of Partial Operating Period and any months excluded by Cogenerator pursuant to Section 7.04, then Peak Hour Capacity Factor shall be deemed to be 82.00%." 12 Subsection (f) of Section 7.06 is deleted. 13 Section 10.07(a) is amended to read as follows: "(a) Any sums due Cogenerator according to the monthly statement are to be paid by wire transfer on the next-to-last business day of the month in which the statement is to be rendered." As herein and heretofore amended, the Agreement shall remain in full force and effect. This amendment shall be of no force or effect until executed by the parties and consent hereto is given by Power Resources, Inc. and by Credit Suisse, Agent Bank for Credit Suisse and Kansallis-Osake-Pankki. When effective, this amendment shall be applicable from and including the date of Partial Commercial Operation. -12- EXECUTED on the date first above written. FALCON SEABOARD OIL COMPANY By /s/ David H. Dewhurst -------------------------------- Title President TEXAS UTILITIES ELECTRIC COMPANY By /s/ Michael D. Spence -------------------------------- Title Div. President POWER RESOURCES, INC. hereby consents to the foregoing amendment, agreeing to be bound thereby, this the 5th day of May, 1988. POWER RESOURCES, INC. By /s/ David H. Dewhurst -------------------------------- Title President CREDIT SUISSE, a bank organized under the laws of Switzerland and KANSALLIS-OSAKE-PANKKI, a bank organized under the laws of Finland, both acting through their agent, CREDIT SUISSE, a New -13- York banking corporation, execute this instrument solely to indicate their consent thereto, this the 13th day of May, 1988. CREDIT SUISSE By /s/ Illegible -------------------------------- Title Assistant Vice President -14- EX-10.33 10 GROUND LEASE (SALTON SEA UNITS I & II) -------------------------------------------------------------------------------- GROUND LEASE -------------------------------------------------------------------------------- THIS GROUND LEASE (the "Lease") is made as of November 24, 1993, by and between IMPERIAL IRRIGATION DISTRICT, an irrigation district organized and existing under the laws of the State of California ("Landlord"), and SALTON SEA POWER GENERATION L.P., a California limited partnership and SALTON SEA BRINE PROCESSING L.P., a California limited partnership (together, "Tenant"). ARTICLE 1 DEFINITIONS 1.1 Unless the context shall otherwise require, the following capitalized terms used herein shall have the following meanings: 1.1.1 "DAMAGES" means any losses, damages, liabilities, claims, judgments, liens, penalties, costs and expenses, including, without limitation, reasonable attorneys' and consultants' fees. 1.1.2 "EFFECTIVE DATE" means November 24, 1993. 1.1.3 "FACILITIES" means those certain geothermal electrical power generating facilities commonly known as Unocal Salton Sea Units 1 and 2, together with all wells and wellsites, pipelines, utility installations, machinery, equipment, buildings and other items associated therewith or related thereto and located on the Premises. 1.1.4 "FINANCING" means term financing for the Facilities and, if Tenant so elects, for the construction and subsequent term financing of any Increased Capacity Improvements, whether in the same or separate transactions. 1.1.5 "GEOTHERMAL LEASE" means that certain Lease dated as of November 29, 1960, between Landlord and Joseph I. O'Neill, Jr. and Ashman & Hilliard, recorded on November 29, 1960 in Book 1064, Page 526 of Official Records of Imperial County, (a) as amended prior to November 24, 1993, (b) as amended and restated by that certain Amended and Restated Geothermal Lease and Agreement dated as of November 24, 1993, between Landlord and Magma Land and (c) as hereafter amended or supplemented. 1.1.6 "INCREASED CAPACITY IMPROVEMENTS" means any increase in the combined installed capacity of the Facilities as such capacity existed as of the Effective Date, which directly results from (a) the replacement of existing generators in one or more of the Facilities with generators of a higher nameplate rating, (b) the installation of additional generators in one or more of the Facilities, (c) the reconstruction or replacement of a Facility for the purpose of increasing its installed capacity and/or (d) any additional geothermal electrical power generating facility which may in the future be constructed on the Premises. 1.1.7 "LAW" OR "LAWS" means all applicable laws, statutes, ordinances, rules, regulations and orders of any federal, state or local governmental agency. 1.1.8 "MAGMA LAND" means Magma Land Company I, a Nevada corporation, and its grantees, successors and assigns. 1.1.9 "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a governmental agency. 1 1.1.10 "PREMISES" means the real property described on Exhibit "A" attached hereto. 1.1.11 "PROJECT LENDER" means the lender or lenders collectively advancing all or a portion of the Financing, and their respective agents, trustees (including, without limitation, collateral agents, security agents and loan trustees), grantees, successors and assigns. 1.1.12 "PROJECT LENDER'S LIEN" means any security interest taken by the Project Lender in Tenant's right, title and interest under this Lease. 1.1.13 "PROJECT LENDER'S LOAN DOCUMENTS" means all instruments, agreements and other documents evidencing or relating to the Financing and/or the security therefor. 1.1.14 "RENTAL COMMENCEMENT DATE" means January 1, 1994. ARTICLE 2 LEASE 2.1 Landlord hereby leases the Premises to Tenant, and Tenant hereby leases the Premises from Landlord, on the terms and conditions, and subject to the reservations, set forth in this Lease. 2.2 The rights of Tenant under this Lease are and shall remain junior, subordinate and subject to: 2.2.1 The right, title and interest of Magma Land under the Geothermal Lease. Without limiting the generality of the foregoing, the rights of Tenant hereunder shall be subject to the rights of Magma Land to use the Premises for any operations, activities and purposes permitted under the Geothermal Lease, including, without limitation, for: (a) drilling, producing, transporting, injecting and processing geothermal substances in connection with the operation of the Facilities and any Increased Capacity Improvements; and (b) for Operations (as that term is defined in the Geothermal Lease) in connection with, for the benefit of and for purposes incidental to Operations on lands in the vicinity of and outside the Premises, including, without limitation, the right to (i) drill and maintain wells on the Premises which bottomhole on lands other than the Premises and (ii) install and maintain pipelines on the Premises which carry geothermal substances to or from lands other than the Premises. 2.2.2 The right, title and interest of Magma Land and Salton Sea Brine Processing L.P. under that certain Easement Grant Deed and Agreement Regarding Rights for Geothermal Development dated as of March 31, 1993. 2.2.3 The rights of the lessee under that certain Agricultural Lease effective July 1, 1993, between Landlord and Richard Elmore and Howard Elmore, which Landlord represents, warrants and covenants to Tenant (a) will expire on June 30, 1994, and will not be renewed, extended or replaced and (b) does not affect the portion of the Premises upon which the Facilities are situated. ARTICLE 3 TERM 3.1 The term of this Lease shall commence upon the Effective Date, and, unless sooner terminated as provided in this Lease, shall expire on November 24, 2026. ARTICLE 4 RENT 4.1 Tenant shall pay to Landlord, without abatement, deduction or offset, "Base Annual Rent" for the Premises, commencing on the Rental Commencement Date and continuing thereafter on the first day of each calendar year throughout the term of this Lease, in the amount of Forty-Six Thousand, Eight Hundred Dollars ($46,800.00). 2 4.2 The Base Annual Rent shall be subject to adjustment every five (5) years as follows: 4.2.1 On every fifth (5th) anniversary of the Rental Commencement Date, the Base Annual Rent shall be adjusted to reflect the increase, if any, in the Consumer Price Index published by the Bureau of Labor Statistics of the Department of Labor for All Urban Consumers, All Items, for the Los Angeles-Anaheim-Riverside Metropolitan Area (the "CPI"), as follows: The Base Annual Rent amount provided in Section 4.1 hereof shall be multiplied by a fraction, the numerator of which shall be the CPI for the month of September immediately preceding such adjustment, and the denominator of which shall be the CPI for the month of September, 1993. The sum so calculated shall constitute the new Base Annual Rent hereunder, but in no event shall such new Base Annual Rent be less than the Base Annual Rent payable for the year immediately preceding such adjustment. 4.2.2 In the event that the publication of the CPI shall be transferred to any other governmental agency or shall be discontinued, then the index most nearly the same as the CPI, as determined in good faith by Landlord, shall be used to make such adjustments. 4.2.3 Tenant shall continue to pay Base Annual Rent at the rate previously in effect until the next adjustment, if any, is determined. Thereafter, the Base Annual Rent shall be paid at the increased rate. 4.3 Rent for any period during the term hereof which is for less than one year shall be prorated based on a three hundred and sixty-five (365) day year. Rent shall be payable in lawful money of the United States to Landlord at the address stated herein or to such other persons or at such other places as Landlord may designate in writing. ARTICLE 5 TAXES, ASSESSMENTS AND UTILITIES 5.1 Tenant shall pay all real and personal property taxes and assessments, general or special, levied against (a) this Lease or any right, title or interest of Tenant in the Premises, (b) the Facilities and any Increased Capacity Improvements and/or (c) any geothermal substances used to fuel the Facilities and any Increased Capacity Improvements, including, without limitation, any possessory interest, license, production, severance or excise taxes, but excluding income, inheritance and estate taxes. 5.1.1 All payments of real property taxes shall be prorated, on the basis of a 365-day year, for the applicable portion of the tax fiscal years at the commencement and expiration of the term of this Lease. 5.1.2 If the Premises are assessed together with other real or personal property of Landlord apart from the Premises, the taxes imposed on the entire assessed property shall be prorated, and Tenant shall pay that amount which equals the product obtained by multiplying the entire tax by a fraction, the numerator of which equals the value of the Premises and the denominator of which equals the value of all of the property so assessed. 5.1.3 Tenant may contest the legal validity or amount of any taxes for which Tenant is responsible under this Lease, and may institute such proceedings as Tenant considers necessary or appropriate in connection therewith. If Tenant contests any such taxes, Tenant may withhold or defer payment or pay under protest, but shall protect Landlord and the Premises from any lien by surety bond or other appropriate security reasonably acceptable to Landlord. Landlord hereby appoints Tenant as Landlord's attorney-in-fact for the purpose of making all payments to any taxing authorities and for the purpose of contesting any taxes affecting the Premises, conditioned on Tenant's preventing any liens from being levied on the Premises or on Landlord by reason of the non-payment of such taxes. 5.2 Tenant agrees to pay, before the same become delinquent, all charges for gas, electricity, sewage, water, telephone, trash removal, and other similar or dissimilar public services or commodities furnished to the 3 Premises, the Facilities or any Increased Capacity Improvements during the term of this Lease, including all installation, connection and disconnection charges. 5.3 It is the intent of the parties hereto that the rent provided in this Lease shall be absolutely net to Landlord, and that, except as otherwise expressly provided in this Lease, Tenant shall pay all costs and charges of every kind and nature incurred for, against, or in connection with the Premises which may arise or become due from and after the Rental Commencement Date and during the term hereof, including, without limitation, all taxes, utilities, insurance premiums and maintenance costs; provided, however, that nothing herein shall be construed as requiring Tenant to pay any installment of interest or principal owing on any encumbrance against the Premises for which Landlord is the obligor. All such costs and charges at the commencement and the end of the term of this Lease shall be appropriately prorated between the parties. ARTICLE 6 USE 6.1 Tenant shall use and permit the use of the Premises only for the construction, maintenance, repair, replacement and operation of the Facilities and any Increased Capacity Improvements, and for any uses associated therewith or incidental thereto. Further, Tenant may plant, irrigate, fertilize, nurture and harvest crops on the Premises, or permit licensees or subtenants to do the same, and any rentals from such agricultural use shall belong exclusively to Tenant. 6.2 Tenant shall, at Tenant's expense, promptly comply with all Laws now in effect or which may hereafter come into effect during the term hereof, relating in any manner to the Premises or the occupation and use by Tenant of the Premises. Tenant shall conduct its business in a lawful and commercially reasonable manner, and shall not use or permit the use of the Premises in any manner that will create waste or nuisance. Except as otherwise provided in this Lease, Tenant shall indemnify, defend and hold harmless Landlord from and against any and all Damages which may be imposed upon or incurred by Landlord or asserted against Landlord by any third Person, arising out of or attributable to Tenant's operations on the Premises. 6.3 Notwithstanding Section 6.2 hereof (in which the clause "in all material respects" has not been used to modify the effect of the word "comply" in the first sentence thereof), Tenant shall, at Tenant's expense, comply in all material respects with all environmental Laws now in effect or which may come into effect during the term hereof, including, without limitation, the Resource Conversation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, the California Hazardous Waste Control Act, the California Hazardous Substance Act, the Porter-Cologne Water Quality Control Act and all applicable regulations promulgated pursuant thereto. 6.4 Tenant shall indemnify, defend and hold harmless Landlord from and against any and all Damages which may be imposed upon or incurred by Landlord or asserted against Landlord by any third Person in connection with any violation of the provisions of Section 6.3 hereof, arising out of or attributable to (a) the assets, business, or operations of Tenant at or on the Premises or (b) any acts or omissions of or by Union Oil Company of California on the Premises prior to March 31, 1993, which, were said Union Oil Company of California a party hereto, would constitute a material violation of Section 6.3 hereof. 6.5 Without in any way limiting the scope of Tenant's obligations under the indemnification provisions of Section 6.4 hereof, Tenant shall be responsible for all investigations, studies, cleanup, corrective action or response or remedial action required by any local, state or federal governmental agency now or hereafter authorized to regulate environmental matters or by any consent decree, or court or administrative order now or hereafter applicable to the Premises, or by any Law now or hereafter in effect. 6.6 As between Landlord and Tenant, Tenant shall have the responsibility and right to manage and control all investigations and any environmental cleanup, remediation, or related activities, and may negotiate with 4 and fulfill any requirements or claims made by a governmental entity or third party, and may settle or contest such requirements or third-party claims. 6.7 Tenant hereby accepts the Premises in its condition existing as of the Effective Date, subject to all applicable Laws governing and regulating the use of the Premises, and all recorded easements, covenants, conditions, restrictions and other matters of record (including, without limitation, the Geothermal Lease), and Tenant accepts this Lease subject thereto. Tenant acknowledges that it has satisfied itself by its own independent investigation that the Premises are suitable for its intended use, and that neither Landlord nor Landlord's agents or employees has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Tenant's business. ARTICLE 7 MAINTENANCE, REPAIRS AND ALTERATIONS 7.1 Throughout the term, Tenant shall, at Tenant's sole cost and expense, maintain the Premises in good condition and repair, ordinary wear and tear excepted, in accordance with all Laws; provided, however, that subject to the provisions of any Project Lender's Loan Documents, Tenant shall not be required to repair, restore or remedy any damage to or destruction of the Facilities, and may instead elect to raze the improvements so damaged or destroyed, and provided further, that following any such razing, Tenant shall be entitled to terminate this Lease and the obligation to pay rent contained herein, so long as Tenant complies with Section 7.4 hereof. 7.2 Tenant shall be free to make any alterations or additions to the Premises, and may from time to time construct any Increased Capacity Improvements and any other improvements permitted under Section 6.1 hereof, subject to the following: 7.2.1 Tenant shall pay when due, all claims for labor or materials furnished to or for Tenant at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises, and shall indemnify and defend Landlord against any such liens or claims of lien. 7.2.2 If Tenant shall, in good faith, contest the validity of any lien, claim or demand, then Tenant shall, at its sole expense, defend itself and Landlord against the same and shall pay and satisfy any adverse judgment that may be rendered thereon before the enforcement thereof against Landlord or the Premises, upon the condition that if Landlord shall require, Tenant shall furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to such contested lien claim or demand, indemnifying Landlord against liability for the same and holding the Premises free from the effect of such lien or claim. 7.3 Notwithstanding any other provision of this Lease, the Facilities, any Increased Capacity Improvements and any of Tenant's other fixtures and personal property, whether or not affixed to the Premises, shall be deemed severed from and not a part of the underlying real property and shall not merge therewith, and shall remain the property of Tenant at all times during and after the term of this Lease, and may be removed by Tenant from the Premises; and all insurance proceeds received in connection with any damage to or destruction of the Facilities, any Increased Capacity Improvements and/or such other property shall belong exclusively to Tenant. 7.4 Within a reasonable period of time (not to exceed one hundred and eighty (180) days) after the expiration or earlier termination of the term of this Lease, Tenant shall, in accordance with good operating practice and in compliance with Law, (a) remove from the Premises the Facilities, any Increased Capacity Improvements and any and all other facilities, structures, pipelines, machinery, equipment, fixtures and personal property (except wells and casings) located on the Premises, (b) level and fill all sump holes and mud pits and cap or plug any wells constructed or drilled on the Premises, (c) to the extent reasonably practicable, demolish and remove all foundations, fix all excavations, return the Premises to grade, and leave the Premises safe and free from debris and (d) surrender the Premises to Landlord in good condition and repair, ordinary wear and tear excepted. 5 Notwithstanding the foregoing, Tenant shall not be required to remove from the Premises any facilities, structures, pipelines, machinery, equipment and other fixtures or personal property installed or constructed by, or take any other actions required in this Section 7.4 with respect to the property or activities of, Magma Land or any Transferee (as that term is defined in the Geothermal Lease) other than Salton Sea Brine Processing L.P., in each case to the extent such installation, construction and operations were conducted pursuant to the rights reserved to Magma Land under the Geothermal Lease. 7.5 Tenant shall maintain and repair, in accordance with reasonable engineering standards, all those dikes and levees on the Premises, if any, which Tenant is from time to time expressly required to maintain and repair pursuant to any applicable permit issued by the County of Imperial in connection with Tenant's operations, and Landlord assumes no responsibility therefor; provided, however, that Landlord shall maintain and repair, in accordance with reasonable engineering standards, all dikes and levees on other property of Landlord in the vicinity of the Premises (except those dikes and levees which Magma Land is required to maintain and repair pursuant to the provisions of the Geothermal Lease), and Tenant assumes no responsibility therefor. 7.6 Tenant shall be entitled, without charge, to use in connection with its operations or for maintaining or repairing any dike or levee, any earth or rock located on the Premises; provided, however, that notwithstanding Section 7.4 hereof, Tenant shall not be responsible for fixing any excavations or returning the Premises to grade to the extent that (a) such use of earth or rock was for the purpose of maintaining or repairing any dike or levee or (b) soils were taken or utilized by Landlord under Section 7.7 hereof. 7.7 Landlord reserves the right to enter the Premises and to take and utilize the soils contained therein as fill for flood control purposes, at no charge to Landlord; provided, however, that (a) in exercising its rights under this Section 7.7, Landlord shall not interfere with or cause any material delay, or increase in the cost of, Tenant's operations on the Premises and (b) Landlord shall indemnify, defend and hold harmless Tenant from and against any and all Damages, whether or not arising out of third-party claims, which may be imposed upon or incurred by Tenant or asserted against Tenant by any other Person, arising out of or attributable to such entry and use of such soils by Landlord. Without limiting the generality of the foregoing, Landlord shall not take or use any soil from any portion of the Premises which, at the time of such entry by Landlord, is being used as, or has been set aside for, the site of any facilities, well pads or other improvements, nor shall Landlord's use of such soils impair the lateral or subjacent support for any such site. In the event of any conflict between the rights of Landlord to take and utilize soils under this Section 7.7 and the rights of Tenant to use earth or rock under Section 7.6 hereof, the rights of Landlord under this Section 7.7 shall take priority. 7.8 Notwithstanding any other provision of this Lease, each party hereto hereby waives any claim against the other party hereto for Damages caused by any change or changes in the level of the Salton Sea; provided, however, that such waiver shall not apply to Damages which may be imposed upon or incurred by a party hereto or asserted against a party hereto by a third Person, arising out of or attributable to the gross negligence or intentional acts or omissions of the other party hereto or the failure of such other party to perform its obligations under Section 7.5 hereof. The parties hereto agree that such waiver shall include, without limitation, Damages caused by flooding, seepage or other circumstances attributable to any change or changes in the level of the Salton Sea, and that such waiver is part of the consideration under this Lease. ARTICLE 8 ASSIGNMENT AND SUBLETTING 8.1 Tenant may, at any time and from time to time during the term of this Lease, without the consent of Landlord, transfer, assign, alienate, license, sublet or grant to any Person all or any portion of the right, title or interest then held by it in the Premises or under this Lease (a "Transfer"). 8.2 Notwithstanding Section 8.1 hereof, but subject to Article 9 hereof, any Transfer of all of the right, title and interest of Tenant under this Lease shall require the consent of Landlord, which consent shall not unreasonably be withheld; provided, however, that without the consent of Landlord, Tenant shall be free to Transfer 6 all or any portion of the right, title or interest held by it in the Premises or under this Lease: (a) to (i) any affiliate of Tenant, (ii) any partnership in which Tenant or an affiliate of Tenant is a general partner or (iii) any Person for whom Tenant or an affiliate of Tenant acts as the operator of the Premises; or (b) through a sale-leaseback transaction, so long as Tenant or an affiliate of Tenant is the lessee in such sale-leaseback transaction. 8.3 In the event that Landlord's consent to a Transfer is required under Section 8.2 hereof, Tenant shall submit a written request to Landlord for such consent, which request shall be accompanied by reasonably pertinent details concerning the Person to whom such Transfer is proposed to be made, and Landlord shall have forty-five (45) calendar days in which to approve or disapprove of such Transfer. Landlord's failure to disapprove of such Transfer within such forty-five (45) day period shall be conclusively deemed to constitute Landlord's approval thereof. In no event shall Landlord be entitled to require the payment of any additional consideration in exchange for its approval of any Transfer requiring its consent hereunder. 8.4 Upon any Transfer of less than all of the right, title and interest of Tenant under this Lease, Tenant shall be and remain ultimately liable to Landlord for the performance of all obligations hereunder. 8.5 Upon (a) a Transfer of all the right, title and interest of Tenant under this Lease, (b) the assumption by the assignee of all remaining obligations of Tenant hereunder and (c) the giving of Landlord's consent thereto if so required under Section 8.2 hereof, Tenant shall be released from, and shall have no further obligations or liability hereunder. ARTICLE 9 RIGHTS OF LENDER 9.1 Tenant may, from time to time in one or more transactions, without obtaining the consent of Landlord, hypothecate, mortgage, pledge or alienate all or any portion of Tenant's right, title and interest under this Lease to the Project Lender. Tenant or the Project Lender shall give written notice to Landlord of the Project Lender's Lien and the Project Lender's address for notices hereunder; provided, however, that any failure to give such notice shall not be grounds for denying the Project Lender the rights and protections provided in this Article 9, so long as Landlord has received actual notice of the Project Lender's Lien. 9.2 Any surrender or abandonment in whole or in part of this Lease, or any material amendment hereto or termination hereof, shall be ineffective and of no force or effect unless and until the prior written consent of the Project Lender has been obtained thereto. 9.3 The Project Lender shall have the right, but not the obligation, at any time prior to the expiration or earlier termination of this Lease, and without the payment of any penalty, to (a) make any payments due hereunder, (b) do any other act or thing required of Tenant hereunder and (c) do any act or thing that may be necessary or appropriate to be done in the performance and observance of the terms hereof to prevent any default under or termination of this Lease. All payments so made and all things so done and performed by the Project Lender shall be as effective to prevent any default under or termination of this Lease as they would have been if made, done and performed by Tenant instead of by the Project Lender; provided, however, that no such payment or performance shall by itself be deemed to create a landlord-tenant relationship between Landlord and such Project Lender. 9.4 Tenant shall not be in default under this Lease unless Tenant fails to perform the obligations required of it hereunder within the time periods set forth herein, including all applicable cure periods. If Tenant fails to cure any default hereunder within the time so provided, then, commencing upon receipt by the Project Lender of written notice from Landlord to the effect that Tenant has failed to cure such default within such time, the Project Lender shall have an additional thirty (30) days to cure such default if such default is a monetary default, or ninety (90) days to cure such default if such default is a non-monetary default; provided, however, that if any such non-monetary default cannot reasonably be cured within such additional ninety (90) day period, then the Project Lender shall have such additional time to cure such non-monetary default as is reasonably necessary under the 7 circumstances, so long as (a) the Project Lender shall have fully cured within such ninety (90) day period any default in the performance of any non-monetary obligations of Tenant hereunder that can reasonably be cured within such ninety (90) day period and shall thereafter continue to faithfully perform all such monetary and other obligations and to diligently pursue such cure to completion and (b) if possession of the Premises is reasonably required in order to effect such cure, the Project Lender shall have acquired Tenant's interest hereunder or commenced foreclosure or other appropriate proceedings in the nature thereof within such ninety (90) day period or prior to the expiration thereof, and shall be diligently prosecuting any such proceedings to completion. All rights of Landlord to terminate this Lease as a result of the occurrence of any default by Tenant shall be subject to, and expressly conditioned upon, (i) the Project Lender's having received the notice specified above in this Section 9.4 and (ii) the Project Lender's having failed to take the actions set forth in this Section 9.4. 9.5 Any default by Tenant under this Lease that cannot be remedied by the Project Lender shall nevertheless be deemed to have been remedied so long as (a) the Project Lender shall have taken the actions described in clauses (a) and (b) of Section 9.4 hereof within the time periods provided therein, (b) if the Project Lender shall have commenced foreclosure or other appropriate proceedings in the nature thereof under clause (b) of Section 9.4 hereof, then the Project Lender shall have completed such foreclosure or other appropriate proceedings or otherwise obtained possession of the Premises and (c) the Project Lender shall perform all obligations of Tenant under this Lease which arise thereafter and which can reasonably be performed by the Project Lender. 9.6 If the Project Lender is prohibited by any process or injunction issued by any court or by reason of any action of any court having jurisdiction over any bankruptcy, reorganization, insolvency or other debtor-relief proceeding involving Tenant, from commencing or prosecuting foreclosure or other appropriate proceedings in the nature thereof, then the times specified in Sections 9.4 and 9.5 hereof for commencing or prosecuting such foreclosure or other proceedings shall be extended for the period of such prohibition. 9.7 Landlord shall deliver to the Project Lender a duplicate copy of any and all notices of default that Landlord may from time to time deliver to Tenant pursuant to the provisions hereof, and such copies shall be delivered to the Project Lender at, or as near as possible to, the same time such notices are delivered to Tenant. No notice of default by Landlord to Tenant hereunder shall be deemed to have been given unless and until a copy thereof shall have been delivered to the Project Lender as provided in this Section 9.7. 9.8 Foreclosure of the Project Lender's Lien or any sale thereunder, whether by judicial proceedings or otherwise, or any conveyance or transfer of the interest of Tenant under this Lease from Tenant to the Project Lender through, or in lieu of, foreclosure or other appropriate proceedings in the nature thereof, shall not require the consent of Landlord or constitute a breach of any provision of or a default under this Lease, and upon such foreclosure, sale or conveyance Landlord shall recognize the Project Lender, or any other foreclosure sale purchaser, as Tenant hereunder. In the event the Project Lender becomes the Tenant under this Lease as provided herein, then the Project Lender shall be personally liable for the obligations of Tenant under this Lease only for the period of time that the Project Lender remains the Tenant hereunder, and the Project Lander shall have the right to assign this Lease without any restriction otherwise imposed on Tenant hereunder; provided, however, that the assignee of the Project Lender shall have expressly assumed all of the obligations of Tenant hereunder. Notwithstanding any other provision of this Lease, in the event that the Project Lender (a) performs any monetary or other obligation of Tenant under this Lease, (b) acquires any portion of the right, title or interest in the leasehold estate created by this Lease, (c) continues Tenant's operation of the Premises, the Facilities and/or any Increased Capacity Improvements under this Lease and/or (d) becomes personally liable to Landlord hereunder, then the Project Lender's liability to Landlord shall be limited by and to the Project Lender's right, title and interest, if any, in the Facilities and any Increased Capacity Improvements, and Landlord shall have no recourse against the Project Lender in excess of, and other than to proceed against, such right, title and interest; provided, however, that in the event the Project Lender continues the operations of Tenant on the Premises for a period of time (commencing on the date the Project Lender obtains possession of the Premises) in excess of two (2) years, then the foregoing 8 limitation on liability shall not exculpate the Project Lender from personal liability to Landlord for Damages incurred by Landlord arising out of or attributable to the negligent or intentional acts of the Project Lender on the Premises. 9.9 Upon Landlord's receipt of any notice in the nature of a notice of default with respect to any obligation of Landlord secured by any lien upon the Premises, Landlord shall immediately deliver a copy of such notice to Tenant and to the Project Lender. If and whenever Tenant or the Project Lender shall deem it necessary or appropriate to do so in order to protect its respective rights under this Lease, it may, at its option, pay and discharge any mortgage or other lien attached to the Premises or any portion thereof, and in such event it shall be subrogated to all the rights of the mortgagee, beneficiary, owner or holder of such mortgage or other lien. 9.10 In the event that this Lease is rejected by a trustee or debtor-in-possession in any bankruptcy or insolvency proceeding, and if, within sixty (60) days after such rejection, the Project Lender shall so request, Landlord shall execute and deliver to the Project Lender a new ground lease of the Premises. Such new ground lease shall be for a term equal to the remainder of the term of this Lease before giving effect to such rejection, and shall contain the same covenants, agreements, terms, provisions and limitations as contained in this Lease (except for any requirements which shall have been fulfilled by Tenant prior to such rejection). 9.11 Landlord and Tenant acknowledge, agree and covenant that notwithstanding the union of the fee simple title with any right, title or interest in the leasehold estate created hereby or under any other document or instrument in Landlord, Tenant, Project Lender, or any other Person, whether by purchase or otherwise, it is the declared intention of the parties hereto that the separation of the fee simple estate and the leasehold estate shall be maintained and that a merger shall not take place without the prior written consent of the Project Lender. 9.12 Tenant and Landlord shall cooperate in including herein, by suitable amendment from time to time, any provision which any Project Lender or proposed Project Lender reasonably requests for the purpose of implementing the Project Lender-protective provisions contained in this Article 9 and affording the Project Lender or proposed Project Lender reasonable protection of its Project Lender's Lien in the event of a default by Tenant; provided, however, that Landlord shall not be required to include herein any additional provision which materially impairs the rights of Landlord under this Lease. Tenant and Landlord each agree to execute and deliver (and to acknowledge, if necessary for recording purposes) any document or instrument necessary to give effect to any such provision. 9.13 Landlord shall, upon not less than ten (10) days prior written notice from Tenant or from any existing or proposed Project Lender (the "Requesting Party"), execute, acknowledge and deliver to the Requesting Party a statement in writing (a) certifying that this Lease has not been modified and is in full force and effect (or, if so modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which any payments due under this Lease are paid in advance, if any, and (b) acknowledging that there are not, to Landlord's knowledge, any uncured defaults under this Lease on the part of Tenant, or specifying such defaults if any are claimed. Any such statements may be conclusively relied upon by the Requesting Party. The failure of Landlord to deliver such statement within such time shall be conclusive upon Landlord that this Lease is in full force and effect and has not been modified, and that there are no uncured defaults in the performance of Tenant hereunder. 9.14 The Project Lender shall be an express third party beneficiary of the covenants contained in this Lease, with rights and benefits under, and the ability to enforce, this Lease. ARTICLE 10 INSURANCE 10.1 At all times during the term of this Lease, Tenant shall procure and maintain the following policies of insurance, each of which shall be obtained from an insurance company rated at least B+ by A.M. Best Company and shall provide that it cannot be canceled or terminated without at least thirty (30) days prior notice to Landlord: 10.1.1 Worker's compensation insurance as required by Law; 9 10.1.2 Comprehensive general liability insurance with a limit of no less than $1,000,000, combined single limit, bodily injury and property damage, for each occurrence; and 10.1.3 Excess public liability insurance in the form of an umbrella policy, which umbrella policy shall afford coverage of not less than $5,000,000 per occurrence over and above the coverage provided by the policy described in Section 10.1.2 hereof. 10.2 In the event that Tenant has not renewed or replaced any such insurance policy within ten (10) days prior to the cancellation or termination thereof, then Landlord shall be entitled to cause such policy or policies to be renewed or replaced, and shall be entitled to invoice Tenant for the premiums paid by Landlord in connection with such renewal or replacement. Tenant shall reimburse Landlord for the amount of such invoice within ten (10) days after receipt thereof, and Tenant's failure to so reimburse Landlord within such ten (10) day period shall be a material default hereunder. ARTICLE 11 CONDEMNATION 11.1 In the event of a taking by eminent domain or by inverse condemnation for any public or quasi-public use under any Law, the proceeds therefrom shall be distributed (a) first, to Tenant to the extent of all amounts necessary to pay in full all sums outstanding under the Financing and (b) second, to the parties hereto in accordance with their interests as they may appear (which, in the case of Tenant, shall include, without limitation, the Facilities, any Increased Capacity Improvements and any lost income therefrom); provided, however, that Landlord shall not exercise its eminent domain powers in any manner which would in whole or in part deny Tenant the rights and benefits provided in this Lease. ARTICLE 12 DEFAULT AND REMEDIES 12.1 Subject to the provisions of Article 9 hereof, the occurrence of any one or more of the following events shall constitute a material default by Tenant under this Lease: 12.1.1 The failure by Tenant to make any payment of rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of thirty (30) business days after written notice thereof from Landlord to Tenant. 12.1.2 The failure by Tenant to observe or perform any of the material covenants, conditions or provisions of this Lease to be observed or performed by Tenant other than those referenced in Section 12.1.1 hereof, where such failure shall continue for a period of sixty (60) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant's noncompliance is such that more than sixty (60) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said sixty (60) day period and thereafter diligently pursues such cure to completion. 12.1.3 (a) The making by Tenant of any general arrangement for the benefit of creditors, (b) Tenant's becoming a "debtor" as defined in 11 U.S.C. section 101, unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days after filing, (c) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located on the Premises or of Tenant's interest under this Lease, where possession is not restored within sixty (60) days, or (d) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest under this Lease, where such seizure is not discharged within sixty (60) days. In the event that any provision of this Section 12.1.3 is contrary to any applicable Law, such provision shall be of no force or effect. 10 12.2 Subject to the provisions of Article 9 hereof, in the event of any material default of this Lease by Tenant, Landlord may take any of the following actions: 12.2.1 Terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate, and Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including, but not limited to: (a) the unpaid rent which had been earned at the time of termination; (b) the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (c) the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (d) any other amount necessary to compensate Landlord for the detriment proximately caused by Tenant's failure to perform its obligations under this Lease. 12.2.2 Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant shall have vacated or abandoned the Premises. In such event, Landlord shall be entitled to enforce all of Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. 12.2.3 Pursue any other remedy now or hereafter available to Landlord under the Laws or judicial decisions of the State of California. 12.3 Tenant hereby acknowledges that the late payment by Tenant to Landlord of any installment of rent or any other sum due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Accordingly, if any installment of rent or any other sum due from Tenant hereunder shall not be received by Landlord within ten (10) days after such amount shall be due, then Tenant shall pay to Landlord a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of such late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, or prevent Landlord from exercising any of the other rights and remedies granted hereunder. 12.4 Except as expressly provided herein, any amount due to Landlord hereunder that is not paid when due shall bear interest at the greater of (a) ten percent (10%) per annum or (b) five percent (5%) per annum above the discount rate established by the Federal Reserve Bank of San Francisco on advances to member banks under Section 13 or 13(a) of the Federal Reserve Act as in effect on the Rental Commencement Date, from the date due until fully paid. Payment of such interest shall not excuse or cure any default by Tenant under this Lease. 12.5 Notwithstanding any other provision of this Lease, Landlord shall not commence any action or proceeding in which termination of this Lease is sought as a remedy unless Landlord also includes therein a prayer for damages; nor shall Landlord allege, in any such action or proceeding, that it should be entitled to terminate this Lease because damages would be an inadequate remedy. Tenant shall conclusively be deemed to have remedied any default upon which such a prayer for termination of this Lease is based, if, within thirty (30) days after the entry of a final, non-appealable judgment in such action or proceeding (or, if such action or proceeding is appealable but has not been appealed, then within thirty (30) days following the end of the applicable appeal period), Tenant pays to Landlord the full amount of the damages awarded to Landlord in such action or proceeding. The failure of Tenant to pay to Landlord the full amount of such damages award within such thirty (30) day period shall, subject to the rights of the Project Lender set forth in Article 9 hereof, entitle Landlord to terminate this Lease by giving written notice of such termination to Tenant and to the Project Lender. 12.6 Except in connection with the failure of Tenant to pay a damages award under and within the time period set forth in Section 12.5 hereof, Tenant may cure any monetary default hereunder by depositing the amount in controversy (not including claimed consequential, special, exemplary or punitive damages) in escrow with any 11 reputable third party escrow, or by interpleading the same, which amount shall remain undistributed until final decision by a court of competent jurisdiction or upon agreement of the parties hereto. ARTICLE 13 MISCELLANEOUS LEASE PROVISIONS 13.1 Landlord may, at all reasonable times and upon reasonable notice to Tenant, enter on and inspect the Premises; provided, however, that such entry and inspection shall be conducted so as to not unreasonably interfere with Tenant's operations. The foregoing inspection rights shall be exercised only at the sole risk and cost of Landlord, and Landlord shall indemnify, defend and hold harmless Tenant from and against any and all Damages which may be imposed upon or incurred by Tenant or asserted against Tenant by any third Person, arising out of or attributable to such entry on or inspection of the Premises, and any activities conducted by or on behalf of Landlord in connection therewith. 13.2 Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises. Tenant assumes all responsibility for the protection of Tenant, its agents, invitees and their property from the acts of third parties. 13.3 Tenant shall surrender possession of the Premises to Landlord at the expiration or earlier termination of the term of this Lease. If Tenant fails to surrender the Premises at the expiration or earlier termination of this Lease, Tenant shall defend and indemnify Landlord from all liability and expense resulting from the delay or failure to do so, including, without limitation, claims made by any succeeding tenant founded on or resulting from Tenant's failure to do so. 13.4 If Tenant, with Landlord's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Tenant, except that the rent payable shall be one hundred and twenty-five percent (125%) of the rent payable immediately preceding the termination date of this Lease. 13.5 No waiver by Landlord of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Tenant of the same or any other provisions. The acceptance of rent hereunder by Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 13.6 No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at Law or in equity. 13.7 All monetary obligations of Tenant to Landlord under the terms of this Lease shall be deemed to be rent. ARTICLE 14 NOTICES 14.1 Any notices, statements, demands, correspondence or other communications required or permitted to be given hereunder shall be in writing and shall be given (a) personally, (b) by certified or registered mail, postage prepaid, return receipt requested, or (c) by overnight or other courier or delivery service, freight prepaid, to the following address, or, in the case of notices to the Project Lender, as provided in the notice of the Project Lender's lien delivered to Landlord under Section 9.1 hereof. 12 If to Landlord: Imperial Irrigation District 333 E. Barioni Blvd. Imperial, CA 92251 Attention: Secretary, Board of Directors If to Tenant: Salton Sea Power Generation L.P. Salton Sea Brine Processing L.P. 4365 Executive Drive, Suite 900 San Diego, California 92121 Attention: Legal Department Except as otherwise provided in Article 9 hereof, (i) notices delivered by hand shall be deemed received when delivered and (ii) notices sent by certified or registered mail or by overnight or other courier or delivery service shall be deemed received on the first to occur of (A) five (5) days after deposit in the United States mail or with such overnight or other courier or delivery service, addressed to such address or addresses, (B) written acceptance of delivery by the recipient or (C) written rejection of delivery by the recipient. Each party hereto may change its address for receipt of notices by sending notice hereunder of such change to the other party hereto in the manner specified in this Section, and the Project Lender may change its address for receipt of notices by sending notice hereunder to each of the parties hereto in the manner specified in this Section. Notwithstanding the foregoing, amounts payable to Landlord hereunder shall be deemed paid three (3) days after a check for the same, addressed to Landlord's address above, is deposited in the United States mail, first-class postage prepaid. ARTICLE 15 FORCE MAJEURE 15.1 Neither Landlord nor Tenant shall be liable in damages to the other for any act, omission or circumstance (an "Event of Force Majeure") occasioned by or in consequence of any acts or omissions of the other party hereto, acts of God, acts of the public enemy, wars, blockades, insurrections, riots, civil disturbances, strikes, lockouts, delays in transportation, epidemics, landslides, lightning, earthquakes, fires, storms, floods, explosions, sabotage, the binding order of any court or governmental authority which has been contested in good faith, the failure of any governmental authority to issue any permit, entitlement, approval or authorization within one hundred and twenty (120) days after an application for the same has been submitted, the effect of any Laws, or any other event or circumstance beyond the reasonable control of such party which prevents or hinders such party from performing its obligations hereunder, whether or not similar to the matters and conditions herein enumerated. In no event, however, shall an Event of Force Majeure relieve Tenant from the obligation to pay rent or any other payment due under this Lease. ARTICLE 16 GENERAL PROVISIONS 16.1 In addition to any other indemnities herein set forth, each party hereto (the "Indemnifying Party") shall indemnify, defend and hold harmless the other party hereto (the "Indemnified Party") from and against any and all Damages, whether or not arising out of third-party claims, which may be imposed upon or incurred by the Indemnified Party or asserted against the Indemnified Party by any third Person, arising out of or attributable to the failure of the Indemnifying Party to perform its obligations as provided in this Lease. 16.2 The parties hereto shall cooperate each with the other to fully effectuate the purposes and intent of this Lease. Without limiting the generality of the foregoing, the parties covenant that they will execute, cause to be acknowledged and deliver any documents or instruments reasonably necessary to implement the intentions expressed or implied herein. 13 16.3 Tenant shall, at its own expense, obtain such governmental approvals as shall be necessary to cause the Premises to comply with any Laws relating to subdivision or zoning. Without limiting the generality of Section 16.2 hereof, Landlord shall fully cooperate with Tenant's efforts to obtain such governmental approvals and, promptly upon written notice from Tenant, shall execute and deliver any and all applications, documents and instruments necessary or appropriate, in the reasonable discretion of Tenant, to apply for, process, obtain and/or implement all or any portion or element of any such governmental approval. 16.4 The partners in Salton Sea Power Generation L.P. and Salton Sea Brine Processing L.P. shall be entitled to (a) merge or by other corporate reorganization combine the same into a single entity, or replace one or both of the same with one or more other entities, and Landlord acknowledges and agrees that no such merger or replacement shall have any affect on the rights and obligations of the parties under this Lease. 16.5 The parties shall execute, cause to be acknowledged and deliver a memorandum of this Lease, which shall be recorded in the Official Records of Imperial County, California, and shall be in the form attached hereto as Exhibit "B". 16.6 If either party hereto commences litigation for the enforcement, termination, cancellation or rescission hereof, or for damages for the breach hereof, the prevailing party shall be entitled to recover its reasonable attorneys' fees and court and other costs incurred. 16.7 Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition. As used herein, the neuter gender includes the masculine and the feminine, and the singular number includes the plural, and vice versa. This Lease shall be governed by the Laws of the State of California. This Lease shall be construed equally as against the parties hereto, and shall not be construed against the party responsible for its drafting. Time is of the essence with respect to the obligations to be performed under this Lease. All exhibits to which reference is made in this Lease are incorporated into this Lease. The liability of Salton Sea Power Generation L.P. and Salton Sea Brine Processing L.P. hereunder shall be joint and several. 16.8 This Lease contains all agreements of the parties with respect to the subject matter of this Lease, and all prior or contemporaneous agreements, understandings, correspondence and negotiations, whether oral or written, pertaining to the subject matter of this Lease, shall be of no further force or effect, and are superseded hereby. 16.9 Any obligations referred to herein to be performed at any time after the expiration or termination of this Lease, and all indemnities and hold harmless agreements provided herein, shall survive the expiration or earlier termination of this Lease. 16.10 No termination or amendment of any of the provisions of this Lease shall be effective unless in writing, signed by the parties in interest at the time of the amendment. 16.11 The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. 16.12 This Lease and the covenants contained herein shall be binding upon and inure to the benefit of the parties hereto and their respective grantees, assignees, successors and assigns. 14 IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date first above written. LANDLORD: IMPERIAL IRRIGATION DISTRICT, an irrigation district organized and existing under the laws of the State of California By: /s/ Ralph W. Boeker ---------------------------------------- Name: Ralph W. Boeker -------------------------------------- Its: Vice Chairman --------------------------------------- TENANT: SALTON SEA POWER GENERATION L.P., a California limited partnership By: Salton Sea Power Company, a Nevada corporation, its general partner By: /s/ Jon R. Peele ------------------------------------ Name: Jon R. Peele ---------------------------------- Title: Vice President, Secretary -------------------------------- SALTON SEA BRINE PROCESSING L.P., a California limited partnership By: Salton Sea Power Company, a Nevada corporation, its general partner By: /s/ Jon R. Peele ------------------------------------ Name: Jon R. Peele ---------------------------------- Title: Vice President, Secretary --------------------------------- 15 EXHIBIT "A" Description of the Premises The following real property located in the County of Imperial, State of California: LOTS 5 AND 6, AND THE SOUTHWEST QUARTER OF THE NORTHWEST QUARTER OF SECTION 5, TOWNSHIP 12 SOUTH, RANGE 13 EAST, SAN BERNADINO MERIDIAN, ACCORDING TO OFFICIAL PLAT THEREOF; EXCEPTING THEREFROM ALL MINERALS (INCLUDING, WITHOUT LIMITATION, ALL GEOTHERMAL SUBSTANCES) LYING BELOW THE SURFACE OF SAID LAND. EXHIBIT "B" Memorandum of Ground Lease RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Salton Sea Power Generation L.P. Salton Sea Brine Processing L.P. 551 West Main Street Suite 1 Brawley, California 92227 Attn: Mr. Vincent Signorotti --------------------------------------------------------------------------- Assessor's Parcel Number: 020-110-19. The undersigned declare that this document conveys leasehold rights for a definite term of years, and hence NO DOCUMENTARY TRANSFER TAX IS DUE. The real property described herein is located in an unincorporated area of Imperial County, State of California. MEMORANDUM OF GROUND LEASE THIS MEMORANDUM OF GROUND LEASE (the "Memorandum") is made as of November 24, 1993, at San Diego, California, between IMPERIAL IRRIGATION DISTRICT, an irrigation district organized and existing under the laws of the State of California ("Landlord"), and SALTON SEA POWER GENERATION L.P., a California limited partnership and SALTON SEA BRINE PROCESSING L.P., a California limited partnership (together, "Tenant"). 1 This Memorandum is executed concurrently with that certain Ground Lease of even date herewith, between Landlord and Tenant (the "Lease"). 2 Pursuant to the Lease, Landlord hereby leases to Tenant, on all of the terms and conditions and subject to all of the reservations contained in the Lease, the real property described on Exhibit "A" attached hereto. 3 The term of the Lease shall commence upon the date first above written, and, unless sooner terminated as provided in the Lease, shall expire on November 24, 2026. 4 The terms and conditions of the Lease are incorporated herein by reference. This Memorandum is prepared for the purpose of recordation only, and in no way modifies the terms and conditions of the Lease. If there is any inconsistency between the terms and conditions of this Memorandum and the terms and conditions of the Lease, the terms and conditions of the Lease shall control. IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date first above written. LANDLORD: IMPERIAL IRRIGATION DISTRICT, an irrigation district organized and existing under the laws of the State of California By: /s/ Ralph W. Boeker ---------------------------------------- Name: Ralph W. Boeker -------------------------------------- Its: Vice Chairman --------------------------------------- TENANT: SALTON SEA POWER GENERATION L.P., a California limited partnership By: Salton Sea Power Company, a Nevada corporation, its general partner By: /s/ Jon R. Peele ------------------------------------ Name: Jon R. Peele ---------------------------------- Title: Vice President, Secretary -------------------------------- SALTON SEA BRINE PROCESSING L.P., a California limited partnership By: Salton Sea Power Company, a Nevada corporation, its general partner By: /s/ Jon R. Peele ------------------------------------ Name: Jon R. Peele ---------------------------------- Title: Vice President, Secretary --------------------------------- ACKNOWLEDGMENTS STATE OF California ) ------------------------- ) COUNTY OF San Diego ) ------------------------ On December 21, 1993, before me, Cheryl Ciabattini, Notary Public, personally appeared Jon R. Peele, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Cheryl Ciabattini --------------------------------- Notary Public STATE OF California ) ------------------------- ) COUNTY OF San Diego ) ------------------------ On December 21, 1993, before me, Cheryl Ciabattini, Notary Public, personally appeared Ralph W. Boeker, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Cheryl Ciabattini --------------------------------- Notary Public EXHIBIT "A" Description of the Premises The following real property located in the County of Imperial, State of California: LOTS 5 AND 6, AND THE SOUTHWEST QUARTER OF THE NORTHWEST QUARTER OF SECTION 5, TOWNSHIP 12 SOUTH, RANGE 13 EAST, SAN BERNADINO MERIDIAN, ACCORDING TO OFFICIAL PLAT THEREOF; EXCEPTING THEREFROM ALL MINERALS (INCLUDING, WITHOUT LIMITATION, ALL GEOTHERMAL SUBSTANCES) LYING BELOW THE SURFACE OF SAID LAND. ================================================================================ FIRST AMENDMENT TO GROUND LEASE ================================================================================ THIS FIRST AMENDMENT TO GROUND LEASE (the "Amendment") is made as of December 15, 1993, by and between IMPERIAL IRRIGATION DISTRICT, an irrigation district organized and existing under the laws of the State of California ("Landlord"), and SALTON SEA POWER GENERATION L.P., a California limited partnership and SALTON SEA BRINE PROCESSING L.P., a California limited partnership (together, "Tenant"). A. Landlord and Tenant are parties to that certain Ground Lease dated as of November 24, 1993, which affects the real property described in Exhibit "A" attached hereto (the "ground Lease"). B. Landlord and Tenant desire to amend the Ground Lease as provided herein. NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Section 6.4 of the Ground Lease is hereby deleted in its entirety and replaced with the following: 6.4 Tenant shall indemnify, defend and hold harmless Landlord from and against any and all Damages which may be imposed upon or incurred by Landlord or asserted against Landlord by any third Person in connection with any violation of the provisions of Section 6.3 hereof, arising out of or attributable to (a) the assets, business, or operations of Tenant at or on the Premises or (b) any acts or omissions of or by Union Oil Company of California on the Premises prior to March 31, 1993, which, were said Union Oil Company of California a party hereto, would constitute a material violation of Section 6.3 hereof. 2. In the event that any inconsistency exists between the terms and provisions of this Amendment and the terms and provisions of the Ground Lease, the terms and provisions of this Amendment shall prevail, and any such inconsistent terms and provisions contained herein shall be construed as superseding and amending the terms and provisions of the Ground Lease. Except as expressly modified by this Amendment, the Ground Lease shall be unchanged and shall remain in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date first above written. LANDLORD: IMPERIAL IRRIGATION DISTRICT, an irrigation district organized and existing under the laws of the State of California By: /s/ illegible ----------------------------------- Name: --------------------------------- Its: ---------------------------------- TENANT: SALTON SEA POWER GENERATION L.P., a California limited partnership By: Salton Sea Power Company, a Nevada corporation, its general partner By: /s/ illegible ----------------------------------- Name: --------------------------------- Title: -------------------------------- SALTON SEA BRINE PROCESSING L.P., a California limited partnership By: Salton Sea Power Company, a Nevada corporation, its general partner By: /s/ illegible ----------------------------------- Name: --------------------------------- Title: -------------------------------- EXHIBIT "A" Description of the Premises The following real property located in the County of Imperial, State of California: LOTS 5 AND 6, AND THE SOUTHWEST QUARTER OF THE NORTHWEST QUARTER OF SECTION 5, TOWNSHIP 12 SOUTH, RANGE 13 EAST, SAN BERNADINO MERIDIAN, ACCORDING TO OFFICIAL PLAT THEREOF; EXCEPTING THEREFROM ALL MINERALS (INCLUDING, WITHOUT LIMITATION, ALL GEOTHERMAL SUBSTANCES) LYING BELOW THE SURFACE OF SAID LAND. EX-10.34 11 GROUND LEASE (SALTON SEA UNITS III & IV) ================================================================================ GROUND LEASE ================================================================================ THIS GROUND LEASE (the "Lease") is made as of March 31, 1993, by and between MAGMA LAND COMPANY I, a Nevada corporation ("Landlord"), and SALTON SEA POWER GENERATION L.P., a California limited partnership and SALTON SEA BRINE PROCESSING L.P., a California limited partnership (together, "Tenant"). ARTICLE 1 - DEFINITIONS 1.1 Unless the context shall otherwise require, the following capitalized terms used herein shall have the following meanings: 1.1.1 "DAMAGES" means any losses, damages, liabilities, claims, judgments, liens, penalties, costs and expenses, including, without limitation, reasonable attorneys' and consultants' fees. 1.1.2 "EASEMENT AGREEMENT" means that certain Easement Grant Deed and Agreement Regarding Rights for Geothermal Development dated as of March 31, 1993, between Landlord and Salton Sea Brine Processing L.P. 1.1.3 "EFFECTIVE DATE" means March 31, 1993. 1.1.4 "FACILITY" means that certain geothermal electrical generating facility commonly known as Unocal Salton Sea Unit 3, together with all wells and wellsites, pipelines, utility installations, machinery, equipment, buildings and other items associated therewith or related thereto which are located on the Premises. 1.1.5 "FACILITY SITE" shall have the meaning given in Section 16.1 hereof. 1.1.6 "FINANCING" means term financing for the Facility and, subject to Section 8.2 hereof, for the construction and subsequent term financing of any Increased Capacity Improvements, whether in the same or separate transactions. 1.1.7 "GOVERNMENTAL APPROVALS" means all applicable authorizations, consents, approvals, permissions, permits, franchises, licenses, waivers, exceptions or variances of, and any filings, applications and declarations submitted in order to obtain any of the same from, any Governmental Authority. 1.1.8 "GOVERNMENTAL AUTHORITY" means any federal, state or local governmental body, or any political subdivision, agency, subagency or instrumentality thereof, including, without limitation, the courts and any quasi-adjudicative bodies with jurisdiction. 1.1.9 "INCREASED CAPACITY IMPROVEMENTS" means any improvements, machinery or equipment, the purpose of which is to increase the installed capacity of the Facility beyond the installed capacity that existed as of the Effective Date, including, without limitation, (a) the replacement of an existing generator in the Facility with a generator of a higher nameplate rating, (b) the installation of one or more additional generators in the Facility or (c) the installation or replacement of any other machinery or equipment at or in the Facility for the purpose of increasing its installed capacity. 1 1.1.10 "LAW" OR "LAWS" means all applicable laws, statutes, ordinances, rules, regulations, decrees, policies, orders, permits, requirements, judgments, decisions, injunctions and findings of or issued by any Governmental Authority. 1.1.11 "OFFICIAL RECORDS" means the official records of the County of Imperial, State of California. 1.1.12 "OPTIONED PREMISES AREA" shall have the meaning given in Section 16.3 hereof. 1.1.13 "PARTIAL TERMINATION OPTION" shall have the meaning given in Section 16.3 hereof. 1.1.14 "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a Governmental Authority. 1.1.15 "PREMISES" means the real property described on Exhibit "A" attached hereto; subject, however, to the right of Landlord to terminate the Lease as to the Optioned Premises Area as provided in Article 16 hereof. 1.1.16 "PROJECT LENDER" means the lender or lenders collectively advancing all or a portion of the Financing, and their respective agents, trustees (including, without limitation, collateral agents, security agents and loan trustees), grantees, successors and assigns. 1.1.17 "PROJECT LENDER'S LIEN" means any security interest taken by the Project Lender in Tenant's right, title and interest under this Lease. 1.1.18 "PROJECT LENDER'S LOAN DOCUMENTS" means all instruments, agreements and other documents evidencing or relating to the Financing and/or the security therefor. 1.1.19 "RENTAL COMMENCEMENT DATE" means January 1, 1994. 1.1.20 "RESERVED AREA" shall have the meaning given in Section 16.1 hereof. ARTICLE 2 - LEASE 2.1 Landlord hereby leases the Premises to Tenant, and Tenant hereby leases the Premises from Landlord, on the terms and conditions, and subject to the reservations, set forth in this Lease. 2.2 Landlord hereby reserves from the leasehold estate granted to Tenant hereunder the right to use the Premises for the following purposes: 2.2.1 To obtain, extract, develop, transport, utilize, sell and dispose of the Reserved Geothermal Brine and the Geothermal Brine Scale. Subject to the applicable limitations on such use provided in the Easement Agreement, the right reserved by Landlord under this Section 2.2.1 includes the right to (a) drill, maintain and operate wells, install, maintain and operate pipelines, construct, maintain and operate any Plants Utilizing Grantor's Reserved Brine, and conduct any other activities and operations and install or construct any other improvements, equipment or machinery, necessary or convenient in connection with, or incidental to, the rights reserved by Landlord under Sections 2.4.1 and 2.4.2 of the Easement Agreement and (b) to, in a commercially reasonable manner, "tap" into the pipelines or other Brine Facilities carrying or containing any Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine and/or Geothermal Brine Scale from the Facilities to injection wells, thereby affording to Landlord (i) access to such Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine and/or Geothermal Brine Scale and (ii) the ability to return Totally Spent Geothermal Brine to such pipelines or other Brine Facilities for purposes of injection, in each case in an oxygen-free environment. (All capitalized terms used in this Section and not defined herein shall have the meaning given such terms in the Easement Agreement.) 2 2.2.2 To obtain, extract, develop, transport, utilize, sell and dispose of geothermal substances produced from, and injected into, wells which bottomhole in the Reserved Geothermal Lands, and, in connection therewith, to drill, maintain and operate wells drilled into the Reserved Geothermal Lands, install, maintain and operate pipelines, construct, maintain and operate any Future Non-Easement Area Plants, and conduct any other activities and operations, and install or construct any other improvements, equipment or machinery, necessary or convenient in connection with, or incidental to, the rights reserved by Landlord under Section 2.5 of the Easement Agreement. (All capitalized terms used in this Section and not defined herein shall have the meaning given such terms in the Easement Agreement.) The rights reserved by Landlord under this Section 2.2.2 shall be in addition to, and not a limitation upon, the rights of Landlord, as the holder of a fee interest in the minerals underlying the Premises, to enter and utilize the Premises in connection with its obtaining, extracting, developing, transporting, utilizing, selling and disposing of such minerals (including, without limitation, the geothermal substances) thereunder, which rights are implied by Law, including, without limitation, rights of ingress and egress for access and utility purposes. 2.3 Notwithstanding the foregoing, Landlord shall use its best efforts to minimize the effect of its use of the Facility Site under Sections 2.2.1 and 2.2.2 hereof on Tenant's operation and maintenance of the Facility and any Increased Capacity Improvements, and Landlord shall pay all reasonable costs actually incurred by Tenant as a result of Landlord's exercise, on the Facility Site, of the rights reserved to Landlord in Sections 2.2.1 and 2.2.2 hereof. 2.4 Tenant shall not at any time during the term of this Lease, without the prior written consent of Landlord, which consent may be withheld in Landlord's sole discretion, (a) construct or install any structure, building, well, pipeline or other improvements, equipment or machinery upon the Reserved Area (including, without limitation, any Increased Capacity Improvements), (b) grade or otherwise disturb the surface of the Reserved Area or (c) except as otherwise expressly provided in this Lease, conduct any other activities or operations in or on the Reserved Area. 2.5 Landlord shall have and retain the right to, if and to the extent reasonably deemed necessary by Landlord, from time to time designate a right of way on, over, across and through the Facility Site for nonexclusive ingress, egress and use by Landlord for purposes of access to any portion of the Reserved Area and/or the construction, installation, operation and maintenance of utility lines and pipelines for the transportation of geothermal substances in connection with any geothermal electrical generating facility and/or other commercial or industrial facility or improvements hereafter constructed in, on or under the Reserved Area, the Reserved Geothermal Lands (as that term is defined in the Easement Agreement) or any lands pooled or unitized therewith; provided, however, that the location and use of such right of way shall not unreasonably interfere with the operation of, or deny Tenant access to, the Facility. 2.6 The rights of Tenant under this Lease are and shall remain junior, subordinate and subject to the right, title and interest of Landlord under the Easement Agreement. 2.7 The rights reserved by Landlord under this Article and elsewhere in this Lease shall be assignable by Landlord to its grantees, assignees, successors and assigns. ARTICLE 3 - TERM 3.1 The term of this Lease shall commence upon the Effective Date, and, unless sooner terminated as provided in this Lease, shall expire on November 24, 2026. 3 ARTICLE 4 - RENT 4.1 Tenant shall pay to Landlord, without abatement, deduction or offset, "Base Annual Rent" for the Premises, commencing on the Rental Commencement Date and continuing thereafter on the first day of each calendar year throughout the term of this Lease, in an amount equal to (a) Four Hundred Dollars ($400) multiplied by (b) the number of acres of the Facility Site. 4.2 The Base Annual Rent shall be subject to adjustment every five (5) years as follows: 4.2.1 On every fifth (5th) anniversary of the Rental Commencement Date, the Base Annual Rent shall be adjusted to reflect the increase, if any, in the Consumer Price Index published by the Bureau of Labor Statistics of the Department of Labor for All Urban Consumers, All Items, for the Los Angeles-Anaheim-Riverside Metropolitan Area (the "CPI"), as follows: The Base Annual Rent amount provided in Section 4.1 hereof shall be multiplied by a fraction, the numerator of which shall be the CPI for the month of September immediately preceding such adjustment, and the denominator of which shall be the CPI for the month of September, 1993. The sum so calculated shall constitute the new Base Annual Rent hereunder, but in no event shall such new Base Annual Rent be less than the Base Annual Rent payable for the year immediately preceding such adjustment. 4.2.2 In the event that the publication of the CPI shall be transferred to any other Governmental Authority or shall be discontinued, then the index most nearly the same as the CPI, as determined in good faith by Landlord, shall be used to make such adjustments. 4.2.3 Tenant shall continue to pay Base Annual Rent at the rate previously in effect until the next adjustment, if any, is determined. Thereafter, the Base Annual Rent shall be paid at the increased rate. 4.3 Rent for any period during the term hereof which is for less than one year shall be prorated based on a three hundred and sixty-five (365) day year. Rent shall be payable in lawful money of the United States to Landlord at the address stated herein or to such other persons or at such other places as Landlord may designate in writing. ARTICLE 5 - TAXES, ASSESSMENTS AND UTILITIES 5.1 Tenant shall pay all real and personal property taxes and assessments, general or special, levied against (a) this Lease or any right, title or interest of Tenant in the Premises and (b) the Facility and any Increased Capacity Improvements, including, without limitation, any possessory interest, license, production, severance or excise taxes, but excluding income, inheritance and estate taxes (collectively, "Tenant's Taxes"); provided, however, that Landlord shall pay all real and personal property taxes and assessments, general or special, levied against (i) any right, title or interest of Landlord in the Reserved Area and/or (ii) any facilities, structures, wells, pipelines, improvements, machinery or equipment owned or leased by Landlord on the Premises. 5.2 Tenant shall pay all Tenant's Taxes before delinquency, whether chargeable against Landlord or Tenant. Tenant shall make all payments of Tenant's Taxes directly to the charging Governmental Authority before delinquency and before any fine, interest or penalty shall become due or be imposed by operation of Law for their nonpayment, and, at the election of Landlord to be exercised from time to time by notice to Tenant, shall either be paid to Landlord or directly to the charging Governmental Authority. If the payment of any or all of the Tenant's Taxes in installments is permitted (whether or not interest accrues on the unpaid balance), Tenant may, at Tenant's election, utilize the permitted installment method, but shall pay each installment (with any interest) before delinquency. 5.3 All payments of Tenant's Taxes shall be prorated, on the basis of a 365-day year, for the applicable portion of the tax fiscal years at the commencement and expiration of the term of this Lease. 4 5.4 If Tenant's Taxes are assessed together with the taxes assessed against the assets described in clauses (i) and (ii) of Section 5.1 hereof or together with taxes on any other real or personal property of Landlord or any other Person, then Landlord shall, in good faith, separate out Tenant's Taxes from such other taxes, using any reasonable method of allocation as Landlord may determine. 5.5 Tenant may contest the legal validity or amount of any of Tenant's Taxes, and may institute such proceedings as Tenant considers necessary or appropriate in connection therewith. If Tenant contests any of Tenant's Taxes, then Tenant may withhold or defer payment or pay under protest, but shall protect Landlord, the Premises, the Facility, any Increased Capacity Improvements and any Plants Utilizing Grantor's Reserved Brine and Future Non-Easement Area Plants (as those terms are defined in the Easement Agreement) from and against any tax lien imposed in connection with such non-payment, by surety bond or other appropriate security reasonably acceptable to Landlord. 5.6 Tenant shall pay, before the same become delinquent, all charges for gas, electricity, sewage, water, telephone, trash removal and other similar or dissimilar public services or commodities furnished to the Facility Site, the Facility and/or any Increased Capacity Improvements during the term of this Lease, including all installation, connection and disconnection charges. 5.7 It is the intent of the parties hereto that the rent provided in this Lease shall be absolutely net to Landlord with respect to the Facility Site, and that, except as otherwise expressly provided in this Lease, Tenant shall pay all costs and charges of every kind and nature incurred for, against, or in connection with the Facility Site which may arise or become due from and after the Rental Commencement Date and during the term hereof, including, without limitation, all taxes, utilities, insurance premiums and maintenance costs; provided, however, that nothing herein shall be construed as requiring Tenant to pay any installment of interest or principal owing on any encumbrance against the Premises for which Landlord is the obligor. All such costs and charges at the commencement and the end of the term of this Lease shall be appropriately prorated between the parties. ARTICLE 6 - USE 6.1 Subject to Section 2.4 hereof, Tenant shall use and permit the use of the Premises only for the construction, maintenance, repair, replacement and operation of the Facility and, subject to Section 8.2 hereof, any Increased Capacity Improvements, and for any uses associated therewith or incidental thereto. 6.2 Tenant shall, at Tenant's expense, promptly comply in all material respects with all Laws now in effect or which may hereafter come into effect during the term hereof, relating in any manner to the Premises or the occupation and use by Tenant of the Facility Site. Further, Tenant shall comply in all material respects with any covenants, conditions and restrictions of record and with the requirements of any fire insurance underwriters or rating bureaus. Tenant shall conduct its business in a lawful and commercially reasonable manner, and shall not use or permit the use of the Premises in any manner that will create waste or nuisance. Tenant shall indemnify, defend and hold harmless Landlord from and against any and all Damages which may be imposed upon or incurred by Landlord or asserted against Landlord by any third Person, arising out of or attributable to Tenant's activities or operations on the Premises. 6.3 Tenant shall, at Tenant's expense, comply in all material respects with all environmental Laws now in effect or which may come into effect during the term hereof, including, without limitation, the Resource Conversation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, the California Hazardous Waste Control Act, the California Hazardous Substance Act, the Porter-Cologne Water Quality Control Act and all applicable regulations promulgated pursuant thereto. 6.4 Without limiting the generality of Section 6.2 hereof, Tenant shall indemnify, defend and hold harmless Landlord from and against any and all Damages which may be imposed upon or incurred by Landlord 5 or asserted against Landlord by any third Person in connection with any violation of the provisions of Section 6.3 hereof, arising out of or attributable to (a) the assets, business, or operations of Tenant at or on the Premises or (b) any acts or omissions of or by Union Oil Company of California or any of its predecessors-in-interest on the Premises prior to the Effective Date, which, were said Union Oil Company or such predecessors a party hereto, would constitute a material violation of Section 6.3 hereof. 6.5 Without in any way limiting the scope of Tenant's obligations under the indemnification provisions of Section 6.4 hereof, but subject to Landlord's obligation under Section 2.3 hereof to pay all reasonable costs actually incurred by Tenant as a result of Landlord's exercise, on the Facility Site, of the rights reserved to Landlord under Sections 2.2.1 and 2.2.2 hereof, Tenant shall be responsible for all investigations, studies, cleanup, corrective action or response or remedial action required by any Governmental Authority now or hereafter authorized to regulate environmental matters or by any consent decree, or court or administrative order now or hereafter applicable to the Premises, or by any Law now or hereafter in effect. 6.6 As between Landlord and Tenant, Tenant shall have the responsibility and right to participate in the management and control of all investigations and any environmental cleanup, remediation, or related activities. However, Tenant may not negotiate with or fulfill any requirements or claims made by a Governmental Authority or third Person, or settle or contest such requirements or third-party claims without the express approval of Landlord, and Landlord shall have the right to participate fully in any and all meetings, negotiations or decisions relevant to the investigation or remediation of the violation of the provisions of this Article 6 at the Premises. 6.7 Tenant hereby accepts the Premises in its condition existing as of the Effective Date, subject to all applicable Laws governing and regulating the use of the Premises, and all recorded easements, covenants, conditions, restrictions and other matters of record, and Tenant accepts this Lease subject thereto and to the Easement Agreement. Tenant acknowledges that it has satisfied itself by its own independent investigation that the Facility Site is suitable for its intended use, and that neither Landlord nor Landlord's agents or employees has made any representation or warranty as to the present or future suitability of the Facility Site for the conduct of Tenant's business or operations. ARTICLE 7 - MAINTENANCE AND REPAIRS 7.1 Throughout the term, Tenant shall, at Tenant's sole cost and expense, maintain the Facility Site in good condition and repair, ordinary wear and tear excepted, in accordance with (a) all Laws, (b) any insurance underwriting board or insurance inspection bureau having or claiming jurisdiction, and (c) any insurance company insuring all or any part thereof. 7.2 Tenant shall maintain and repair, in accordance with reasonable engineering standards, all dikes and levees located on the Premises. Landlord shall maintain and repair, in accordance with reasonable engineering standards, all dikes and levees located outside of the Premises which Landlord is obligated to maintain under the Geothermal Rights Documents (as that terms is defined in the Easement Agreement) or under any Governmental Approval or by Law. 7.3 Landlord reserves the right to enter the Premises and to take and utilize the soils and rock contained therein as fill for flood control purposes, at no charge to Landlord; provided, however, that (a) in exercising its rights under this Section 7.3, Landlord shall not interfere with or cause any material delay, or increase in the cost of, Tenant's operations on the Facility Site and (b) Landlord shall indemnify, defend and hold harmless Tenant from and against any and all Damages, whether or not arising out of third-party claims, which may be imposed upon or incurred by Tenant or asserted against Tenant by any other Person, arising out of or attributable to Landlord's use of any such soils and/or rock on the Facility Site. Without limiting the generality of the foregoing, Landlord shall not take or use any soil or rock from any portion of the Facility Site which, at the time of such entry by Landlord, is being used as the site of the Facility or any Increased Capacity Improvements, nor shall Landlord's use of such soils and/or rock impair the lateral or subjacent support for any such site. 6 7.4 Notwithstanding any other provision of this Lease, Tenant hereby waives any claim against Landlord for Damages caused by any change or changes in the level of the Salton Sea; provided, however, that such waiver shall not apply to Damages which may be imposed upon or incurred by Tenant or asserted against Tenant by a third Person, arising out of or attributable to the gross negligence or intentional acts or omissions of Landlord or by reason of Landlord's failure to perform its obligations under Section 7.2 hereof. The parties hereto agree that such waiver shall include, without limitation, Damages caused by flooding, seepage or other circumstances attributable to any change or changes in the level of the Salton Sea, and that such waiver is part of the consideration under this Lease. ARTICLE 8 - ALTERATIONS AND ADDITIONS 8.1 Subject to Section 8.2 hereof, Tenant shall be entitled, at its own cost and expense, to construct, install, erect, maintain, repair and operate the Increased Capacity Improvements on the Facility Site, and upon commencement of construction thereof, the same shall for all purposes be deemed to be included within the term "Facility" hereunder. In the event Tenant elects to construct or install the Increased Capacity Improvements, then it shall obtain and maintain in force all Governmental Approvals necessary or appropriate in connection therewith. 8.2 Landlord's approval shall not be required for Tenant's minor alterations or additions to the Facility or for the construction or installation of the Increased Capacity Improvements, so long as such alterations or additions and/or such construction or installation does not have a Construction Cost in excess of One Million Dollars ($1,000,000). As used herein, the term "Construction Cost" collectively includes all costs that would constitute the basis of a valid claim or claims under the mechanic's lien Laws, including, without limitation, costs for any demolition or removal of existing improvements, equipment or machinery or parts thereof, as well as costs for the preparation, construction and completion of new improvements, equipment or machinery. Any alterations or additions to the Facility, and any construction or installation of the Increased Capacity Improvements, which has a Construction Cost in excess of One Million Dollars ($1,000,000), shall require Landlord's prior written consent, which shall not unreasonably be withheld. All alterations and additions, and all Increased Capacity Improvements, whether or not requiring Landlord's consent hereunder, shall be completed in a good and workmanlike manner and of good quality and materials. 8.3 Tenant shall use only reputable licensed contractors in making any alterations or additions to the Facility and in installing or constructing the Increased Capacity Improvements, and Landlord may require Tenant to provide to Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half (1 1/2) times the estimated cost of such alterations or additions or such Increased Capacity Improvements, as the case may be, to insure Landlord against liability for any mechanic's and materialmen's liens and to ensure completion of the work. Should Tenant make any alterations or additions or construct any Increased Capacity Improvements without the prior written consent of Landlord where such consent is required hereunder, or use other than a reputable licensed contractor, Landlord may, at any time during the term of this Lease, require that Tenant remove any part or all of the same from the Premises. 8.4 Tenant shall pay, when due, all claims for labor or materials furnished to or for Tenant at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises, the Facility, any Increased Capacity Improvements or any interest therein. 8.5 Tenant shall give Landlord not less than ten (10) days notice prior to Tenant's commencement of any alterations or additions to the Facility or of any construction or installation of the Increased Capacity Improvements, and Landlord shall have the right to post notices of non-responsibility in or on the Premises as provided by Law. If Tenant shall, in good faith, contest the validity of any mechanic's or materialmen's lien or claim, then Tenant shall, at its sole expense, defend itself and Landlord against the same and shall pay and satisfy any adverse judgment that may be rendered thereon before the enforcement thereof, upon the condition that if Landlord shall so require, Tenant shall furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to such 7 contested lien or claim, indemnifying Landlord against liability for the same and holding the Premises, the Facilities and any Increased Capacity Improvements free from the effect of such lien or claim. In addition, Landlord may require Tenant to pay Landlord's reasonable attorneys' fees and costs in participating in such action, if Landlord shall decide it is in Landlord's best interest to so participate. 8.6 Notwithstanding any other provision of this Lease, the Facility, any Increased Capacity Improvements and all of Tenant's other fixtures and personal property, whether or not affixed to the Premises, shall be deemed severed from and not a part of the underlying real property and shall not merge therewith, and, subject to the rights of Landlord under Section 9.3 hereof, shall remain the property of Tenant at all times during and after the term of this Lease, and may be removed by Tenant from the Premises. ARTICLE 9 - DAMAGE OR DESTRUCTION; TERMINATION 9.1 If the Facility, any Increased Capacity Improvements, or any portion of any thereof are damaged or destroyed during the term of this Lease, then, subject to the provisions of the Project Lender's Loan Documents, and following written notice to Landlord, Tenant may elect to: (a) repair, restore or remedy such damage or destruction; or (b) dismantle and raze the Facility and all Increased Capacity Improvements (if any then exist) in accordance with Section 9.2 hereof, and, upon Tenant's completion of the restoration and other requirements set forth in such Section 9.2, each of Tenant or Landlord, by written notice to the other, shall be entitled to terminate this Lease. 9.2 Within a reasonable period of time (not to exceed one hundred and twenty (120) days) after (a) Tenant delivers notice to Landlord of its intent to dismantle and raze the Facility and all Increased Capacity Improvements under Section 9.1 hereof or (b) the expiration or earlier termination by Landlord of this Lease, Tenant shall, at its sole cost and expense, in accordance with good operating practice and in compliance with Law, (i) remove the Facility and all Increased Capacity Improvements (except wells and casings from the Premises), (ii) level and fill all sump holes and mud pits and cap or plug any wells constructed or drilled on the Premises (except those wells, if any, drilled by Landlord or its licensee in connection with operation of any Plants Utilizing Grantor's Reserved Brine or Future Non-Easement Area Plants (as those terms are defined in the Easement Agreement), (iii) to the extent reasonably practicable, demolish and remove all foundations and fix all excavations associated with the Facility or any Increased Capacity Improvements, return the surface of the Premises to grade, and leave such surface safe and free from debris and (iv) surrender the Premises to Landlord in good condition and repair. Notwithstanding the foregoing, Tenant shall not remove from the Premises the Facility or any Increased Capacity Improvements, or any portion thereof (or take any other actions required under this Section 9.2 with respect thereto), as to which Landlord has exercised the option set forth in Section 9.3 hereof. 9.3 Notwithstanding any other provision of this Lease, upon the expiration or earlier termination by Landlord of this Lease, or upon receipt by Landlord of Tenant's notice of its intent to dismantle and raze the Facility and all Increased Capacity Improvements under Section 9.1 hereof, as the case may be, Landlord shall have an option to acquire all or any portion or portions of the Facility and/or such Increased Capacity Improvements from Tenant, whereupon: (a) in the event Landlord desires to exercise such option in connection with the expiration of this Lease, such option shall be exercised by written notice to Tenant not less than one hundred and twenty (120) days before the expiration date of this Lease; (b) in the event Landlord desires to exercise such option in connection with the earlier termination by Landlord of this Lease, such option shall be exercised by written notice given concurrently with the notice of such termination; and (c) in the event Landlord desires to exercise such option in connection with its receipt of notice of Tenant's election to dismantle and raze the Facility and all Increased Capacity Improvements as provided in Section 9.1 hereof, such option shall be exercised by written notice to Tenant within thirty (30) days following Landlord's receipt of such notice from Tenant. In each such case, such notice shall specify which portions (or all, if Landlord so elects) of the Facility and/or Increased Capacity Improvements are to be acquired by Landlord. In the event Landlord exercises such option as provided herein, then it shall pay to Tenant an amount equal to the fair market value of the portions (or all, if applicable) of the Facility and/or Increased Capacity Improvements to be acquired by Landlord (which fair market value shall be determined as of the date on which Landlord exercises such option), and payment of such amount shall be deemed payment in full for those portions (or all, if applicable) of the 8 Facility and/or Increased Capacity Improvements so acquired from Tenant. In the event Landlord and Tenant cannot agree upon such fair market value, then the same shall be determined by an independent appraiser appointed by the American Arbitration Association at the request of either party hereto, and the determination made by such independent appraiser shall be conclusive and binding in all respects upon the parties hereto. Upon the payment of such sum, (i) Tenant shall, by documents and instruments reasonably satisfactory to Landlord, assign, transfer and convey to Landlord those portions (or all, if applicable) of the Facility and/or Increased Capacity Improvements so acquired by Landlord, and all personal property, Governmental Approvals and contract rights associated therewith and (ii) Landlord shall, by documents and instruments reasonably satisfactory to Tenant, assume Tenant's obligations with respect to those portions (or all, if applicable) of the Facility and/or Increased Capacity Improvements so acquired by Landlord. Notwithstanding the foregoing, the option granted to Landlord under this Section 9.3 shall be subject and subordinate to the Project Lender's Lien and to any rights of the Project Lender under Article 11 hereof. ARTICLE 10 - ASSIGNMENT AND SUBLETTING 10.1 Subject to Article 11 hereof, Tenant shall not voluntarily or by operation of Law, transfer, assign, alienate, license, sublet or grant to any Person all or any portion of the right, title or interest then held by it in the Premises or under this Lease without first obtaining the prior written consent of Landlord, which shall not unreasonably be withheld. ARTICLE 11 - RIGHTS OF PROJECT LENDER 11.1 Tenant may, from time to time in one or more transactions, without obtaining the consent of Landlord, hypothecate, mortgage, pledge or alienate all or any portion of Tenant's right, title and interest under this Lease to the Project Lender. Tenant or the Project Lender shall give written notice to Landlord of the Project Lender's Lien and the Project Lender's address for notices hereunder; provided, however, that any failure to give such notice shall not be grounds for denying the Project Lender the rights and protections provided in this Article 11, so long as Landlord has received actual notice of the Project Lender's Lien. 11.2 Any surrender or abandonment in whole or in part of this Lease, or any material amendment hereto or termination hereof, shall be ineffective and of no force or effect unless and until the prior written consent of the Project Lender has been obtained thereto. 11.3 The Project Lender shall have the right, but not the obligation, at any time prior to the termination of this Lease, and without the payment of any penalty, to (a) make any payments due hereunder, (b) do any other act or thing required of Tenant hereunder and (c) do any act or thing that may be necessary or appropriate to be done in the performance and observance of the terms hereof to prevent any default under or termination of this Lease. All payments so made and all things so done and performed by the Project Lender shall be as effective to prevent any default under or termination of this Lease as they would have been if made, done and performed by Tenant instead of by the Project Lender. 11.4 Tenant shall not be in default under this Lease unless Tenant fails to perform the obligations required of it hereunder within the time periods set forth herein, including all applicable cure periods. If Tenant fails to cure any default hereunder within the time so provided, then, commencing upon receipt by the Project Lender of written notice from Landlord to the effect that Tenant has failed to cure such default within such time, the Project Lender shall have an additional thirty (30) days to cure such default if such default is a monetary default, or ninety (90) days to cure such default if such default is a non-monetary default; provided, however, that if any such non-monetary default cannot reasonably be cured within such additional ninety (90) day period, then the Project Lender shall have such additional time to cure such non-monetary default as is reasonably necessary under the circumstances, so long as (a) the Project Lender shall have fully cured within such ninety (90) day period any 9 default in the performance of any non-monetary obligations of Tenant hereunder that can reasonably be cured within such ninety (90) day period and shall thereafter continue to faithfully perform all such monetary and other obligations and to diligently pursue such cure to completion and (b) if possession of the Premises is reasonably required in order to effect such cure, the Project Lender shall have acquired Tenant's interest hereunder or commenced foreclosure or other appropriate proceedings in the nature thereof within such ninety (90) day period or prior to the expiration thereof, and shall be diligently prosecuting any such proceedings to completion. All rights of Landlord to terminate this Lease as a result of the occurrence of any default by Tenant shall be subject to, and expressly conditioned upon, (i) the Project Lender's having received the notice specified above in this Section 11.4 and (ii) the Project Lender's having failed to take the actions set forth in this Section 11.4. 11.5 Any default by Tenant under this Lease that cannot be remedied by the Project Lender shall nevertheless be deemed to have been remedied so long as (a) the Project Lender shall have taken the actions described in clauses (a) and (b) of Section 11.4 hereof within the time periods provided therein, (b) if the Project Lender shall have commenced foreclosure or other appropriate proceedings in the nature thereof under clause (b) of Section 11.4 hereof, then the Project Lender shall have completed such foreclosure or other appropriate proceedings or otherwise obtained possession of the Premises and (c) the Project Lender shall perform all obligations of Tenant under this Lease which arise thereafter and which can reasonably be performed by the Project Lender. 11.6 If the Project Lender is prohibited by any process or injunction issued by any court or by reason of any action of any court having jurisdiction over any bankruptcy, reorganization, insolvency or other debtor-relief proceeding involving Tenant, from commencing or prosecuting foreclosure or other appropriate proceedings in the nature thereof, then the times specified in Sections 11.4 and 11.5 hereof for commencing or prosecuting such foreclosure or other proceedings shall be extended for the period of such prohibition. 11.7 Landlord shall deliver to the Project Lender a duplicate copy of any and all notices of default that Landlord may from time to time deliver to Tenant pursuant to the provisions hereof, and such copies shall be delivered to the Project Lender at, or as near as possible to, the same time such notices are delivered to Tenant. No notice of default by Landlord to Tenant hereunder shall be deemed to have been given unless and until a copy thereof shall have been delivered to the Project Lender as provided in this Section 11.7. 11.8 Foreclosure of the Project Lender's Lien or any sale thereunder, whether by judicial proceedings or otherwise, or any conveyance or transfer of the interest of Tenant under this Lease from Tenant to the Project Lender through, or in lieu of, foreclosure or other appropriate proceedings in the nature thereof, shall not require the consent of Landlord or constitute a breach of any provision of or a default under this Lease, and upon such foreclosure, sale or conveyance Landlord shall recognize the Project Lender, or any other foreclosure sale purchaser, as Tenant hereunder. In the event the Project Lender becomes the Tenant under this Lease as provided herein, then the Project Lender shall be personally liable for the obligations of Tenant under this Lease only for the period of time that the Project Lender remains the Tenant hereunder, and the Project Lander shall have the right to assign this Lease without any restriction otherwise imposed on Tenant hereunder; provided, however, that the assignee of the Project Lender shall have expressly assumed all of the obligations of Tenant hereunder. Notwithstanding any other provision of this Lease, in the event that the Project Lender (a) performs any monetary or other obligation of Tenant under this Lease, (b) acquires any portion of the right, title or interest in the leasehold estate created by this Lease, (c) continues Tenant's operation of the Premises, the Facility and/or any Increased Capacity Improvements under this Lease and/or (d) becomes personally liable to Landlord hereunder, then the Project Lender's liability to Landlord shall be limited by and to the Project Lender's right, title and interest, if any, in the Facility and any Increased Capacity Improvements, and Landlord shall have no recourse against the Project Lender in excess of, and other than to proceed against, such right, title and interest. 11.9 Upon Landlord's receipt of any notice in the nature of a notice of default with respect to any obligation of Landlord secured by any lien upon the Premises, Landlord shall immediately deliver a copy of such notice to Tenant and to the Project Lender. If and whenever Tenant or the Project Lender shall deem it necessary 10 or appropriate to do so in order to protect its respective rights under this Lease, it may, at its option, pay and discharge any mortgage or other lien (including, without limitation, the lien of general or special property taxes or assessments) attached to the Premises or any portion thereof, and in such event it shall be subrogated to all the rights of the mortgagee, beneficiary, owner or holder of such mortgage or other lien. 11.10 In the event that this Lease is rejected by a trustee or debtor-in-possession in any bankruptcy or insolvency proceeding, and if, within sixty (60) days after such rejection, the Project Lender shall so request, Landlord shall execute and deliver to the Project Lender a new ground lease of the Premises. Such new ground lease shall be for a term equal to the remainder of the term of this Lease before giving effect to such rejection, and shall contain the same covenants, agreements, terms, provisions and limitations as contained in this Lease (except for any requirements which shall have been fulfilled by Tenant prior to such rejection). 11.11 Landlord and Tenant acknowledge, agree and covenant that notwithstanding the union of the fee simple title with any right, title or interest in the leasehold estate created hereby or under any other document or instrument in Landlord, Tenant, Project Lender, or any other Person, whether by purchase or otherwise, it is the declared intention of the parties hereto that the separation of the fee simple estate and the leasehold estate shall be maintained and that a merger shall not take place without the prior written consent of the Project Lender. 11.12 Tenant and Landlord shall cooperate in including herein, by suitable amendment from time to time, any provision which the Project Lender or any proposed Project Lender reasonably requests for the purpose of implementing the Project Lender-protective provisions contained in this Article 11 and affording the Project Lender or proposed Project Lender reasonable protection of its Project Lender's Lien in the event of a default by Tenant; provided, however, that Landlord shall not be required to include herein any additional provision which materially impairs the rights of Landlord under this Lease. Tenant and Landlord each agree to execute and deliver (and to acknowledge, if necessary for recording purposes) any document or instrument necessary to give effect to any such provision. 11.13 Landlord or Tenant (the "Responding Party") shall at any time upon not less than ten (10) days' prior written notice from any other party hereto or from the Project Lender (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing (a) certifying, as applicable, that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which any payments due hereunder are paid in advance, if any, and (b) acknowledging that there are not, to the Responding Party's knowledge, any uncured defaults hereunder on the part of the other party hereto, or specifying such defaults if any are claimed. Any such statements may be conclusively relied upon by the Requesting Party and by any prospective purchaser or lessee of, or lender proposing to take a security interest in, the Facility, any Increased Capacity Improvements, the Premises, the Reserved Geothermal Lands, any Plants Utilizing Grantor's Reserved Brine and/or any Future Non-Easement Area Plants (as those terms are defined in the Easement Agreement), or any portion thereof or interest therein. The failure of the Responding Party to deliver such statement within such time shall be conclusive upon such Responding Party that (i) this Lease is in full force and effect and has not been modified and (ii) there are no uncured defaults in the performance of the other party hereto. 11.14 The Project Lender shall be an express third party beneficiary of the covenants contained in this Lease, with rights and benefits under, and the ability to enforce, this Lease. ARTICLE 12 - INSURANCE 12.1 At all times during the term of this Lease, Tenant shall procure and maintain the following policies of insurance, each of which shall be obtained from an insurance company rated at least B+ by A.M. Best Company and shall provide that it cannot be canceled or terminated without at least thirty (30) days prior notice to Landlord: 12.1.1 Worker's compensation insurance as required by Law; 11 12.1.2 Comprehensive general liability insurance with a limit of no less than $1,000,000, combined single limit, bodily injury and property damage, for each occurrence; and 12.1.3 Excess public liability insurance in the form of an umbrella policy, which umbrella policy shall afford coverage of not less than $5,000,000 per occurrence over and above the coverage provided by the policy described in Section 12.1.2 hereof. 12.2 Notwithstanding the foregoing, for so long as the Project Lender's Loan Documents remain in effect, Tenant shall procure and maintain such policies of insurance, in such amounts and containing such provisions, as are required under the Project Lender's Loan Documents. 12.3 In the event that Tenant has not renewed or replaced any insurance policy required under this Article 12 within ten (10) days prior to the cancellation or termination thereof, then Landlord shall be entitled (but not obligated) to cause such policy or policies to be renewed or replaced, and shall be entitled to invoice Tenant for the premiums paid by Landlord in connection with such renewal or replacement. Tenant shall reimburse Landlord for the amount of such invoice within ten (10) days after receipt thereof, and Tenant's failure to so reimburse Landlord within such ten (10) day period shall be a material default hereunder. ARTICLE 13 - CONDEMNATION 13.1 In the event of a taking of all or any portion of the Facility Site by eminent domain or by inverse condemnation for any public or quasi-public use under any Law, the proceeds therefrom shall be distributed (a) first, to Tenant to the extent of all amounts necessary to pay in full any sums outstanding under the Financing and (b) second, to the parties hereto in accordance with their interests as they may appear. ARTICLE 14 - DEFAULT AND REMEDIES 14.1 Subject to the provisions of Article 11 hereof, the occurrence of any one or more of the following events shall constitute a material default by Tenant under this Lease: 14.1.1 The vacation or abandonment of the Premises by Tenant for a continuous period of sixty (60) days or more, whether or not the rent is paid. 14.1.2 The failure by Tenant to make any payment of rent or any other payment required to be made by Tenant hereunder within five (5) business days after the same shall become due, where such failure shall continue for a period of five (5) business days after written notice thereof from Landlord to Tenant. 14.1.3 The failure by Tenant to observe or perform any of the material covenants, conditions or provisions of this Lease to be observed or performed by Tenant other than those referenced in Section 14.1.2 hereof, where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant's noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said thirty (30) day period and thereafter diligently pursues such cure to completion. 14.1.4 (a) The making by Tenant of any general arrangement for the benefit of creditors, (b) Tenant's becoming a "debtor" as defined in 11 U.S.C. ' 101, unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days after filing, (c) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located on the Premises or of Tenant's interest under this Lease, where possession is not restored within sixty (60) days, or (d) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest under this Lease, where such 12 seizure is not discharged within sixty (60) days. In the event that any provision of this Section 14.1.4 is contrary to any applicable Law, such provision shall be of no force or effect. 14.2 Subject to the provisions of Article 11 hereof, in the event of any material default of this Lease by Tenant, Landlord may at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such default, take any of the following actions: 14.2.1 Terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate, and Tenant shall, subject to Section 9.2 hereof, immediately surrender possession of the Premises to Landlord. In such event, Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including, but not limited to: (a) the unpaid rent which had been earned at the time of termination; (b) the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (c) the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (d) any other amount necessary to compensate Landlord for the detriment proximately caused by Tenant's failure to perform its obligations under this Lease. 14.2.2 Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant shall have vacated or abandoned the Premises. In such event, Landlord shall be entitled to enforce all of Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. 14.2.3 Pursue any other remedy now or hereafter available to Landlord under the Laws of the State of California. 14.3 Landlord shall not be in default in the performance of its obligations under this Lease unless Landlord fails to perform obligations required of Landlord within sixty (60) days after written notice by Tenant to Landlord, specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than sixty (60) days are required for its performance, then Landlord shall not be in default if Landlord commences performance within such sixty (60) day period and thereafter diligently pursues the same to completion. 14.4 Tenant hereby acknowledges that the late payment by Tenant to Landlord of any installment of rent or any other sum due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Accordingly, if any installment of rent or any other sum due from Tenant hereunder shall not be received by Landlord within ten (10) days after such amount shall be due, then, without any requirement for notice to Tenant, Tenant shall pay to Landlord a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of such late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, or prevent Landlord from exercising any of the other rights and remedies granted hereunder. 14.5 Except as expressly provided herein, any amount due to Landlord hereunder that is not paid when due shall bear interest at the greater of (a) ten percent (10%) per annum or (b) five percent (5%) per annum above the discount rate established by the Federal Reserve Bank of San Francisco on advances to member banks under Section 13 or 13(a) of the Federal Reserve Act as in effect on the Rental Commencement Date, from the date due until fully paid. Payment of such interest shall not excuse or cure any default by Tenant under this Lease. 13 ARTICLE 15 - MISCELLANEOUS LEASE PROVISIONS 15.1 Landlord and its agents shall have the right to enter the Premises and inspect the Facility and any Increased Capacity Improvements and the operations and activities of Tenant, at any reasonable time and from time to time. Landlord shall indemnity, defend and hold harmless Tenant from and against any and all Damages which may be imposed upon or incurred by Tenant or asserted against Tenant by any third Person, arising out of or attributable to such inspection of the Facility and any Increased Capacity Improvements. 15.2 Upon Tenant's paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Tenant's part to be observed and performed hereunder, Tenant shall have quiet possession of the Premise for the entire term hereof subject to all of the provisions of this Lease. 15.3 Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises. Tenant assumes all responsibility for the protection of Tenant, its agents, invitees and their property from the acts of third parties. 15.4 Tenant shall surrender possession of the Premises to Landlord at the expiration or earlier termination of the term of this Lease. If Tenant fails to surrender the Premises at the expiration or earlier termination of this Lease, Tenant shall defend and indemnify Landlord from all liability and expense resulting from the delay or failure to do so, including, without limitation, claims made by any succeeding tenant founded on or resulting from Tenant's failure to do so. 15.5 If Tenant, with Landlord's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Tenant, except that the rent payable shall be one hundred and twenty-five percent (125%) of the rent payable immediately preceding the termination date of this Lease. 15.6 No waiver by Landlord of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Tenant of the same or any other provisions. The acceptance of rent hereunder by Landlord shall not be deemed a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 15.7 No remedy or election of or by Landlord hereunder shall be deemed exclusive, but shall, wherever possible, be cumulative with all other remedies available at Law or in equity. 15.8 All monetary obligations of Tenant to Landlord under the terms of this Lease shall be deemed to be rent. 15.9 Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications as Landlord deems necessary or desirable, and to cause the recordation of final, parcel or other maps or restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with Tenant's use of the Facility Site or operation of the Facility or any Increased Capacity Improvements. Tenant shall promptly execute any of the aforementioned documents reasonably requested by Landlord, and its failure to do so shall constitute a material default under this Lease. 14 ARTICLE 16 - RESERVED AREA 16.1 Landlord and Tenant acknowledge that Landlord intends in the future to record one or more parcel or final maps (collectively, the "Map") subdividing the Premises into two or more separate parcels or lots complying with the California Subdivision Map Act (Govt. Code ' 66410 et seq.) consisting of: (a) the site of the Facility, which shall be the Southwest Quarter of the Northeast Quarter of Section 5, Township 12 South, Range 13 East, San Bernadino Meridian (the "Facility Site"); and (b) one or more other parcels, which shall together consist of the remainder of the Premises (the "Reserved Area"). 16.2 Tenant shall, at Landlord's expense and at no cost to Tenant, cooperate in all respects with Landlord's efforts to obtain and record the Map, including, without limitation, by executing any and all documents and instruments as may reasonably be required by Landlord or any applicable Governmental Authority in connection therewith. 16.3 Landlord shall have an option (the "Partial Termination Option") to at any time terminate this Lease as to all or any part of the Reserved Area, by delivering written notice (the "Partial Termination Notice") to Tenant describing the portion or portions of the Reserved Area as to which this Lease is to terminate (such portion or portions, together, the "Optioned Premises Area") together with the payment to Tenant of the sum of Ten Dollars ($10.00), which shall be the entire consideration for such termination; provided, however, that Landlord's right to exercise the Partial Termination Option shall be contingent upon, and the Partial Termination Notice shall not be given until after, the approval and recordation of the Map by the County of Imperial. The term of the Partial Termination Option shall be the same as, and shall run concurrently with, the term of this Lease as set forth in Article 4 hereof. 16.4 At such time as (a) the Map shall have been recorded in the Official Records and (b) Tenant shall have received the Partial Termination Notice (along with the Ten Dollars ($10.00) consideration provided in Section 16.3 hereof), (i) Tenant shall promptly execute, acknowledge, deliver and cause to be recorded in the Official Records a quitclaim deed satisfactory to Landlord pursuant to which Tenant shall quitclaim to Landlord all its right, title and interest in and to the Optioned Premises Area and (ii) Tenant shall cause the Project Lender to promptly execute, acknowledge, deliver and cause to be recorded in the Official Records a partial release of the Project Lender's Lien satisfactory to Landlord, pursuant to which the Project Lender shall release all its right, title and interest in and to the Optioned Premises Area; and upon the recordation of such quitclaim deed and such partial release, Tenant shall surrender and deliver possession of the Optioned Premises Area to Landlord. By taking a security interest in this Lease, the Project Lender unconditionally and irrevocably agrees to execute, acknowledge, deliver and cause said partial release to be recorded as and when provided in this Section 16.4. In no event shall any such quitclaim entitle Tenant to any reduction in or offset against any of the rents or other payments due to Landlord hereunder. ARTICLE 17 - NOTICES 17.1 Any notices, statements, demands, correspondence or other communications required or permitted to be given hereunder shall be in writing and shall be given (a) personally, (b) by certified or registered mail, postage prepaid, return receipt requested, or (c) by overnight or other courier or delivery service, freight prepaid, to the following address, or, in the case of notices to the Project Lender, as provided in the notice of the Project Lender's Lien delivered to Landlord under Section 11.1 hereof. If to Landlord: Magma Land Company I 4365 Executive Drive, Suite 900 San Diego, California 92121 Attention: Legal Department 15 If to Tenant: Salton Sea Power Generation L.P. Salton Sea Brine Processing L.P. 4365 Executive Drive, Suite 900 San Diego, California 92121 Attention: Legal Department Except as otherwise provided in Article 11 hereof, (i) notices delivered by hand shall be deemed received when delivered and (ii) notices sent by certified or registered mail or by overnight or other courier or delivery service shall be deemed received on the first to occur of (A) five (5) days after deposit in the United States mail or with such overnight or other courier or delivery service, addressed to such address or addresses, (B) written acceptance of delivery by the recipient or (C) written rejection of delivery by the recipient. Each party hereto may change its address for receipt of notices by sending notice hereunder of such change to the other party hereto in the manner specified in this Section, and the Project Lender may change its address for receipt of notices by sending notice hereunder to each of the parties hereto in the manner specified in this Section. Notwithstanding the foregoing, amounts payable to Landlord hereunder shall be deemed paid three (3) days after a valid check for the same, addressed to Landlord's address above, is deposited in the United States mail, first-class postage prepaid. ARTICLE 18 - FORCE MAJEURE 18.1 Neither Landlord nor Tenant shall be liable in damages to the other for any act, omission or circumstance (an "Event of Force Majeure") occasioned by or in consequence of any acts or omissions of the other party hereto, acts of God, acts of the public enemy, wars, blockades, insurrections, riots, civil disturbances, strikes, lockouts, delays in transportation, epidemics, landslides, lightning, earthquakes, fires, storms, floods, explosions, sabotage, the binding order of any Governmental Authority which has been contested in good faith, the failure of any Governmental Authority to issue any Governmental Approval within one hundred and twenty (120) days after an application for the same has been submitted, the effect of any Laws, or any other event or circumstance beyond the reasonable control of such party which prevents or hinders such party from performing its obligations hereunder, whether or not similar to the matters and conditions herein enumerated. In no event, however, shall an Event of Force Majeure relieve Tenant from the obligation to pay rents or any other payments due to Landlord under this Lease. ARTICLE 19 - GENERAL PROVISIONS 19.1 In addition to any other indemnities herein set forth, each party hereto (the "Indemnifying Party") shall indemnify, defend and hold harmless the other party hereto (the "Indemnified Party") from and against any and all Damages which may be imposed upon or incurred by the Indemnified Party or asserted against the Indemnified Party by any third Person, arising out of or attributable to the failure of the Indemnifying Party to perform its obligations as provided in this Lease. 19.2 The parties hereto shall cooperate each with the other to fully effectuate the purposes and intent of this Lease. Without limiting the generality of the foregoing, the parties hereto covenant that they will execute, cause to be acknowledged and deliver any documents or instruments reasonably necessary to implement the intentions expressed or implied herein. 19.3 The partners in Salton Sea Power Generation L.P. and Salton Sea Brine Processing L.P. shall be entitled to (a) cause one of the same to purchase the assets of the other or (b) merge or by other corporate reorganization combine the same into a single entity, and Landlord acknowledges and agrees that no such purchase, merger or reorganization shall have any effect on the rights and obligations of the parties under this Lease. In the event of any such purchase, merger or reorganization, such purchasing or combined entity, as the 16 case may be, shall be deemed to be the "Grantee" under the Easement Agreement, and shall assume and be responsible for all the obligations of, and be bound by all the reservations and limitations imposed upon, the Grantee under the Easement Agreement, all of which obligations, reservations and limitations shall thereafter apply to both the Brine Facilities (as that term is defined in the Easement Agreement) and the Facility (notwithstanding that the Easement Agreement may, in imposing certain of such obligations, refer only to the "Brine Facilities" or the "Power Facilities"). 19.4 The parties shall execute, cause to be acknowledged and deliver a memorandum of this Lease, which shall be recorded in the Official Records, and shall be in the form attached hereto as Exhibit "B". 19.5 If either party hereto commences litigation for the enforcement, termination, cancellation or rescission hereof, or for damages for the breach hereof, the prevailing party shall be entitled to recover its reasonable attorneys' fees and court and other costs incurred. 19.6 Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition. As used herein, the neuter gender includes the masculine and the feminine, and the singular number includes the plural, and vice versa. This Lease shall be governed by the Laws of the State of California. This Lease shall be construed equally as against the parties hereto, and shall not be construed against the party responsible for its drafting. Time is of the essence with respect to the obligations to be performed under this Lease. All exhibits to which reference is made in this Lease are incorporated into this Lease. The liability of Salton Sea Power Generation L.P. and Salton Sea Brine Processing L.P. hereunder shall be joint and several. Captions in this Lease are inserted for convenience of reference only and do not define, describe or limit the scope or intent of this Lease or any of the terms hereof. 19.7 This Lease contains all agreements of the parties hereto with respect to the subject matter of this Lease, and all prior or contemporaneous agreements, understandings, correspondence and negotiations, whether oral or written, pertaining to the subject matter of this Lease, shall be of no further force or effect, and are superseded hereby. 19.8 Any obligations referred to herein to be performed at any time after the expiration or termination of this Lease, and all indemnities and hold harmless agreements provided herein, shall survive the expiration or earlier termination of this Lease. 19.9 No amendment or modification of this Lease or any provision hereof shall be effective unless in writing and signed by the parties in interest at the time of the amendment. 19.10 The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. 19.11 This Lease and the covenants contained herein shall be binding upon and inure to the benefit of the parties hereto and their respective grantees, assignees, successors and assigns. 17 IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date first above written. LANDLORD: MAGMA LAND COMPANY I, a Nevada corporation By: /s/ illegible ------------------------------------ Name: ---------------------------------- Its: ----------------------------------- TENANT: SALTON SEA POWER GENERATION L.P., a California limited partnership By: Salton Sea Power Company, a Nevada corporation, its general partner By: /s/ illegible ------------------------------------ Name: ---------------------------------- Its: ----------------------------------- SALTON SEA BRINE PROCESSING L.P., a California limited partnership By: Salton Sea Power Company, a Nevada corporation, its general partner By: /s/ illegible ------------------------------------ Name: ---------------------------------- Its: ----------------------------------- 18 EXHIBIT "A" Description of the Premises The following real property located in the County of Imperial, State of California: GOVERNMENT LOTS 3 AND 4, AND THE SOUTH HALF OF THE NORTHEAST QUARTER OF SECTION 5, TOWNSHIP 12 SOUTH, RANGE 13 EAST, SAN BERNADINO MERIDIAN, ACCORDING TO OFFICIAL PLAT THEREOF; EXCEPTING THEREFROM ALL MINERALS (INCLUDING, WITHOUT LIMITATION, ALL GEOTHERMAL SUBSTANCES) LYING BELOW THE SURFACE OF SAID LAND. EXHIBIT "B" Form of Memorandum of Ground Lease RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Salton Sea Power Generation L.P. Salton Sea Brine Processing L.P. 551 West Main Street Suite 1 Brawley, California 92227 Attn: Mr. Vincent Signorotti -------------------------------------------------------------------------------- Assessor's Parcel Number: 020-110-39. The undersigned declare that this document conveys leasehold rights for a definite term of years, and hence NO DOCUMENTARY TRANSFER TAX IS DUE. The real property described herein is located in an unincorporated area of Imperial County, State of California. MEMORANDUM OF GROUND LEASE THIS MEMORANDUM OF GROUND LEASE (the "Memorandum") is made as of March 31, 1993, at San Diego, California, between MAGMA LAND COMPANY I, a Nevada corporation ("Landlord"), and SALTON SEA POWER GENERATION L.P., a California limited partnership and SALTON SEA BRINE PROCESSING L.P., a California limited partnership (together, "Tenant"). 1 This Memorandum is executed concurrently with that certain Ground Lease of even date herewith, between Landlord and Tenant (the "Lease"). 2 Pursuant to the Lease, Landlord hereby leases to Tenant, on all of the terms and conditions and subject to all of the reservations contained in the Lease, the real property described on Exhibit "A" attached hereto. 3 Pursuant to the Lease, (a) Landlord has reserved certain rights to further develop the Premises and (b) Landlord has reserved an option to terminate the Lease as to all or any part of the Optioned Premises Area, as that term is defined in the Lease. 4 The term of the Lease shall commence upon the date first above written, and, unless sooner terminated as provided in the Lease, shall expire on November 24, 2026. 5 The terms and conditions of the Lease are incorporated herein by reference. This Memorandum is prepared for the purpose of recordation only, and in no way modifies the terms and conditions of the Lease. If there is any inconsistency between the terms and conditions of this Memorandum and the terms and conditions of the Lease, the terms and conditions of the Lease shall control. IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date first above written. LANDLORD: MAGMA LAND COMPANY I, a Nevada corporation By: ------------------------------------ Name: ---------------------------------- Its: ----------------------------------- TENANT: SALTON SEA POWER GENERATION L.P., a California limited partnership By: Salton Sea Power Company, a Nevada corporation, its general partner By: ------------------------------------ Name: ---------------------------------- Its: ----------------------------------- SALTON SEA BRINE PROCESSING L.P., a California limited partnership By: Salton Sea Power Company, a Nevada corporation, its general partner By: ------------------------------------ Name: ---------------------------------- Its: ----------------------------------- EXHIBIT "A" Description of the Premises The following real property located in the County of Imperial, State of California: GOVERNMENT LOTS 3 AND 4, AND THE SOUTH HALF OF THE NORTHEAST QUARTER OF SECTION 5, TOWNSHIP 12 SOUTH, RANGE 13 EAST, SAN BERNADINO MERIDIAN, ACCORDING TO OFFICIAL PLAT THEREOF; EXCEPTING THEREFROM ALL MINERALS (INCLUDING, WITHOUT LIMITATION, ALL GEOTHERMAL SUBSTANCES) LYING BELOW THE SURFACE OF SAID LAND. EX-10.35 12 GROUND LEASE (LEATHERS) GROUND LEASE PREAMBLE THIS GROUND LEASE (the "Lease") is made as of October 26, 1988, by and between MAGMA POWER COMPANY, a Nevada corporation ("Landlord"), and LEATHERS, L.P., a limited partnership organized under the laws of the State of California ("Tenant"). AGREEMENT 1. Certain Definitions. Unless the context shall otherwise require, capitalized terms used and not otherwise defined herein shall have the respective meanings assigned thereto in Schedule Z hereto, which shall be incorporated by reference herein. 2. Lease. 2.1. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the "Premises," as that term is defined in Section 3 hereof, on the terms and conditions, and subject to the reservations, set forth in this Lease. 2.2. Landlord hereby reserves from the Leasehold estate granted to Tenant by this Lease the right to use the surface of the Leathers Property in order to obtain, use, extract and develop the Reserved Geothermal Brine and the Geothermal Brine Scale, together with reasonable access thereto for road and utility purposes, but only to the extent that such use does not cause any material interference with Tenant's construction, operation and maintenance of the Leathers Facility. The right reserved by Landlord in this Section 2.2 includes, without limitation, the right to construct, operate and maintain pipelines, buildings, structures, equipment and other improvements over, under and upon the surface of the Leathers Property, including, but not limited to, Additional Power Production Facilities, and warehouse(s) for the storage of Critical Parts and Equipment and other parts and equipment owned or within the control of Landlord which may be stored in such warehouse(s) for use in Additional Power Production Facilities and to use the surface of the Leathers Property in a commercially reasonable manner in order to "tap" into the Supporting Equipment and any other equipment or piping carrying or containing Geothermal Brine or Geothermal Brine Scale from the Leathers Facility to injection wells thereby affording to Landlord access to such Geothermal Brine and the Geothermal Brine Scale in an oxygen-free environment; provided, however, that, notwithstanding any other provision in this Lease to the contrary, Landlord shall pay all costs, direct and indirect, incurred by Tenant as a result of Landlord's exercising the rights reserved to 1 Landlord in this Section 2. Notwithstanding any other provision in this Lease to the contrary, in the event that Landlord desires to exercise its rights under this Section 2.2, Landlord shall obtain the prior written consent of Tenant, which consent shall not be unreasonably withheld. The standards to be applied by Tenant in giving or withholding such consent shall be as provided in Section 2.3.4 of the Easement Agreement. 2.3. The rights reserved by Landlord from the leasehold estate granted to Tenant pursuant to this Lease shall be assignable by Landlord in whole or in part to successors and assigns. Without limiting the generality of the foregoing, Landlord may sell, assign, encumber and grant leasehold estates in such rights to other persons. 3. Premises. 3.1. The "Premises" that are the subject of this Lease consist of the Leathers Property as more particularly described in Exhibit "A" hereto, BUT EXCLUDING THEREFROM all rights reserved by Landlord as set forth in Section 2 hereof. 3.2. Concurrent with the delivery of this Lease, Landlord has delivered to Tenant a Grant Deed of all improvements existing on or in the Premises at the Recordation Date as that term is defined in Section 4 hereof. Such improvements shall be held, used, altered and disposed of by Tenant in accordance with the terms and conditions of this Lease. 3.3. At any time and from time to time during the term of this Lease, within thirty (30) days after written request from Landlord, Tenant shall enter into an amendment to this Lease, which shall delete from the legal description of the Leathers Property that portion thereof as to which any other Person has a right to possession, in accordance with the following: 3.3.1. Both the portion of the Leathers Property being released from the encumbrance of this Lease, and the portion of the Leathers Property remaining subject to the encumbrance of this Lease after such release, shall be legal lots in compliance with the California Subdivision Map Act and other state or local ordinances thereunder; and 3.3.2. The amendment shall contain all cross-easements, covenants, conditions, restrictions and agreements reasonably requested by Tenant to facilitate the construction, operation and maintenance of the Leathers Facility at a level which allows the Leathers Facility to drill for, produce, extract, store, utilize, reclaim, convert, sell, transfer, dispose and Process Geothermal Brine 2 up to the amount necessary to meet the Leathers Facility Brine Requirement in connection with the generation of electrical energy at the Leathers Facility. 4. Term. The term of this Lease shall commence upon the recordation of a Memorandum of this Lease in the Office of the County Recorder of Imperial County, California (the "Recordation Date"), and, unless sooner terminated as provided in this Lease, shall end on the date which is thirty-two (32) years following August 15, 1988 (the "Expiration Date"). 5. Rent. 5.1. In addition to other sums payable by the term of this lease, Tenant shall pay to Landlord, without abatement, deduction or offset, the following sums: 5.1.1. As "Base Monthly Rent" for the Premises for the period beginning on May 1, 1988 and continuing monthly thereafter throughout the term of this Lease, but subject to adjustment as provided in Section 5.2 hereof, the sum of $1,667.00 per month, payable in advance on the first day of each month. 5.1.2. Rent for any period during the term hereof which is for less than one month shall be prorated based upon the actual number of days elapsed in the calendar month involved. Rent shall be payable in lawful money of the United States to Landlord at the address stated herein or to such other persons or at such other places as Landlord may designate in writing. 5.2. The Base Monthly Rent shall be subject to annual adjustments as follows: 5.2.1. For purposes of this Lease, a "Lease Year" shall be deemed to begin on January 1 of each calendar year throughout the term of this Lease. 5.2.2. For the Lease Year beginning on January 1, 1989, and for each Lease Year thereafter, the Base Monthly Rent of $1,667.00 payable under Section 5.1.1 hereof shall be adjusted to reflect the increase, if any, in the Consumer Price Index published by the Bureau of Labor Statistics of the Department of Labor for All Urban Consumers, All Items, for the Los Angeles-Anaheim-Riverside Metropolitan Area (the "CPI""), as hereinafter provided. 5.2.3. The Base Monthly Rent payable pursuant to Section 5.2.2 hereof shall be calculated as follows: the Base Monthly Rent of $1,667.00 payable under Section 5.1.1 hereof above shall be multiplied by a fraction, the numerator of which shall be the CPI for the month of 3 September in the year preceding the Lease Year for which the adjustment is to be made, and the denominator of which shall be the CPI for the month of September 1987. The sum so calculated shall constitute the new Base Monthly Rent hereunder, but in no event shall such new Base Monthly Rent be less than the Base Monthly Rent payable for the month immediately preceding the Lease Year for which the adjustment is to be made. 5.2.4. In the event that the publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI, as determined in good faith by Landlord, shall be used to make such calculations. 5.2.5. Tenant shall continue to pay Base Monthly Rent at the rate previously in effect until the increase, if any, is determined. Within ten (10) days following the date on which the increase is determined, Tenant shall make such payment to Landlord as will bring the increased Base Monthly Rent current, commencing with the effective date of such increase at the beginning of the Lease Year for which the adjustment is to be made through the date of any installments of Base Monthly Rent then due. Thereafter, the Base Monthly Rent shall be paid at the increased rate. 6. Taxes, Assessments and Utilities. 6.1. As used in this Lease, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license, fee, rental tax, tax on the right to do business, when Landlord's collection of rent under this Lease is defined as doing business, improvement bond, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Leathers Property or any portion thereof by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Landlord in the Leathers Property or in any portion thereof, as against Landlord's right to rent or other income therefrom, and as against Landlord's business of leasing the Premises. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (a) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinafter included within the definition of "real property tax," or (b) the nature of which was heretofore included within the definition of "real property tax," or (c) which is imposed for any service or right not charged prior to June 1, 1978, or (d) which is imposed as a result of a change in ownership, as defined by 4 applicable local statutes for property tax purposes, or which as added to a tax or charge heretofore included within the definition of "real property tax" by reason of such change of ownership, or (e) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 6.2. Tenant shall pay before delinquency all real property taxes, all personal property taxes, and all taxes, charges and assessments of every other description levied on or assessed against the Leathers Property and the Leathers Facility and personal property owned or leased by Tenant located thereon, the leasehold estate created hereby, or any subleasehold estate, to the full extent of installments falling due during the term, whether chargeable against Landlord or Tenant. Tenant shall make all such payments directly to the charging authority before delinquency and before any fine, interest or penalty shall become due or be imposed by operation of law for their nonpayment. If, however, the law expressly permits the payment of any or all of the above items in installments (whether or not interest accrues on the unpaid balance), Tenant may, at Tenant's election, utilize the permitted installment method, but shall pay each installment with any interest before delinquency. 6.3. All payments of taxes or assessments shall be prorated for any portion of a tax fiscal year at the commencement or expiration of the term of this Lease, except as provided in Section 6.4 hereof. Such proration shall be made by multiplying the entire tax or assessment by a fraction which, in the case of determining Tenant's liability for such taxes and assessments, shall have a numerator equal to the number of days that this Lease is in effect during the tax fiscal year for which the calculation is being made, and shall have a denominator equal to 365 or 366, as the case may be. 6.4. For permitted installment payments of special taxes or assessments where at least the first installment fell due before the Recordation Date, Tenant shall pay all installments falling due after the Recordation Date. For permitted installment payments of special taxes or assessments where the first installment falls due before the expiration of the term, Tenant shall pay only the installment(s) falling due before the expiration of the term. 6.5. If the Premises are assessed with other real or personal property of Landlord apart from the Leathers Property, all taxes imposed on the entire assessed property shall be prorated, and Tenant shall pay that amount which equals the product obtained by multiplying the entire tax by a fraction, the numerator of which equals the value of the 5 Leathers Property and the denominator of which equals the value of all of the property so assessed. 6.6. Tenant may contest the legal validity or amount of any taxes, assessments or charges for which Tenant is responsible under this Lease, and may institute such proceedings as Tenant considers necessary. If Tenant contests any such tax, assessment or charge, Tenant may withhold or defer payment or pay under protest, but shall protect Landlord and the Leathers Property from any lien by surety bond or other appropriate security reasonably acceptable to Landlord. Landlord appoints Tenant as Landlord's attorney-in-fact for the purpose of making all payments to any taxing authorities and for the purpose of contesting any taxes, assessments or charges affecting the Premises, conditioned on Tenant's preventing any liens from being levied on the Leathers Property or on Landlord. 6.7. Tenant agrees to pay, before the same become delinquent, all charges for gas, electricity, heat, light, power, sewage, water, telephone, trash removal, and other similar or dissimilar public services or commodities furnished to the Premises and the Leathers Facility during the term of this Lease, including all installation, connection and disconnection charges. 6.8. All taxes, assessments, utilities, insurance premiums, maintenance costs and other rent payable hereunder shall be paid as "triple-net" rent, without deduction or offset. It is the intent of the parties that the rent provided in this Lease shall be absolutely net to Landlord, and that, except as otherwise expressly provided in this Lease, Tenant shall pay all costs and charges of every kind and nature incurred for, against, or in connection with the Premises which may arise or become due from and after the Recordation Date and during the term hereof. Provided, however, that nothing herein shall be construed to require Tenant to pay any installment of interest or principal owing on any encumbrance against the Leathers Property for which Landlord is the obligor. All such costs and charges at the commencement and the end of the term of this Lease shall be appropriately prorated between the parties. 7. Use. 7.1. Tenant shall continuously use the permit the use of the Premises only for construction, maintenance and operation of the Leathers Facility, substantially in accordance with the Plans and Specifications and any "as-built" plans and as contemplated by the Operating Agreements. 6 7.2. This Lease is and shall be subject and subordinate to the rights reserved by Landlord with respect to the Premises as set forth in Section 2 hereof. 7.3. Tenant shall, at Tenant's expense, promptly comply in all material respects with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements of any fire insurance underwriters or rating bureaus, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises and the occupation and use by Tenant of the Premises. Tenant shall conduct its business in a lawful manner and shall not use or permit the use of the Premises in any manner that will create unnecessary waste of assets or a nuisance. 7.4. Without limiting the generality of the foregoing Tenant shall, at Tenant's expense, comply with all applicable federal, state, regional and local environmental statutes, ordinances, rules, regulations and orders now in effect or which may hereafter come into effect including, without limitation, the Resource Conversation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, the California Hazardous Waste Control Act, the California Hazardous Substance Act, the Porter-Cologne Water Quality Control Act and any all regulations promulgated pursuant thereto. 7.5. Tenant agrees to indemnify, defend by counsel reasonably acceptable to Landlord, and hold harmless Landlord, its subsidiaries, affiliates, successors and assigns and their respective directors, officers, employees, shareholders, representatives and agents from and against and in respect of any and all claims, damages (including, without limitation, diminution in value), losses, liabilities and expenses, lawsuits, deficiencies, interest, penalties, attorneys' fees and all amounts paid in defense or settlement of the foregoing whether or not arising out of third-party claims, which may be imposed upon or incurred by Landlord or asserted against Landlord by any other party or parties in connection with any violation of the provisions of this Section 7 arising out of, resulting from, or attributable to, the assets, business, or operations of Tenant at the Leathers Property. Tenant's obligations pursuant to this subsection shall exist regardless of whether Landlord is alleged or held to be strictly or jointly and severally liable, unless such liability is by reason of Landlord's gross negligence or willful misconduct. 7 7.6. Without in any way limiting the scope of Tenant's obligations under the indemnification provisions of this Section 7, but subject to Landlord's obligation under Section 2 hereof to pay all direct and indirect costs associated with Landlord's exercise of the rights reserved to it in Section 2 hereof, Tenant will be responsible for all investigations, studies, cleanup, corrective action or response or remedial action required by any local, state or federal government agency now or hereafter authorized to regulate environmental or other matters or by any consent decree, or court or administrative order now or hereafter applicable to the Leathers Property, or by any federal, state or local law, regulations, rule or ordinance now or hereinafter in effect. 7.7. As between Landlord and Tenant, Tenant shall have the responsibility and right to participate in the management and control of all investigations and any environmental cleanup, remediation, or related activities. Tenant, however, may not negotiate with, fulfill any requirements or claims made by a governmental entity or third party, settle or contest such requirement or third-party claim without the express approval of Landlord, and Landlord shall have the right to participate fully in any and all meetings, negotiations or decisions relevant to the investigation or remediation of the violation of the provisions of this Section 7 at the Leathers Property. 7.8. Tenant hereby accepts the Premises in its condition existing as of the Recordation Date, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and all exceptions set forth in the Leathers Property Preliminary Title Report and other matters of record or otherwise disclosed to Tenant prior to the date hereof, and accepts this Lease subject thereto. Tenant acknowledges that it has satisfied itself by its own independent investigation that the Premises are suitable for its intended use, and that neither Landlord nor Landlord's agent or agents has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Tenant's business. 8. Maintenance, Repairs, Alterations. 8.1. Throughout the term, Tenant shall, at Tenant's sole cost and expense, maintain the Premises and the Leathers Facility in good condition and repair, ordinary wear and tear excepted, in accordance with all applicable laws, rules, ordinances, orders and regulations of (a) federal, state, county, municipal and other governmental agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials, (b) any insurance underwriting board or insurance inspection bureau 8 having or claiming jurisdiction, and (c) any insurance company insuring all or any part thereof. 8.2. Except as provided below, and subject to the provisions of the Project Lender's Loan Documents, Tenant shall promptly and diligently repair, restore and remedy all damage to or destruction of all or any part of the Leathers Facility, if the cost of the work so required does not exceed fifth percent (50%) of the entire replacement value of all such improvements; provided, however, that Tenant shall have no obligation to repair, restore and remedy any such damage or destruction arising out of the gross negligence or willful misconduct of Landlord unless the gross negligence or willful misconduct of Tenant contributes to such damage or destruction, in which case the cost of repairs, restoration and remedial work shall be apportioned among Landlord and Tenant in direct proportion to their respective culpability with respect to such damage or destruction. If the cost does exceed fifty percent (50%) of the entire replacement value of all such improvements, Tenant may nevertheless repair, restore and remedy the same, or may by notice given within sixty (60) days after the date on which the damage or destruction occurs elect instead to raze the improvements damaged or destroyed. Within ninety (90) days after such notice, Landlord may be notice elect to repair, restore and remedy such damage or destruction at Landlord's cost and expense, and Tenant shall not raze the improvements until the expiration of the time for Landlord's notice of election. 8.3. Tenant has the right to contest by appropriate judicial or administrative proceedings, without cost or expense to Landlord, the validity or application of any law, ordinance, order, rule, regulation or requirement (collectively called "law") that Tenant repair, maintain, alter or replace any improvements in whole or in part, and Tenant shall not be in default for failing to do such work until a reasonable time following final determination of Tenant's contest. If requested by Landlord, Tenant shall first furnish to Landlord a bond, satisfactory to Landlord in form, amount and insurer, guaranteeing compliance by Tenant with the contested law and indemnifying Landlord against all liability that Landlord may sustain by reason of Tenant's failure or delay in complying with the law. Landlord may, but is not required to, contest any such law independently of Tenant. Landlord may, and if requested by Tenant shall, join in Tenant's contest. 8.4. Landlord's approval is not required for Tenant's minor alterations or additions to any improvements with a Construction Cost not exceeding $7,500,000. "Construction Cost" includes all costs that would constitute the basis of a valid claim or claims under the mechanics' lien laws, including costs for any demolition or removal of existing improvements or parts thereof, as well as costs for 9 preparation, construction and completion of all new improvements. All alterations or additions with a Construction Cost in excess of $7,500,000 shall require Landlord's prior written consent. 8.5. Tenant shall use only reputable licensed contractors in making any alterations or additions, and Landlord may require Tenant to provide to Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Landlord against any liability for any mechanic's and materialmen's liens and to insure completion of the work. Should Tenant make any alterations or additions without the prior written consent of Landlord where such consent is necessary, or use other than a reputable licensed contractor, Landlord may, at any time during the term of this Lease, require that Tenant remove any part or all of the same. 8.6. Tenant shall pay, when due, all claims for labor or materials furnished to or for Tenant at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Leathers Property or any interest therein. 8.7. Tenant shall give Landlord not less than ten (10) days' notice prior to the commencement of any alterations or additions to the Premises by Tenant, and Landlord shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Tenant shall, in good faith, contest the validity of any lien, claim or demand, then Tenant shall, at its sole expense, defend itself and Landlord against the same and shall pay and satisfy any adverse judgment that may be rendered thereon before the enforcement thereof against the Landlord or the Leathers Property, upon the condition that if Landlord shall require, Tenant shall furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to such contested lien claim or demand, indemnifying Landlord against liability for the same and holding the Leathers Property free from the effect of such lien or claim. In addition, Landlord may require Tenant to pay Landlord's reasonable attorneys' fees and costs in participating in such action, if Landlord shall decide it is to Landlord's best interest so to do. 8.8 All alterations and additions which may be made to the Premises by Tenant shall be made and done in a good and workmanlike manner and of good quality and materials, and, subject to the provisions of Sections 8.11 and 8.13 hereof, shall be the property of Landlord at the expiration of the term of the Lease. Notwithstanding the provisions of this Section, and provided that Tenant is not in default under this Lease, Tenant's personal property and equipment, other than that which is affixed to the Premises 10 so that it cannot be removed without material damage to the Premises, shall remain the Property of Tenant and may be removed by Tenant, subject to the provisions of Section 8.11 hereof. 8.9. Promptly upon completion of any alterations or additions to the Premises, Tenant shall provide Landlord with two (2) sets of "as-built" plans and specifications. 8.10. Subject to Landlord's right to require the Decommissioning of the Leathers Facility pursuant to Section 8.11 and 8.13 hereof, on the last day of the term hereof, or on any sooner termination, Tenant shall surrender the Premises and all improvements thereon to Landlord, in good condition and repair, ordinary wear and tear excepted, clean and free of debris. Any damage or deterioration of the Premises or improvements shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices by Tenant. Tenant shall repair any damage to the Premises occasioned by the installation or removal of Tenant's trade fixtures, alterations, furnishings and equipment. 8.11. Notwithstanding any other provision in this Lease to the contrary, in the event the Leathers Facility or the Premises is wholly or partially damaged or destroyed on or after the date which is exactly five (5) years prior to the date on which this Lease terminates pursuant to Section 4 hereof, and the cost to repair, restore or reconstruct the Leathers Facility and the Premises is at least $7,500,000, Tenant, not later than fifteen (15) days after the event causing such damage or destruction, shall give written notice to Landlord detailing the facts that qualify the casualty under this provision. Landlord, not later than fifteen (15) days following receipt of such notice from Tenant, shall by written notice to Tenant inform Tenant whether (a) Landlord desires the Decommissioning by Tenant of the Leathers Facility and the Premises or (b) Landlord desires the surrender by Tenant of the Leathers Facility and the Premises at the end of the term of this Lease. In the event Landlord elects to have Tenant Decommission the Leathers Facility and the Premises pursuant to the provisions of this Section 8.11, (a) Tenant shall forthwith commence such Decommissioning and shall diligently proceed until such Decommissioning is complete, (b) Tenant shall have the right to all proceeds of insurance received on account of such casualty and (c) Tenant shall surrender the Premises to Landlord immediately after such Decommissioning and this Lease and all of Tenant's obligations hereunder shall terminate except for Tenant's obligations to indemnify Landlord pursuant to Section 7.3 hereof and to pay any rent which accrued pursuant to Section 5 hereof. In the event Landlord elects to have Tenant surrender the Leathers 11 Facility and the Premises to Landlord at the end of the term of this Lease, then the provisions of Section 8.13 shall cease to be effective and Tenant shall forthwith commence to repair, restore and reconstruct the Leathers Facility and the Premises in the manner and subject to the terms provided in Section 8.2 hereof. 8.12. Except as provided in Section 8.13 hereof, all improvements constructed by Tenant on the Premises shall, at the expiration of the term or earlier termination of this Lease, without compensation to Tenant, become Landlord property free and clear of all claims to or against them by Tenant or any third person, and Tenant shall defend and indemnify Landlord against all liability and loss arising from any such claims or from Landlord's exercise of the rights conferred by this Section. 8.13. At the expiration or earlier termination of the term, Landlord may, at Landlord's election, demand the removal from the Premises of any or all fixtures or improvements or both (a "Decommissioning"), as specified in the notice provided below. A demand to take effect at the normal expiration of the term shall be effected by notice given at any time not later than nine (9) months before the expiration date. A demand to take effect on any other termination of this Lease shall be effected by notice given in or concurrently with notice of such termination or within thirty (30) days after such termination. Tenant shall comply with the notice on or before the expiration date for normal termination, and within ninety (90) days after the notice for other terminations. The duty imposed by this provision includes, but is not limited to, the duty to demolish and remove all foundations, fix all excavations, return the surface to grade, and leave the Premises safe and free from debris and hazards, in a safe manner, in accordance with good operating practice and in compliance with all applicable laws and regulations of any governmental authority having jurisdiction over such operations. In the event Landlord elects to requires such Decommissioning by Tenant, Tenant shall be entitled to all fixtures and improvements so Decommissioned. 8.14. Without limiting the generality of Section 8.1 hereof, Tenant shall at all times (a) repair and maintain the Water Delivery System described in that certain Reservation of Easement attached as Exhibit "1" to that certain Corporation Grant Deed of the Premises to Landlord recorded on October 7, 1988 in the Official Records of Imperial County as Instrument No. 88-16258 and (b) comply with all the terms and provisions of such Reservation of Easement; provided, however, that following the recordation of the quitclaim deed described in Section 41.1.4 (iii) hereof, Tenant shall be responsible for repairing and maintaining only that portion of such Water Delivery System 12 which is located upon the Leathers Facility Site, as that term is defined in Section 41.1.1 hereof. 9. Assignment and Subletting. Subject to the Provisions of Section 10 hereof, Tenant shall not voluntarily or by operation of law assign, transfer or encumber all or any part of Tenant's interest in this Lease or in the Premises, without Landlord's prior written consent, which consent Landlord shall not unreasonably withhold. 10. Rights of Lender. 10.1. Notwithstanding any other provisions in this Lease to the contrary, Tenant may, from time to time, without notifying or obtaining the consent of Landlord, hypothecate, mortgage, pledge or alienate Tenant's interest in this Lease to the Project Lender. The Project Lender shall give prompt written notice to Landlord if (i) its entering into a credit agreement evidencing the Project Lender's Loan and the total amount of funds available thereunder, or of the nature of the transaction, (ii) any amendments to said credit agreement and (iii) the Project Lender's address for notices hereunder; provided, however, that any failure by the Project Lender to give such notice shall not be grounds for denying the Project Lender the rights and protection provided in this Section 10. 10.2. For the protection of the Project Lender, Landlord agrees as follows: 10.2.1. Landlord shall not accept any abandonment of this Lease, nor shall Landlord consent to any amendment, modification or termination hereof, provided, that Landlord has received actual or constructive notice of the Project Lender's Lien, unless and until Tenant presents evidence to Landlord that Tenant has obtained the prior written consent of the Project Lender. 10.2.2. The Project Lender shall have the right, but not the obligation, at any time prior to the expiration or earlier termination of this Lease, and without payment of any penalty, to make any payments due hereunder, and to do any other act or thing required of Tenant hereunder, and to do any act or thing that may be necessary and proper to be done in the performance and observance of the terms hereof to prevent any default under or termination of this Lease. All payments so made and all things so done and performed by the Project Lender shall be as effective to prevent any default under or termination of this Lease as they would have been if made, done and performed by Tenant instead of by the Project Lender. Landlord hereby agrees that upon Landlord's receipt of any notice in the nature of a notice of default with respect to any obligation of Landlord 13 under the Geothermal Leases, Landlord shall immediately deliver a copy of such notice to Tenant and to the Project Lender provided that Landlord has received actual or constructive notice of the Project Lender's Lien. 10.2.3. Tenant shall not be in default under this Lease unless Tenant fails to perform the obligations required of it hereunder within the time periods set forth herein, including all applicable cure periods. If Tenant fails to cure any default within the time so provided, the, upon written notice from Landlord to the Project Lender, the Project Lender shall have an additional ninety (90) days to cure such default; provided, however, that if such default cannot reasonably be cured within such additional ninety (90) day period, then the Project Lender shall have such additional time to cure the default as is reasonably necessary under the circumstances, so long as (a) the Project Lender shall have fully cured within such ninety (90) day period any default in the payment and performance of any monetary or other obligations of Tenant hereunder that do no require possession of the Premises and shall thereafter continue to faithfully perform all such monetary and other obligations, (b) the Project Lender shall have acquired Tenant's interest hereunder or commenced foreclosure or other appropriate proceedings in the nature thereof within such period or prior thereto, and shall be diligently prosecuting any such proceedings to completion, and (c) the Project Lender shall take all reasonable measures within its control (including steps to obtain control) to continue Tenant's operations of the Leathers Facility under this Lease. All rights of Landlord to terminate this Lease as a result of the occurrence of any default by Tenant shall be subject to, and expressly conditioned upon, (i) the Project Lender's having received the notice specified above in this Section 10.2.3, and (ii) the Project Lender's having failed to remedy such default or to acquire Tenant's interest hereunder or commence foreclosure or other appropriate proceedings or to take reasonable measures to continue Tenant's operations of the Leathers Facility as set forth in this Section 10.2.3. 10.2.4. Any default by Tenant under this Lease that cannot be remedied by the Project Lender shall nevertheless be deemed to have been remedied if (a) within ninety (90) days after receiving written notice from Landlord setting forth the nature of such default, or prior thereto, the Project Lender shall have acquired Tenant's interest hereunder or shall have commenced foreclosure or other appropriate proceedings in the nature thereof, (b) the Project Lender shall diligently prosecute any such proceedings to completion, (c) the Project Lender shall have taken reasonable measures within its control (including steps to obtain control) to continue Tenant's operations of the Leathers Facility in accordance with the terms of this Lease, 14 (d) the Project Lender shall have fully cured within such ninety (90) day period any default in the payment and performance of any monetary or other obligations of Tenant hereunder that do not require possession of the pRemises and shall thereafter continue to faithfully perform all such monetary and other obligations, and (e) after gaining possession of the Premises, the Project Lender shall perform all obligations of Tenant hereunder and which arise thereafter. 10.2.5. If the Project Lender is prohibited by any process or injunction issued by any court or by reason of any action of any court having jurisdiction over any bankruptcy, reorganization, insolvency or other debtor-relief proceeding involving Tenant, from commencing or prosecuting foreclosure or other appropriate proceedings in the nature thereof, then the times specified in Sections 10.2.3 and 10.2.4 hereof for commencing or prosecuting such foreclosure or other proceedings shall be extended for the period of such prohibition; provided, however, that the Project Lender shall have fully cured any default in the payment or performance of any monetary or other obligations of Tenant under this Lease that do not require possession of the Premises, and shall continue to pay and perform such monetary and other obligations as and when they fall due, and shall have taken reasonable measures within its control (including steps to obtain control) to continue Tenant's operations of the Leathers Facility. 10.2.6. Landlord shall mail or deliver to the Project Lender a duplicate copy of any and all written notices that Landlord may from time to time give to or serve upon Tenant pursuant to the provisions hereof, and such copies shall be mailed or delivered to the Project Landlord to Tenant hereunder shall be deemed to have been given unless and until a copy thereof shall have been given unless and until a copy thereof shall have been mailed or delivered to the Project Lender. 10.2.7. Foreclosure of the Project Lender's Lien or any sale thereunder, whether by judicial proceedings or otherwise, or any conveyance or transfer of the interest of Tenant under this Lease from Tenant to the Project Lender through, or in lieu of, foreclosure or other appropriate proceedings in the nature thereof, shall not require the consent of Landlord or constitute a breach of any provision of or a default under this Lease, and upon such foreclosure, sale or conveyance Landlord shall recognize the Project Lender, or any other foreclosure sale purchaser, as Tenant hereunder. In the event the Project Lender becomes the Tenant under this Lease as provided herein, then the Project Lender shall be personally liable for the obligations of Tenant under this Lease only for the period of time that 15 the Project Lender remains Tenant hereunder, and the Project Lender shall have the right to assign this Lease thereafter without any restriction otherwise imposed on Tenant hereunder; provided, however, that the assignee of the Project Lender shall have expressly assumed all of the obligations of Tenant hereunder. notwithstanding any other provision of this Lease, in the event that the Project Lender (a) performs any monetary or other obligation of Tenant under this Lease, (b) acquires any portion of the right, title or interest in the leasehold estate created by this Lease, (c) continues Tenant's operations of the Premises under this Lease and/or (d) becomes personally liable to Landlord hereunder, then the Project Lender's obligations and liability to Landlord shall be limited by and to the Project Lender's right, title and interest, if any, in the leasehold estate created by this Lease, and Landlord shall have no recourse against the Project Lender in excess of, and other than to proceed against, such right, title and interest. 10.2.8. Upon Landlord's receipt of any notice in the nature of a notice of default with respect to any obligation of Landlord secured by any lien upon the Premises, Landlord shall immediately deliver a copy of such notice to Tenant and to the Project Lender. If and whenever the Project Lender shall deem it necessary or appropriate to do so in order to protect its rights under this Lease, it may, at its option, pay and discharge any mortgage or other lien (including, without limitation, the lien of general or special property taxes or special assessments) attached to the Premises or any portion thereof, and in such event it shall be subrogated to all the rights of the mortgagee, beneficiary, owner or holder of such mortgage or other lien. 10.2.9. In the event that this Lease is rejected by a trustee or debtor-in-possession in any bankruptcy or insolvency proceeding or it terminated for any other reason (except as a result of a default hereunder which was curable hereunder but which was not appropriately cure as provided herein) and if, within sixty (60) days after such rejection or other termination, the Project Lender shall so request, Landlord will execute and deliver to the Project Lender a new ground lease of the Leathers Property. Such new ground lease shall be for a term equal to the remainder of the term of this Lease before giving effect to such rejection or other termination, and shall contain the same covenants, agreements, terms, provisions and limitations as contained in this Lease (except or any requirements which shall have been fulfilled by Tenant prior to such rejection or other termination). Landlord shall, at the expense of the Project Lender and at no expense to Landlord, cooperate with the Project Lender and take such action in compliance with law as Project Lender shall reasonably request to remove Tenant from the Leathers Property. 16 10.2.10. Landlord and Tenant acknowledge, agree and covenant that notwithstanding the union of the fee simple title with any right, title or interest in the leasehold estate created hereby or under any other document or instrument in Landlord, Tenant, Project Lender, or any other Person or entity, whether by purchase or otherwise, it is the declared intention of the parties hereto that the separation of the fee simple estate and the leasehold estate shall be maintained and a merger shall not take place without the prior written consent of the Project Lender. 10.3. Tenant and Landlord shall cooperate in including here, by suitable amendment from time to time, any provision which any Project Lender or proposed Project Lender reasonably requests for the purpose of implementing the Project Lender-protective provisions contained in this Section 10 and affording the Project Lender or proposed Project Lender reasonable protection of its Project Lender's Lien in the event of a default by Tenant. Tenant and Landlord each agree to execute and deliver (and to acknowledge, if necessary for recording purposes) any document or instrument necessary to give effect to any such provision. 10.4. The Project Lender's mortgage documents shall contain provisions that all notices of default under the note and related documents must be sent to Landlord as well as Tenant, and that Landlord shall have the right to cure any default after the time for Tenant to cure it has expired. Neither Landlord's right to cure any default nor any exercise of such a right shall constitute an assumption of liability under the note or related document. 10.5. On the recording of the Project Lender's Lien, Tenant shall, at Tenant's expense, cause to be recorded in the office of the County Recorded of Imperial County, California, a written request executed and acknowledged by Landlord for a copy of all notices of default and all notices of sale under the Project Lender's Lien as provided by the statutes of the State of California. Inclusion in the body of the recorded Project Lender's Lien itself of a request for notice having the effect described above shall constitute compliance with this provision. 10.6. On the commencement of the term, the fee title to the Premises shall be free and clear of all mortgage liens other than those expressly agreed to in accordance with this Lease. Thereafter, any mortgage placed on the Premises by Landlord shall be subject to this Lease, to any mortgage then in existence on the leasehold estate as permitted by this Lease, and to Tenant's right as permitted by the this Lease subsequently to encumber the leasehold estate. 17 11. Insurance. So long as the Credit Facility remails a valid and binding obligation of Tenant, Tenant shall procure and maintain such policies of insurance in such amounts as are necessary to comply with the Insurance Requirements. After such time as the Credit Facility ceases to be a valid and binding obligation of Tenant or otherwise terminates in accordance with its terms, Tenant shall procure and maintain, for the remainder of the term of this Lease, such policies of insurance, in such amounts, as Landlord shall reasonable request, but in no event shall Tenant be required to procure and maintain insurance in excess of the Insurance Requirement. 12. Condemnation. In the event of a taking by eminent domain or by inverse condemnation for any public or quasi-public use under any statute, the proceeds therefrom shall be distributed (a) first, to Tenant to the extent of all amounts necessary to pay in full the Project Lender's Loan and (b) second, to the parties hereto in accordance with their interests as they may appear. 13. Default and Remedies. 13.1. Subject to the provisions of Section 10 hereof, the occurrence of any one or more of the following events shall constitute a material default by Tenant under this Lease: 13.1.1. The vacation or abandonment of the Premises by Tenant for a continuous period of sixty (60) days or more, whether or not the rent is paid. 13.1.2. The failure by Tenant to make any payment of rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of three (3) business days after written notice thereof from Landlord to Tenant. 13.1.3. The failure by Tenant to observe or perform any of the material covenants, conditions or provisions of this Lease to be observed or performed by Tenant other than those referenced in Sections 13.1.1 and 13.1.2 above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant's noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said thirty (30) day period and thereafter diligently pursues such cure to completion. 13.1.4. The making by Tenant of any general arrangement or general assignment for the benefit of creditors; Tenant's becoming a "debtor" as defined in 18 11 U.S.C. section 101 or any successor statute thereto, unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days after filing; the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored within sixty (60) days; or the attachment execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within sixty (60) days. In the event that any provision of this Section 13.1.4 is contrary to any applicable law, such provision shall be of no force or effect. 13.2. Subject to the provisions of Section 10 hereof, in the event of any material default or breach o this Lease by Tenant, Landlord may at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such default: 13.2.1. Terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate, and Tenant shall immediately surrender possession of the Premises to Landlord. In such event Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including, but not limited to: (a) the unpaid rent which had been earned at the time of termination; (b) the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (c) the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (d) any other amount necessary to compensate Landlord for all of the detriment proximately caused by the Tenant's failure to perform its obligations under this Lease. 13.2.2. Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant shall have vacated or abandoned the Premises. In such Event, Landlord shall be entitled to enforce all of Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. 13.2.3. Use Tenant's personal property and trade fixtures without compensation and without liability for their use or damage, or store them for the account of and at the cost of Tenant. The election of one remedy for any one item of personal property or trade fixture shall not 19 foreclose an election of any other remedy for another item or for the same item at a later time. 13.2.4. Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the State of California. 13.3. After expiration of the applicable time for curing a particular default, or before the expiration of that time in the event of emergency, Landlord may at Landlord's election, but shall not be obligated to, make any payment required of Tenant under this Lease or under any note or other related loan document pertaining to the financing of improvements on the Premises, or perform or comply with any covenant or condition imposed on Tenant under this Lease or any such note or related loan document, and any amount so paid, plus the reasonable cost of any such performance or compliance, shall be deemed to be additional rent payable by Tenant with the next succeeding installment of rent. No such act shall constitute a waiver of default or of any remedy for default or render Landlord liable for any loss or damage resulting from any such act. 13.4. Landlord shall not be in default in the performance of its obligations under this Lease unless Landlord fails to perform obligations required of Landlord within sixty (60) days after written notice by Tenant to Landlord and to the holder of any mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord obligation is such that more than sixty (60) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such sixty (60) day period and thereafter diligently pursues the same completion. 13.5. Tenant hereby acknowledges that late payment by Tenant to Landlord of any installment of rent or any other sum due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Accordingly, if any installment of rent or any other sum due from Tenant shall not be received by Landlord within ten (10) days after such amount shall be due, then, without any requirement for notice to Tenant, Tenant shall pay to Landlord a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, or 20 prevent Landlord from exercising any of the other rights and remedies granted hereunder. 14. Estoppel Certificates. 14.1. Either party hereto (the "Responding Party") shall, at any time upon not less than ten (10) days prior written notice from the other party hereto or from the Project Lender (the "Requesting Party"), execute, acknowledge and deliver to the Requesting Party a statement in writing (a) certifying, as applicable, that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which any payments due hereunder are paid, (b) acknowledging that there are not, to the Responding Party's knowledge, any uncured defaults hereunder on the part of the other party hereto (or specifying such defaults if any are claimed), and (c) setting forth such other information reasonably and customarily included in estoppel certificates as may be requested by the Requesting Party and known to the Responding Party. Any such statements may be conclusively relied upon by any prospective purchaser or encumbrancer of this Lease. The failure of the Responding Party to deliver such statement within such time shall be conclusive upon such Responding Party that (i) this Lease is in full force and effect and has not been modified, and (ii) there are no uncured defaults in the performance of the other party hereto. 15. Landlord's Liability. The term "Landlord" as used herein shall mean only the owner or owners, at the time in question, of fee title to the Premises, and in the event of any transfer of such title or interest, Landlord herein named (and, in case of any subsequent transfers, then the grantor) shall be relived from and after the date of such transfer of all liability as respects Landlord's obligations thereafter to be performed, provided that any funds in the hands of Landlord or the then grantor at the time of such transfer in which Tenant has an interest shall be delivered to the grantee. 16. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. 17. Interest on Past-Due Obligations. Except as expressly herein provided, any amount due to Landlord not paid when due shall bear interest at the greater of (a) ten percent (10%) per annum, or (b) five percent (5%) per annum above the discount rate established by the Federal Reserve Bank of San Francisco on advances to member banks under Section 13 or 13 (a) of the Federal Reserve Act as in effect on the 25th day of the month preceding the date of this 21 Lease, from the date due until fully paid. Payment of such interest shall not excuse or cure any default by Tenant under this Lease. 18. Time of Essence. Time is of the essence with respect to the obligations to be performed under this Lease. 19. Additional Rent. All monetary obligations of Tenant to Landlord under the terms of this Lease shall be deemed to be rent. 20. Incorporation of Prior Agreements. This Lease and the related documents referred to herein specifically by name contain all agreements of the parties with respect to the subject matter of this Lease. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. 21. Amendments. This Lease may be amended in writing only, signed by the parties in interest at the time of the amendment. 22. Notices. Any notices required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by registered or certified mail, and shall be deemed sufficiently given if delivered or addressed to Tenant or to Landlord at the address noted below. Mailed notices shall be deemed given upon actual receipt at the address required, or forty-eight (48) hours following deposit in the mail, postage prepaid, whichever first occurs. Either party may by notice to the other specify a different address for notice purposes. To Landlord: Magma Power Company 11770 Bernardo Plaza court Suite 366 San Diego, California 92128 To Tenant: Leathers, L.P. c/o Red Hill Geothermal, Inc. 480 West Sinclair Road Calipatria, California 92233 23. Force Majeure. 23.1. Neither Landlord nor Tenant shall be liable in damages to the other for any act, omission or circumstance ("Event of Force Majeure") occasioned by or in consequence of any acts of God, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, 22 lightning, earthquakes, fires, storms, floods, civil disturbances, explosions, sabotage, the binding order of any court or governmental authority which has been contested in good faith, Federal, State or local laws, or other event or circumstance not within the control of such party preventing such party from performing its obligations hereunder, whether caused or occasioned by, or happening on account of, the act or omission of one of the parties, not within the control of the party claiming suspension and which by the exercise of due diligence such party is unable to prevent or overcome. 23.1.1. Such Events of Force Majeure shall not relieve Landlord or Tenant of liability in the vent of either party's concurring negligence or in the event of either party's failure to use due diligence to remedy the situation and to remove the cause in an adequate manner and with all reasonable dispatch, nor shall such Event of Force Majeure relieve either party of liability unless such party shall give notice and full particulars of the same in writing to the other party within ten (10) days of the occurrence relied on. In no event, however, shall an Event of Force Majeure relieve Tenant from the obligation of making payments due under this Agreement at the time of such occurrence. The parties agree that should any Event of Force Majeure remain in existence for a period of six (6) months, this Agreement may be terminated by the party not claiming suspension of this Agreement under such Event of Force Majeure upon the giving of written notice by such party to the other party and any Project Lender; provided, however, that such six (6) month period shall be extended for a reasonable time so long as throughout such six (6) month period the party claiming suspension of this Lease under the Event of Force Majeure has diligently proceeded to terminate the Event of Force Majeure and continues to do so throughout such extension. 24. Waivers. No waiver by Landlord of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Tenant of the same or any other provisions. Landlord's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act by Tenant. 25. Acceptance of Rent. The acceptance of rent hereunder by the Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 26. Holding Over. If Tenant, with Landlord's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the 23 provisions of this Lease pertaining to the obligations of Tenant, except that the rent payable shall be one hundred fifty percent (150%) of the rent payable immediately preceding the termination date of this Lease. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition. 29. Binding Effect. Subject to any provisions hereof restricting assignment or subletting by Tenant, this Lease shall bind the parties, their personal representatives, successors and assigns. 30. Choice of Law. This Lease shall be governed by the laws of the State of California. This Agreement shall be construed equally as against the parties hereto, and shall not be construed against the party responsible for its drafting. 31. Arbitration. All disputes arising under this Agreement shall be settled by arbitration. The party desiring such arbitration shall give written notice to that effect to the other party and in such notice shall appoint as an arbitrator a disinterested person of recognized competence in the area at issue. All selections of an arbitrator shall be subject to the consent of any Project Lender, but only if the Project Lender notifies the parties that it desires to approve the selection of an arbitrator, and such consent shall not be unreasonably withheld. Within fifteen (15) days thereafter, the other party shall, by written notice to the originating party, appoint a second person similarly qualified as the second arbitrator. The arbitrators thus appointed shall appoint a third person similarly qualified as the third arbitrator, and such three arbitrators shall as promptly as possible determine such matter with the parties, each being entitled to present evidence and argument to the arbitrators; provided, however, that: (i) if the second arbitrator shall not have been appointed as aforesaid, the first arbitrator shall determine such matter; and (ii) if the two arbitrators appointed by the party shall be unable to agree upon the appointment of a third arbitrator within fifteen (15) days after the appointment of the second arbitrator, they shall give written notice of such failure to agree to the parties, and, if the parties fail to 24 agree upon the selection of such third arbitrator within fifteen (15) days thereafter, then within ten (10) days thereafter, either of the parties upon written notice to the other party may apply for such appointment to the Federal District Court or County Superior Court in San Diego, California. The arbitrator or arbitrators shall only interpret and apply the terms and provisions of this Agreement and shall not change any such terms or provisions or deprive either party of any right or remedy expressly or impliedly provided for in this Agreement. The determination of the majority of the arbitrators or the sole arbitrator, as the case may be, shall, to the extent permitted by law, be conclusive upon the parties. The arbitrator or arbitrators shall give written notice to the parties stating their determination, and shall furnish to each a copy of such determination signed by them. In the event of the failure, refusal or inability of any arbitrator to act, a new arbitrator shall be appointed in his stead, which appointment shall be made in the same manner as hereinbefore provided for the appointment of the arbitrator so failing, refusing or unable to act. 32. Attorneys' Fees. If either party hereto commences litigation or arbitrator for the judicial or other interpretation, enforcement, termination, cancellation or rescission hereof, or for damages for the breach hereof, the prevailing party in any such action, trial, arbitrator or appeal thereon shall be entitled to its reasonable attorneys' fees and court, arbitrator and other costs incurred, to be paid by the losing party as fixed by the court or arbitrator in the same or a separate suit, and whether or not such action is pursued to decision or judgment. 33. Landlord's Access. Landlord and its agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, performing any services required of Landlord, taking safety measures and exercising rights expressly reserved by Landlord under this Lease, as long as there is no material adverse effect to Tenant's use of the Premises. All activities of Landlord pursuant to this Section shall be without abatement of rent, nor shall Landlord have any liability to Tenant for the same. 34. Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation hereof, or a termination by Landlord, shall not work a merger, but shall, at the option of Landlord, terminate any or all existing subtenancies, or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies. 25 35. Quiet Possession. Upon Tenant's paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Tenant's part to be observed and performed hereunder, Tenant shall have quiet possession of the Premise for the entire term hereof subject to all of the provisions of this Lease. 36. Security Measures. Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises. Tenant assumes all responsibility for the protection of Tenant, its agents, invitees and their property from the acts of third parties. 37. Easements and Maps. Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications that Landlord deems necessary or desirable, and to cause the recordation of maps or restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises or the operation of the Leathers Facility by Tenant. Tenant shall sign any of the aforementioned documents reasonably requested by Landlord and failure to do so within such period of time as constitutes a reasonable period of time to review such documents shall constitute a material default under this Lease by Tenant without the need for further notice to Tenant. 38. Exhibits, Addenda. All exhibits and addenda to which reference is made in this Lease are incorporated in this Lease by the respective references to them, whether or not they are actually attached, provided they have been signed or initialed by the parties. 39. Tenant's Duty to Surrender. At the expiration or earlier termination of the term, Tenant shall surrender to Landlord the possession of the Premises. If Tenant fails to surrender the Premises at the expiration or earlier termination of this Lease, Tenant shall defend and indemnify Landlord from all liability and expense resulting from the delay or failure to do so, including, without limitation, claims make by any succeeding tenant founded on or resulting from Tenant's failure to do so. 40. Memorandum of Lease. A Memorandum of this Lease shall be recorded (the "Ground Lease Memorandum"). The parties shall execute the Memorandum in such form and substance as may be required by the title insurance company insuring Tenant's leasehold estate or the interest of any Project Lender, sufficient to give constructive notice of the Lease to subsequent purchasers and mortgagees. 26 41. The Remaining Leathers Property Area. Notwithstanding any other provision of this Lease to the contrary: 41.1.1 Landlord and Tenant acknowledge that Landlord intends at some time in the future to record a parcel or final map (the "Map") further subdividing the Premises into at least the following two separate parcels or lots complying with the California Subdivision Map Act (Gov't Code section 66410 et seq.) (the "Map Act"): (a) the site for the Leathers Facility, which shall consist of approximately (but not less than) the southernmost twenty (20) acres of the Premises (the "Leathers Facility Site"); and (b) one or more sites for other purposes, which shall together consist of the remainder of the Premises (the "Remaining Area"). 41.1.2 Tenant shall, at Landlord's expense and at no cost to Tenant, cooperate in all respects with Landlord's efforts to obtain and record the Map, including, without limitation, by executing any and all documents and instruments as may reasonably be required by Landlord or any applicable governmental agency in connection therewith. 41.1.3 Landlord shall have an option (the "Remaining Area Termination Option") to at any time terminate this Lease as to the Remaining Area upon the payment to Tenant of the sum of Ten Dollars ($10.00); provided, however, that Landlord's right to exercise the Remaining Area Termination Option is, in compliance with Section 66499.30(e) of the Map Act, expressly contingent upon the approval and recordation of the Map by the County of Imperial. The term of the Remaining Area Termination Option shall be the same as, and shall run concurrently with, the term of this Lease as set forth in Section 4 hereof. 41.1.4 Without limiting the generality of Section 3.3 hereof, at such time as (a) the Map shall have been recorded in the Official Records of Imperial County (the "Official Records") and (b) Tenant shall have received written notice from Landlord of Landlord's intent to exercise the Remaining Area Termination Option (along with the Ten Dollars ($10.00) consideration provided in Section 41.1.3 hereof), Landlord and Tenant shall: (i) execute and deliver an amendment to this Lease stating that this Lease shall thereafter encumber only the Leathers Facility Site: (ii) execute, acknowledge deliver and cause to be recorded in the Official Records an amendment to the Ground Lease Memorandum stating that this Lease shall thereafter encumber only the Leathers Facility Site; and (iii) execute, acknowledge, deliver and cause to be recorded in the Official Records a quitclaim deed satisfactory to Landlord pursuant to which Tenant shall quitclaim to Landlord all its right, title and interest in and to the Remaining Area, and upon the recordation of such quitclaim deed Tenant shall surrender and 27 deliver possession of the Remaining Area to Landlord. In no event shall any such amendment or quitclaim entitle Tenant to any reduction in or offset against the rents and other payments due Landlord hereunder. Notwithstanding the execution, delivery and recordation of the foregoing documents, and without limiting the generality of Section 3.3.2 hereof, (1) for so long as this Lease is in effect, Tenant shall retain a non-exclusive easement for ingress and egress and to construct, install, operate and maintain production and injection pipelines over a portion of the Remaining Area consisting of a strip of land one hundred (100) feet wide along the eastern and/or western boundary of the Remaining Area, as Landlord shall reasonably determine, or over any other portion of the Remaining Area as Landlord shall reasonable determine to be appropriate, as well as wherever pipelines already existed as of August 15, 1988 or there were planned locations therefor as of August 15, 1988 pursuant to plans approved or prepared by or otherwise known to Landlord or Red Hill Geothermal, Inc., a Delaware corporation and (2) for so long as such well is in operation and the Lease is in effect, Tenant shall retain a non-exclusive easement to operate, repair and maintain that certain production well commonly known as "River Ranch #3," located at the northeast corner of the Remaining Area (together, the "Remaining Area Pipeline Easement"). 41.1.5 Tenant hereby agrees that throughout the entire term of this Lease, it will not, without the consent of Landlord, (a) construct or install any structure, buildings, wells or other improvements upon the Remaining Area, except for production and injection pipelines and the River Ranch #3 production well, all of which shall be located within the Remaining Area Pipeline Easement, or (b) grade or otherwise disturb the surface of the Remaining Area. 41.1.6 Commencing retroactively from May 1, 1988, to the extent that Tenant constructs, installs, operates, or maintains pipelines within the Remaining Area Pipeline Easement (and regardless whether Tenant has or has not quitclaimed the Remaining Area to Landlord as provided in section 41.1.4 hereof), Tenant shall pay to Landlord (in addition to any fees otherwise payable to Landlord under this Lease) a fee equal to that paid by Tenant under the Easement Agreement with respect to its use of surface lands owned or held by PErsons other than Landlord; provided, however, that in the event that at any time during the term of this Lease Landlord or a grantee of Landlord uses the Remaining Area Pipeline Easement, and to the extent that such use overlaps with that of Tenant hereunder, then, for so long as such use continues, Tenant shall only be required to pay to Landlord under this Section 41.1.6 Tenant's pro-rata share of such fees. 28 41.1.7 Without limiting the generality of any other provision hereof relating to Landlord's rights to and/or use of the Premises, Landlord shall have and retain the right to from time to time designate a right of way and/or one or more strips of land within, upon and over the Leathers Facility Site for nonexclusive ingress, egress and use by Landlord and/or its grantees, assignees and licensees for purposes of access to the Remaining Area and/or the construction, installation, operation and maintenance of utility lines and pipelines for the transportation of geothermal resources connected with any additional power production geothermal electrical generating facility and/or other commercial or industrial facility or improvements hereafter constructed within or about the Premises or lands pooled or unitized with the Premises; provided, however, that the location and use of such strips of land shall not unreasonably interfere with the operation of, or deny Tenant access to, the Leathers Facility. IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written. LANDLORD: MAGMA POWER COMPANY, a Nevada corporation By: /s/ Illegible ------------------------------- Its: President By: /s/ Illegible ------------------------------- Its: Secretary TENANT: LEATHERS, L.P., a limited partnership organized under the laws of the State of California By: /s/ Illegible ------------------------------- Its: President By: /s/ Illegible ------------------------------- Its: Asst. Secretary 29 Recording Requested By and When Recorded Mail To: Magma Power Company c/o CalEnergy Company, Inc. 302 South 36th Street Omaha, Nebraska 68131 Attention: General Counsel -------------------------------------------------------------------- The undersigned declare that this document does not grant, assign, transfer, convey or vest title to real property within the meaning of Section 11911 of the California Revenue and Taxation Code, and hence NO DOCUMENTARY TRANSFER TAX IS DUE. The real property is located in an unincorporated area of the County of Imperial, State of California. CLARIFICATION AND AMENDMENT THIS CLARIFICATION AND AMENDMENT (this "Amendment") is made as of June 17, 1996, between MAGMA POWER COMPANY, a Nevada corporation ("Grantor") and LEATHERS, L.P., a limited partnership organized under the laws of the State of California ("Grantee"). RECITALS 1. Grantor holds certain geothermal lease rights (the "Geothermal Lease Rights") in certain real property located within the Salton Sea Known Geothermal Resource Area (the "SSKGRA") in Imperial County, California, which real property is described in Exhibit "A" attached hereto (the "Geothermal Lease Rights Properties"). A portion of the Geothermal Lease Rights Properties consists of those certain real property interests described in Exhibit "B" attached hereto (the "Resource Easement Rights Properties"). The Geothermal Lease Rights are set forth in those certain geothermal leases described in Exhibit "C" attached hereto (the "Geothermal Leases"). 2. Grantee owns a geothermal electrical generating facility commonly known as the "Leathers Facility", which utilizes Geothermal Brine from certain of the Resource Easement Rights Properties. The Leathers Facility is located on that certain real property described in Exhibit "D" attached hereto (the "Leathers Property"). 3. Grantee's right to maintain the Leathers Facility on the Leathers Property is derived from that certain Ground Lease dated as of October 26, 1988 between Grantor, as Landlord, and Grantee, as Tenant (the "Ground Lease"), a Memorandum of which was recorded on October 26, 1988 in Book 1613, Page 318, as Instrument No. 88-17185 in the Official Records of Imperial County, California (the "Official Records"). 4. Pursuant to that certain Easement Grant Deed and Agreement Regarding Rights For Geothermal Development dated as of August 15, 1988, as amended by that certain First 1 Amendment To Easement Grant Deed and Agreement Regarding Rights For Geothermal Development dated as of October 26, 1988 (the "Easement Grant Deed"), a Short Form of which was recorded on October 26, 1988 in Book 1613, Page 324, as Instrument No. 88-17187 in the Official Records (the "Easement Short Form"), Grantor granted to Grantee certain rights in and to the Geothermal Brine contained in the Resource Easement Rights Properties, including, without limitation, the right to (i) drill for, produce, Process and use Geothermal Brine up to the amount necessary to meet the Leathers Facility Brine Requirement and (ii) construct, use and maintain roads, pipelines, utility installations, power lines, equipment, buildings and wells in connection therewith, subject to certain limitations and reservations as more particularly set forth in the Easement Grant Deed. 5. It has always been the intent of Grantor and Grantee (together, the "Parties") that Grantor reserve and at all times have the right, at its sole option, to (i) drill for, produce, process, extract, treat, convert, take, divert, sell and otherwise use the Excess Unextracted Geothermal Brine, Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Geothermal Brine Scale and Brine Minerals and (ii) use the Leathers Property in connection with such reserved rights. The Parties now desire to amend the Ground Lease and Easement Grant Deed to clarify and further define such rights, and to make certain other modifications thereto, as set forth herein. F. This Amendment is being executed in connection with that certain Second Supplemental Trust Indenture (the "Supplemental Indenture") dated as of June 20, 1996, between Salton Sea Funding Corporation, a Delaware corporation, an Affiliate of Grantor ("Funding Corporation"), as issuer, and Chemical Trust Company of California, a California corporation, as trustee. Chemical Trust Company of California, a California corporation, is also acting as collateral agent (together with its transferees, successors and assigns, the "Collateral Agent") under that certain Collateral Agency and Intercreditor Agreement dated as of July 21, 1995, as amended, by and among Funding Corporation and the other parties named therein. The Collateral Agent's address is 50 California Street, 10th Floor, San Francisco, California 94111. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals, the covenants and conditions herein contained, and other valuable consideration, the receipt of which is hereby acknowledged, the Parties agree as follows: ARTICLE 1. INTRODUCTORY MATTERS 1.1. CAPITALIZED TERMS. Capitalized terms used and not defined herein shall have the meaning given the same in the Easement Grant Deed. 1.2. TERMINATION OF AGREEMENTS. 1.2.1 Grantor and Grantee hereby confirm and agree that the Partnership Bridge Agreement dated August 15, 1988 among Grantor, Grantee, Red Hill Geothermal, Inc., a Delaware corporation and San Felipe Energy Company, a California corporation (the "Partnership Bridge Agreement"), has terminated and is of no further force or effect. 2 1.2.2 Grantor, Grantee and Morgan Guaranty Trust Company of New York, in its capacity as Security Agent for certain Banks ("Morgan") under that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of October 26, 1988, executed by Grantee as Trustor, recorded on October 26, 1988 in the Official Records as File No. 88-17188, as amended (the "Morgan Deed of Trust"), are parties to that certain River Ranch Leasehold Bridge Agreement dated as of October 26, 1988 (the "Leasehold Bridge Agreement"). Morgan will shortly reconvey the Morgan Deed of Trust to Grantee, whereupon Grantor and Grantee will be the only parties thereto. Grantor and Grantee hereby agree that concurrently with such reconveyance, the Leasehold Bridge Agreement shall terminate and be of no further force or effect. ARTICLE 2. AMENDMENTS TO THE EASEMENT GRANT DEED 2.1. USE OF GEOTHERMAL BRINE. Wherever in the Easement Grant Deed (including, without limitation, sections 2.2.1, 2.3.2, 2.3.3, 3.1.1 and 3.1.3 thereof) Grantor reserves or is given the right to "use", "utilize" or make "use" of the Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Brine Minerals and/or Geothermal Brine Scale or any part thereof, Grantor shall further have the right, privilege and power to process, extract from, treat, convert, take, divert, sell and otherwise use the same, in such manner and at such locations as Grantor may deem proper, and without compensation to Grantee other than as expressly provided in the Easement Grant Deed. 2.2. OWNERSHIP OF GEOTHERMAL BRINE. To the extent that Grantor processes, extracts, treats, converts, takes, diverts, sells or otherwise uses the Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Brine Minerals and/or Geothermal Brine Scale or any part thereof as permitted under the Easement Grant Deed or hereunder, which results in the amount thereof that is returned to Grantee for injection or disposal being less than the amount thereof previously delivered to or taken by Grantor, then the title otherwise held by Grantee to any Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Brine Minerals and/or Geothermal Brine Scale that is not returned to Grantee for injection or disposal shall automatically transfer to and vest in Grantor. Without limiting the generality of the foregoing, if Grantor makes any commercial use or sale of the Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Brine Minerals and/or Geothermal Brine Scale, the economic benefits of such use or sale shall belong to Grantor. 2.3. INJECTION BY GRANTEE. In addition to its obligations under section 3.1.1 of the Easement Grant Deed, Grantee shall handle, transport, inject and dispose of all geothermal fluids and other substances produced as a result of or which flow from Grantor's use, processing, treatment or conversion of the Geothermal Brine and of geothermal fluids from other lands. To the extent that by performing the above duties Grantee incurs additional costs and expenses over what it would have incurred had Grantor not used, processed, treated or converted Geothermal Brine or geothermal fluids from other lands as provided herein, then Grantor shall pay such excess costs and expenses. 2.4. RELEASE OF EXTRA QUARTER SECTION. Consistent with sections 4.2 and 4.3 of the Leasehold Bridge Agreement (which Leasehold Bridge Agreement is being terminated as provided above), the following language is hereby added at the end of section 2.1 of the Easement Grant Deed: "At any time and from time to time during the term of this Agreement, upon request 3 by Grantor, Grantee shall cause GeothermEx, Inc. or another resource engineer reasonably acceptable to Grantee to prepare an analysis of the geothermal resource in the Resource Easement Rights Properties (the "Resource Analysis"). If the Resource Analysis concludes that the Resource Easement Rights Properties, less the Southeast Quarter of Section 24, Township 11 South, Range 13 East, San Bernardino Meridian (the "Extra Quarter Section"), would be sufficient to satisfy the Leathers Facility Brine Requirement for the then-remaining term of this Agreement, then Grantee shall, upon request by Grantor, forthwith execute, acknowledge and deliver to Grantor for recordation a quitclaim deed of all of Grantee's rights under this Agreement and the recorded Short Form hereof in and to the Extra Quarter Section, or such other document or instrument as Grantor may reasonably request to release to Grantor all of Grantee's right, title and interest in and to the Extra Quarter Section. All reasonable costs of completing the release of Grantee's interest in the Extra Quarter Section shall be borne by Grantor without reimbursement by Grantee, including, without limitation, all costs incurred in having the Resource Analysis prepared." 2.5. INSURANCE. Section 3.3 of the Easement Grant Deed is hereby deleted in its entirety. 2.6. PROJECT LENDER PROVISIONS. Article VI of the Easement Grant Deed is hereby revised as follows. 2.6.1 The definition of "Project Lender" is hereby deleted from Schedule "Z" to the Easement Grant Deed, and is replaced with the following: "'Project Lender' means (a) the Collateral Agent (b) any Person who succeeds to the interest of Collateral Agent under that certain Trust Indenture dated as of July 21, 1995, between Funding Corporation, as issuer, and Collateral Agent, as trustee (as amended, modified or supplemented, including pursuant to the Supplemental Indenture, the "Indenture") or (c) any other Person who acquires a first lien on the Easement To Develop Geothermal Rights in connection with or following (i) foreclosure of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of June 20, 1996, executed by Grantee as trustor, in favor of Chicago Title Company as trustee, for the benefit of Collateral Agent as beneficiary (the "Deed of Trust"); (ii) conveyance of the Easement To Develop Geothermal Rights to Collateral Agent in lieu of foreclosure or (iii) the acquisition by Collateral Agent or its nominee or designee of the Easement To Develop Geothermal Rights by any other means. The term "Project Lender" shall also include any person or entity that acquires a first lien on the Easement To Develop Geothermal Rights at any time after such foreclosure, conveyance by deed in lieu of foreclosure or acquisition by Collateral Agent or its nominee or designee." 2.6.2 The definition of "Project Lender's Loan" is hereby deleted from Schedule "Z" to the Easement Grant Deed, and is replaced with the following: "'Project Lender's Loan' means the financing provided by the Project Lender for the Development, operation, refinancing or acquisition of the Leathers Facility, the repayment of which is secured by the Project Lender's Lien." 4 2.6.3 Section 6.2.1 of the Easement Grant Deed is hereby deleted in its entirety and replaced with the following: "6.2.1 (i) So long as the Indenture is in effect, Grantor shall not accept or consent to any amendment or modification of this Agreement if the same would be prohibited under the Partnership Credit Agreement (as that term is defined in the Indenture); (ii) at any time when the Indenture is no longer in effect, Grantor shall not accept or consent to any amendment or modification of this Agreement if the same would have a material adverse effect on the Project Lender's Lien, and (iii) except in a case of default by Grantee under this Agreement that has not been cured by the Project Lender under this Section 6.2 within the period of time provided therein, Grantor shall not accept or consent to any abandonment of the Easement to Develop Geothermal Rights or any termination of this Agreement, unless and until Grantee presents evidence to Grantor that Grantee has obtained the prior written consent of the Project Lender thereto." 2.6.4 Sections 6.2.6 and 6.3 of the Easement Grant Deed are hereby deleted in their entireties. 2.7. ARBITRATION. The last eleven (11) words of paragraph (ii) of section 8.11 of the Easement Grant Deed (which currently read "Federal District Court or County Superior Court in San Diego, California") are hereby deleted and replaced with the words "District Court in Omaha, Nebraska." 2.8. EASEMENT SHORT FORM. The Easement Short Form is hereby amended as necessary and appropriate so that the same will in all respects be consistent with this Amendment. ARTICLE 3. AMENDMENTS TO THE GROUND LEASE 3.1. USE OF THE LEATHERS PROPERTY. Section 2.2 of the Ground Lease is hereby amended as follows: 3.1.1 The word "sell" is hereby added after the word "use" in the fourth line of such Section. 3.1.2 The words ", the Brine Minerals" are hereby added after the words "Reserved Geothermal Brine" in the fourth line of such Section. 3.1.3 The words "and mineral extraction and processing facilities" are hereby added after the words "Additional Power Production Facilities" in the fourteenth and eighteenth lines of such Section. 3.1.4 The words ", Partially Spent Geothermal Brine, Brine Minerals" are hereby added after the words "Geothermal Brine" in the twenty-first and twenty-fourth lines of such Section. 3.1.5 The following sentence is hereby added at the end of such Section: "Without limiting the foregoing, Landlord may conduct such operations for purposes incidental to Landlord's or its affiliates' operations on lands in the vicinity of and outside the Leathers Property." 5 3.2. SUBDIVISION OF THE LEATHERS PROPERTY. The following language is hereby added at the end of section 41.1.3 of the Ground Lease: "Any lender imposing a lien against the Premises shall be deemed, by the recordation of such lien, to have agreed to promptly partially release the Remaining Area from the lien of its deed of trust upon Landlord's exercise of the Remaining Area Termination Option." 3.3. DAMAGE OR DESTRUCTION. Section 8.2 of the Ground Lease is hereby deleted in its entirety. 3.4. PROJECT LENDER PROVISIONS. Section 10 of the Ground Lease (consisting of sections 10.1 through 10.6, inclusive) is hereby revised as follows. 3.4.1 The definition of "Project Lender" is hereby deleted from Schedule "Z" to the Ground Lease, and is replaced with the following: "'Project Lender' means (a) the Collateral Agent (b) any Person who succeeds to the interest of Collateral Agent under the Indenture or (c) any other Person who acquires a first lien on this Lease in connection with or following (i) foreclosure of the Deed of Trust; (ii) conveyance of this Lease to Collateral Agent in lieu of foreclosure or (iii) the acquisition by Collateral Agent or its nominee or designee of the Lease by any other means. The term "Project Lender" shall also include any person or entity that acquires a first lien on the Lease at any time after such foreclosure, conveyance by deed in lieu of foreclosure or acquisition by Collateral Agent or its nominee or designee." 3.4.2 The definition of "Project Lender's Loan" is hereby deleted from Schedule "Z" to the Ground Lease, and is replaced with the following: "'Project Lender's Loan' means the financing provided by the Project Lender for the Development, operation, refinancing or acquisition of the Leathers Facility, the repayment of which is secured by the Project Lender's Lien." 3.4.3 Section 10.2.1 of the Ground Lease is hereby deleted in its entirety and replaced with the following: "10.2.1 (i) So long as the Indenture is in effect, Landlord shall not accept or consent to any amendment or modification of this Lease if the same would be prohibited under the Partnership Credit Agreement (as that term is defined in the Indenture); (ii) at any time when the Indenture is no longer in effect, Landlord shall not accept or consent to any amendment or modification of this Lease if the same would have a material adverse effect on the Project Lender's Lien, and (iii) except in a case of default by Tenant under this Lease that has not been cured by the Project Lender under this Section 10.2 within the period of time provided therein, Landlord shall not accept or consent to any abandonment or termination of this Lease unless and until Tenant presents evidence to Landlord that Tenant has obtained the prior written consent of the Project Lender thereto." 3.4.4 Sections 10.2.6, 10.3, 10.4 and 10.5 of the Ground Lease are hereby deleted in their entireties. 6 3.5. INSURANCE. Section 11 of the Ground Lease is hereby deleted in its entirety. 3.6. ARBITRATION. The last eleven (11) words of paragraph (ii) of section 31 of the Ground Lease (which currently read "Federal District Court or County Superior Court in San Diego, California") are hereby deleted and replaced with the words "District Court in Omaha, Nebraska." ARTICLE 4. GENERAL PROVISIONS 4.1. NOTICES. The address for notices to Grantor and Grantee set forth in section 8.3 of the Easement Grant Deed and in section 22 of the Ground Lease shall henceforth be as follows: If to Grantor: c/o CalEnergy Company, Inc. 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Attention: General Counsel If to Grantee: c/o CalEnergy Company, Inc. 302 South 36th Street Suite 400-C Omaha, Nebraska 68131 Attention: General Counsel 4.2. ASSIGNMENT. Grantor shall be entitled, from time to time and without the prior consent of Grantee, to transfer, assign, alienate, license, grant easements in, hypothecate, pledge or mortgage to any Person all or any portion of Grantor's right, title or interest in, under and to the Easement Grant Deed and this Amendment. 4.3. COVENANTS TO RUN WITH THE LAND. The Leathers Property shall be held, conveyed, assigned, hypothecated, encumbered, leased, used and operated subject to the covenants, terms and provisions set forth herein, in the Easement Grant Deed and in the Ground Lease, which covenants, terms and provisions shall run with the Leathers Property and each portion thereof and interest therein, and shall be binding upon Grantee and each other Person having any interest therein during their ownership thereof, and their respective grantees, heirs, successors and assigns. 4.4. EFFECT OF THIS AMENDMENT. In the event that any inconsistency exists between this Amendment and the Easement Grant Deed or the Ground Lease, this Amendment shall govern, and any inconsistent terms and provisions contained herein shall be construed as superseding and amending the terms and provisions of the Easement Grant Deed and/or the Ground Lease, as applicable. Except as expressly modified by this Amendment, the Easement Grant Deed and the Ground Lease shall be unchanged and shall remain in full force and effect. This Amendment may be executed in multiple counterparts, all of which shall constitute one and the same Amendment. 7 IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first above written. GRANTOR: MAGMA POWER COMPANY, a Nevada corporation By: /s/ John G. Sylvia ---------------------------------- Its: Senior Vice President -------------------------------- GRANTEE: LEATHERS, L.P., a limited partnership organized under the laws of the State of California By: CalEnergy Operating Company, a Delaware corporation, General Partner By: /s/ John G. Sylvia ---------------------------------- Its: Senior Vice President -------------------------------- CalEnergy Operating Company, Inc., a Delaware corporation (formerly known as Red Hill Geothermal, Inc., a Delaware corporation) hereby confirms and agrees that the Partnership Bridge Agreement has terminated and is of no further force or effect. Date: June 20, 1996 CALENERGY OPERATING COMPANY, a Delaware corporation By: /s/ John G. Sylvia ---------------------------------- Its: Senior Vice President -------------------------------- San Felipe Energy Company, a California corporation, hereby confirms and agrees that the Partnership Bridge Agreement has terminated and is of no further force or effect. Date: June 20, 1996 SAN FELIPE ENERGY COMPANY, a California corporation By: /s/ John G. Sylvia ---------------------------------- Its: Senior Vice President -------------------------------- 8 ACKNOWLEDGMENTS STATE OF New York ) -------------------------- ) ss. COUNTY OF New York ------------------------) On June 20, 1996, before me Patricia Peterson, personally appeared John G. Sylvia, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity on behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature /s/ Patricia Peterson ----------------------------- STATE OF New York ) -------------------------- ) ss. COUNTY OF New York ------------------------) On June 20, 1996, before me Patricia Peterson, personally appeared John G. Sylvia, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity on behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature /s/ Patricia Peterson ----------------------------- STATE OF New York ) -------------------------- ) ss. COUNTY OF New York ------------------------) On June 20, 1996, before me Patricia Peterson, personally appeared John G. Sylvia, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity on behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature /s/ Patricia Peterson ------------------------------ STATE OF New York ) -------------------------- ) ss. COUNTY OF New York ------------------------) On June 20, 1996, before me Patricia Peterson, personally appeared John G. Sylvia, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity on behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature /s/ Patricia Peterson ----------------------------------- EXHIBIT "A" Description of the Geothermal Lease Rights Properties LEASE NO. 1: THE SUBSURFACE OF THAT CERTAIN PORTION OF THE SOUTHWEST QUARTER OF SECTION 25, TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF, INCLUDING ALL MINERALS AND GEOTHERMAL RESOURCES CONTAINED THEREIN, DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF SAID SECTION 25; THENCE EAST ALONG THE SOUTHERLY LINE THEREOF 1170 FEET; THENCE NORTH 33(degrees) 50' WEST 1130 FEET; THENCE NORTH 71(degrees) 00' WEST 310 FEET; THENCE WEST 247.7 FEET TO THE WEST LINE OF SAID SECTION; THENCE SOUTH ALONG THE WESTERLY LINE 1039.6 FEET TO THE POINT OF BEGINNING. EXCEPTING ANY PORTION OF SAID SECTION NOT LYING SOUTH AND WEST OF THE ALAMO RIVER. LEASE NO. 2: PARCEL 1: SECTION 25, TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF. EXCEPTING THEREFROM THAT PORTION OF THE SOUTHWEST QUARTER OF SAID SECTION 25, DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF SAID SECTION 25; THENCE EAST ALONG THE SOUTH LINE THEREOF, 1170 FEET; THENCE NORTH 33(degrees)50' WEST, 1130 FEET; THENCE NORTH 71(degrees)0' WEST, 310 FEET; THENCE WEST 247.7 FEET TO THE WEST LINE OF SAID SECTION; THENCE SOUTH ALONG SAID WEST LINE, 1039.6 FEET TO THE POINT OF BEGINNING. FURTHER EXCEPTING THEREFROM THAT PORTION OF THE SOUTHEAST QUARTER OF SAID SECTION 25, DESCRIBED AS FOLLOWS: PARCEL 1, AS SHOWN ON PARCEL MAP M-1901 FILED OCTOBER 6, 1988 IN BOOK 7, PAGE 86 OF PARCEL MAPS IN THE OFFICE OF THE COUNTY RECORDER OF IMPERIAL COUNTY. PARCEL 2: EXHIBIT "A" Page 1 of 5 THE SOUTHEAST QUARTER OF SECTION 24, IN TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF. PARCEL 3: THE EAST HALF OF THE SOUTHWEST QUARTER OF SECTION 24, IN TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF. PARCEL 4: THE NORTHEAST QUARTER OF SECTION 24, IN TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF. EXCEPTING THEREFROM THE NORTH 70 FEET AND THE SOUTH 70 FEET THEREOF. PARCEL 5: THE NORTHWEST QUARTER OF SECTION 24, IN TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF. EXCEPTING THEREFROM THAT PORTION THEREOF DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHWEST CORNER OF SAID SECTION 24; THENCE SOUTH ALONG THE WEST LINE OF SAID SECTION 1200 FEET; THENCE DUE EAST 540 FEET; THENCE DUE NORTH TO THE NORTH LINE OF SAID SECTION 24, BEING 1200 FEET, MORE OR LESS; THENCE WEST ALONG THE NORTH LINE OF SAID SECTION 24 TO THE POINT OF BEGINNING, BEING 540 FEET MORE OR LESS. PARCEL 6: THAT PART OF THE NORTHEAST QUARTER OF SECTION 26, IN TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF, LYING EASTERLY OF A LINE DRAWN FROM THE SOUTHEAST CORNER OF SAID NORTHEAST QUARTER TO A POINT IN THE NORTH LINE, WHICH IS 1122 FEET WEST OF THE NORTHEAST CORNER OF SAID NORTHEAST QUARTER. PARCEL 7: ALL OIL AND GAS, MINERALS, AND OTHER SUBSTANCES AND RESOURCES UNDERLYING THAT PORTION OF THE NORTHWEST QUARTER OF SECTION 24, TOWNSHIP 11 SOUTH, RANGE 13 EAST, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF, DESCRIBED AS FOLLOWS: EXHIBIT "A" Page 2 of 5 BEGINNING AT THE NORTHWEST CORNER OF SAID SECTION 24; THENCE SOUTH ALONG THE WEST LINE OF SAID SECTION 1200 FEET; THENCE DUE EAST 540 FEET; THENCE DUE NORTH TO THE NORTH LINE OF SAID SECTION 24, BEING 1200 FEET, MORE OR LESS; THENCE WEST ALONG THE NORTH LINE OF SAID SECTION 24 TO THE POINT OF BEGINNING, BEING 540 FEET MORE OR LESS. AS EXCEPTED AND RESERVED IN THE DEED FROM RIVER RANCHES, INC., RECORDED JANUARY 29, 1964 IN BOOK 1176, PAGE 733 OF OFFICIAL RECORDS. PARCEL 8: ALL MINERALS, INCLUDING, WITHOUT LIMITATION, OIL, HYDROCARBON GAS AND OTHER HYDROCARBON SUBSTANCES AND GEOTHERMAL RESOURCES LYING BELOW THE SURFACE OF THAT PORTION OF THE SOUTHEAST QUARTER OF SECTION 25, TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: PARCEL 1, AS SHOWN ON PARCEL MAP M-1901 FILED OCTOBER 6, 1988 IN BOOK 7, PAGE 86 OF PARCEL MAPS IN THE OFFICE OF THE COUNTY RECORDER OF IMPERIAL COUNTY. AS EXCEPTED AND RESERVED IN THE DEED FROM RIVER RANCH, INC., RECORDED OCTOBER 7, 1988 AS INSTRUMENT NO. 88-16258, IN BOOK 1612, PAGE 399 OF OFFICIAL RECORDS. LEASE NO. 3: PARCEL 1: THAT CERTAIN PORTION OF THE NORTH HALF OF SECTION 36, TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT IN THE SOUTH LINE OF SAID NORTH HALF OF SECTION 36, WHICH POINT IS NORTH 89(degrees)59'30" WEST, 15 FEET FROM THE SOUTHEAST CORNER THEREOF; THENCE NORTH 0(degrees)01'30" EAST, 2530.0 FEET PARALLEL WITH AND 15 FEET WEST OF THE EAST LINE TO A POINT, WHICH POINT IS SOUTH 0(degrees)01'30" WEST 110 FEET AND NORTH 89(degrees)58'30" WEST 15 FEET FROM THE NORTHEAST CORNER OF SAID SECTION 36; THENCE NORTH 89(degrees)58'30" WEST, 95 FEET TO A POINT; THENCE NORTH 0(degrees)01'30" EAST, 10 FEET TO A POINT; THENCE NORTH 89(degrees)58'30" WEST, 3719.3 FEET PARALLEL WITH AND 100 FEET SOUTH OF THE NORTH LINE OF SAID SECTION 36 TO A POINT; WHICH POINT IS SOUTH 89(degrees)58'30" EAST, 1419.0 FEET AND SOUTH 17(degrees)41'30" EAST, 105.0 FEET FROM THE NORTHWEST CORNER OF SAID SECTION 36; THENCE SOUTH 17(degrees)41'30" EAST, 76.5 EXHIBIT "A" Page 3 of 5 FEET TO A POINT; THENCE SOUTH 36(degrees)36'30" EAST, 1247.0 FEET TO A POINT; THENCE SOUTH 9(degrees) 49'30" EAST, 749.0 FEET TO A POINT; THENCE SOUTH 61(degrees)10' EAST 268.0 FEET TO A POINT; THENCE SOUTH 29(degrees)47' EAST, 117.8 FEET TO A POINT IN THE WEST LINE OF THE NORTHEAST QUARTER OF SAID SECTION 36, WHICH POINT IS NORTH 0(degrees)01' EAST 498.6 FEET FROM THE CENTER OF SAID SECTION 36; THENCE SOUTH 29(degrees)47' EAST, 574.6 FEET TO A POINT IN THE SOUTH LINE OF SAID NORTHEAST QUARTER OF SECTION 36, WHICH POINT IS SOUTH 89(degrees)59'30" EAST 285.6 FEET FROM THE CENTER OF SAID SECTION 36; THENCE SOUTH 89(degrees)59'30" EAST, 2339.5 FEET TO THE POINT OF BEGINNING. PARCEL 2: THE NORTHWEST QUARTER OF SECTION 31, TOWNSHIP 11 SOUTH, RANGE 14 EAST, SAN BERNARDINO MERIDIAN, IN THE COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF. PARCEL 3: THAT PORTION OF THE NORTHEAST QUARTER OF SECTION 31, TOWNSHIP 11 SOUTH, RANGE 14 EAST, SAN BERNARDINO MERIDIAN, IN THE COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF, DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTH QUARTER CORNER OF SAID SECTION 31; THENCE SOUTH 89(degrees)57' EAST 12.1 FEET, MORE OR LESS, TO THE NORTHERLY PROLONGATION OF THE EASTERLY TOE OF A HEAD DITCH AS LOCATED MARCH 15, 1955; THENCE SOUTH 4(degrees)52' EAST, 2649.06 FEET, MORE OR LESS, ALONG SAID DITCH TO A POINT ON THE SOUTH LINE OF THE NORTHEAST QUARTER OF SAID SECTION 31; THENCE NORTH 89(degrees)58' WEST 232.8 FEET, MORE OR LESS, TO THE CENTER OF SAID SECTION 31; THENCE NORTH 0(degrees)04' WEST, 2639.77 FEET, MORE OR LESS, ALONG THE WESTERLY LINE OF THE NORTHEAST QUARTER OF SAID SECTION 31 TO THE POINT OF BEGINNING. PARCEL 4: THE EAST ONE-HALF OF SECTION 31, TOWNSHIP 11 SOUTH, RANGE 14 EAST, SAN BERNARDINO MERIDIAN, IN THE COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF, EXCEPTING THEREFROM THE PROPERTY DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTH QUARTER CORNER OF SAID SECTION 31; THENCE SOUTH 89(degrees)57' EAST 12.1 FEET, MORE OR LESS, TO THE NORTHERLY PROLONGATION OF THE EASTERLY TOE OF A HEAD DITCH AS LOCATED MARCH 15, 1955; THENCE SOUTH 4(degrees)52' EAST, 2649.06 FEET, MORE OR LESS, ALONG SAID DITCH TO A POINT ON THE SOUTH LINE OF THE NORTHEAST QUARTER OF SAID SECTION 31; THENCE NORTH 89(degrees)58' WEST, 232.8 FEET, MORE OR LESS, TO THE CENTER OF SAID SECTION 31; THENCE NORTH 0(degrees)04' WEST, 2639.77 FEET, MORE OR LESS, ALONG THE WESTERLY LINE OF THE NORTHEAST QUARTER OF SAID EXHIBIT "A" Page 4 of 5 SECTION 31 TO THE POINT OF BEGINNING. PARCEL 5: THAT PORTION OF THE SOUTHWEST QUARTER OF SECTION 31, TOWNSHIP 11 SOUTH, RANGE 14 EAST, SAN BERNARDINO BASE AND MERIDIAN, IN THE COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT WHICH IS THE CENTER OF SAID SECTION 31, THENCE SOUTHERLY TO THE SOUTH QUARTER CORNER OF SECTION 31, THENCE WESTERLY ALONG THE SOUTH LINE OF SECTION 31, 131 FEET TO A POINT, THENCE NORTHERLY TO A POINT IN THE LINE BETWEEN THE WEST QUARTER CORNER AND THE CENTER OF SECTION 31, WHICH IS 88.17 FEET WEST OF SAID CENTER, THENCE EASTERLY TO THE POINT OF BEGINNING. EXHIBIT "A" Page 5 of 5 EXHIBIT "B" Description of the Resource Easement Rights Properties LEASE NO. 1: THE SUBSURFACE OF THAT CERTAIN PORTION OF THE SOUTHWEST QUARTER OF SECTION 25, TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF, INCLUDING ALL MINERALS AND GEOTHERMAL RESOURCES CONTAINED THEREIN, DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF SAID SECTION 25; THENCE EAST ALONG THE SOUTHERLY LINE THEREOF 1170 FEET; THENCE NORTH 33(degrees) 50' WEST 1130 FEET; THENCE NORTH 71(degrees) 00' WEST 310 FEET; THENCE WEST 247.7 FEET TO THE WEST LINE OF SAID SECTION; THENCE SOUTH ALONG THE WESTERLY LINE 1039.6 FEET TO THE POINT OF BEGINNING. EXCEPTING ANY PORTION OF SAID SECTION NOT LYING SOUTH AND WEST OF THE ALAMO RIVER. LEASE NO. 2: PARCEL 1: SECTION 25, TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF. EXCEPTING THEREFROM THAT PORTION OF THE SOUTHWEST QUARTER OF SAID SECTION 25, DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF SAID SECTION 25; THENCE EAST ALONG THE SOUTH LINE THEREOF, 1170 FEET; THENCE NORTH 33(degrees)50' WEST, 1130 FEET; THENCE NORTH 71(degrees)0' WEST, 310 FEET; THENCE WEST 247.7 FEET TO THE WEST LINE OF SAID SECTION; THENCE SOUTH ALONG SAID WEST LINE, 1039.6 FEET TO THE POINT OF BEGINNING. FURTHER EXCEPTING THEREFROM THAT PORTION OF THE SOUTHEAST QUARTER OF SAID SECTION 25, DESCRIBED AS FOLLOWS: PARCEL 1, AS SHOWN ON PARCEL MAP M-1901 FILED OCTOBER 6, 1988 IN BOOK 7, PAGE 86 OF PARCEL MAPS IN THE OFFICE OF THE COUNTY RECORDER OF IMPERIAL COUNTY. PARCEL 2: THE SOUTHEAST QUARTER OF SECTION 24, IN TOWNSHIP 11 SOUTH, RANGE 13 EXHIBIT "B" Page 1 of 3 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF. PARCEL 3: THAT PART OF THE NORTHEAST QUARTER OF SECTION 26, IN TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF, LYING EASTERLY OF A LINE DRAWN FROM THE SOUTHEAST CORNER OF SAID NORTHEAST QUARTER TO A POINT IN THE NORTH LINE, WHICH IS 1122 FEET WEST OF THE NORTHEAST CORNER OF SAID NORTHEAST QUARTER. PARCEL 4: ALL MINERALS, INCLUDING, WITHOUT LIMITATION, OIL, HYDROCARBON GAS AND OTHER HYDROCARBON SUBSTANCES AND GEOTHERMAL RESOURCES LYING BELOW THE SURFACE OF THAT PORTION OF THE SOUTHEAST QUARTER OF SECTION 25, TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: PARCEL 1, AS SHOWN ON PARCEL MAP M-1901 FILED OCTOBER 6, 1988 IN BOOK 7, PAGE 86 OF PARCEL MAPS IN THE OFFICE OF THE COUNTY RECORDER OF IMPERIAL COUNTY. AS EXCEPTED AND RESERVED IN THE DEED FROM RIVER RANCH, INC., RECORDED OCTOBER 7, 1988 AS INSTRUMENT NO. 88-16258, IN BOOK 1612, PAGE 399 OF OFFICIAL RECORDS. LEASE NO. 3: THAT CERTAIN PORTION OF THE NORTH HALF OF SECTION 36, TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT IN THE SOUTH LINE OF SAID NORTH HALF OF SECTION 36, WHICH POINT IS NORTH 89(degrees)59'30" WEST, 15 FEET FROM THE SOUTHEAST CORNER THEREOF; THENCE NORTH 0(degrees)01'30" EAST, 2530.0 FEET PARALLEL WITH AND 15 FEET WEST OF THE EAST LINE TO A POINT, WHICH POINT IS SOUTH 0(degrees)01'30" WEST 110 FEET AND NORTH 89(degrees)58'30" WEST 15 FEET FROM THE NORTHEAST CORNER OF SAID SECTION 36; THENCE NORTH 89(degrees)58'30" WEST, 95 FEET TO A POINT; THENCE NORTH 0(degrees)01'30" EAST, 10 FEET TO A POINT; THENCE NORTH 89(degrees)58'30" WEST, 3719.3 FEET PARALLEL WITH AND 100 FEET SOUTH OF THE NORTH LINE OF SAID SECTION 36 TO A POINT; WHICH POINT IS SOUTH 89(degrees)58'30" EAST, 1419.0 FEET AND SOUTH 17(degrees)41'30" EAST, 105.0 FEET FROM THE NORTHWEST CORNER OF SAID SECTION 36; THENCE SOUTH 17(degrees)41'30" EAST, 76.5 EXHIBIT "B" Page 2 of 3 FEET TO A POINT; THENCE SOUTH 36(degrees)36'30" EAST, 1247.0 FEET TO A POINT; THENCE SOUTH 9(degrees) 49'30" EAST, 749.0 FEET TO A POINT; THENCE SOUTH 61(degrees)10' EAST 268.0 FEET TO A POINT; THENCE SOUTH 29(degrees)47' EAST, 117.8 FEET TO A POINT IN THE WEST LINE OF THE NORTHEAST QUARTER OF SAID SECTION 36, WHICH POINT IS NORTH 0(degrees)01' EAST 498.6 FEET FROM THE CENTER OF SAID SECTION 36; THENCE SOUTH 29(degrees)47' EAST, 574.6 FEET TO A POINT IN THE SOUTH LINE OF SAID NORTHEAST QUARTER OF SECTION 36, WHICH POINT IS SOUTH 89(degrees)59'30" EAST 285.6 FEET FROM THE CENTER OF SAID SECTION 36; THENCE SOUTH 89(degrees)59'30" EAST, 2339.5 FEET TO THE POINT OF BEGINNING. EXHIBIT "B" Page 3 of 3 EXHIBIT "C" Description of the Geothermal Leases LEASE NO. 1: GEOTHERMAL LEASE AND AGREEMENT DATED AS OF OCTOBER 4, 1988, AS HERETOFORE AND HEREAFTER AMENDED AND/OR ASSIGNED, BY AND BETWEEN RED HILL GEOTHERMAL, INC., AS LESSOR AND MAGMA POWER COMPANY, AS LESSEE, A MEMORANDUM OF WHICH WAS RECORDED ON OCTOBER 5, 1988 AS INSTRUMENT NO. 88-16068 IN BOOK 1612, PAGE 36 OF OFFICIAL RECORDS OF IMPERIAL COUNTY, AS HEREAFTER FROM TIME TO TIME AMENDED. LEASE NO. 2: GEOTHERMAL LEASE AND AGREEMENT DATED FEBRUARY 18, 1981, AS HERETOFORE AND HEREAFTER AMENDED AND/OR ASSIGNED, BY AND BETWEEN RIVER RANCH, INC., AS LESSOR AND IMPERIAL MAGMA, AS LESSEE, A MEMORANDUM OF WHICH WAS RECORDED ON APRIL 20, 1981 AS INSTRUMENT NO. 73 IN BOOK 1468, PAGE 206 OF OFFICIAL RECORDS OF IMPERIAL COUNTY, AS AMENDED BY THAT CERTAIN FIRST AMENDMENT TO GEOTHERMAL LEASE AND AGREEMENT DATED AS OF OCTOBER 10, 1988, A MEMORANDUM OF WHICH WAS RECORDED ON OCTOBER 11, 1988 AS INSTRUMENT NO. 88-16418 IN BOOK 1612, PAGE 63 OF OFFICIAL RECORDS OF IMPERIAL COUNTY, AS HEREAFTER FROM TIME TO TIME FURTHER AMENDED. LEASE NO. 3: LEASE AGREEMENT DATED AS OF JULY 25, 1978, AS HERETOFORE AND HEREAFTER AMENDED AND/OR ASSIGNED, BY AND BETWEEN ED C. WIEST AND DOROTHY WIEST, AS LESSOR AND NEW ALBION RESOURCES CO., INC., AS LESSEE, A SHORT FORM OF WHICH WAS RECORDED ON AUGUST 16, 1978 AS INSTRUMENT NO. 62, IN BOOK 1420, PAGE 1375 OF OFFICIAL RECORDS OF IMPERIAL COUNTY, AS AMENDED BY THAT CERTAIN AMENDMENT TO LEASE DATED AS OF OCTOBER 10, 1988, RECORDED ON OCTOBER 12, 1988 AS INSTRUMENT NO. 88-16491, IN BOOK 1612, PAGE 783 OF OFFICIAL EXHIBIT "C" Page 1 of 1 EXHIBIT "D" Description of the Leathers Property PARCEL 1, AS SHOWN ON PARCEL MAP M-1901 FILED OCTOBER 6, 1988 IN BOOK 7, PAGE 86 OF PARCEL MAPS IN THE OFFICE OF THE COUNTY RECORDER OF IMPERIAL COUNTY, BEING A PORTION OF THE SOUTHEAST QUARTER OF SECTION 25, TOWNSHIP 11 SOUTH, RANGE 13 EAST, SAN BERNARDINO MERIDIAN, IN THE COUNTY OF IMPERIAL, STATE OF CALIFORNIA. EXCEPTING THEREFROM ALL MINERALS LYING BELOW THE SURFACE OF SAID LAND, INCLUDING, WITHOUT LIMITATION, OIL, HYDROCARBON GAS AND OTHER HYDROCARBON SUBSTANCES AND GEOTHERMAL RESOURCES, BUT WITHOUT THE RIGHT OF SURFACE ENTRY; AS EXCEPTED AND RESERVED IN THE DEED FROM RIVER RANCH, INC., RECORDED OCTOBER 7, 1988 AS INSTRUMENT NO. 88-16258, IN BOOK 1612, PAGE 399 OF OFFICIAL RECORDS. EXHIBIT "D" Page 1 of 1 EX-10.36 13 GROUND LEASE (DEL RANCH) GROUND LEASE PREAMBLE THIS GROUND LEASE (the "Lease") is made as of March 14, 1988, by and between MAGMA POWER COMPANY, a Nevada corporation ("Landlord"), and DEL RANCH, LTD., A CALIFORNIA LIMITED PARTNERSHIP, a limited partnership organized under the laws of the State of California ("Tenant"). AGREEMENT 1. Certain Definitions. Unless the context shall otherwise require, capitalized terms used and not otherwise defined herein shall have the respective meanings assigned thereto in Schedule Z hereto, which shall be incorporated by reference herein. 2. Lease. 2.1. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the "Premises," as that term is defined in Section 3 hereof, on the terms and conditions, and subject to the reservations, set forth in this Lease. 2.2. Landlord hereby reserves from the Leasehold estate granted to Tenant by this Lease the right to use the surface of the Del Ranch Property in order to enable the operation of the Vulcan Facility and to obtain, use, extract and develop the Reserved Geothermal Brine and the Geothermal Brine Scale, together with reasonable access thereto for road and utility purposes, but only to the extent that such use does not cause any material interference with Tenant's construction, operation and maintenance of the Del Ranch Facility. The right reserved by Landlord in this Section 2.2 includes, without limitation, the right to construct, operate and maintain pipelines, buildings, structures, equipment and other improvements over, under and upon the surface of the Del Ranch Property, including, but not limited to, Additional Power Production Facilities, and warehouse(s) for the storage of Critical Parts and Equipment and other parts and equipment owned or within the control of Landlord which may be stored in such warehouse(s) for use in Additional Power Production Facilities and to use the surface of the Del Ranch Property in a commercially reasonable manner in order to "tap" into the Supporting Equipment and any other equipment or piping carrying or containing Geothermal Brine or Geothermal Brine Scale from the Del Ranch Facility to injection wells thereby affording to Landlord access to such Geothermal Brine and the Geothermal Brine Scale in an oxygen-free environment; provided, however, that, notwithstanding any other provision in this Lease to the contrary, Landlord shall pay all costs, direct and indirect, incurred by Tenant 1 as a result of Landlord's exercising the rights reserved to Landlord in this Section 2. Notwithstanding any other provision in this Lease to the contrary, in the event that Landlord desires to exercise its rights under this Section 2.2, Landlord shall obtain the prior written consent of Tenant, which consent shall not be unreasonably withheld. The standards to be applied by Tenant in giving or withholding such consent shall be as provided in Section 2.3.4 of the Easement Agreement. 2.3. The rights reserved by Landlord from the leasehold estate granted to Tenant pursuant to this Lease shall be assignable by Landlord in whole or in part to successors and assigns. Without limiting the generality of the foregoing, Landlord may sell, assign, encumber and grant leasehold estates in such rights to other persons. 3. Premises. 3.1. The "Premises" that are the subject of this Lease consist of the Del Ranch Property as more particularly described in Exhibit "A" hereto, BUT EXCLUDING THEREFROM (a) all rights reserved by Landlord as set forth in Section 2 hereof. 3.2. Concurrent with the delivery of this Lease, Landlord has delivered to Tenant an instrument transferring ownership from Landlord to Tenant of all improvements existing on or in the Premises at the Recordation Date as that term is defined in Section 4 hereof. Such improvements shall be held, used, altered and disposed of by Tenant in accordance with the terms and conditions of this Lease. 3.3. At any time and from time to time during the term of this Lease, within thirty (30) days after written request from Landlord, Tenant shall enter into an amendment to this Lease, which shall delete from the legal description of the Del Ranch Property that portion thereof as to which any other Person has a right to possession, in accordance with the following: 3.3.1 Both the portion of the Del Ranch Property being released from the encumbrance of this Lease, and the portion of the Del Ranch Property remaining subject to the encumbrance of this Lease after such release, shall be legal lots in compliance with the California Subdivision Map Act and other state or local ordinances thereunder; and 3.3.2 The amendment shall contain all cross-easements, covenants, conditions, restrictions and agreements reasonably requested by Tenant to facilitate the construction, operation and maintenance of the Del Ranch Facility at a level which allows the Del Ranch Facility to 2 drill for, produce, extract, store, utilize, reclaim, convert, sell, transfer, dispose and Process Geothermal Brine up to the amount necessary to meet the Del Ranch Facility Brine Requirement in connection with the generation of electrical energy at the Del Ranch Facility. 4. Term. The term of this Lease shall commence upon the recordation of a Memorandum of this Lease in the Office of the County Recorder of Imperial County, California (the "Recordation Date"), and, unless sooner terminated as provided in this Lease, shall end on the date which is thirty-two (32) years thereafter (the "Expiration Date"). 5. Rent. 5.1. In addition to other sums payable by the term of this lease, Tenant shall pay to Landlord, without abatement, deduction or offset, the following sums: 5.1.1. As "Initial Rent" for the Premises for the period beginning on June 30, 1987 and ending on December 31, 1987, the lump sum of $10,000.00, payable in advance on the Recordation Date. 5.1.2. As "Base Monthly Rent" for the Premises for the period beginning on January 1, 1988 and continuing monthly thereafter throughout the term of this Lease, but subject to adjustment as provided in Section 5.2 hereof, the sum of $1,667.00 per month, payable in advance on the first day of each month. 5.1.3. Rent for any period during the term hereof which is for less than one month shall be prorated based upon the actual number of days elapsed in the calendar month involved. Rent shall be payable in lawful money of the United States to Landlord at the address stated herein or to such other persons or at such other places as Landlord may designate in writing. 5.2. The Base Monthly Rent shall be subject to annual adjustments as follows: 5.2.1. For purpose of this Lease, a "Lease Year" shall be deemed to begin on January 1 of each calendar year throughout the term of this Lease. 5.2.2. For the Lease Year beginning on January 1, 1989, and for each Lease Year thereafter, the Base Monthly Rent of $1,667.00 payable under Section 5.1.2 hereof shall be adjusted to reflect the increase, if any, in the Consumer Price Index published by the Bureau of Labor Statistics of the Department of Labor for All Urban Consumers, All Items, for the Los Angeles-Anaheim-Riverside Metropolitan Area (the "CPI"), as hereinafter provided. 3 5.2.3. The Base Monthly Rent payable pursuant to Section 5.2.2 hereof shall be calculated as follows: The Base Monthly Rent of $1,667.00 payable under Section 5.1.2 hereof above shall be multiplied by a fraction, the numerator of which shall be the CPI for the month of September in the year preceding the Lease Year for which the adjustment is to be made, and the denominator of which shall be the CPI for the month of September 1987. The sum so calculated shall constitute the new Base Monthly Rent hereunder, but in no event shall such new Base Monthly Rent be less than the Base Monthly Rent payable for the month immediately preceding the Lease Year for which the adjustment is to be made. 5.2.4. In the event that the publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI, as determined in good faith by Landlord, shall be used to make such calculations. 5.2.5. Tenant shall continue to pay Base Monthly Rent at the rate previously in effect until the increase, if any, is determined. Within ten (10) days following the date on which the increase is determined, Tenant shall make such payment to Landlord as will bring the increased Base Monthly Rent current, commencing with the effective date of such increase at the beginning of the Lease Year for which the adjustment is to be made through the date of any installments of Base Monthly Rent then due. Thereafter, the Base Monthly Rent shall be paid at the increased rate. 6. Taxes, Assessments and Utilities. 6.1. As used in this Lease, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license, fee, rental tax, tax on the right to do business, when Landlord's collection of rent under this Lease is defined as doing business, improvement bond, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Del Ranch Property or any portion thereof by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Landlord in the Del Ranch Property or in any portion thereof, as against Landlord's right to rent or other income therefrom, and as against Landlord's business of leasing the Premises. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (a) in substitution of, partially or totally, any tax, fee, levy, 4 assessment or charge hereinafter included within the definition of "real property tax," or (b) the nature of which was heretofore included within the definition of "real property tax," or (c) which is imposed for any service or right not charged prior to June 1, 1978, or (d) which is imposed as a result of a change in ownership, as defined by applicable local statutes for property tax purposes, or which is added to a tax or charge heretofore included within the definition of "real property tax" by reason of such change of ownership, or (e) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 6.2. Tenant shall pay before delinquency all real property taxes, all personal property taxes, and all taxes, charges and assessments of every other description levied on or assessed against the Del Ranch Property and the Del Ranch Facility and personal property owned or leased by Tenant located thereon, the leasehold estate created hereby, or any subleasehold estate, to the full extent of installments falling due during the term, whether chargeable against Landlord or Tenant. Tenant shall make all such payments directly to the charging authority before delinquency and before any fine, interest or penalty shall become due or be imposed by operation of law for their nonpayment. If, however, the law expressly permits the payment of any or all of the above items in installments (whether or not interest accrues on the unpaid balance), Tenant may, at Tenant's election, utilize the permitted installment method, but shall pay each installment with any interest before delinquency. 6.3. All payments of taxes or assessments shall be prorated for any portion of a tax fiscal year at the commencement or expiration of the term of this Lease, expect as provided in Section 6.4 hereof. Such proration shall be made by multiplying the entire tax or assessment by a fraction which in the case of determining Tenant's liability for such taxes and assessments, shall have a numerator equal to the number of days that this Lease is in effect during the tax fiscal year for which the calculation is being made, and shall have a denominator equal to 365 or 366, as the case may be. 6.4. For permitted installment payments of special taxes or assessments where at least the first installment fell due before the Recordation Date, Tenant shall pay all installments falling due after the Recordation Date. For permitted installment payments of special taxes or assessments where the first installment falls due before the expiration of the term, Tenant shall pay only the installment(s) falling due before the expiration of the term. 5 6.5. If the Premises are assessed with other real or personal property of Landlord apart from the Del Ranch Property, all taxes imposed on the entire assessed property shall be prorated, and Tenant shall pay that amount which equals the product obtained by multiplying the entire tax by a fraction, the numerator of which equals the value of the Del Ranch Property and the denominator of which equals the value of all of the property so assessed. 6.6. Tenant may contest the legal validity or amount of any taxes, assessments or charges for which Tenant is responsible under this Lease, and may institute such proceedings as Tenant considers necessary. If Tenant contests any such tax, assessment or charge, Tenant may withhold or defer payment or pay under protest, but shall protect Landlord and the Del Ranch Property from any lien by surety bond or other appropriate security reasonably acceptable to Landlord. Landlord appoints Tenant as Landlord's attorney-in-fact for the purpose of making all payments to any taxing authorities and for the purpose of contesting any taxes, assessments or charges affecting the Premises, conditioned on Tenants's preventing any liens from being levied on the Del Ranch Property or on Landlord. 6.7. Tenant agrees to pay, before the same become delinquent, all charges for gas, electricity, heat, light, power, sewage, water, telephone, trash removal, and other similar or dissimilar public services or commodities furnished to the Premises and the Del Ranch Facility during the term of this Lease, including all installation, connection and disconnection charges. 6.8. All taxes, assessments, utilities, insurance premiums, maintenance costs and other rent payable hereunder shall be paid as "triple-net" rent, without deduction or offset. It is the intent of the parties that the rent provided in this Lease shall be absolutely net to Landlord, and that, expect as otherwise expressly provided in this Lease, Tenant shall pay all costs and charges of every kind and nature incurred for, against, or in connection with the Premises which may arise or become due from and after the Recordation Date and during the term hereof. Provided, however, that nothing herein shall be construed to require Tenant to pay any installment of interest or principal owing on any encumbrance against the Del Ranch Property for which Landlord is the obligor. All such costs and charges at the commencement and the end of the term of this Lease shall be appropriately prorated between the parties. 7. Use. 7.1. Tenant shall continuously use and permit the use of the Premises only for the construction, maintenance and operation of the Del Ranch Facility, substan- 6 tially in accordance with the Plans and Specifications and any "as-built" plans and as contemplated by the Operating Agreements. 7.2. This Lease is and shall be subject and subordinate to the rights reserved by Landlord with respect to the Premises as set forth in Section 2 hereof. 7.3. Tenant shall, at Tenant's expenses promptly comply in all material respects with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements of any fire insurance underwriters or rating bureaus, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises and the occupation and use by Tenant of the Premises. Tenant shall conduct its business in a lawful manner and shall not use or permit the use of the Premises in any manner that will create unnecessary waste of assets or a nuisance. 7.4 Without limiting the generality of the foregoing Tenant shall, at Tenant's expense, comply with all applicable federal, state, regional and local environmental statutes, ordinances, rules, regulations and orders now in effect or which may hereafter come into effect including, without limitation, the Resource Conversation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, the California Hazardous Waste Control Act, the California Hazardous Substance Act, the Porter-Cologne Water Quality Control Act and any all regulations promulgated pursuant thereto. 7.5 Tenant agrees to indemnify, defend by counsel reasonably acceptable to Landlord, and hold harmless Landlord, its subsidiaries, affiliates, successors and assigns and their respective directors, officers, employees, shareholders, representatives and agents from and against and in respect of any and all claims, damages (including, without limitation, diminution in value), losses, liabilities and expenses, lawsuits, deficiencies, interest, penalties, attorneys'fees and all amounts paid in defense or settlement of the foregoing whether or not arising out of third-party claims, which may be imposed upon or incurred by Landlord or asserted against Landlord by any other party or parties in connection with any violation of the provisions of this Section 7 arising out of, resulting from, or attributable to, the assets, business, or operations of Tenant at the Del Ranch Property. Tenant's obligations pursuant to this subsection shall exist regardless of whether Landlord is alleged or held to be strictly or jointly and severally 7 liable, unless such liability is by reason of the Landlord's gross negligence or willful misconduct. 7.6 Without in any way limiting the scope of Tenant's obligations under the indemnification provisions of this Section 7, but subject to Landlord's obligation under Section 2 hereof to pay all direct and indirect costs associated with Landlord's exercise of the rights reserved to it in Section 2 hereof, Tenant will be responsible for all investigations, studies, cleanup, corrective action or response or remedial action required by any local, state or federal government agency now or hereafter authorized to regulate environmental or other matters or by any consent decree, or court or administrative order now or hereafter applicable to the Del Ranch Property, or by any federal, state or local law, regulation, rule or ordinance now or hereafter in effect. 7.7 As between Landlord and Tenant, Tenant shall have the responsibility and right to participate in the management and control of all investigations and any environmental cleanup, remediation, or related activities. Tenant, however, may not negotiate with, fulfill any requirements or claims made by a governmental entity or third party settle or contest such requirement or third-party claim without the express approval of Landlord, and Landlord shall have the right to participate fully in any and all meetings, negotiations or decisions relevant to the investigation or remediation of the violation of the provisions of this Section 7 at the Del Ranch Property. 7.8 Tenant hereby accepts the Premises in its condition existing as of the Recordation Date, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and all exceptions set forth in the Del Ranch Property Preliminary Title Report and other matters of record or otherwise disclosed to Tenant prior to the date hereof, and accepts this Lease subject thereto. Tenant acknowledges that is has satisfied itself by its own independent investigation that the Premises are suitable for its intended use, and that neither Landlord nor Landlord's agent or agents has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Tenant's business. 8. Maintenance, Repairs, Alterations. 8.1 Throughout the term, Tenant shall, at Tenant's sole cost and expense, maintain the Premises and the Del Ranch Facility in good condition and repair, ordinary wear and tear excepted, in accordance with all applicable laws, rules, ordinances, orders and regulations of (a) federal, state, county, municipal and other governmental 8 agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials, (b) any insurance underwriting board or insurance inspection bureau having or claiming jurisdiction, and (c) any insurance company insuring all or any part thereof. 8.2 Except a provided below, and subject to the provisions of the Project Lender's Loan Documents, Tenant shall promptly and diligently repair, restore and remedy all damage to or destruction of all or any part of the Del Ranch Facility, if the cost of the work so required does not exceed fifty percent (50%) of the entire replacement value of all such improvements; provided, however, that Tenant shall have no obligation to repair, restore and remedy any such damage or destruction arising out of the gross negligence or willful misconduct of Landlord unless the gross negligence or willful misconduct of Tenant contributes to such damage or destruction, in which case the cost of repairs, restoration and remedial work shall be apportioned among Landlord and Tenant in direct proportion to their respective culpability with respect to such damage or destruction. If the cost does exceed fifty percent (50%) of the entire replacement value of all such improvements, Tenant may nevertheless repair, restore and remedy the same, or may by notice given within sixty (60) days after the date on which the damage or destruction occurs elect instead to raze the improvements damaged or destroyed. Within ninety (90) days after such notice, Landlord may by notice elect to repair, restore and remedy such damage or destruction at landlord's cost and expense, and Tenant shall not raze the improvements until the expiration of the time for Landlord's notice of election. 8.3. Tenant has the right to contest by appropriate judicial or administrative proceedings, without cost or expense to Landlord, the validity or application of any law, ordinance, order, rule, regulation or requirement (collectively called "law") that Tenant repair, maintain, alter or replace any improvements in whole or in part, and Tenant shall not be in default for failing to do such work until a reasonable time following final determination of Tenant's contest. If requested by Landlord, Tenant shall first furnish to Landlord a bond, satisfactory to Landlord in form, amount and insurer, guaranteeing compliance by Tenant with the contested law and indemnifying Landlord against all liability that Landlord may sustain by reason of Tenant's failure or delay in complying with the law. Landlord may, but is not required to, contest any such law independently of Tenant. Landlord may, and if requested by Tenant shall, join in Tenant's contest. 8.4. Landlord's approval is not required for Tenant's minor alterations or additions to any improvements with a Construction Cost not exceeding $7,500,000. "Construction Cost" includes all costs that would constitute 9 the basis of a valid claim or claims under the mechanics' lien laws, including costs for any demolition or removal of existing improvements or parts thereof, as well as costs for preparation, construction and completion of all new improvements. All alterations or additions with a Construction Cost in excess of $7,500,000 shall require Landlord's prior written consent. 8.5. Tenant shall use only reputable licensed contractors in making any alterations or additions, and Landlord may require Tenant to provide to Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Landlord against any liability for any mechanic's and materialmen's liens to insure completion of the work. Should Tenant make any alterations or additions without the prior written consent of Landlord where such consent is necessary, or use other than a reputable licensed contractor, Landlord may, at any time during the term of this Lease, require that Tenant remove any part or all of the same. 8.6. Tenant shall pay, when due, all claims for labor or materials furnished to or for Tenant at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Del Ranch Property or any interest therein. 8.7. Tenant shall give Landlord not less than ten (10) days' notice prior to the commencement of any alteration or additions to the Premises by Tenant, and Landlord shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Tenant shall, in good faith, contest the validity of any lien, claim or demand, then Tenant shall, at its sole expense, defend itself and Landlord against and same and shall pay and satisfy any adverse judgment that may be rendered thereon before the enforcement thereof against the Landlord or the Del Ranch Property, upon the condition that if Landlord shall require, Tenant shall furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to such contested lien claim or demand, indemnifying Landlord against liability for the same and holding the Del Ranch Property free from the effect of such lien or claim. In addition, Landlord may require Tenant to pay Landlord's reasonable attorneys' fees and costs in participating in such action, if Landlord shall decide it is to Landlord's best interest so to do. 8.8 All alterations and additions which may be made to the Premises by Tenant shall be made and done in a good and workmanlike manner and of good quality and materials, and, subject to the provisions of Sections 8.11 and 8.13 hereof, shall be the property of Landlord at the expiration of the term of the Lease. Notwithstanding the 10 provisions of this Section, and provided that Tenant is not in default under this Lease, Tenant's personal property and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the Property of Tenant and may be removed by Tenant, subject to the provisions of Section 8.11 hereof. 8.9. Promptly upon completion of any alterations or additions to the Premises, Tenant shall provide Landlord with two (2) sets of "as-built" plans and specifications. 8.10. Subject to Landlord's right to require the Decommissioning of the Del Ranch Facility pursuant to Sections 8.11 and 8.13 hereof, on the last day of the term hereof, or on any sooner termination, Tenant shall surrender the Premises and all improvements thereon the Landlord, in good condition and repair, ordinary wear and tear excepted, clean and free of debris. Any damage or deterioraion of the Premises or improvements shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices by Tenant. Tenant shall repair any damage to the Premises occasioned by the installation or removal of Tenant's trade fixtures, alterations, furnishings and equipment. 8.11. Notwithstanding any other provision in this Lease to the contrary, in the event the Del Ranch Facility or the Premises is wholly or partially damaged or destroyed on or after the date which is exactly five (5) years prior to the date on which this Lease terminates pursuant to Section 4 hereof, and the cost to repair, restore or reconstruct the Del Ranch Facility and the Premises is at least $7,500,000, Tenant, not later than fifteen (15) days after the event causing such damage or destruction, shall give written notice to Landlord detailing the facts that qualify the casualty under this provision. Landlord, not later than fifteen (15) days following receipt of such notice from Tenant, shall by written notice to Tenant inform Tenant whether (a) Landlord desires the Decommissioning by Tenant of the Del Ranch Facility and the Premises or (b) Landlord desires the surrender by Tenant of the Del Ranch Facility and the Premises at the end of the term of this Lease. In the event Landlord elects to have Tenant Decommission the Del Ranch Facility and the Premises pursuant to the provisions of this Section 8.11, (a) Tenant shall forthwith commence such Decommissioning and shall diligently proceed until such Decommissioning is complete, (b) Tenant shall have the right to all proceeds of insurance received on account of such casualty and (c) Tenant shall surrender the Premises to Landlord immediately after such Decommissioning and this Lease and all of Tenant's obligations hereunder shall terminate except for Tenant's obligations to indemnify 11 Landlord pursuant to Section 7.3 hereof and to pay any rent which accrued pursuant to Section 5 hereof. In the event Landlord elects to have Tenant surrender the Del Ranch Facility and the Premises to Landlord at the end of the term of this Lease, then the provisions of Section 8.13 shall cease to be effective and Tenant shall forthwith commence to repair, restore and reconstruct the Del Ranch Facility and the Premises in the manner and subject to the terms provided in Section 8.2 hereof. 8.12. Except as provided in Section 8.13 hereof, all improvements constructed by Tenant on the Premises shall, at the expiration of the term or earlier termination of this Lease, without compensation to Tenant, become Landlord's property free and clear of all claims to or against them by Tenant or any third person, and Tenant shall defend and indemnify Landlord against all liability and loss arising from any such claims or from Landlord's exercise of the rights conferred by this Section. 8.13. At the expiration or earlier termination of the term, Landlord may, at Landlord's election, demand the removal from the Premises of any or all fixtures or improvements or both (a "Decommissioning"), as specified in the notice provided below. A demand to take effect at the normal expiration of the term shall be effected by notice given at any time not later than nine (9) months before the expiration date. A demand to take effect on any other termination of this Lease shall be effected by notice given in or concurrently with notice of such termination or within thirty (30) days after such termination. Tenant shall comply with the notice on or before the expiration date for normal termination, and within ninety (90) days after the notice for other terminations. The duty imposed by this provision includes, but is not limited to, the duty to demolish and remove all foundations, fix all excavations, return the surface to grade, and leave the Premises safe and free from debris and hazards, in a safe manner, in accordance with good operating practice and in compliance with all applicable laws and regulations of any governmental authority having jurisdiction over such operations. In the event Landlord elects to require such Decommissioning by Tenant, Tenant shall be entitled to all fixtures and improvements as Decommissioned. 9. Assignment and Subletting. Subject to the provisions of Section 10 hereof, Tenant shall not voluntarily or by operation of law assign, transfer, mortgage, sublet or otherwise transfer or encumber all or any part of Tenant's interest in this Lease or in the Premises, without Landlord's prior written consent, which consent Landlord shall not unreasonably withhold. 12 10. Rights of Lender. 10.1. Notwithstanding any other provision in this Lease to the contrary, Tenant may, from time to time, without notifying or obtaining the consent of Landlord, hypothecate, mortgage, pledge or alienate Tenant's interest in this Lease to the Project Lender. The Project Lender shall give prompt written notice to Landlord of (i) its entering into a credit agreement evidencing the Project Lender's Loan and the total amount of funds available thereunder, or of the nature of the transaction, (ii) any amendments to said credit agreement and (iii) the Project Lender's address for notices hereunder; provided, however, that any failure by the Project Lender to give such notice shall not be grounds for denying the Project Lender the rights and protections provided in this Section 10. 10.2. For the protection of the Project Lender, Landlord agrees as follows: 10.2.1. Landlord shall not accept any abandonment of this Lease, nor shall Landlord consent to any amendment, modification or termination hereof, provided, that Landlord has received actual or constructive notice of the Project Lender's Lien, unless and until Tenant presents evidence to Landlord that Tenant has obtained the prior written consent of the Project Lender. 10.2.2. The Project Lender shall have the right, but not the obligation, at any time prior to the expiration or earlier termination of this Lease, and without payment of any penalty, to make any payments due hereunder, and to do any other act or thing required of Tenant hereunder, and to do any act or thing that may be necessary and proper to be done in the performance and observance of the terms hereof to prevent any default under or termination of this Lease. All payments so made and all things so done and permfored by the Project Lender shall be as effective to prevent any default under or termination of this Lease as they would have been if made, done and performed by Tenant instead of by the Project Lender. Landlord hereby agrees that upon Landlord's receipt of any notice in the nature of a notice of default with respect to any obligation of Landlord under the Geothermal Leases, Landlord shall immediately deliver a copy of such notice to Tenant and to the Project Lender provided that Landlord has received actual or constructive notice of the Project Lender's Lien. 10.2.2. Tenant shall not be in default under this Lease unless Tenant fails to perform the obligations required of it hereunder within the time periods set forth herein, including all applicable cure periods. If Tenant fails to cure any default within the time so provided, then upon written notice from Landlord to the Project 13 Lender, the Project Lender shall have an additional ninety (90) days to cure such default; provided, however, that if such default cannot reasonably be cured within such additional ninety (90) day period, then the Project Lender shall have such additional time to cure the default as is reasonably necessary under the circumstances, so long as (a) the Project Lender shall have fully cured within such ninety (90) day period any default in the payment and performance of any monetary or other obligations of Tenant hereunder that do not require possession of the Premises and shall thereafter continue to faithfully perform all such monetary and other obligations, (b) the Project Lender shall have acquired Tenant's interest hereunder or commenced foreclosure or other appropriate proceedings in the nature thereof within such period or prior thereto, and shall be diligently prosecuting any such proceedings to completion, and (c) the Project Lender shall take all reasonable measures within its control (including steps to obtain control) to continue Tenant's operations of the Del Ranch Facility under this Lease. All rights of Landlord to terminate this Lease as a result of the occurrence of any default by Tenant shall be subject to, and expressly conditioned upon, (i) the Project Lender's having received the notice specified above in this Section 10.2.3, and (ii) the project Lender's having failed to remedy such default or to acquire Tenant's interest hereunder or commence foreclosure or other appropriate proceedings or to take reasonable measures to continue Tenant's operations of the Del Ranch Facility as set forth in this Section 10.2.3. 10.2.4. Any default by Tenant under this Lease that cannot be remedied by the Project Lender shall nevertheless be deemed to have been remedied if (a) within ninety (90) days after receiving written notice from Landlord setting forth the nature of such default, or prior thereto, the Project Lender shall have acquired Tenant's interest hereunder or shall have commenced foreclosure or other appropriate proceedings in the nature thereof, (b) the Project Lender shall diligently prosecute any such proceedings to completion, (c) the Project Lender shall have taken reasonable measures within its control (including steps to obtain control) to continue Tenant's operations of the Del Ranch Facility in accordance with the terms of this Lease, (d) the Project Lender shall have fully cured within such ninety (90) day period any default in the payment and performance of any monetary or other obligations of Tenant hereunder that do not require possession of the Premises and shall thereafter continue to faithfully perform all such monetary and other obligations, and (e) after gaining possession of the Premises, the Project Lender shall perform all obligations of Tenant hereunder and which arise thereafter. 14 10.2.5. If the Project Lender is prohibited by any process or injunction issued by any court or by reason of any action of any court having jurisdiction over any bankruptcy, reorganization, insolvency or other debtor-relief proceeding involving Tenant, from commencing or prosecuting foreclosure or other appropriate proceedings in the nature thereof, then the times specified in Sections 10.2.3 and 10.2.4 hereof for commencing or prosecuting such foreclosure or other proceedings shall be extended for the period of such prohibition; provided, however, that the Project Lender shall have fully cured any default in the payment or performance of any monetary or other obligations of Tenant under this Lease that do not require possession of the Premises, and shall continue to pay and perform such monetary and other obligations as and when they fall due, and shall have taken reasonable measures within its control (including steps to obtain control) to continue Tenant's operations of the Del Ranch Facility. 10.2.6. Landlord shall mail or deliver to the Project Lender a duplicate copy of any and all written notices that Landlord may from time to time give to or serve upon Tenant pursuant to the provisions hereof, and such copies shall be mailed or delivered to the Project Lender at, or as near as possible to, the same time such notices are given to or served upon Tenant. No notice by Landlord to Tenant hereunder shall be deemed to have been given unless and until a copy thereof shall have been mailed or delivered to the Project Lender. 10.2.7. Foreclosure of the Project Lender's Lien or any sale thereunder, whether by judicial proceedings or otherwise, or any conveyance or transfer of the interest of Tenant under this Lease from Tenant to the Project Lender through, or in lieu of, foreclosure or other appropriate proceedings in the nature thereof, shall not require the consent of Landlord or constitute a breach of any provision of or a default under this Lease, and upon such foreclosure, sale or conveyance Landlord shall recognize the Project Lender, or any other foreclosure sale purchaser, as Tenant hereunder. In the event the Project Lender becomes the Tenant under this Lease as provided herein, then the Project Lender shall be personally liable for the obligations of Tenant under this Lease only for the period of time that the Project Lender remains Tenant hereunder, and the Project Lender shall have the right to assign this Lease thereafter without any restriction otherwise imposed on Tenant hereunder; provided, however, that the assignee of the Project Lender shall have expressly assumed all of the obligations of Tenant hereunder. Notwithstanding any other provision of this Lease, in the event that the Project Lender (a) performs any monetary or other obligation of Tenant under this Lease, (b) acquires any portion of the right, title or interest in the leasehold estate created by this Lease, (c) 15 continues Tenant's operations of the Premises under this Lease and/or (d) becomes personally liable to Landlord hereunder, then the Project Lender's obligations and liability to Landlord shall be limited by and to the Project Lender's right, title and interest, if any, in the leasehold estate created by this Lease, and Landlord shall have no recourse against the Project Lender in excess of, and other than to proceed against, such right, title and interest, if any, in the leasehold estate created by this Lease, and Landlord shall have no recourse against the Project Lender in excess of, and other than to proceed against, such right, title and interest. 10.2.8. Upon Landlord's receipt of any notice in the nature of a notice of default with respect to any obligation of Landlord secured by any lien upon the Premises, Landlord shall immediately deliver a copy of such notice to Tenant and to the Project Lender. If and whenever the Project Lender shall deem it necessary or appropriate to do so in order to protect its rights under this Lease, it may, at its option, pay and discharge any mortgage or other lien (including, without limitation, the lien of general or special property taxes or special assessments) attached to the Premises or any portion thereof, and in such event it shall be subrogated to all the rights of the mortgagee, beneficiary, owner or holder of such mortgage or other lien. 10.2.9. In the event that this Lease is rejected by a trustee or debtor-in-possession in any bankruptcy or insolvency proceeding or is terminated for any other reason (except as a result of a default hereunder which was curable hereunder but which was not appropriately cured as provided herein) and if, within sixty (60) days after such rejection or other termination, the Project Lender shall so request, Landlord will execute and deliver to the Project Lender a new ground lease of the Del Ranch Property. Such new ground lease shall be for a term equal to the remainder of the term of this Lease before giving effect to such rejection or other termination, and shall contain the same covenants, agreements, terms, provisions and limitations as contained in this Lease (except for any requirements which shall have been fulfilled by Tenant prior to such rejection or other termination). Landlord shall, at the expense of the Project Lender and at no expense to Landlord, cooperate with the Project Lender and take such action in compliance with law as Project Lender shall reasonably request to remove Tenant from the Del Ranch Property. 10.2.10. Landlord and Tenant acknowledge, agree and covenant that notwithstanding the union of the fee simple title with any right, title or interest in the leasehold estate created hereby or under any other document or instrument in Landlord, Tenant, Project Lender, or any other Person or entity, whether by purchase or otherwise, it is the declared intention of the parties hereto that the separation of the fee simple estate and the leasehold estate shall be maintained and a merger shall not 16 take place without the prior written consent of the Project Lender. 10.3. Tenant and Landlord shall cooperate in including herein, by suitable amendment from time to time, any provision which any Project Lender or proposed Project Lender reasonably requests for the purpose of implementing the Project Lender-protective provisions contained in this Section 10 and affording the Project Lender or proposed Project Lender reasonable protection of its Project Lender's Lien in the event of a default by Tenant. Tenant and Landlord each agree to execute and deliver (and to acknowledge, if necessary for recording purposes) any document or instrument necessary to give effect to any such provision. 10.4. The Project Lender's mortgage documents shall contain provisions that all notices of default under the note and related documents must be sent to Landlord as well as Tenant, and that Landlord shall have the right to cure any default after the time for Tenant to cure it has expired. Neither Landlord's right to cure any default nor any exercise of such a right shall constitute an assumption of liability under the note or related documents. 10.5. On the recording of the Project Lender's Lien, Tenant shall, at Tenant's expense, cause to be recorded in the office of the County Recorder of Imperial County, California, a written request executed and acknowledged by Landlord for a copy of all notices of default and all notices of sale under the Project Lender's Lien as provided by the statutes of the State of California. Inclusion in the body of the recorded Project Lender's Lien itself of a request for notice having the effect described above shall constitute compliance with this provision. 10.6. On the commencement of the term, the fee title to the Premises shall be free and clear of all mortgage liens other than those expressly agreed to in accordance with this Lease. Thereafter, any mortgage placed on the Premises by Landlord shall be subject to this Lease, to any mortgage then in existence on the leasehold estate as permitted by this Lease, and to Tenant's right as permitted by this Lease subsequently to encumber the leasehold estate. 11. Insurance. So long as the Credit Facility remains a valid and binding obligation of Tenant, Tenant shall procure and maintain such policies of insurance in such amounts as are necessary to comply with the Insurance Requirements. After such time as the Credit Facility ceases to be a valid and binding obligation of Tenant or otherwise terminates in accordance with its terms, Tenant shall procure and maintain, for the remainder of the term of this Lease, such policies of insurance, in such amounts, as Landlord 17 shall reasonably request, but in no event shall Tenant be required to procure and maintain insurance in excess of the Insurance Requirements. 12. Condemnation. In the event of a taking by eminent domain or by inverse condemnation for any public or quasi-public use under any statute, the proceeds therefrom shall be distributed (a) first, to Tenant to the extent of all amounts necessary to pay in full the Project Lender's Loan and (b) second, to the parties hereto in accordance with their interests as they may appear. 13. Default and Remedies. 13.1 Subject to the provisions of Section 10 hereof, the occurrence of any one or more of the following events shall constitute a material default by Tenant under this Lease: 13.1.1. The vacation or abandonment of the Premises by Tenant for a continuous period of sixty (60) days or more, whether or not the rent is paid. 13.1.2. The failure by Tenant to make any payment of rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of three (3) business days after written notice thereof from Landlord to Tenant. 13.1.3. The failure by Tenant to observe or perform any of the material covenants, conditions or provisions of this Lease to be observed or performed by Tenant other than those referenced in Sections 13.1.1 and 13.1.2 above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant's noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said thirty (30) day period and thereafter diligently pursued such cure to completion. 13.1.4. The making by Tenant of any general arrangement or general assignment for the benefit of creditors; Tenant's becoming a "debtor" as defined in 11 U.S.C. section 101 or any successor statute thereto, unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days after filing; the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored within sixty (60) days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's 18 interest in this Lease, where such seizure is not discharged within sixty (60) days. In the event that any provision of this Section 13.1.4 is contrary to any applicable law, such provision shall be of no force or effect. 13.2. Subject to the provisions of Section 10 hereof, in the event of any material default or breach of this Lease by Tenant, Landlord may at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such default: 13.2.1. Terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate, and Tenant shall immediately surrender possession of the Premises to Landlord. In such event Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including, but not limited to: (a) the unpaid rent which had been earned at the time of termination; (b) the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (c) the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (d) any other amount necessary to compensate Landlord for all of the detriment approximately caused by the Tenant's failure to perform its obligations under this Lease. 13.2.2. Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant shall have vacated or abandoned the Premises. In such event, Landlord shall be entitled to enforce all of Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. 13.2.3. Use Tenant's personal property and trade fixtures without compensation and without liability for their use or damage, or store them for the account of and at the cost of Tenant. The election of one remedy for any one item of personal property or trade fixtures shall not foreclose an election of any other remedy for another item or for the same item at a later time. 13.2.4. Pursue an other remedy now or hereafter available to Landlord under the laws or judicial decisions of the State of California. 13.3. After expiration of the applicable time for curing a particular default, or before the expiration of that time in the event of emergency, Landlord may at 19 Landlord's election, but shall not be obligated to, make any payment required of Tenant under this Lease or under any note or other related loan document pertaining to the financing of improvements on the Premises, or perform or comply with any covenant or condition imposed on Tenant under this Lease or any such note or related loan document, and any amount so paid, plus the reasonable cost of any such performance or compliance, shall be deemed to be additional rent payable by Tenant with the next succeeding installment of rent. No such act shall constitute a waiver of default or of any remedy for default or render Landlord liable for any loss or damage resulting from any such act. 13.4 Landlord shall not be in default in the performance of its obligations under this Lease unless Landlord fails to perform obligations required of Landlord within sixty (60) days after written notice by Tenant to Landlord and to the holder of any mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than sixty (60) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such sixty (60) day period and thereafter diligently pursues the same to completion. 13.5. Tenant hereby acknowledges that late payment by Tenant to Landlord of any installment of rent or any other sum due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Accordingly, if any installment of rent or any other sum due from Tenant shall not be received by Landlord within ten (10) days after such amount shall be due, then, without any requirement for notice to Tenant, Tenant shall pay to Landlord a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, or prevent Landlord from exercising any of the other rights and remedies granted hereunder. 14. Estoppel Certificates. 14.1 Either party hereto (the "Responding Party") shall, at any time upon not less than ten (10) days prior written notice from the other party hereto or from the Project Lender (the "Requesting Party"), execute, acknowledge and deliver to the Requesting Party a statement in writing (a) certifying, as applicable, that this Lease is unmodified 20 and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which any payments due hereunder are paid, (b) acknowledging that there are not, to the Responding Party's knowledge, any uncured defaults hereunder on the part of the other party hereto (or specifying such defaults if any are claimed), and (c) setting forth such other information reasonably and customarily included in estoppel certificates as may be requested by the Requesting Party and known to the Responding Party. Any such statements may be conclusively relied upon by any prospective purchaser or encumbrancer of this Lease. The failure of the Responding Party to deliver such statement within such time shall be conclusive upon such Responding Party that (i) this Lease is in full force and effect and has not been modified, and (ii) there are no uncured defaults in the performance of the other party hereto. 15. Landlord's Liability. The term "Landlord" as used herein shall mean only the owner or owners, at the time in question, of fee title to the Premises, and in the event of any transfer of such title or interest, Landlord herein named (and, in case of any subsequent transfers, then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Landlord's obligations thereafter to be performed, provided that any funds in the hands of Landlord or the then grantor at the time of such transfer in which Tenant has an interest shall be delivered to the grantee. 16. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. 17. Interest on the Past-Due Obligations. Except as expressly herein provided, any amount due to Landlord not paid when due shall bear interest at the greater of (a) ten percent (10%) per annum, or (b) five percent (5%) per annum above the discount rate established by the Federal Reserve Bank of San Francisco on advances to member banks under Section 13 or 13(a) of the Federal Reserve Act as in effect on the 25th day of the month preceding the date of this Lease, from the date due until fully paid. Payment of such interest shall not excuse or cure any default by Tenant under this Lease. 18. Time of Essence. Time is of the essence with respect to the obligations to be performed under this Lease. 19. Additional Rent. All monetary obligations of Tenant to Landlord under the terms of this Lease shall be deemed to be rent. 21 20. Incorporation of Prior Agreements. This Lease and the related documents referred to herein specifically by name contain all agreements of the parties with respect to the subject matter of this Lease. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. 21. Amendments. This Lease may be amended in writing only, signed by the parties in interest at the time of the amendment. 22. Notices. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by registered or certified mail, and shall be deemed sufficiently given if delivered or addressed to Tenant or to Landlord at the address noted below. Mailed notices shall be deemed given upon actual receipt at the address required, or forty-eight (48) hours following deposit in the mail, postage prepaid, whichever first occurs. Either party may by notice to the other specify a different address for notice purposes. To Landlord: Magma Power Company 11770 Bernardo Plaza court Suite 366 San Diego, California 92128 To Tenant: Del Ranch, Ltd., a California limited partnership c/o Red Hill Geothermal, Inc. 480 West Sinclair Road Calipatria, California 92233 23. Force Majeure. 23.1. Neither Landlord nor Tenant shall be liable in damages to the other for any act, omission or circumstance ("Event of Force Majeure") occasioned by or in consequence of any acts of God, acts of the public enemy wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, civil disturbances, explosions, sabotage, the binding order of any court or governmental authority which has been contested in good faith, Federal, State or local laws, or other event or circumstance not within the control of such party preventing such party from performing its obligations hereunder, whether caused or occasioned by, or happening on account of, the act or omission of one of the parties, not within the control of the party claiming suspension and which by the exercise of due diligence such party is unable to prevent or overcome. 22 23.1.1. Such Events of Force Majeure shall not relieve Landlord or Tenant of liability in the event of either party's concurring negligence or in the event of either party's failure to use due diligence to remedy the situation and to remove the cause in an adequate manner and with all reasonable dispatch, nor shall such Events of Force Majeure relieve either party of liability unless such party shall give notice and full particulars of the same in writing to the other party within ten (10) days of the occurrence relied on. In no event, however, shall an Event of Force Majeure relieve Tenant from the obligation of making payments due under this Agreement at the time of such occurrence. The parties agree that should any Event of Force Majeure remain in existence for a period of six (6) months, this Agreement may be terminated by the party not claiming suspension of this Agreement under such Event of Force Majeure upon the giving of written notice by such party to the other party and any Project Lender; provided, however, that such six (6) month period shall be extended for a reasonable time so long as throughout such six (6) month period the party claiming suspension of this Lease under the Event of Force Majeure has diligently proceeded to terminate the Event of Force Majeure and continues to do so throughout such extension. 24. Waivers. No waiver by Landlord or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Tenant of the same or any other provisions. Landlord's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act by Tenant. 25. Acceptance of Rent. The acceptance of rent hereunder by the Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 26. Holding Over. If Tenant, with Landlord's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Tenant, except that the rent payable shall be one hundred fifty percent (150%) of the rent payable immediately preceding the termination date of this Lease. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 23 28. Covenants and Conditions. Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition. 29. Binding Effect. Subject to any provisions hereof restricting assignment or subletting by Tenant, this Lease shall bind the parties, their personal representatives, successors and assigns. 30. Choice of Law. This Lease shall be governed by the laws of the State of California. This Agreement shall be construed equally as against the parties hereto, and shall not be construed against the party responsible for its drafting. 31. Arbitration. All disputes arising under this Agreement shall be settled by arbitration. The party desiring such arbitration shall give written notice to that effect to the other party and in such notice shall appoint as an arbitrator a disinterested person of recognized competence in the area at issue. All selections of an arbitrator shall be subject to the consent of any Project Lender, but only if the Project Lender notifies the parties that it desires to approve the selection of an arbitrator, and such consent shall not be unreasonably withheld. Within fifteen (15) days thereafter, the other party shall, by written notice to the originating party, appoint a second person similarly qualified as the second arbitrator. The arbitrators thus appointed shall appoint a third person similarly qualified as the third arbitrator, and such three arbitrators shall as promptly as possible determine such matter with the parties, each being entitled to present evidence and argument to the arbitrators; provided, however, that: (i) if the second arbitrator shall not have been appointed as aforesaid, the first arbitrator shall determine such matter; and (ii) if the two arbitrators appointed by the party shall be unable to agree upon the appointment of a third arbitrator within fifteen (15) days after the appointment of the second arbitrator, they shall give written notice of such failure to agree to the parties, and, if the parties fail to agree upon the selection of such third arbitrator within fifteen (15) days thereafter, then within ten (10) days thereafter, either of the parties upon written notice to the other party may apply for such appointment to the Federal District Court or County Superior Court in San Diego, California. The arbitrator or arbitrators shall only interpret and apply the terms and provisions of this Agreement and shall not change any such terms or provisions or deprive 24 either party of any right or remedy expressly or impliedly provided for in this Agreement. The determination of the majority of the arbitrators or the sole arbitrator, as the case may be, shall, to the extent permitted by law, be conclusive upon the parties. The arbitrator or arbitrators shall give written notice to the parties stating their determination, and shall furnish to each a copy of such determination signed by them. In the event of the failure, refusal or inability of any arbitrator to act, a new arbitrator shall be appointed in his stead, which appointment shall be made in the same manner as hereinbefore provided for the appointment of the arbitrator so failing, refusing or unable to act. 32. Attorney's Fees. If either party hereto commences litigation or arbitration for the judicial or other interpretation, enforcement, termination, cancellation or rescission hereof, or for damages for the breach hereof, the prevailing party in any such action, trial, arbitration or appeal thereon shall be entitled to its reasonable attorneys' fees and court, arbitration and other costs incurred, to be paid by the losing party as fixed by the court or arbitrator in the same or a separate suit, and whether or not such action is pursued to decision or judgment. 33. Landlord's Access. Landlord and its agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, performing any services required of Landlord, taking safety measures and exercising rights expressly reserved by Landlord under this Lease, as long as there is no material adverse effect to Tenant's use of the Premises. All activities of Landlord pursuant to this Section shall be without abatement of rent, nor shall Landlord have any liability to Tenant for the same. 34. Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation hereof, or a termination by Landlord, shall not work a merger, but shall, at the option of Landlord, terminate any or all existing subtenancies, or may, at the option of Landlord, operate as an assignment to Landlord or any or all of such subtenancies. 35. Quiet Possession. Upon Tenant's paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Tenant's part to be observed and performed hereunder, Tenant shall have quiet possession of the Premise for the entire term hereof subject to all of the provisions of this Lease. 36. Security Measures. Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises. Tenant assumes all responsibility for the 25 protection of Tenant, its agents, invitees and their property from the acts of third parties. 37. Easements and Maps. Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications that Landlord deems necessary or desireable, and to cause the recordation of maps or restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises or the operation of the Del Ranch Facility by Tenant. Tenant shall sign any of the aforementioned documents reasonably requested by Landlord and failure to do so within such period of time as constitutes a reasonable period of time to review such documents shall constitute a material default under this Lease by Tenant without the need for further notice to Tenant. 38. Exhibits, Addenda. All exhibits and addenda to which reference is made in this Lease are incorporated in this Lease by the respective references to them, whether or not they are actually attached, provided they have been signed or initialed by the parties. 39. Tenant's Duty to Surrender. At the expiration or earlier termination of the term, Tenant shall surrender to Landlord the possession of the Premises. If Tenant fails to surrender the Premises at the expiration or earlier termination of this Lease, Tenant shall defend and indemnify Landlord from all liability and expense resulting from the delay or failure to do so, including, without limitation, claims made by any succeeding tenant founded on or resulting from Tenant's failure to do so. 40. Memorandum of Lease. A Memorandum of this Lease shall be recorded. The parties shall execute the Memorandum in such form and substance as may be required by the title insurance company insuring Tenant's leasehold estate or the interest of any Project Lender, sufficient to 26 give constructive notice of the Lease to subsequent purchasers and mortgagees. IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written. LANDLORD: MAGMA POWER COMPANY, a Nevada corporation By: /s/ Arnold L. Johnson ----------------------------------- Its: President ------------------------------ By: /s/ Jan R. Peele ----------------------------------- Its: Secretary ------------------------------ TENANT: DEL RANCH, LTD., A CALIFORNIA LIMITED PARTNERSHIP, a limited partnership organized under the laws of the State of California By: RED HILL GEOTHERMAL, INC., a Delaware corporation, its General Partner By: /s/ Russ L. Gerny ----------------------------------- Its: President ------------------------------ By: /s/ Charles C. Bowle ----------------------------------- Its: Asst. Secretary ------------------------------ 27 EXHIBIT "A" Description of the Del Ranch Property That portion of the Southeast Quarter of the Southeast Quarter of Section 33, Township 11 South, Range 13 East, San Bernardino Meridian, County of Imperial, State of California, according to the Official Plat thereof shown as Parcel 2 on Parcel Map M-1356, on file in Book 5, Page 74 of Parcel Maps in the Office of the County Recorder of Imperial County. Excepting therefrom, minerals, either in solid or liquid form, geothermal steam, naturally heated water, and thermal energy below a depth of 500 feet from the surface of said land, as reserved by Roy B. Woolsey and Louise J. Woolsey, in the Deed recorded October 30, 1974 in Book 1368 Page 960, Official Records, without, however, the right to enter the area within 500 feet of the surface of the ground, nor endanger or interfere with the operation, maintenance or repair of the facilities located within or upon said land. SCHEDULE "Z" "Additional Power Production Facilities" means power production geothermal electrical generating facilities developed in the SSKGRA which Process Reserved Geothermal Brine to produce electrical energy. "Administration Fee" means the payments to be made to Red Hill provided for in Section 6 of the Administrative Services Agreement. "Administrative Services Agreement" means that certain Administrative Services Agreement dated as of March 14, 1988, as the same may be amended from time to time, by and between Red Hill and Del Ranch, Ltd., pursuant to which Red Hill will provide certain administrative and management services to Del Ranch, Ltd. in connection with the operation of the Del Ranch Facility. "Affiliate" means, when used with reference to a specified Person, (a) any Person who directly or indirectly controls, is controlled by or is under common control with the specified Person, (b) any Person who is an officer, partner or trustee of, or serves in a similar capacity with respect to, the specified Person, or for which the specified Person is an officer, partner or trustee or serves in a similar capacity, (c) any Person who, directly or indirectly, is the beneficial owner of 10% or more of any class of equity securities of the specified Person, or of which the specified Person, directly or indirectly, is the owner of 10% or more of any class of equity securities, and (d) any relative of the specified Person. "Average Annual Energy Price" means an amount equal to the sum of (i) 2/3 multiplied by the average of the quarterly Time Period Weighted Average Proposed Avoided Cost Energy Winter Prices released by SCE for the calendar year in which the calculation is being made, plus (ii) 1/3 multiplied by the average of the quarterly Time Period Weighted Average Proposed Avoided Cost Energy Summer Prices released by SCE for the calendar year in which the calculation is being made. In the event that the Time Period Weighted Average Proposed Avoided Cost Energy Winter Prices and the Time Period Weighted Average Proposed Avoided Cost Energy Summer Prices are abandoned or changed materially or otherwise cease to be released by SCE on a quarterly basis, the parties shall select a substitute index to the end that the Average Annual Energy Price will reflect SCE's average annual avoided cost energy prices. In the event the parties fail to agree on a substitute index as provided in the immediately preceding sentence, the matter shall be submitted to an arbitrator in accordance with Section 21 of the Operating and Maintenance Agreement and the arbitrator shall select the substitute index to be used. "Brine Minerals" means all mineral resources found in the Geothermal Brine, including, without limitation, mineral resources found in the Geothermal Brine Scale. "BTU Energy" means the heat value in British Thermal Units which can be extracted from Geothermal Brine. "Capacity" shall have the same meaning as that term has in the Del Ranch Power Purchase Contract. "Capital Contribution" has the same meaning as that term has in the Limited Partnership Agreement. "Code" means the Internal Revenue Code of 1986, as amended (or any corresponding provision or provisions of succeeding law). "Construction Management Agreement" means that certain Construction Management and Asset Transfer Agreement dated as of March 14, 1988, as the same may be amended from time to time, by and between Magma and Del Ranch, Ltd., pursuant to which Magma will act as Del Ranch, Ltd.'s construction manager for the construction of the Del Ranch Facility. "Construction Management Fee" means the payments to be made to Magma provided for in Section 9 of the Construction Management Agreement. "Construction Manager" means Magma for purposes of the Construction Management Agreement. "Contract Capacity" shall have the same meaning as that term has in the Del Ranch Power Purchase Contract. "Conversion Date" shall have the same meaning as that term has in the Credit Facility. "Credit Facility" means that certain Secured Credit Agreement dated as of March 14, 1988, as the same may be amended from time to time, among Del Ranch, Ltd., the Banks listed on the signature pages thereto and Morgan Guaranty Trust Company of New York, as Agent. "Critical Parts and Equipment" means those certain equipment and parts delineated on Exhibit "A" to the Operating and Maintenance Agreement and such additional equipment and parts which the parties thereto agree, from time to time, should be added to the Critical Parts and Equipment listed on said Exhibit "A" to the Operating and Maintenance Agreement. 2 "DCC" means The DOW Chemical Company, a Delaware corporation. "DEC" means DOW Engineering Company, a Delaware corporation. "Debt Service Reserve" means the reserve establishment pursuant to Section 11.1 of the Operating and Maintenance Agreement. "Debt Service Reserve Account" means the segregated bank account established pursuant to Section 11.1 of the Operating and Maintenance Agreement. "Decommission," "Decommissioned" or "Decommissioning" means the obligations on the part of Del Ranch, Ltd., among other things, to remove all or a portion of the Del Ranch Facility and, with respect to production and injection wells and only to the extent allowed by applicable law, to cap such wells in lieu of removal from the Del Ranch Property and the Geothermal Lease Rights Properties in the event Magma elects to require such removal pursuant to Sections 8.11 and 8.13 of the Ground Lease and/or Section 3.1.4 of the Easement Agreement. "Decommissioning Reserve" means the reserve established pursuant to Section 11.3 of the Operating and Maintenance Agreement. "Decommissioning Reserve Account" means the segregated bank account established pursuant to Section 11.3 of the Operating and Maintenance Agreement. "Del Ranch Facility" means that certain power production geothermal electrical generating facility being constructed pursuant to the Plans and Specifications and any "as-built" plans on the Del Ranch Property which, when completed, will have the capacity to convert BTU Energy from Geothermal Brine into electrical energy, together with the Supporting Equipment. "Del Ranch Facility Brine Requirement" means that amount of Geothermal Brine which, when Processed by the Del Ranch Facility, will yield the amount of BTU Energy reasonably required to generate 332,880,000 kilowatt hours per year of "Energy" as that term is defined in the Del Ranch Power Purchase Contract. "Del Ranch Facility Projected Project Cost" means the total projected cost of construction and development of the Del Ranch Facility as reflected on Exhibit "I" to the Construction Management Agreement. 3 "Del Ranch, Ltd." means Del Ranch, Ltd., a California limited partnership, a limited partnership organized under the laws of the State of California, the general partners of which are Red Hill and Conejo Energy Company, a California corporation. "Del Ranch Power Purchase Contract" means that certain Power Purchase Contract dated February 22, 1984, as amended, and as the same may be amended from time to time, by and between Magma and SCE. "Del Ranch Property" means the parcel of real property more particularly described on Exhibit "A" to the Ground Lease, as that description may be modified from time to time pursuant to Section 3.3 of the Ground Lease. "Del Ranch Property Preliminary Title Report" means that certain Preliminary Title Report No. 105342 dated February 16, 1998 a copy of which is attached as Exhibit "L" to the Construction Management Agreement. "Development of the Del Ranch Facility" means the design, engineering, construction, testing and start-up of the Del Ranch Facility. "Distribution Dates" means each March 31 and September 30. "Dow Services Agreement" means that certain Financial and Technical Services Agreement dated March 27, 1987 by and between Magma and DCC, a copy of which is attached as Exhibit "A" to the Administrative Services Agreement. "Easement Agreement" means that certain Easement Grant Deed and Agreement Regarding Rights for Geothermal Development dated as of March 14, 1988, as the same may be amended from time to time, by and between Magma and Del Ranch, Ltd., pursuant to which the parties have provided for an "Easement to Develop Geothermal Rights" and related rights and obligations as described therein. "Energy Revenues" means all payments received by Del Ranch, Ltd. for the sale of electricity which payments represent the "Energy" (as that term is defined in the Del Ranch Power Purchase Contract) component of the payments received including, without limitation, (i) payments received by Del Ranch, Ltd. from SCE pursuant to the Del Ranch Power Purchase Contract (without deduction for payments made pursuant to the IID Transmission Line Agreement), (ii) all payments for Energy delivered both before and after the Firm Operation Date and below, at and above the "Contract Capacity" level (as that term is defined in the Del Ranch Power Purchase Contract) and (iii) all payments received by 4 Del Ranch, Ltd. in lieu of payments that would have been received for the Energy component of electricity that would have been produced but for the in lieu payments. "Engineer" means R.W. Beck and Associates, or their successors in the capacity of engineers and consultants with respect to the Development of the Del Ranch Facility and the operation of the Del Ranch Facility. "Excess Extracted Geothermal Brine" means Geothermal Brine extracted by Del Ranch, Ltd. in connection with the operation of the Del Ranch Facility which is in excess of the amount of Geothermal Brine needed to meet the Del Ranch Facility Brine Requirement. "Excess Unextracted Geothermal Brine" means all Geothermal Brine which is not needed for the operation of the Vulcan Facility and the Del Ranch Facility. "Extraordinary Services" means all of the services, materials, equipment and supplies to be performed or provided by Red Hill pursuant to Section 3 of the Administrative Services Agreement. "Firm Operation Date" means the first day on which Firm Operation (as that term is defined in the Del Ranch Power Purchase Contract) occurs under the Del Ranch Power Purchase Contract. "Firm Operation Month" means the first month during which Firm Operation (as that term is defined in the Del Ranch Power Purchase Contract) occurs under the Del Ranch Power Purchase Contract. "Geothermal Brine" means the geothermal brine contained in the Del Ranch Geothermal Lease Unit. "Geothermal Brine Scale" means all deposits and residue including, without limitation, silica slurry, silica cake and sludge deposits on or in vessels or equipment in which Geothermal Brine is transported to or from, or Processed or stored in, the Del Ranch Facility. "Geothermal Lease Rights" means the rights in the Geothermal Lease Rights Properties held by Magma pursuant to the Geothermal Leases including, without limitation, certain rights of Magma to (i) that portion of the Geothermal Lease Rights Properties existing below the surface of the land including, without limitation, the right to extract and take Geothermal Brine therefrom and (ii) the Surface Properties including, without limitation, the right to enter upon certain portions of the Surface Properties for the purposes of (1) drilling exploratory, production and injection wells; (2) installing pipelines for the extraction of Geothermal 5 Brine; (3) extracting Geothermal Brine; and (4) constructing facilities designed to convert the heat energy in the Geothermal Brine to electrical energy for sale to public utilities. "Geothermal Lease Rights Properties" means the real property located within the SSKGRA, as more particularly described in Exhibit "A" to the Easement Agreement. "Geothermal Lease Rights Properties Preliminary Title Report" means, collectively, those certain Preliminary Title Report Nos. 105340 (Severe), 105341 (Del Ranch, Inc.), 105348 (Future Energy), 105344 (Ruchti/24 Leases), 105343 (Woolsey), 105345 (McKelvey), 105346 (Wiest) and 105347 (J.F.Baretta), dated February 16, 1988, copies of which are attached as Exhibit "C" to the Easement Agreement. "Geothermal Leases" means those certain geothermal leases delineated on Exhibit "B" to the Easement Agreement. "Geothermal Lessors" means the parties identified as the "lessors," or their successors in interest, in each of the Geothermal Leases. "Grantee" means Del Ranch, Ltd. for purposes of the Easement Agreement. "Grantor" means Magma for purposes of the Easement Agreement. "Ground Lease" means that certain Ground Lease dated as of March 14, 1988, as the same may be amended from time to time, by and between Magma and Del Ranch, Ltd., pursuant to which Magma leases to Del Ranch, Ltd. the Del Ranch Property. "Guaranteed Capacity Payment" means the payments to be made to Red Hill provided for in Section 13 of the Operating and Maintenance Agreement. "IID" means the Imperial Irrigation District, organized under the Water Code of the State of California. "IID Agreements" mean, collectively, (i) that certain Funding and Construction Agreement dated June 29, 1987, by and among the Imperial Irrigation District ("IID"), and certain "Participants" (as that term is defined in said Funding and Construction Agreement) including Magma, (ii) that certain Joint Funding Agreement dated June 29, 1987, by and among the "Participants" (as that term is defined in said Joint Funding Agreement) including Magma and (iii) any "IID Transmission Service Agreement For Alternative Resources" which may be entered into between IID and Del Ranch, Ltd., 6 copies of which are attached as Exhibit "G" to the Construction Management Agreement. "Insurance Requirements" means policies of insurance, maintained by or on behalf of Del Ranch, Ltd. with insurance companies rated at least B+ by A.M. Best Company or such other insurance companies as may be acceptable to the agent for the Project Lender, of the following type, in the following amounts, and on the following terms: (i) at all times after completion of construction of the Del Ranch Facility, insurance on the Del Ranch Facility against all risks of physical loss or damage, including flood, earthquake (to the extent possible) and collapse and all other risks and perils normally covered in "all-risk" policies, for the full cost of repair or replacement (excluding the costs of the transmission lines, wells and Geothermal Brine pipelines); (ii) as soon as possible in the course of construction of the Del Ranch Facility and at all times after completion of construction of the Del Ranch Facility, boiler and machinery insurance written on a comprehensive form for the full repair and replacement value of the equipment at and of the Del Ranch Facility; (iii) at all times, comprehensive general liability insurance with a limit of no less than $1,000,000 combined single limit, bodily injury and property damage, for each occurrence; (iv) at all times, excess public liability insurance in the form of an umbrella policy which umbrella policy shall afford coverage of not less than $10,000,000 per occurrence over and above the coverage provided by the policies described above and the policy described in Exhibit "N" to the Construction Management Agreement; (v) on and after the Firm Operation Date, business interruption insurance covering, for an annual term, only amounts due (including, without limitation, interest, principal repayment and any other fees and expenses) on the Project Lender's Loan; and (vi) as soon as practicable after the agent for the Project Lender shall request, such other insurance with respect to the Del Ranch Facility in such amounts equal to the greater of such amount, and against such insurable hazards, (x) as Magma maintains with respect to other facilities similar to the Del Ranch Facility, which Magma owns or operates, (y) as is usually carried by corporations of established reputation operating 7 similar properties and (z) as the agent for the Project Lender may from time to time reasonably request. Each insurance policy set forth above (a) shall (except for the liability insurance referred to in clause (iii) above, which shall name the Project Lender as an additional insured) insure the Project Lender's interests under the Project Lenders's Lien and shall provide that all insurance proceeds payable under such policy shall, until notice from the agent for the Project Lender to the contrary, be paid over directly to such agent for the benefit of the Project Lender, (b) shall provide that it cannot be cancelled or terminated without thirty days' prior written notice to such agent, (c) shall include waivers by the insurer of all claims for the payments by the Project Lender and such agent of insurance premiums, (d) shall (except for the liability insurance referred to in clause (iii) above) provide for losses to be payable to the Project Lender notwithstanding (i) any act or failure to act by the insured or violation by the insured of warranties, declarations or conditions contained in the policy, (ii) any foreclosure or sale or other proceeding relating to the Del Ranch Facility or construction work in progress or (iii) any change in the title to or ownership of the Del Ranch Facility or construction work in progress, (e) shall (except for the liability insurance referred to in clause (iv) above, which shall have no deductible) provide for deductibles for (i) "all risk" coverage of no greater than $500,000 per occurrence, and (ii) business interruption coverage of no greater than sixty (60) days, and (f) shall be in all other respects satisfactory to the agent for the Project Lender. "Licensee" means Del Ranch, Ltd. for purposes of the Technology Transfer Agreement. "Licensor" means Magma for purposes of the Technology Transfer Agreement. "Limited Partner" means any of the Original Limited Partners and Substituted Limited partners as defined in the Limited Partnership Agreement. "Limited Partnership Agreement" means that certain Amended and Restated Limited Partnership Agreement of Del Ranch, Ltd., dated as of March 14, 1988, as the same may be amended from time to time. "Magma" means Magma Power Company, a Nevada corporation. "Magma Overrun Loan" means any loan made by Magma pursuant to the Magma Undertaking. 8 "Magma Undertaking" means the undertaking of Magma, substantially in the form of Exhibit "K" to the Construction Management Agreement. "Major Capital Expenditure Reserve" means the reserve established pursuant to Section 11.2 of the Operating and Maintenance Agreement. "Major Capital Expenditure Reserve Account" means the segregated bank account established pursuant to Section 11.2 of the Operating and Maintenance Agreement. "Operating Agreements" means the Easement Agreement, the Administrative Services Agreement, the Construction Management Agreement, the Del Ranch Power Purchase Contract, the Ground Lease, the Operating and Maintenance Agreement, the Technology Transfer Agreement and the IID Agreements. "Operating and Maintenance Agreement" means that certain Operating and Maintenance Agreement dated as of March 14, 1988, as the same may be amended from time to time, by and between Del Ranch, Ltd. and Red Hill, pursuant to which Red Hill will provide day-to-day operational and maintenance services for Del Ranch, Ltd. in connection with the operation of the Del Ranch Facility. "Operator" means Red Hill for purposes of the Operating and Maintenance Agreement. "Ordinary Services" means all of the services, materials, equipment and supplies to be performed or provided by Red Hill on a normal day-to-day basis pursuant to Section 2 of the Administrative Services Agreement. "Owner" means Del Ranch, Ltd. for purposes of the Administrative Services Agreement, the Construction Management Agreement and the Operating and Maintenance Agreement. "Partially Spent Geothermal Brine" means the Geothermal Brine in an amount not exceeding the Del Ranch Facility Brine Requirement which has been extracted and Processed by Del Ranch, Ltd. for the purpose of generating electrical energy in connection with the operation of the Del Ranch Facility. "Partnership Holding Account" has the same meaning as that term has in the Limited Partnership Agreement. "Permitted Investment" means any investment in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated in the 9 highest grade by a nationally recognized credit rating agency or (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized under the laws of the United States or any state thereof and the certificates of deposit of which are rated in one of the two highest grades by a nationally recognized credit rating agency, provided in each case that such investment matures within one year from the date of acquisition thereof by Del Ranch, Ltd. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plans and Specifications" means those certain plans and specifications for the construction of the Del Ranch Facility, as more particularly described on Exhibit "H" to the Construction Management Agreement. "Principal Repayment Date" means the date on which a portion of the principal of the Project Lender's Loan is scheduled to be repaid pursuant to the Credit Facility. "Process," "Processed" or "Processing" means the process by which BTU Energy is extracted from the Geothermal Brine. "Project Lender" means collectively the lender(s) advancing all or a portion of the Project Lender's Loan, or the agent for such lenders. "Project Lender's Lien" means the security interest or lien evidenced by a first deed of trust granted by Del Ranch, Ltd. in Del Ranch, Ltd.'s leasehold estate in the Del Ranch Property to the Project Lender to secure repayment of any indebtedness and/or performance of any obligation created by the Project Lender's Loan. "Project Lender's Loan" means the financing provided by the Project Lender for the Development of the Del Ranch Facility or the operation of the Del Ranch Facility, the repayment of which is secured by the Project Lender's Lien. "Project Lender's Loan Documents" means all instruments, agreements and other documents including, without limitation, the Credit Facility, evidencing or related to the project Lender's Loan and the security therefor including, without limitation, the Project Lender's Lien. 10 "Red Hill" means Red Hill Geothermal, Inc., a Delaware corporation, a general partner of Del Ranch, Ltd. Red Hill is a wholly owned subsidiary of Magma. "Refunded Capital Contribution" shall have the same meaning as that term has in Section 3.6 of the Limited Partnership Agreement. "Reimbursement Charges" means the payments to Red Hill provided for in Section 14 of the Operating and Maintenance Agreement. "Reserved Geothermal Brine" means the combination of Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine and Excess Unextracted Geothermal Brine. "SEC" means Southern California Edison Company. "SSKGRA" means Salton Sea Known Geothermal Resource Area. "Schedule of Projected Remaining Cost of Construction" means the projected cost of completing construction and development of the Del Ranch Facility as of the date of the Construction Management Agreement, as reflected on Exhibit "J" to the Construction Management Agreement. "Services" means the services to be provided by Red Hill pursuant to Section 2 of the Operating and Maintenance Agreement. "Spare Parts" means all spare parts necessary for the reliable, continuous operation of the Del Ranch Facility, other than the Critical Parts and Equipment. "Subcontractor" means a person or entity who performs any duties for or supplies any equipment or material to Red Hill, directly or indirectly, in the performance of the Services. "Substantial Completion Month" means the month in which the Construction Management Agreement terminates in accordance with its terms. "Supporting Equipment" means all items described in Section 2.2.2 of the Easement Agreement, including all such items located on the Del Ranch Property, and any real property interest associated therewith. "Surface Properties" means that portion of the Geothermal Lease Rights Properties existing above and upon the surface of the land. 11 "Technology Fee" means the payments to be made to Magma provided for in Section 3 of the Technology Transfer Agreement. "Technology Transfer Agreement" means that certain Technology Transfer Agreement dated as of March 14, 1988, as the same may be amended from time to time, by and between Magma and Del Ranch, Ltd., pursuant to which Magma grants to Del Ranch, Ltd. the nonexclusive right to use certain "Technology" and "Know-How" which will be utilized by Del Ranch, Ltd. only in connection with the operation of the Del Ranch Facility. "Total Electricity Revenues" means all payments received by Del Ranch, Ltd. for the sale of electricity including, without limitation, payments received by Del Ranch, Ltd. from SCE pursuant to the Del Ranch Power purchase Contract (without deduction for payments made pursuant to the IID Agreements) including, without limitation, (i) all payments for "Energy," "capacity" and "Capacity Bonus Payments" delivered both before and after the Firm Operation Date and below, at and above the "Contract Capacity" level (as those terms are defined in the Del Ranch power Purchase Contract) and (ii) all payments received by Del Ranch, Ltd. in lieu of payments that would have been received for electricity that would have been produced but for the in lieu payments. "Totally Spent Geothermal Brine" means Partially Spent Geothermal Brine which (i) has been Processed by Magma, or a licensee of Magma, for use in connection with the operation of Additional Power Production Facilities; (ii) has been used by Magma, or a licensee of Magma, to extract Brine Minerals; or (iii) has been used by Magma, or a licensee of Magma, for any other use including, without limitation, the production of steam or heat for sale to users of steam or heat. "Vulcan Facility" means that certain power production geothermal electrical generating facility located on the Vulcan Geothermal Lease Unit on property contiguous to the Del Ranch Property more particularly described on Exhibit "D" to the Easement Agreement. The Vulcan Facility is owned by Vulcan/BN Geothermal Power Company, a Nevada general partnership, the general partners of which are Vulcan Power Company, a Nevada corporation, and BN Geothermal, Inc., a Delaware corporation. Vulcan Power Company is a wholly owned subsidiary of Magma. "Vulcan Facility Brine Sales Agreement" means that certain Brine Sales Agreement dated August 30, 1985, as the same may be amended from time to time, by and between Vulcan Power Company and Vulcan/BN Geothermal Power Company, pursuant to which Vulcan Power Company has agreed to make 12 available to the Vulcan Facility certain amounts of geothermal brine from certain portions of the Vulcan Geothermal Lease Unit for a thirty (30) year period. "Vulcan Geothermal Lease Unit" means that certain Vulcan Plant Unit established pursuant to that certain Declaration and Notice of Creation of Unit and Pooling of Lands Under Leases dated as of January 10, 1985, as amended by that certain First Amended and Restated Declaration and Notice of Creation of Unit and Pooling of Lands Under Leases dated as of January 18, 1988, which evidences Magma's Geothermal Lease Rights in and to the Geothermal Lease Rights Properties. "Working Capital" shall have the same meaning as that term has in the Credit Facility. "Working Capital Requirement" shall have the same meaning as that term has in the Credit Facility. Additional Defined Terms. For the convenience of the parties, in addition to the defined terms set forth in this Schedule Z, certain other terms are defined throughout the Operating Agreements. 13 Recording Requested By and When Recorded Mail To: Magma Power Company c/o CalEnergy Company, Inc. 302 South 36th Street Omaha, Nebraska 68131 Attention: General Counsel ------------------------------------------------------------------------------- The undersigned declare that this document does not grant, assign, transfer, convey or vest title to real property within the meaning of Section 11911 of the California Revenue and Taxation Code, and hence NO DOCUMENTARY TRANSFER TAX IS DUE. The real property is located in an unincorporated area of the County of Imperial, State of California. CLARIFICATION AND AMENDMENT THIS CLARIFICATION AND AMENDMENT (this "Amendment") is made as of June 17, 1996, between MAGMA POWER COMPANY, a Nevada corporation ("Grantor"), and DEL RANCH, L.P., a limited partnership organized under the laws of the State of California and formerly known as Del Ranch, Ltd. ("Grantee"). RECITALS 1. Grantor holds certain geothermal lease rights (the "Geothermal Lease Rights") in certain real property located within the Salton Sea Known Geothermal Resource Area (the "SSKGRA") in Imperial County, California, which real property is described in Exhibit "A" attached hereto (the "Geothermal Lease Rights Properties"). The Geothermal Lease Rights are set forth in those certain geothermal leases described in Exhibit "B" attached hereto (the "Geothermal Leases"). 2. Grantee owns a geothermal electrical generating facility commonly known as the "Del Ranch Facility", which utilizes Geothermal Brine from certain of the Geothermal Lease Rights Properties. The Del Ranch Facility is located on that certain real property described in Exhibit "C" attached hereto (the "Del Ranch Property"). 3. Grantee's right to maintain the Del Ranch Facility on the Del Ranch Property is derived from that certain Ground Lease dated as of March 14, 1988 between Grantor, as Landlord, and Grantee, as Tenant (the "Ground Lease"), a Memorandum of which was recorded on March 14, 1988 in Book 1599, Page 913, as Instrument No. 88-04016 in the Official Records of Imperial County, California (the "Official Records"). 4. Pursuant to that certain Easement Grant Deed and Agreement Regarding Rights For Geothermal Development dated as of March 14, 1988 (the "Easement Grant Deed"), a Short Form of which was recorded on March 14, 1988 in Book 1599, Page 918, as Instrument No. 88-04018 1 in the Official Records (the "Easement Short Form"), Grantor granted to Grantee certain rights in and to the Geothermal Brine contained in the Geothermal Lease Rights Properties, including, without limitation, the right to (i) drill for, produce, Process and use Geothermal Brine up to the amount necessary to meet the Del Ranch Facility Brine Requirement and (ii) construct, use and maintain roads, pipelines, utility installations, power lines, equipment, buildings and wells in connection therewith, subject to certain limitations and reservations as more particularly set forth in the Easement Grant Deed. 5. It has always been the intent of Grantor and Grantee (together, the "Parties") that Grantor reserve and at all times have the right, at its sole option, to (i) drill for, produce, process, extract, treat, convert, take, divert, sell and otherwise use the Excess Unextracted Geothermal Brine, Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Geothermal Brine Scale and Brine Minerals and (ii) use the Del Ranch Property in connection with such reserved rights. The Parties now desire to amend the Ground Lease and Easement Grant Deed to clarify and further define such rights, and to make certain other modifications thereto, as set forth herein. F. This Amendment is being executed in connection with that certain Second Supplemental Trust Indenture (the "Supplemental Indenture") dated as of June 20, 1996, between Salton Sea Funding Corporation, a Delaware corporation, an Affiliate of Grantor ("Funding Corporation"), as issuer, and Chemical Trust Company of California, a California corporation, as trustee. Chemical Trust Company of California, a California corporation, is also acting as collateral agent (together with its transferees, successors and assigns, the "Collateral Agent") under that certain Collateral Agency and Intercreditor Agreement dated as of July 21, 1995, as amended, by and among Funding Corporation and the other parties named therein. The Collateral Agent's address is 50 California Street, 10th Floor, San Francisco, California 94111. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals, the covenants and conditions herein contained, and other valuable consideration, the receipt of which is hereby acknowledged, the Parties agree as follows: ARTICLE 1. INTRODUCTORY MATTERS 1.1. CAPITALIZED TERMS. Capitalized terms used and not defined herein shall have the meaning given the same in the Easement Grant Deed. ARTICLE 2. AMENDMENTS TO THE EASEMENT GRANT DEED 2.1. USE OF GEOTHERMAL BRINE. Wherever in the Easement Grant Deed (including, without limitation, sections 2.2.1, 2.3.2, 2.3.3, 3.1.1 and 3.1.3 thereof) Grantor reserves or is given the right to "use", "utilize" or make "use" of the Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Brine Minerals and/or Geothermal Brine Scale or any part thereof, Grantor shall further have the right, privilege and power to process, extract from, treat, convert, take, divert, sell and otherwise use the same, in such manner and at such locations as Grantor may deem proper, and without compensation to Grantee other than as expressly provided in the Easement Grant Deed. 2.2. OWNERSHIP OF GEOTHERMAL BRINE. To the extent that Grantor processes, extracts, treats, converts, takes, diverts, sells or otherwise uses the Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Brine Minerals and/or Geothermal Brine Scale or any part thereof as 2 permitted under the Easement Grant Deed or hereunder, which results in the amount thereof that is returned to Grantee for injection or disposal being less than the amount thereof previously delivered to or taken by Grantor, then the title otherwise held by Grantee to any Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Brine Minerals and/or Geothermal Brine Scale that is not returned to Grantee for injection or disposal shall automatically transfer to and vest in Grantor. Without limiting the generality of the foregoing, if Grantor makes any commercial use or sale of the Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Brine Minerals and/or Geothermal Brine Scale, the economic benefits of such use or sale shall belong to Grantor. 2.3. INJECTION BY GRANTEE. In addition to its obligations under section 3.1.1 of the Easement Grant Deed, Grantee shall handle, transport, inject and dispose of all geothermal fluids and other substances produced as a result of or which flow from Grantor's use, processing, treatment or conversion of the Geothermal Brine and of geothermal fluids from other lands. To the extent that by performing the above duties Grantee incurs additional costs and expenses over what it would have incurred had Grantor not used, processed, treated or converted Geothermal Brine or geothermal fluids from other lands as provided herein, then Grantor shall pay such excess costs and expenses. 2.4. INSURANCE. Section 3.3 of the Easement Grant Deed is hereby deleted in its entirety. 2.5. PROJECT LENDER PROVISIONS. Article VI of the Easement Grant Deed is hereby revised as follows: 2.5.1 The definition of "Project Lender" is hereby deleted from Schedule "Z" to the Easement Grant Deed, and is replaced with the following: "'Project Lender' means (a) the Collateral Agent (b) any Person who succeeds to the interest of Collateral Agent under that certain Trust Indenture dated as of July 21, 1995, between Funding Corporation, as issuer, and Collateral Agent, as trustee (as amended, modified or supplemented, including pursuant to the Supplemental Indenture, the "Indenture") or (c) any other Person who acquires a first lien on the Easement To Develop Geothermal Rights in connection with or following (i) foreclosure of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of June 20, 1996, executed by Grantee as trustor, in favor of Chicago Title Company as trustee, for the benefit of Collateral Agent as beneficiary (the "Deed of Trust"); (ii) conveyance of the Easement To Develop Geothermal Rights to Collateral Agent in lieu of foreclosure or (iii) the acquisition by Collateral Agent or its nominee or designee of the Easement To Develop Geothermal Rights by any other means. The term "Project Lender" shall also include any person or entity that acquires a first lien on the Easement To Develop Geothermal Rights at any time after such foreclosure, conveyance by deed in lieu of foreclosure or acquisition by Collateral Agent or its nominee or designee." 2.5.2 The definition of "Project Lender's Loan" is hereby deleted from Schedule "Z" to the Easement Grant Deed, and is replaced with the following: "'Project Lender's Loan' means the financing provided by the Project Lender for the Development, operation, refinancing or acquisition of the Del Ranch Facility, the repayment of which is secured by the Project Lender's Lien." 2.5.3 Section 6.2.1 of the Easement Grant Deed is hereby deleted in its entirety and 3 replaced with the following: "6.2.1 (i) So long as the Indenture is in effect, Grantor shall not accept or consent to any amendment or modification of this Agreement if the same would be prohibited under the Partnership Credit Agreement (as that term is defined in the Indenture); (ii) at any time when the Indenture is no longer in effect, Grantor shall not accept or consent to any amendment or modification of this Agreement if the same would have a material adverse effect on the Project Lender's Lien, and (iii) except in a case of default by Grantee under this Agreement that has not been cured by the Project Lender under this Section 6.2 within the period of time provided therein, Grantor shall not accept or consent to any abandonment of the Easement to Develop Geothermal Rights or any termination of this Agreement, unless and until Grantee presents evidence to Grantor that Grantee has obtained the prior written consent of the Project Lender thereto." 2.5.4 Sections 6.2.6 and 6.3 of the Easement Grant Deed are hereby deleted in their entireties. 2.6. ARBITRATION. The last eleven (11) words of paragraph (ii) of section 8.11 of the Easement Grant Deed (which currently read "Federal District Court or County Superior Court in San Diego, California") are hereby deleted and replaced with the words "District Court in Omaha, Nebraska." 2.7. EASEMENT SHORT FORM. The Easement Short Form is hereby amended as necessary and appropriate so that the same will in all respects be consistent with this Amendment. ARTICLE 3. AMENDMENTS TO THE GROUND LEASE 3.1. USE OF THE DEL RANCH PROPERTY. Section 2.2 of the Ground Lease is hereby amended as follows: 3.1.1 The word "sell" is hereby added after the word "use" in the fourth line of such Section. 3.1.2 The words ", the Brine Minerals" are hereby added after the words "Reserved Geothermal Brine" in the fifth line of such Section. 3.1.3 The words "and mineral extraction and processing facilities" are hereby added after the words "Additional Power Production Facilities" in the fifteenth and nineteenth lines of such Section. 3.1.4 The words ", Partially Spent Geothermal Brine, Brine Minerals" are hereby added after the words "Geothermal Brine" in the twenty-second and twenty-fifth lines of such Section. 3.1.5 The following sentence is hereby added at the end of such Section: "Without limiting the foregoing, Landlord may conduct such operations for purposes incidental to Landlord's or its affiliates' operations on lands in the vicinity of and outside the Del Ranch Property." 3.2. SUBDIVISION OF THE DEL RANCH PROPERTY. 4 3.2.1 In the event that Grantor's proposed use of the Del Ranch Property (as permitted under Section 3.1 hereof or in the Ground Lease) causes it to reasonably determine that compliance with the California Subdivision Map Act (Government Code Section 66410 et seq.) and the county ordinances enacted thereunder (together, the "Map Act") may be necessary, then Grantor shall be entitled to apply for, process and cause to be recorded such subdivision maps as may be necessary to cause such portion or portions of the Del Ranch Property as may be designated by Grantor to be subdivided in compliance with the Map Act. All costs of such application, processing and recordation shall be borne by Grantor. Grantee and Grantor shall cooperate each with the other, to ensure that such maps will be adequate for Grantor's proposed use and to record such reciprocal easements as may be necessary in connection with their existing and proposed operations, and Grantee shall promptly execute such maps as and when requested by Grantor. Notwithstanding the foregoing, in no event shall Grantor subdivide the Del Ranch Property in a manner that will have a material adverse effect on Grantee's ability to operate the Del Ranch Facility. 3.2.2 Grantee hereby irrevocably and unconditionally grants to Grantor an option (the "Partial Termination Option"), exercisable at any time during the term of the Ground Lease upon the payment to Grantee of the sum of Ten Dollars ($10.00), to terminate the Ground Lease as to any parcel (each, a "Terminated Parcel") created as a result of such subdivision (other than the parcel on which the Del Ranch Facility is located). Upon Grantor's exercise of the Partial Termination Option, (a) Grantor and Grantee shall execute and cause to be acknowledged and recorded an amendment to the Ground Lease deleting from the description of the "Premises" each parcel as to which the Ground Lease has been so terminated (each, a "Terminated Parcel"), along with a corresponding quitclaim deed from Grantee to Grantor of all Grantee's right, title and interest in the Terminated Parcels, and (b) Grantee shall deliver possession of the Terminated Parcels to Grantor. Any lender imposing a lien against the Del Ranch Property shall be deemed, by the recordation of such lien, to have agreed to promptly partially release the Terminated Parcels from the lien of its deed of trust upon Grantor's exercise of the Partial Termination Option. 3.3. DAMAGE OR DESTRUCTION. Section 8.2 of the Ground Lease is hereby deleted in its entirety. 3.4. PROJECT LENDER PROVISIONS. Section 10 of the Ground Lease (consisting of sections 10.1 through 10.6, inclusive) is hereby revised as follows. 3.4.1 The definition of "Project Lender" is hereby deleted from Schedule "Z" to the Ground Lease, and is replaced with the following: "'Project Lender' means (a) the Collateral Agent (b) any Person who succeeds to the interest of Collateral Agent under the Indenture or (c) any other Person who acquires a first lien on this Lease in connection with or following (i) foreclosure of the Deed of Trust; (ii) conveyance of this Lease to Collateral Agent in lieu of foreclosure or (iii) the acquisition by Collateral Agent or its nominee or designee of the Lease by any other means. The term "Project Lender" shall also include any person or entity that acquires a first lien on the Lease at any time after such foreclosure, conveyance by deed in lieu of foreclosure or acquisition by Collateral Agent or its nominee or designee." 3.4.2 The definition of "Project Lender's Loan" is hereby deleted from Schedule "Z" to the Ground Lease, and is replaced with the following: 5 "'Project Lender's Loan' means the financing provided by the Project Lender for the Development, operation, refinancing or acquisition of the Del Ranch Facility, the repayment of which is secured by the Project Lender's Lien." 3.4.3 Section 10.2.1 of the Ground Lease is hereby deleted in its entirety and replaced with the following: "10.2.1 (i) So long as the Indenture is in effect, Landlord shall not accept or consent to any amendment or modification of this Lease if the same would be prohibited under the Partnership Credit Agreement (as that term is defined in the Indenture); (ii) at any time when the Indenture is no longer in effect, Landlord shall not accept or consent to any amendment or modification of this Lease if the same would have a material adverse effect on the Project Lender's Lien, and (iii) except in a case of default by Tenant under this Lease that has not been cured by the Project Lender under this Section 10.2 within the period of time provided therein, Landlord shall not accept or consent to any abandonment or termination of this Lease unless and until Tenant presents evidence to Landlord that Tenant has obtained the prior written consent of the Project Lender thereto." 3.4.4 Sections 10.2.6, 10.3, 10.4 and 10.5 of the Ground Lease are hereby deleted in their entireties. 3.5. INSURANCE. Section 11 of the Ground Lease is hereby deleted in its entirety. 3.6. ARBITRATION. The last eleven (11) words of paragraph (ii) of section 31 of the Ground Lease (which currently read "Federal District Court or County Superior Court in San Diego, California") are hereby deleted and replaced with the words "District Court in Omaha, Nebraska." ARTICLE 4. GENERAL PROVISIONS 4.1. NOTICES. The address for notices to Grantor and Grantee set forth in section 8.3 of the Easement Grant Deed and in section 22 of the Ground Lease shall henceforth be as follows: If to Grantor: c/o CalEnergy Company, Inc. 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Attention: General Counsel If to Grantee: c/o CalEnergy Company, Inc. 302 South 36th Street Suite 400-C Omaha, Nebraska 68131 Attention: General Counsel 4.2. ASSIGNMENT. Grantor shall be entitled, from time to time and without the prior consent of Grantee, to transfer, assign, alienate, license, grant easements in, hypothecate, pledge or mortgage to any Person all or any portion of Grantor's right, title or interest in, under and to the Easement Grant Deed and this Amendment. 4.3. COVENANTS TO RUN WITH THE LAND. The Del Ranch Property shall be held, conveyed, 6 assigned, hypothecated, encumbered, leased, used and operated subject to the covenants, terms and provisions set forth herein, in the Easement Grant Deed and in the Ground Lease, which covenants, terms and provisions shall run with the Del Ranch Property and each portion thereof and interest therein, and shall be binding upon Grantee and each other Person having any interest therein during their ownership thereof, and their respective grantees, heirs, successors and assigns. 4.4. EFFECT OF THIS AMENDMENT. In the event that any inconsistency exists between this Amendment and the Easement Grant Deed or the Ground Lease, this Amendment shall govern, and any inconsistent terms and provisions contained herein shall be construed as superseding and amending the terms and provisions of the Easement Grant Deed and/or the Ground Lease, as applicable. Except as expressly modified by this Amendment, the Easement Grant Deed and the Ground Lease shall be unchanged and shall remain in full force and effect. This Amendment may be executed in multiple counterparts, all of which shall constitute one and the same Amendment. 7 IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first above written. GRANTOR: MAGMA POWER COMPANY, a Nevada corporation By: /s/ John G. Sylvia --------------------------------- Its: Senior Vice President -------------------------------- GRANTEE: DEL RANCH, L.P., a limited partnership organized under the laws of the State of California By: CalEnergy Operating Company, a Delaware corporation, General Partner By: /s/ John G. Sylvia --------------------------------- Its: Senior Vice President -------------------------------- 8 ACKNOWLEDGMENTS STATE OF New York ) ---------------------------- ) ss. COUNTY OF New York ) --------------------------- On June 20, 1996, before me, Patricia Peterson, personally appeared John G. Sylvia, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity on behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature /s/ Patricia Peterson ------------------------------------ STATE OF New York ) ---------------------------- ) ss. COUNTY OF New York ) --------------------------- On June 20, 1996, before me, Patricia Peterson, personally appeared John G. Sylvia, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity on behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature /s/ Patricia Peterson ------------------------------------ EXHIBIT "A" Description of the Geothermal Lease Rights Properties Parcel 1: The Southeast Quarter of the Southeast Quarter of Section 32, Township 11 South, Range 13 East, San Bernardino Meridian, in the County of Imperial, State of California, according to Official Plat thereof. Parcel 2: Parcel A: The Southwest Quarter of Section 33, Township 11 South, Range 13 East, San Bernardino Meridian, in the County of Imperial, State of California, according to Official Plat thereof. Parcel B: The West Half of the Southeast Quarter of Section 33, Township 11 South, Range 13 East, San Bernardino Meridian, in the County of Imperial, State of California, according to Official Plat thereof, excepting therefrom the following portion thereof: Beginning at the Southwest Corner of Parcel 1 as shown in Book 5 Page 74 of Parcel Maps, said Point being on the South Line of said Section 33; thence North 0 (degrees) 00'12" West 662.00 feet along the West Line of Parcels 1 and 2 of said Map; thence West 382.00 feet parallel to the South Line of said Section, thence South 0 (degrees) 00'12" East 662.00 feet parallel to the West Line of Parcel 1 to a Point in the South Line of said Section, thence East 382.00 feet along the South Line of said Section to the True Point of Beginning. Parcel C: All minerals, whether in solid or liquid form, geothermal steam and thermal energy within that portion of the West Half of the Southeast Quarter of Section 33, Township 11 South, Range 13 East, San Bernardino Meridian, in the County of Imperial, State of California, according to Official Plat thereof, described as follows: Beginning at the Southwest Corner of Parcel 1 as shown in Book 5 Page 74 of Parcel Maps, said Point being on the South Line of said Section 33; thence North 0 (degrees) 00'12" West 662.00 feet along the West Line of Parcels 1 and 2 of said Map; thence West 382.00 feet parallel to the South Line of said Section, thence South 0 (degrees) E00'12" East 662.00 feet parallel to the West Line of Parcel 1 to a Point in the South Line of said Section, thence East 382.00 feet along the South Line of said Section to the True Point of Beginning. Parcel 3: EXHIBIT "A" Page 1 of 3 Lots 3 and 4 and the South One-Half of the Northeast Quarter of Section 4, Township 12 South, Range 13 East, San Bernardino Meridian, in the County of Imperial, State of California, according to Official Plat thereof. Parcel 4: Parcel A: That Portion of the Northeast Quarter of Section 33, in Township 11 South, Range 13 East, San Bernardino Meridian, in the County of Imperial, State of California, according to Official Plat thereof, described as follows: Beginning at the Northeast Corner of said Section 33; thence South 00 (degrees) 03' East, 2,640 feet to the East Quarter Corner of said Section 33; thence with the East-West Center Line of said Section, South 89 (degrees) 53' West, 2,489.12 feet to a Point from which a one-inch iron pipe bears North 00E10' West 37.48 feet distant; thence passing within the said Northeast Quarter North 00 (degrees) 10' West 1,319.78 feet to a 1-1/2 inch iron pipe on the North line of the One-Half Northeast Quarter; thence with said North Line East 3.0 feet to a 1-1/2 inch iron pipe; thence North 00 (degrees) 10' West 1,319.78 feet to a point on the North Line of said Section 33; thence with said North Line North 89 (degrees) 53' East 2,491.39 feet to the Place of Beginning. Parcel B: Beginning at the Quarter Corner on the North Line of said Section 33; thence with said North Line North 89 (degrees) 53' East 116.43 feet to a Point; thence passing within the said Northeast Quarter South 00 (degrees) 10' East, 2,639.55 feet to a point on the East-West Center Line of said Section; thence with said East-West Center Line South 89 (degrees) 53' West 121.29 feet to the Center Quarter Corner of said Section; thence with the North-South Center Line of said Section, North 00 (degrees) 03' West 2,639.53 feet to the Place of Beginning. Parcel 5: Parcel A: The Northeast Quarter of the Southeast Quarter of Section 33, in Township 11 South, Range 13 East, San Bernardino Meridian, in the County of Imperial, State of California, according to Official Plat thereof. Parcel B: All minerals, whether in solid or liquid form, geothermal steam and thermal energy lying below a depth of 500 feet below the surface of the following land: The Southeast Quarter of the Southeast Quarter of Section 33, in Township 11 South, Range 13 East, San Bernardino Meridian, in the County of Imperial, State of California, according to Official Plat thereof. EXHIBIT "A" Page 2 of 3 9 Parcel 6: The North Half of the Northwest Quarter of Section 34, Township 11 South, Range 13 East, San Bernardino Meridian, County of Imperial, State of California, according to Official Plat thereof. Parcel 7: The South Half of the Northwest Quarter of Section 34, Township 11 South, Range 13 East, San Bernardino Meridian, County of Imperial, State of California, according to the Official Plat thereof. Parcel 8: The West Half of the Northeast Quarter of Section 34, Township 11 South, Range 13 East, San Bernardino Meridian, according to the Official Plat thereof. -------------------- Parcel 1/Severe; Parcel 2/Del Ranch; Parcel 3/Future Energy; Parcel 4/Ruchti; Parcel 5/Woolsey; Parcel 6/McKelvey; Parcel 7/Wiest; Parcel 8/J.F. Baretta. EXHIBIT "A" Page 3 of 3 EXHIBIT "B" Description of the Geothermal Leases Parcel 1: Geothermal Lease and Agreement dated March 31, 1978, as heretofore and hereafter amended and/or assigned, by and between Luella B. Severe, as Lessor, and Imperial Magma, a corporation, as Lessee, as disclosed by that certain Geothermal Lease and Agreement (Short Form) of even date therewith, recorded on April 6, 1978, in Book 1414, Page 666 of Official Records. Parcel 2: Geothermal Lease and Agreement dated May 1, 1980, as heretofore and hereafter amended and/or assigned, by and between Del Ranch, Inc., a corporation, as Lessor, and Imperial Magma, a corporation and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Memorandum of Geothermal Lease and Agreement (Short Form) of even date therewith, recorded on August 7, 1980, in Book 1456, Page 1373 of Official Records. Parcel 3: Lease Agreement dated June 16, 1980, as heretofore and hereafter amended and/or assigned, by and between Future Energy, a limited partnership, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement and First Amendment (Memorandum) of even date therewith, recorded on February 13, 1981 in Book 1465, Page 191 of Official Records. Parcel 4: Lease Agreement dated February 2, 1981, as heretofore and hereafter amended and/or assigned, by and between Lakeview Lutheran Church of Madison, Wisconsin, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on April 24, 1981, in Book 1468, Page 590 of Official Records. Lease Agreement dated January 29, 1981, as heretofore and hereafter amended and/or assigned, by and between Daryl Pierro, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on April 24, 1981, in Book 1468, Page 593 of Official Records. Lease Agreement dated January 5, 1981, as heretofore and hereafter amended and/or assigned, by and between Mrs. Carol S. Soik, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on April 24, 1981, in EXHIBIT "B" Page 1 of 5 Book 1468, Page 596 of Official Records. Lease Agreement dated February 12, 1981, as heretofore and hereafter amended and/or assigned, by and between Augie Lincoln Hoffman, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on June 4, 1981, in Book 1470, Page 372 of Official Records. Lease Agreement dated January 27, 1981, as heretofore and hereafter amended and/or assigned, by and between Donna H. Gore, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on March 18, 1981, in Book 1466, Page 1449 of Official Records. Lease Agreement dated November 22, 1980, as heretofore and hereafter amended and/or assigned, by and between Anita Ruchti, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 148 of Official Records. Lease Agreement dated December 1, 1980, as heretofore and hereafter amended and/or assigned, by and between Barbara LaVergne, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 151 of Official Records. Lease Agreement dated January 5, 1981, as heretofore and hereafter amended and/or assigned, by and between Janice Johnson, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 145 of Official Records. Lease Agreement dated January 5, 1981, as heretofore and hereafter amended and/or assigned, by and between Constance Corby, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 142 of Official Records. Lease Agreement dated November 28, 1980, as heretofore and hereafter amended and/or assigned, by and between Eleanor L. Kearney, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on March 18, 1981, in Book 1466, Page 1441 of Official Records. Lease Agreement dated November 18, 1980, as heretofore and hereafter amended and/or assigned, by and between Clara F. Ruchti, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease EXHIBIT "B" Page 2 of 5 Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 139 of Official Records. Lease Agreement dated December 30, 1980, as heretofore and hereafter amended and/or assigned, by and between Mrs. Mary Ruchti, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 154 of Official Records. Lease Agreement dated December 10, 1980, as heretofore and hereafter amended and/or assigned, by and between Mrs. Marjorie Briskey, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on March 18, 1981, in Book 1466, Page 1437 of Official Records. Lease Agreement dated December 30, 1980, as heretofore and hereafter amended and/or assigned, by and between Robert R. Ruchti, II, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 158 of Official Records. Lease Agreement dated February 12, 1981, as heretofore and hereafter amended and/or assigned, by and between Mrs. Marylou Williams, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 133 of Official Records. Lease Agreement dated February 12, 1981, as heretofore and hereafter amended and/or assigned, by and between Mrs. Helene Zimmerman, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 136 of Official Records. Lease Agreement dated January 27, 1981, as heretofore and hereafter amended and/or assigned, by and between Mrs. Gladys Hoffman, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 178 of Official Records. Lease Agreement dated January 27, 1981, as heretofore and hereafter amended and/or assigned, by and between Ernest W. Hoffman, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on March 18, 1981, in Book 1466, Page 1445 of Official Records. Lease Agreement dated January 29, 1981, as heretofore and hereafter amended and/or assigned, by and between Arnold H. Ruchti, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in EXHIBIT "B" Page 3 of 5 Book 1465, Page 174 of Official Records. Lease Agreement dated January 2, 1981, as heretofore and hereafter amended and/or assigned, by and between Phyllis Davidson, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 165 of Official Records. Lease Agreement dated January 2, 1981, as heretofore and hereafter amended and/or assigned, by and between Kristen Davidson, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 168 of Official Records. Lease Agreement dated January 2, 1981, as heretofore and hereafter amended and/or assigned, by and between William B. Davidson, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 171 of Official Records. Lease Agreement dated January 2, 1981, as heretofore and hereafter amended and/or assigned, by and between Todd Davidson, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 162 of Official Records. Lease Agreement dated June 16, 1986, as heretofore and hereafter amended and/or assigned, by and between Future Energy, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement and First Amendment (Memorandum) of even date therewith, recorded on February 13, 1981, in Book 1465, Page 191 of Official Records. Parcel 5: Geothermal Lease and Agreement dated January 1, 1980, as heretofore and hereafter amended and/or assigned, by and between Roy B. Woolsey and Louise J. Woolsey, as Lessor, and Imperial Magma, a corporation and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Memorandum of Geothermal Lease and Agreement (Short Form) of even date therewith, recorded on August 14, 1980, in Book 1457, Page 248 of Official Records. Parcel 6: Lease and Agreement dated August 1, 1963, as heretofore and hereafter amended and/or assigned, by and between Raymond G. McKelvey, Margo R. McKelvey and Janet U. McKelvey, Executrix of the Estate of D.P. McKelvey, as Lessor, and Earth Energy, Inc., a Delaware corporation and Magma Power Company, a Nevada EXHIBIT "B" Page 4 of 5 corporation, as Lessee, as disclosed by that certain Memorandum of Lease and Agreement of even date therewith, recorded on January 13, 1964, in Book 1174, Page 807 of Official Records. Parcel 7: Lease Agreement dated July 25, 1978, as heretofore and hereafter amended and/or assigned, by and between Ed C. Wiest and Dorothy Wiest, as Lessor, and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Lease Agreement (Short Form) of even date therewith, recorded on August 16, 1978, in Book 1420, Page 1369 of Official Records. Parcel 8: Geothermal Lease and Agreement dated January 1, 1979, as heretofore and hereafter amended and/or assigned, by and between John F. Baretta, Suzanne Baretta and Victoria L. Roluffs, as Lessors, and Magma Power Company, a corporation, as Lessee, as disclosed by that certain Geothermal Lease and Agreement (Short Form) of even date therewith, recorded on December 14, 1979, in Book 1444, Page 1307 of Official Records. Geothermal Lease and Agreement dated January 1, 1979, as heretofore and hereafter amended and/or assigned, by and between Kathryn E. Wood, as Lessor, and Magma Power Company, a corporation, as Lessee, as disclosed by that certain Geothermal Lease and Agreement (Short Form) dated April 10, 1979, recorded on July 16, 1979, in Book 1436, Page 1765 of Official Records. ------------------- Parcel 1/Severe; Parcel 2/Del Ranch; Parcel 3/Future Energy; Parcel 4/Ruchti; Parcel 5/Woolsey; Parcel 6/McKelvey; Parcel 7/Wiest; Parcel 8/J.F. Baretta. EXHIBIT "B" Page 5 of 5 EXHIBIT "C" Description of the Del Ranch Property That portion of the Southeast Quarter of the Southeast Quarter of Section 33, Township 11 South, Range 13 East, San Bernardino Meridian, County of Imperial, State of California, according to the Official Plat thereof shown as Parcel 2 on Parcel Map M-1356, on file in Book 5, Page 74 of Parcel Maps in the Office of the County Recorder of Imperial County. Excepting therefrom, minerals, either in solid or liquid form, geothermal steam, naturally heated water, and thermal energy below a depth of 500 feet from the surface of said land, as reserved by Roy B. Woolsey and Louise J. Woolsey, in the Deed recorded October 30, 1974 in Book 1368 Page 960, Official Records, without, however, the right to enter the area within 500 feet of the surface of the ground, nor endanger or interfere with the operation, maintenance or repair of the facilities located within or upon said land. EXHIBIT "C" Page 1 of 1 EX-10.37 14 GROUND LEASE (ELMORE) GROUND LEASE PREAMBLE THIS GROUND LEASE (the "Lease") is made as of March 14, 1988, by and between MAGMA POWER COMPANY, a Nevada corporation ("Landlord"), and ELMORE, LTD., A CALIFORNIA LIMITED PARTNERSHIP, a limited partnership organized under the laws of the State of California ("Tenant"). AGREEMENT 1. Certain Definitions. Unless the context shall otherwise require, capitalized terms used and not otherwise defined herein shall have the respective meanings assigned thereto in Schedule Z hereto, which shall be incorporated by reference herein. 2. Lease. 2.1. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the "Premises," as that term is defined in Section 3 hereof, on the terms and conditions, and subject to the reservations, set forth in this Lease. 2.2 Landlord hereby reserves from the Leasehold estate granted to Tenant by this Lease the right to use the surface of the Elmore Property in order to obtain, use, extract and develop the Reserved Geothermal Brine and the Geothermal Brine Scale, together with reasonable access thereto for road and utility purposes, but only to the extent that such use does not cause any material interference with Tenant's construction, operation and maintenance of the Elmore Facility. The right reserved by Landlord in this Section 2.2 includes, without limitation, the right to construct, operate and maintain pipelines, buildings, structures, equipment and other improvements over, under and upon the surface of the Elmore Property, including, but not limited to, Additional Power Production Facilities, and warehouse(s) for the storage of Critical Parties and Equipment and other parts and equipment owned or within the control of Landlord which may be stored in such warehouse(s) for use in Additional Power Production Facilities and to use the surface of the Elmore Property in a commercially reasonable manner in order to "tap" into the Supporting Equipment and any other equipment or piping carrying or containing Geothermal Brine or Geothermal Brine Scale from the Elmore Facility to injection wells thereby affording to Landlord access to such Geothermal Brine and the Geothermal Brine Scale in an oxygen-free environment; provided, however, that, notwithstanding any other provision in this Lease to the contrary, Landlord shall pay all costs, direct and indirect, incurred by Tenant as a result of Landlord's exercising the rights reserved to 1 Landlord in this Section 2. Notwithstanding any other provision in this Lease to the contrary, in the event that Landlord desires to exercise its rights under this Section 2.2, Landlord shall obtain the prior written consent of Tenant, which consent shall not be unreasonably withheld. The standards to be applied by Tenant in giving or with holding such consent shall be as provided in Section 2.3.4 of the Easement Agreement. 2.3 The rights reserved by Landlord from the leasehold estate granted to Tenant pursuant to this Lease shall be assignable by Landlord in whole or in part to successors and assigns. Without limiting the generality of the foregoing, Landlord may sell, assign, encumber and grant leasehold estates in such rights to other persons. 3. Premises. 3.1. The "Premises" that are the subject of this Lease consist of the Elmore Property as more particularly described in Exhibit "A" hereto, BUT EXCLUDING THEREFROM (a) all rights reserved by Landlord as set forth in Section 2 hereof. 3.2 Concurrent with the delivery of this Lease, Landlord has delivered to Tenant an instrument transferring ownership from Landlord to Tenant of all improvements existing on or in the Premises at the Recordation Date as that term is defined in Section 4 hereof. Such improvements shall be held, used, altered and disposed of by Tenant in accordance with the terms and conditions of this Lease. 3.3 At any time and from time to time during the term of this Lease, within thirty (30) days after written request from Landlord, Tenant shall enter into an amendment to this Lease, which shall delete from the legal description of the Elmore Property that portion thereof as to which any other Person has a right to possession, in accordance with the following: 3.3.1 Both the portion of the Elmore Property being released from the encumbrance of this Lease, and the portion of the Elmore Property remaining subject to the encumbrance of this Lease after such release, shall be legal lots in compliance with the California Subdivision Map Act and other state or local ordinances thereunder; and 3.3.2. The amendment shall contain all cross-easements, covenants, conditions, restrictions and agreements reasonably requested by Tenant to facilitate the construction, operation and maintenance of the Elmore Facility at a level which allows the Elmore Facility to drill for, produce, extract, store, utilize, reclaim, convert, 2 sell, transfer, dispose and Process Geothermal Brine up to the amount necessary to meet the Elmore Facility Brine Requirement in connection with the generation of electrical energy at the Elmore Facility. 4. Term. The term of this Lease shall commence upon the recordation of a Memorandum of this Lease in the Office of the County Recorder of Imperial County, California (the "Recordation Date"), and, unless sooner terminated as provided in this Lease, shall end on the date which is thirty-two (32) years thereafter (the "Expiration Date"). 5. Rent 5.1. In addition to other sums payable by the term of this lease, Tenant shall pay to Landlord, without abatement, deduction or offset, the following sums: 5.1.1. As "Initial Rent" for the Premises for the period beginning on June 30, 1987 and ending on December 31, 1987, the lump sum of $10,000.00, payable in advance on the Recordation Date. 5.1.2. As "Base Monthly Rent" for the Premises for the period beginning on January 1, 1988 and continuing monthly thereafter throughout the term of this Lease, but subject to adjustment as provided in Section 5.2 hereof, the sum of $1,667.00 per month, payable in advance on the first day of each month. 5.1.3. Rent for any period during the term hereof which is for less than one month shall be prorated based upon the actual number of days elapsed in the calendar month involved. Rent shall be payable in lawful money of the United States to Landlord at the address stated herein or to such other persons or at such other places as Landlord may designate in writing. 5.2. The Base Monthly Rent shall be subject to annual adjustments as follows: 5.2.1. For purposes of this Lease, a "Lease Year" shall be deemed to begin on January 1 of each calendar year throughout the term of this Lease. 5.2.2. For the Lease Year beginning on January 1, 1989, and for each Lease Year thereafter, the Base Monthly Rent of $1,667.00 payable under Section 5.1.2 hereof shall be adjusted to reflect the increase, if any, in the Consumer Price Index published by the Bureau of Labor Statistics of the Department of Labor for All Urban Consumers, All Items, for the Los Angeles-Anaheim-Riverside Metropolitan Area (the "CPI"), as hereinafter provided. 3 5.2.3. The Base Monthly Rent payable pursuant to Section 5.2.2. hereof shall be calculated as follows: The Base Monthly Rent of $1,667.00 payable under Section 5.1.2 hereof above shall be multiplied by a fraction, the numerator of which shall be the CPI for the month of September in the year preceding the Lease Year for which the adjustment is to be made, and the denominator of which shall be the CPI for the month of September 1987. The sum so calculated shall constitute the new Base Monthly Rent hereunder, but in no event shall such new Base Monthly Rent be less than the Base Monthly Rent payable for the month immediately preceding the Lease Year for which the adjustment is to be made. 5.2.4. In the event that the publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI, as determined in good faith by Landlord, shall be used to make such calculations. 5.2.5. Tenant shall continue to pay Base Monthly Rent at the rate previously in effect until the increase, if any, is determined. Within ten (10) days following the date on which the increase is determined, Tenant shall make such payment to Landlord as will bring the increased Base Monthly Rent current, commencing with the effective date of such increase at the beginning of the Lease Year for which the adjustment is to be made through the date of any installments of Base Monthly Rent then due. Thereafter, the Base Monthly Rent shall be paid at the increased rate. 6. Taxes, Assessments and Utilities. 6.1. As used in this Lease, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license, fee, rental tax, tax on the right to do business, when Landlord's collection of rent under this Lease is defined as doing business, improvement bond, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Elmore Property or any portion thereof by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Landlord in the Elmore Property or in any portion thereof, as against Landlord's right to rent or other income therefrom, and as against Landlord's business of leasing the Premises. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (a) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinafter included within the 4 definition of "real property tax," or (b) the nature of which was heretofore included within the definition of "real property tax," or (c) which is imposed for any service or right not charged prior to June 1, 1978, or (d) which is imposed as a result of a change in ownership, as defined by applicable local statutes for property tax purposes, or which is added to a tax or charge heretofore included within the definition of "real property tax" by reason of such change of ownership, or (e) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 6.2. Tenant shall pay before delinquency all real property taxes, all personal property taxes, and all taxes, charges and assessments of every other description levied on or assessed against the Elmore Property and the Elmore Facility and personal property owned or leased by Tenant located thereon, the leasehold estate created hereby, or any subleasehold estate, to the full extent of installments falling due during the term, whether chargeable against Landlord or Tenant. Tenant shall make all such payments directly to the charging authority before delinquency and before any fine, interest or penalty shall become due or be imposed by operation of law for their nonpayment. If, however, the law expressly permits the payment of any or all of the above items in installments (whether or not interest accrues on the unpaid balance), Tenant may, at Tenant's election, utilize the permitted installment method, but shall pay each installment with any interest before delinquency. 6.3. All payments of taxes or assessments shall be prorated for any portion of tax fiscal year at the commencement or expiration of the term of this Lease, except as provided in Section 6.4 hereof. Such proration shall be made by multiplying the entire tax or assessment by a fraction which, in the case of determining Tenant's liability for such taxes and assessments, shall have a numerator equal to the number of days that this Lease is in effect during the tax fiscal year for which the calculation is being made, and shall have a denominator equal to 365 or 366, as the case may be. 6.4. For permitted installment payments of special taxes or assessments where at least the first installment fell due before the Recordation Date, Tenant shall pay all installments falling due after the Recordation Date. For permitted installment payments of special taxes or assessments where the fist installment falls due before the expiration of the term, Tenant shall pay only the installment(s) falling due before the expiration of the term. 6.5. If the Premises are assessed with other real or personal property of Landlord apart from the Elmore 5 Property, all taxes imposed on the entire assessed property shall be prorated, and Tenant shall pay that amount which equals the product obtained by multiplying the entire tax by a fraction, the numerator of which equals the value of the Elmore Property and the denominator of which equals the value of all of the property so assessed. 6.6. Tenant may contest the legal validity or amount of any taxes, assessments or charges for which Tenant is responsible under this Lease, and may institute such proceedings as Tenant considers necessary. If Tenant contests any such tax, assessment or charge, Tenant may withhold or defer payment or pay under protest, but shall protect Landlord and the Elmore Property from any lien by surety bond or other appropriate security reasonably acceptable to Landlord. Landlord appoints Tenant as Landlord's attorney-in-fact for the purpose of making all payments to any taxing authorities and for the purpose of contesting any taxes, assessments or charges affecting the Premises, conditioned on Tenant's preventing any liens from being levied on the Elmore Property or on Landlord. 6.7. Tenant agrees to pay, before the same become delinquent, all charges for gas, electricity, heat, light, power, sewage, water, telephone, trash removal, and other similar or dissimilar public services or commodities furnished to the Premises and the Elmore Facility during the term of this Lease, including all installation, connection and disconnection charges. 6.8. All taxes, assessments, utilities, insurance premiums, maintenance costs and other rent payable hereunder shall be paid as "triple-net" rent, without deduction or offset. It is the intent of the parties that the rent provided in this Lease shall be absolutely net to Landlord, and that except as otherwise expressly provided in this Lease, Tenant shall pay all costs and charges of every kind and nature incurred for, against, or in connection with the Premises which may arise or become due from and after the Recordation Date and during the term hereof. Provided, however, that nothing herein shall be construed to require Tenant to pay any installment of interest or principal owing on any encumbrance against the Elmore Property for which Landlord is the obligor. All such costs and charges at the commencement and the end of the term of this Lease shall be appropriately prorated between the parties. 7. Use. 7.1. Tenant shall continuously use and permit the use of the Premises only for the construction, maintenance and operation of the Elmore Facility, substantially in accordance with the Plans and Specifications and 6 any "as-built" plans and as contemplated by the Operating Agreements. 7.2. This Lease is and shall be subject and subordinate to the rights reserved by Landlord with respect to the Premises as set forth in Section 2 hereof. 7.3. Tenant shall, at Tenant's expense, promptly comply in all material respects with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements of any fire insurance underwriters or rating bureaus, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises and the occupation and use by Tenant of the Premises. Tenant shall conduct its business in a lawful manner and shall not use or permit the use of the Premises in any manner that will create unnecessary waste of assets or a nuisance. 7.4. Without limiting the generality of the foregoing Tenant shall, at Tenant's expense, comply with all applicable federal, state, regional and local environmental statutes, ordinances, rules, regulations and orders now in effect or which may hereafter come into effect including, without limitation, the Resource Conversation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, the California Hazardous Waste Control Act, the California Hazardous Substance Act, the Porter-Cologne Water Quality Control Act and any all regulations promulgated pursuant thereto. 7.5. Tenant agrees to indemnify, defend by counsel reasonably acceptable to Landlord, and hold harmless Landlord, its subsidiaries, affiliates, successors and assigns and their respective directors, officers, employees, shareholders, representatives and agents from and against and in respect of any and all claims, damages (including, without limitation, diminution in value), losses, liabilities and expenses, lawsuits, deficiencies, interest, penalties, attorneys' fees and all amounts paid in defense or settlement of the foregoing whether or not arising out of third-party claims, which may be imposed upon or incurred by Landlord or asserted against Landlord by any other party or parties in connection with any violation of the provisions of this Section 7 arising out of, resulting from, or attributable to, the assets, business, or operations of Tenant at the Elmore Property. Tenant's obligations pursuant to this subsection shall exist regardless of whether Landlord is alleged or held to be strictly or jointly and severally liable, unless such 7 liability is by reason of Landlord's gross negligence or willful misconduct. 7.6. Without in any way limiting the scope of Tenant's obligations under the indemnification provisions of this Section 7, but subject to Landlord's obligation under Section 2 hereof to pay all direct and indirect costs associated with Landlord's exercise of the rights reserved to it in Section 2 hereof, Tenant will be responsible for all investigations, studies, cleanup, corrective action or response or remedial action required by any local, state or federal government agency now or hereafter authorized to regulate environmental or other matters or by any consent decree, or court or administrative order now or hereafter applicable to the Elmore Property, or by any federal, state or local law, regulation, rule or ordinance now or hereafter in effect. 7.7. As between Landlord and Tenant, Tenant shall have the responsibility and right to participate in the management and control of all investigations and any environmental cleanup, remediation, or related activities. Tenant, however, may not negotiate with, fulfill any requirements or claims made by a governmental entity or third party, settle or contest such requirement or third-party claim without the express approval of Landlord, and Landlord shall have the right to participate fully in any and all meetings, negotiations or decisions relevant to the investigation or remediation of the violation of the provisions of this Section 7 at the Elmore Property. 7.8. Tenant hereby accepts the Premises in its condition existing as of the Recordation Date, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and all exceptions set forth in the Elmore Property Preliminary Title Report and other matters of record or otherwise disclosed to Tenant prior to the date hereof, and accepts this Lease subject thereto. Tenant acknowledges that it has satisfied itself by its own independent investigation that the Premises are suitable for its intended use, and that neither Landlord nor Landlord's agent or agents has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Tenant's business. 8. Maintenance, Repairs, Alterations. 8.1. Throughout the term, Tenant shall, at Tenant's sole cost and expense, maintain the Premises and the Elmore Facility in good condition and repair, ordinary wear and tear excepted, in accordance with all applicable laws, rules, ordinances, orders and regulations of (a) federal, state, county, municipal and other governmental agencies and 8 bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials, (b) any insurance underwriting board or insurance inspection bureau having or claiming jurisdiction, and (c) any insurance company insuring all or any part thereof. 8.2. Except as provided below, and subject to the provisions of the Project Lender's Loan Documents, Tenant shall promptly and diligently repair, restore and remedy all damage to or destruction of all or any part of the Elmore Facility, if the cost of the word so required does not exceed fifty percent (50%) of the entire replacement value of all such improvements; provided, however, that Tenant shall have no obligation to repair, restore and remedy any such damage or destruction arising our of the gross negligence or willful misconduct of Landlord unless the gross negligence or willful misconduct of Tenant contributes to such damage or destruction, in which case the cost of repairs, restoration and remedial work shall be apportioned among Landlord and Tenant in direct proportion to their respective culpability with respect to such damage or destruction. If the cost does exceed fifty percent (50% of the entire replacement value of all such improvements, Tenant may nevertheless repair, restore and remedy the same, or may be notice given within sixty (60) days after the date on which the damage or destruction occurs elect instead to raze the improvements damaged or destroyed. Within ninety (90) days after such notice, Landlord may be notice elect to repair, restore and remedy such damage or destruction at Landlord's cost and expense, and Tenant shall not raze the improvements until the expiration of the time for Landlord's notice of election. 8.3. Tenant has the right to contest by appropriate judicial or administrative proceedings, without cost or expense to Landlord, the validity or application of any law, ordinance, order, rule, regulation or requirement (collectively called "law") that Tenant repair, maintain, alter or replace any improvements in whole or in apart, and Tenant shall not be in default for failing to do such work until a reasonable time following final determination of Tenant's contest. If requested by Landlord, Tenant shall first furnish to Landlord a bond, satisfactory to Landlord in form, amount and insurer, guaranteeing compliance by Tenant with the contested law and indemnifying Landlord against all liability that Landlord may sustain by reason of Tenant's failure or delay in complying with the law. Landlord may, but is not required to, contest any such law independently of Tenant. Landlord may, and if requested by Tenant shall, join in Tenant's contest. 8.4. Landlord's approval is not required for Tenant's minor alterations or additions to any improvements with a Construction Cost not exceeding $7,500,000. "Construction Cost" includes all costs that would constitute 9 the basis of a valid claim or claims under the mechanics' lien laws, including costs for any demolition or removal of existing improvements or parts thereof, as well as costs for preparation, construction and completion of all new improvements. All alterations or additions with a Construction Cost in excess of $7,500,000 shall require Landlord's prior written consent. 8.5. Tenant shall use only reputable licensed contractors in making any alterations or additions, and Landlord may require Tenant to provide to Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Landlord against any liability for any mechanic's and materialmen's liens and to insure completion of the work. Should Tenant make any alterations or additions without the prior written consent of Landlord where such consent is necessary, or use other than a reputable licensed contractor, Landlord may, at any time during the term of this Lease, require that Tenant remove any part or all of the same. 8.6. Tenant shall pay, when due, all claims for labor or materials furnished to or for Tenant at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Elmore Property or any interest therein. 8.7. Tenant shall give Landlord not less than ten (10) days' notice prior to the commencement of any alterations or additions to the Premises by Tenant, and Landlord shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Tenant shall, in good faith, contest the validity of any lien, claim or demand, then Tenant shall, at its sole expense, defend itself and Landlord against the same and shall pay and satisfy any adverse judgment that may be rendered thereon before the enforcement thereof against the Landlord against liability for the same and holding the Elmore Property free from the effect of such lien or claim. In addition, Landlord may require Tenant to pay Landlord's reasonable attorneys' fees and costs in Participating in such action, if Landlord shall decide it is to Landlord's best interest so to do. 8.8. All alterations and additions which may be made to the Premises by Tenant shall be made and done in a good and workmanlike manner and of good quality and materials, and, subject to the provisions of Sections 8.11 and 8.13 hereof, shall be the property of Landlord at the expiration of the term of the Lease. Notwithstanding the 10 provisions of this Section, and provided that Tenant is not in default under this Lease, Tenant's personal property and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the Property of Tenant and may be removed by Tenant, subject to the provisions of Section 8.11 hereof. 8.9. Promptly upon completion of any alterations or additions to the Premises, Tenant shall provide Landlord with two (2) sets of "as-built" plans and specifications. 8.10 Subject to Landlord's right to require the Decommissioning of the Elmore Facility pursuant to Sections 8.11 and 8.13 hereof, on the last day of the term hereof, or on any sooner termination, Tenant shall surrender the Premises and all improvements thereon to Landlord, in good condition and repair, ordinary wear and tear excepted, clean and free of debris. Any damage or deterioration or the Premises or improvements shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices by Tenant. Tenant shall repair any damage to the Premises occasioned by the installation or removal or Tenant's trade fixtures, alterations, furnishings and equipment. 8.11. Notwithstanding any other provision in this Lease to the contrary, in the event the Elmore Facility or the Premises is wholly or partially damaged or destroyed on or after the date which is exactly five (5) years prior to the date on which this Lease terminates pursuant to Section 4 hereof, and the cost to repair, restore or reconstruct the Elmore Facility and the Premises is at least $7,500,000, Tenant, not later than fifteen (15) days after the event causing such damage or destruction, shall give written notice to Landlord detailing the facts that qualify the casualty under this provision. Landlord, not later than fifteen (15) days following receipt of such notice from Tenant, shall by written notice to Tenant inform Tenant whether (a) Landlord desires the Decommissioning by Tenant of the Elmore Facility and the premises or (b) Landlord desires the surrender by Tenant of the Elmore Facility and the Premises at the end of the term of this Lease. In the event Landlord elects to have Tenant Decommission the Delmore Facility and the Premises pursuant to the provisions of this Section 8.11, (a) Tenant shall forthwith commence such Decommissioning and shall diligently proceed until such Decommissioning is complete, (b) Tenant shall have the right to all proceeds of insurance received on account of such casualty and (c) Tenant shall surrender the Premises to Landlord immediately after such Decommissioning and this Lease and all of Tenant's obligations hereunder shall terminate except for Tenant's obligations to indemnify Landlord pursuant to Section 7.3 11 hereof and to pay any rent which accrued pursuant to Section 5 hereof. In the event Landlord elects to have Tenant surrender the Elmore Facility and the Premises to Landlord at the end of the term of this Lease, then the provisions of Section 8.13 shall cease to be effective and Tenant shall forthwith commence to repair, restore and reconstruct the Elmore Facility and the Premises in the manner and subject to the terms provided in Section 8.2 hereof. 8.12. Except as provided in Section 8.13 hereof, all improvements constructed by Tenant on the Premises shall, at the expiration of the term or earlier termination of this Lease, without compensation to Tenant, become Landlord's property free and clear of all claims to or against them by Tenant or any third person, and Tenant shall defend and indemnify Landlord against all liability and loss arising from any such claims or from Landlord's exercise of the rights conferred by this Section. 8.13. At the expiration or earlier termination of the term, Landlord may, at Landlord's election, demand the removal from the Premises of any or all fixtures or improvements or both (a "Decommissioning"), as specified in the notice provided below. A demand to take effect at the normal expiration of the term shall be effected by notice given at any time not later than nine (9) months before the expiration date. A demand to take effect on any other termination of this Lease shall be effected by notice given in or concurrently with notice of such termination or within thirty (30) days after such termination. Tenant shall comply with the notice on or before the expiration date for normal termination, and within ninety (90) days after the notice for other terminations. The duty imposed by this provision includes, but is not limited to, the duty to demolish and remove all foundations, fix all excavations, return the surface to grade, and leave the Premises safe and free from debris and hazards, in a safe manner, in accordance with good operating practice and in compliance with all applicable laws and regulations of any governmental authority having jurisdiction over such operations. In the event Landlord elects to require such Decommissioning by Tenant, Tenant shall be entitled to all fixtures and improvements so Decommissioned. 9. Assignment and Subletting. Subject to the provisions of Section 10 hereof, Tenant shall not voluntarily or by operation of law assign, transfer, mortgage, sublet or otherwise transfer or encumber all or any part of Tenant's interest in this Lease or in the Premises, without Landlord's prior written consent, which consent Landlord shall not unreasonably withhold. 12 10. Rights of Lender. 10.1. Notwithstanding any other provision in this Lease to the contrary, Tenant may, from time to time, without notifying or obtaining the consent of Landlord, hypothecate, mortgage, pledge or alienate Tenant's interest in this Lease to the Project Lender. The Project Lender shall give promptly written notice to Landlord of (i) its entering into a credit agreement evidencing the Project Lender's Loan and the total amount of funds available thereunder, or of the nature of the transaction, (ii) any amendments to said credit agreement and (iii) the Project Lender's address for notices hereunder; provided, however, that any failure by the Project Lender to give such notice shall not be grounds for denying the Project Lender the rights and protections provided in this Section 10. 10.2. For the protection of the Project Lender, Landlord agrees as follows: 10.2.1 Landlord shall not accept any abandonment of this Lease, nor shall Landlord consent to any amendment, modification or termination hereof, provided, that Landlord has received actual or constructive notice of the Project Lender's Lien, unless and until Tenant presents evidence to Landlord that Tenant has obtained the prior written consent of the Project Lender. 10.2.2. The Project Lender shall have the right, but not the obligation, at any time prior to the expiration or earlier termination of this Lease, and without payment of any penalty, to make any payments due hereunder, and to do any other act or thing required of Tenant hereunder, and to do any act or thing that may be necessary and proper to be done in the performance and observance of the terms hereof to prevent any default under or termination of this Lease. All payments so made and all things so done and performed by the Project Lender shall be as effective to prevent any default under or termination of this Lease as they would have been if made, done and performed by Tenant instead of by the Project Lender. Landlord hereby agrees that upon Landlord's receipt of any notice in the nature of a notice of default with respect to any obligation of Landlord under the Geothermal Leases, Landlord shall immediately deliver a copy of such notice to Tenant and to the Project Lender provided that Landlord has received actual or constructive notice of the Project Lender's Lien. 10.2.3. Tenant shall not be in default under this Lease unless Tenant fails to perform the obligations required of it hereunder within the time periods set forth herein, including all applicable cure periods. If Tenant fails to cure any default within the time so provided, then, upon written notice from Landlord to the Project 13 Lender, the Project Lender shall have an additional ninety (90) days to cure such default; provided, however, that if such default cannot reasonably be cured within such additional ninety (90) day period, then the Project Lender shall have such additional time to cure the default as is reasonably necessary under the circumstances, so long as (a) the Project Lender shall have fully cured within such ninety (90) day period any default in the payment and performance of any monetary or other obligations of Tenant hereunder that do not require possession of the Premises and shall thereafter continue to faithfully perform all such monetary and other obligations, (b) the Project Lender shall have acquired Tenant's interest hereunder or commenced foreclosure or other appropriate proceedings in the nature thereof within such period or prior thereto, and shall be diligently prosecuting any such proceedings to completion, and (c) the Project Lender shall take all reasonable measures within its control (including steps to obtain control) to continue Tenant's operations of the Elmore Facility under this Lease. All rights of Landlord to terminate this Lease as a result of the occurrence of any default by Tenant shall be subject to, and expressly conditioned upon, (i) the Project Lender's having received the notice specified above in this Section 10.2.3, and (ii) the Project Lender's having failed to remedy such default or to acquire Tenant's interest hereunder or commence foreclosure or others appropriate proceedings or to take reasonable measures to continue Tenant's operations of the Elmore Facility as set forth in this Section 10.2.3. 10.2.4. Any default by Tenant under this Lease that cannot be remedied by the Project Lender shall nevertheless by deemed to have been remedied if (a) within ninety (90) days after receiving written notice from Landlord setting forth the nature of such default, or prior thereto, the Project Lender shall have acquired Tenant's interest hereunder or shall have commenced foreclosure or other appropriate proceedings in the nature thereof, (b) the Project Lender shall diligently prosecute any such proceedings to completion, (c) the Project Lender shall have taken reasonable measures within its control (including steps to obtain control) to continue Tenant's operations of the Elmore Facility in accordance with the terms of this Lease, (d) the Project Lender shall have fully cured within such ninety (90) day period any default in the payment and performance of any monetary or other obligations of Tenant hereunder that do not require possession of the Premises and shall thereafter continue to faithfully perform all such monetary and other obligations, and (e) after gaining possession of the Premises, the Project Lender shall perform all obligations of Tenant hereunder and which arise thereafter. 14 10.2.5. If the Project Lender is prohibited by any process or injunction issued by any court or by reason of any action of any court having jurisdiction over any bankruptcy, reorganization, insolvency or other debto-relief proceeding involving Tenant, from commencing or prosecuting foreclosure or other appropriate proceedings in the nature thereof, then the times specified in Sections 10.2.3 and 10.2.4 hereof for commencing or prosecuting such foreclosure or other proceedings shall be extended for the period of such prohibition; provided, however, that the Project Lender shall have fully cured any default in the payment or performance of any monetary or other obligations of Tenant under this Lease that do not require possession of the Premises, and shall continue to pay and perform such monetary and other obligations as and when they fall due, and shall have taken reasonable measures within its control (including steps to obtain control) to continue Tenant's operations of the Elmore Facility. 10.2.6. Landlord shall mail or deliver to the Project Lender a duplicate copy of any and all written notices that Landlord may from time to time give to or serve upon Tenant pursuant to the provisions hereof, and such copies shall be mailed or delivered to the Project Lender at, or as near as possible to, the same time such notices are given to or served upon Tenant. No notice by Landlord to Tenant hereunder shall be deemed to have been given unless and until a copy thereof shall have been mailed or delivered to the Project Lender. 10.2.7. Foreclosure of the Project Lender's Lien or any sale thereunder, whether by judicial proceedings or otherwise, or any conveyance or transfer of the interest of Tenant under this Lease from Tenant to the Project Lender through, or in lieu of, foreclosure or other appropriate proceedings in the nature thereof, shall not require the consent of Landlord or constitute a breach of any provision of or a default under this Lease, and upon such foreclosure, sale or conveyance Landlord shall recognize the Project Lender, or any other foreclosure sale purchaser, as the Tenant hereunder. In the event the Project Lender becomes the Tenant this Lease as provided herein, then the Project Lender shall be personally liable for the obligations of Tenant under this Lease only for the period of time that the Project Lender remains Tenant hereunder, and the Project Lender shall have the right to assign this Lease thereafter without any restriction otherwise imposed on Tenant hereunder; provided, however, that the assignee of the Project Lender shall have expressly assumed all of the obligations of Tenant hereunder. Notwithstanding any other provision of this Lease, in the event that the Project Lender (a) performs any monetary of other obligation of Tenant under this Lease, (b) acquires any portion of the right, title or interest in the leasehold estate created by this Lease, (c) 15 continues Tenant's operations of the Premises under this Lease and/or (d) becomes personally liable to Landlord hereunder, then the Project Lender's obligations and liability to Landlord shall be limited by and to the Project Lender's right, title and interest, if any, in the leasehold estate created by this Lease, and Landlord shall have no recourse against the Project Lender in excess of, and other than to proceed against, such right, title and interest. 10.2.8. Upon Landlord's receipt of any notice in the nature of a notice of default with respect to any obligation of Landlord secured by any lien upon the Premises, Landlord shall immediately deliver a copy of such notice to Tenant and the Project Lender. If and whenever the Project Lender shall deem it necessary or appropriate to do so in order to protect its rights under this Lease, it may, at its option, pay and discharge any mortgage or other lien (including, without limitation, the lien of general or special property taxes or special assessments) attached to the Premises or any portion thereof, and in such event it shall be subrogated to all the rights of the mortgagee, beneficiary, owner or holder or such mortgage or other lien. 10.2.9. In the event that this Lease is rejected by a trustee or debtor-in-possession in any bankruptcy or insolvency proceeding or is terminated for any other reason (except as a result of a default hereunder which was curable hereunder but which was not appropriately cured as provided herein) and if, within sixty (60) days after such rejection or other termination, the Project Lender shall so request, Landlord will execute and deliver to the Project Lender a new ground lease of the Elmore Property. Such new ground lease shall be for a term equal to the remainder of the term of this Lease before giving effect to such rejection or other termination, and shall contain the same covenants, agreements, terms, provisions and limitations as contained in this Lease (except for any requirements which shall have been fulfilled by Tenant prior to such rejection or other termination). Landlord shall, at the expense of the Project Lender and at no expense to Landlord, cooperate with the Project Lender and take such action in compliance with law as Project Lender shall reasonably request to remove Tenant from the Elmore Property. 10.2.10. Landlord and Tenant acknowledge, agree and covenant that notwithstanding the union of the fee simple title with any right, title or interest in the leasehold estate created hereby or under any other document or instrument in Landlord, Tenant, Project Lender, or any other Person or entity, whether by purchase or otherwise, it is the declared intention of the parties hereto that the separation of the fee simple estate and the leasehold estate shall be maintained and a merger shall not 16 take place without the prior written consent of the Project Lender. 10.3. Tenant and Landlord shall cooperate in including herein, by suitable amendment from time to time, any provision which any Project Lender or proposed Project Lender reasonably requests for the purpose of implementing the Project Lender-protective provisions contained in this Section 10 and affording the Project Lender or proposed Project Lender reasonable protection of its Project Lender's Lien in the event of a default by Tenant. Tenant and Landlord each agree to execute and deliver (and to acknowledge, if necessary for recording purposes) any document or instrument necessary to give effect to any such provision. 10.4. The Project Lender's mortgage documents shall contain provisions that all notice of default under the note and related documents must be sent to Landlord as well as Tenant, and that Landlord shall have the right to cure any default after the time for Tenant to cure it has expired. Neither Landlord's right to cure any default nor any exercise of such a right shall constitute an assumption of liability under the note or related documents. 10.5. On the recording of the Project Lender's Lien, Tenant shall, at Tenant's expense, cause to be recorded in the office of the County Recorder of Imperial County, California, a written request executed and acknowledged by Landlord for a copy of all notices of default and all notices of sale under the Project Lender's Lien as provided by the statutes of the State of California. Inclusion in the body of the recorded Project Lender's Lien itself of a request for notice having the effect described above shall constitute compliance with this provision. 10.6. On the commencement of the term, the fee title to the Premises shall be free and clear of all mortgage liens other than those expressly agreed to in accordance with this Lease. Thereafter, any mortgage placed on the Premises by Landlord shall be subject to this Lease, to any mortgage then in existence on the leasehold estate as permitted by this Lease, and to Tenant's right as permitted by this Lease subsequently to encumber the leasehold estate. 11. Insurance. So long as the Credit Facility remains a valid and binding obligation of Tenant, Tenant shall procure and maintain such policies of insurance in such amounts as are necessary to comply with the Insurance Requirements. After such time as the Credit Facility ceases to be a valid and binding obligation of Tenant or otherwise terminates in accordance with its terms, Tenant shall procure and maintain, for the remainder of the term of this Lease, such policies of insurance, in such amounts, as Landlord 17 shall reasonably request, but in no event shall Tenant be required to procure and maintain insurance in excess of the Insurance Requirements. 12. Condemnation. In the event of a taking by eminent domain or by inverse condemnation for any public or quasi-public use under any statute, the proceeds therefrom shall be distributed (a) first, to Tenant to the extent of all amounts necessary to pay in full the Project Lender's Loan and (b) second, to the parties hereto in accordance with their interests as they may appear. 13. Default and Remedies 13.1 Subject to the provisions of Section 10 hereof, the occurrence of any one or more of the following events shall constitute a material default by Tenant under this Lease: 13.1.1. The vacation or abandonment of the Premises by Tenant for a continuous period of sixty (60) days or more, whether or not the rent is paid. 13.1.2. The failure by Tenant to make any payment of rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of three (3) business days after written notice thereof from Landlord to Tenant. 13.1.3. The failure by Tenant to observe or perform any of the material covenants, conditions or provisions of this Lease to be observed or performed by Tenant other than those referenced in Sections 13.1.1 and 13.1.2 above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant's noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said thirty (30) day period and thereafter diligently pursues such cure to completion. 13.1.4. The making by Tenant of any general arrangement or general assignment for the benefit of creditors; Tenant's becoming a "debtor" as defined in 11 U.S.C. section 101 or any successor statute thereto, unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days after filing; the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored within sixty (60) days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's 18 interest in this Lease, where such seizure is not discharges within sixty (60) days. In the event that any provision of this Section 13.1.4 is contrary to any applicable law, such provision shall be of no force or effect. 13.2. Subject to the provision of Section 10 hereof, in the event of any material default or breach of this Lease by Tenant, Landlord may at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such default: 13.2.1. Terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate, and Tenant shall immediately surrender possession of the Premises to landlord. In such event Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including, but not limitd to: (a) the unpaid rent which had been earned at the time of termination; (b) the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (c) the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (d) any other amount necessary to compensate Landlord for all of the detriment approximately caused by the Tenant's failure to perform its obligations under this Lease. 13.2.2. Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant shall have vacated or abandoned the Premises. In such event, Landlord shall be entitled to enforce all of landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. 13.2.3. Use Tenant's personal property and trade fixtures without compensation and without liability for their use or damage, or store them for the account of and at the cost of Tenant. The election of one remedy for any one item of personal property or trade fixtures shall not foreclose an election of any other remedy for another item or for the same item at a later time. 13.2.4. Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the State of California. 13.3. After expiration of the applicable time for curing a particular default, or before the expiration of that time in the event of emergency, Landlord may at 19 Landlord's election, but shall not be obligated to, make any payment required of Tenant under this Lease or under any note or other related loan document pertaining to the financing of improvements on the Premises, or perform or comply with any covenant or condition imposed on Tenant under this Lease or any such note or related loan document, and any amount so paid, plus the reasonable cost of any such performance or compliance, shall be deemed to be additional rent payable by Tenant with the next succeeding installment of rent. No such act shall constitute a waiver of default or of any remedy for default or render Landlord liable for any loss or damage resulting from any such act. 13.4 Landlord shall not be in default in the performance of its obligations under this Lease unless Landlord fails to perform obligations required of Landlord within sixty (60) days after written notice by Tenant to Landlord and to the holder of any mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than sixty (60) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such sixty (60) day period and thereafter diligently pursues the same to completion. 13.5. Tenant hereby acknowledges that late payment by Tenant to Landlord of any installment of rent of any other sum due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Accordingly, if any installment of rent or any other sum due from Tenant shall not be received by Landlord within ten (10) days after such amount shall be due, then, without any requirement for notice to Tenant, Tenant, Tenant shall pay to Landlord a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, or prevent Landlord from exercising any of the other rights and remedies granted hereunder. 14. Estoppel Certificates. 14.1 Either party hereto (the "Responding Party") shall, at any time upon not less than ten (10) days prior written notice from the other party hereto or from the Project Lender (the "Requesting Party"), execute, acknowledge and deliver to the Requesting Party a statement in writing (a) certifying, as applicable, that this Lease is unmodified 20 and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which any payments due hereunder are paid, (b) acknowledging that there are not, to the Responding Party's knowledge, any uncured defaults hereunder on the part of the other party hereto (or specifying such defaults if any are claime), and (c) setting forth such other information reasonably and customarily included in estoppel certificates as may be requested by the Requesting Party and known to the Responding Party. Any such statements may be conclusively relied upon by any prospective purchaser or encumbrancer of this Lease. The failure of the responding Party to deliver such statement within such time shall be conclusive upon such Responding Party that (i) this Lease is in full force and effect and has not been modified, and (ii) there are no uncured defaults in the performance of the other party hereto. 15. Landlord's Liability. The term "Landlord" as used herein shall mean only the owner or owners, at the time in question, of fee title to the Premises, and in the event of any transfer of such title to the Premises, and in the event of any transfer of such title or interest, Landlord herein named (and, in case of any subsequent transfers, then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Landlord's obligations thereafter to be performed, provided that any funds in the hands of Landlord or the then grantor at the time of such transfer in which Tenant has an interest shall be delivered to the grantee. 16. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. 17. Interest on the Past-Due Obligations. Except as expressly herein provided, any amount due to Landlord not paid when due shall bear interest at the greater of (a) ten percent (10%) per annum, or (b) five percent (5%) per annum above the discount rate established by the Federal Reserve Bank of San Francisco on advances to member banks under Section 13 or 13(a) of the Federal reserve Act as in effect on the 25th day of the month preceding the date of this Lease, from the date due until fully paid. Payment of such interest shall not excuse or cure any default by Tenant under this Lease. 18. Time of Essence. Time is of the essence with respect to the obligations to be performed under this Lease. 19. Additional Rent. All monetary obligations of Tenant to Landlord under the terms of this Lease shall be deemed to be rent. 21 20. Incorporation of Prior Agreements. This Lease and the related documents referred to herein specifically by name contain all agreements of the parties with respect to the subject matter of this Lease. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. 21. Amendments. This Lease may be amended in writing only, signed by the parties in interest at the time of the amendment. 22. Notices. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by registered or certified mail, and shall be deemed sufficiently given if delivered or addressed to Tenant or to Landlord at the address noted below. Mailed notices shall be deemed given upon actual receipt at the address required, or forty-eight (48) hours following deposit in the mail, postage prepaid, whichever first occurs. Either party may by notice to the other specify a different address for notice purposes. To Landlord: Magma Power Company 11770 Bernardo Plaza court Suite 366 San Diego, California 92128 To Tenant: Elmore, Ltd., a California limited partnership c/o Red Hill Geothermal, Inc. 480 West Sinclair Road Calipatria, California 92233 23. Force Majeure. 23.1. Neither Landlord nor Tenant shall be liable in damages to the other for any act, omission or circumstance ("Event of Force Majeure") occasioned by or in consequence of any acts of God, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, civil disturbances, explosions, sabotage, the binding order of any court or governmental authority which has been contested in good faith, Federal, State or local laws, or other event or circumstance not within the control of such party preventing such party from performing its obligations hereunder, whether caused or occasioned by, or happening on account of, the act or omission of one of the parties, not within the control of the party claiming suspension and which by the exercise of due diligence such party is unable to prevent or overcome. 22 23.1.1. Such Events of Force Majeure shall not relieve Landlord or Tenant of liability in the event of either party's concurring negligence or in the event of either party's failure to use due diligence to remedy the situation and to remove the cause in an adequate manner and with all reasonable dispatch, nor shall such Events of Force Majeure relieve either party of liability unless such party shall give notice and full particulars of the same in writing to the other party within ten (10) days of the occurrence relied on. In no event, however, shall an Event of Force Majeure relieve Tenant from the obligation of making payments due under this Agreement at the time of such occurrence. The parties agree that should any Event of Force Majeure remain in existence for a period of six (6) months, this Agreement may be terminated by the party not claiming suspension of this Agreement under such Event of Force Majeure upon the giving of written notice by such party to the other party and Project Lender; provided, however, that such six (6) month period shall be extended for a reasonable time so long as throughout such six (6) month period the party claiming suspension of this Lease under the Event of Force Majeure has diligently proceeded to terminate the Event of Force Majeure and continues to do so throughout such extension. 24. Waivers. No waiver by Landlord or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Tenant of the same or any other provisions. Landlord's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act by Tenant. 25. Acceptance of Rent. The acceptance of rent hereunder by the Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 26. Holding Over. If Tenant, with Landlord's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Tenant, except that the rent payable shall be one hundred fifty percent (150%) of the rent payable immediately preceding the termination date of this Lease. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 23 28. Covenants and Conditions. Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition. 29. Binding Effect. Subject to any provisions hereof restricting assignment or subletting by Tenant, this Lease shall bind the parties, their personal representatives, successors and assigns. 30. Choice of Law. This Lease shall be governed by the laws of the State of California. This Agreement shall be construed equally as against the parties hereto, and shall not be construed against the party responsible for its drafting. 31. Arbitration. All disputes arising under this Agreement shall be settled by arbitration. The party desiring such arbitration shall give written notice to that effect to the other party and in such notice shall appoint as an arbitrator a disinterested person of recognized competence in the area at issue. All selections of an arbitrator shall be subject to the consent of any Project Lender, but only if the Project Lender notifies the parties that it desires to approve the selection of an arbitrator, and such consent shall not be unreasonably withheld. Within fifteen (15) days thereafter, the other party shall, by written notice to the originating party, appoint a second person similarly qualified as the second arbitrator. The arbitrators thus appointed shall appoint a third person similarly qualified as the third arbitrator, and such three arbitrators shall as promptly as possible determine such matter with the parties, each being entitled to present evidence and argument to the arbitrators; provided, however, that: (i) if the second arbitrator shall not have been appointed as aforesaid, the first arbitrator shall determine such matter; and (ii) if the two arbitrators appointed by the party shall be unable to agree upon the appointment of a third arbitrator within fifteen (15) days after the appointment of the second arbitrator, they shall give written notice of such failure to agree to the parties, and, if the parties fail to agree upon the selection of such third arbitrator within fifteen (15) days thereafter, then within ten (10) days thereafter, either of the parties upon written notice to the other party may apply for such appointment to the Federal District Court of County Superior Court in San Diego, California. The arbitrator or arbitrators shall only interpret and apply the terms and provisions of this Agreement and shall not change any such terms or provisions or deprive 24 either party of any right or remedy expressly or impliedly provided for in this Agreement The determination of the majority of the arbitrators or the sole arbitrator, as the case may be, shall, to the extent permitted by law, be conclusive upon the parties. The arbitrator or arbitrators shall give written notice to the parties stating their determination signed by them. In the event of the failure, refusal or inability of any arbitrator to act, a new arbitrator shall be appointed in his stead, which appointment shall be made in the same manner as hereinbefore provided for the appointment of the arbitrator so failing, refusing or unable to act. 32. Attorney's Fees. If either party hereto commences litigation or arbitration for the judicial or other interpretation, enforcement, termination, cancellation or rescission hereof, or for damages for the breach hereof, the prevailing party in any such action, trial, arbitration or appeal thereon shall be entitled to its reasonable attorneys' fees and court, arbitration and other costs incurred, to be paid by the losing party as fixed by the court or arbitrator in the same or a separate suit, and whether or not such action is pursued to decision or judgment. 33. Landlord's Access. Landlord and its agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, performing any services required of Landlord, taking safety measures and exercising rights expressly reserved by Landlord under this Lease, as long as there is no material adverse effect to Tenant's use of the Premises. All activities of Landlord pursuant to this Section shall be without abatement of rent, nor shall Landlord have any liability to Tenant for the same. 34. Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation hereof, or a termination by Landlord, shall not work a merger, but shall, at the option of Landlord, terminate any or all existing subtenancies, or may, at the option of Landlord, operate as an assignment to Landlord or any or all of such subtenancies. 35. Quiet Possession. Upon Tenant's paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Tenant's part to be observed and performed hereunder, Tenant shall have quiet possession of the Premise for the entire term hereof subject to all of the provisions of this Lease. 36. Security Measures. Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises. Tenant assumes all responsibility for the 25 protection of Tenant, it's agents, invitees and their property from the acts of third parties. 37. Easements and Maps. Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications that Landlord deems necessary or desirable, and to cause the recordation of maps or restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises or the operation of the Elmore Facility by Tenant. Tenant shall sign any of the aforementioned documents reasonably requested by Landlord and failure to do so within such period of time as constitutes a reasonable period of time to review such documents shall constitute a material default under this Lease by Tenant without the need for further notice to Tenant. 38. Exhibits, Addenda. All exhibits and addenda to which reference is made in this Lease are incorporated in this Lease by the respective references to them, whether or not they are actually attached, provided they have been signed or initialed by the parties. 39. Tenant's Duty to Surrender. At the expiration or earlier termination of the term, Tenant shall surrender to Landlord the possession of the Premises. If Tenant fails to surrender the Premises at the expiration or earlier termination of this Lease, Tenant shall defend and indemnify Landlord from all liability and expense resulting from the delay or failure to do so, including, without limitation, claims made by any succeeding tenant founded on or resulting from Tenant's failure to do so. 40. Memorandum of Lease. A Memorandum of this Lease shall be recorded. The parties shall execute the Memorandum in such form and substance as may be required by the title insurance company insuring Tenant's leasehold estate or the interest of any Project Lender, sufficient to 26 give constructive notice of the Lease to subsequent purchasers and mortgagees. IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written. LANDLORD: MAGMA POWER COMPANY, a Nevada corporation By: /s/ Arnold L. Johnson ----------------------------------- Its: President ------------------------------ By: /s/ Jon R. Peele ----------------------------------- Its: Secretary ------------------------------ TENANT: ELMORE, LTD., A CALIFORNIA LIMITED PARTNERSHIP, a limited partnership organized under the laws of the State of California By: RED HILL GEOTHERMAL, INC., a Delaware corporation, its General Partner By: /s/ Russ L. Gerny ----------------------------------- Its: President ------------------------------ By: /s/ Charles C. Bowle ----------------------------------- Its: Asst. Secretary ------------------------------ 27 EXHIBIT "A" Description of the Elmore Property The South Half of the Southwest Quarter of the Southeast Quarter of Section 27, Township 11 South, Range 13 East, San Bernardino Meridian, County of Imperial, State of California, according to Official Plat thereof. Excepting all mineral rights, specifically including, but not limited to, sources of geothermal energy and power as reserved by John Jameson Elmore, Et Ux, by Deed recorded June 5, 1974 in Book 1363, Page 1812 of Official Records. SCHEDULE "Z" "Additional Power Production Facilities" means power production geothermal electrical generating facilities developed in the SSKGRA which Process Reserved Geothermal Brine to produce electrical energy. "Administrative Fee" means the payments to be made to Red Hill provided for in Section 6 of the Administrative Services Agreement. "Administrative Services Agreement" means that certain Administrative Services Agreement date as of March 14, 1998, as the same may be amended from time to time, by and between Red Hill and Elmore, Ltd., pursuant to which Red Hill will provide certain administrative and management services to Elmore, Ltd. in connection with the operation of the Elmore Facility. "Affiliate" means, when used with reference to a specified Person, (a) any Person who directly or indirectly controls, is controlled by or is under common control with the specified Person, (b) any Person who is an officer, partner or trustee of, or serves in a similar capacity with respect to, the specified Person, or for which the specified Person is an officer, partner or trustee or serves in a similar capacity, (c) any Person who, directly or indirectly, is the beneficial owner of 10% or more of any class of equity securities of the specified Person, or of which the specified Person, directly or indirectly, is the owner of 10% or more of any class of equity securities, and (d) any relative of the specified Person. "Average Annual Energy Price" means an amount equal to the sum of (i) 2/3 multiplied by the average of the quarterly Time Period Weighted Average Proposed Avoided Cost Energy Winter Prices released by SCE for the calendar year in which the calculation is being made, plus (ii) 1/3 multiplied by the average of the quarterly Time Period Weighted Average Proposed Avoided Cost Energy Summer Prices released by SCE for the calendar year in which the calculation is being made. In the event that the Time Period Weighted Average Proposed Avoided Cost Energy Winter Prices and the Time Period Weighted Average Proposed Avoided Cost Energy Summer Prices are abandoned or changed materially or otherwise cease to be released by SCE on a quarterly basis, the parties shall select a substitute index to the end that the Average Annual Energy Price will reflect SCE's average annual avoided cost energy prices. In the event the parties fail to agree on a substitute index as provided in the immediately preceding sentence, the matter shall be submitted to an arbitrator in accordance with Section 21 of the Operating and Maintenance Agreement and the arbitrator shall select the substitute index to be used. "Brine Minerals" means all mineral resources found in the Geothermal Brine, including, without limitation, mineral resources found in the Geothermal Brine Scale. "BTU Energy" means the heat value in British Thermal Units which can be extracted from Geothermal Brine. "Capacity" shall have the same meaning as that term has in the Elmore Power Purchase Contract. "Capital Contribution" has the same meaning as that term has in the Limited Partnership Agreement. "Code" means the Internal Revenue Code of 1986, as amended (or any corresponding provision or provisions of succeeding law). "Construction Management Agreement" means that certain Construction Management and Asset Transfer Agreement dated as of March 14, 1988, as the same may be amended from time to time, by and between Magma and Elmore, Ltd., pursuant to which Magma will act as Elmore, Ltd.'s construction manager for the construction of the Elmore Facility. "Construction Management Fee" means the payments to be made to Magma provided for in Section 9 of the Construction Management Agreement. "Construction Manager" means Magma for purposes of the Construction Management Agreement. "Contract Capacity" shall have the same meaning as that term has in the Elmore Power Purchase Contract. "Conversion Date" shall have the same meaning as that term has in the Credit Facility. "Credit Facility" means that certain Secured Credit Agreement dates as of March 14, 1988, as the same may be amended from time to time, among Elmore, Ltd., the Banks listed on the signature pages thereto and Morgan Guaranty Trust Company of New York, as Agent. "Critical Parts and Equipment" means those certain equipment and parts delineated on Exhibit "A" to the Operating and Maintenance Agreement and such additional equipment and parts which the parties thereto agree, from time to time, should be added to the Critical Parts and Equipment listed on said Exhibit "A" to the Operating and Maintenance Agreement. 2 "DCC" means The Dow Chemical Company, a Delaware corporation. "DEC" means Dow Engineering Company, a Delaware corporation. "Debt Service Reserve" means the reserve established pursuant to Section 11.1 of the Operating and Maintenance Agreement. "Debt Service Reserve Account" means the segregated bank account established pursuant to Section 11.1 of the Operating and Maintenance Agreement. "Decommission," "Decommissioned" or "Decommissioning" means the obligations on the part of Elmore, Ltd., among other things, to remove all or a portion of the Elmore Facility and, with respect to production and injection wells and only to the extent allowed by applicable law, to cap such wells in lieu of removal from the Elmore Property and the Geothermal Lease Rights Properties in the event Magma elects to require such removal pursuant to Sections 8.11 and 8.13 of the Ground Lease and/or Section 3.1.4 of the Easement Agreement. "Decommissioning Reserve" means the reserve established pursuant to Section 11.3 of the Operating and Maintenance Agreement. "Decommissioning Reserve Account" means the segregated bank account established pursuant to Section 11.3 of the Operating and Maintenance Agreement. "Development of the Elmore Facility" means the design, engineering, construction, testing and start-up of the Elmore Facility. "Distribution Dates" means each March 31 and September 30. "Dow Services Agreement" means that certain Financial and Technical Services Agreement dated March 27, 1987 by and between Magma and DCC, a copy of which is attached as Exhibit "A" to the Administrative Services Agreement. "Easement Agreement" means that certain Easement Grant Deed and Agreement Regarding Rights for Geothermal Development dates as of March 14, 1988, as the same may be amended from time to time, by and between Magma and Elmore, Ltd., pursuant to which the parties have provided for an "Easement to Develop Geothermal Rights" and related rights and obligations as described therein. 3 "Elmore Facility" means that certain power production geothermal electrical generating facility being constructed pursuant to the Plans and Specifications and any "as-built" plans on the Elmore Property which, when completed, will have the capacity to convert BTU Energy from Geothermal Brine into electrical energy, together with the Supporting Equipment. "Elmore Facility Brine Requirement" means that amount of Geothermal Brine which, when Processed by the Elmore Facility, will yield the amount of BTU energy reasonably required to generate 332,880,000 kilowatt hours per year of "Energy" as that term is defined in the Elmore Power Purchase Contract. "Elmore Facility Projected Project Cost" means the total projected cost of construction and development of the Elmore Facility as reflected on Exhibit "I" to the Construction Management Agreement. "Elmore Geothermal Lease Unit" means that certain John J. Elmore Unit No. 1 established pursuant to that certain Designation and Declaration of Unit dated as of February 1, 1964, as amended by that certain First Restatement and Partial Restructuring of Unit dated as of January 19, 1988, which evidences Magma's Geothermal Lease Rights in and to the Geothermal Lease Rights Properties. "Elmore, Ltd." means Elmore, Ltd., a California limited partnership, a limited partnership organized under the laws of the State of California, the general partners of which are Red Hill and Niguel Energy Company, a California corporation. "Elmore Power Purchase Contract" means that certain Power Purchase Contract dated June 15, 1984, as amended, and as the same may be amended from time to time, by and between Magma Electric Company, a Nevada corporation, and SCE. "Elmore Property" means the parcel of real property more particularly described on Exhibit "A" to the Ground Lease, as that description may be modified from time to time pursuant to Section 3.3 of the Ground Lease. "Elmore Property Preliminary Title Report" means that certain Preliminary Title Report No. 105141-A dated February 17, 1988 a copy of which is attached as Exhibit "L" to the Construction Management Agreement. "Energy Revenues" means all payments received by Elmore, Ltd. for the sale of electricity which payments represent the "Energy" (as that term is defined in the Elmore Power Purchase Contract) component of the payments received 4 including, without limitation, (i) payments received by Elmore, Ltd. from SCE pursuant to the Elmore Power Purchase Contract (without deduction for payments made pursuant to the IID Transmission Line Agreement), (ii) all payments for Energy delivered both before and after the Firm Operation Date and below, at and above the "Contract Capacity" level (as that term is defined in the Elmore Power Purchase Contract) and (iii) all payments received by Elmore, Ltd. in lieu of payments that would have been received for the Energy component of electricity that would have been produced but for the in lieu payments. "Engineer" means R.W. Beck and Associates, or their successors in the capacity of engineers and consultants with respect to the Development of the Elmore Facility and the operation of the Elmore Facility. "Excess Extracted Geothermal Brine" means Geothermal Brine extracted by Elmore, Ltd. in connection with the operation of the Elmore Facility which is in excess of the amount of Geothermal Brine needed to meet the Elmore Facility Brine Requirement. "Excess Unextracted Geothermal Brine" means all Geothermal Brine which is not needed for the operation of the Elmore Facility. "Extraordinary Services" means all of the services, materials, equipment and supplies to be performed or provided by Red Hill pursuant to Section 3 of the Administrative Services Agreement. "Firm Operation Date" means the first day on which Firm Operation (as that term is defined in the Elmore Power Purchase Contract) occurs under the Elmore Power Purchase Contract. "Firm Operation Month" means the first month during which Firm Operation (as that term is defined in the Elmore Power Purchase Contract) occurs under the Elmore Power Purchase Contract. "Geothermal Brine" means the geothermal brine contained in the Elmore Geothermal Lease Unit. "Geothermal Brine Scale" means all deposits and residue including, without limitation, silica slurry, silica cake and sludge deposits on or in vessels or equipment in which Geothermal Brine is transported to or from, or Processed or stored in, the Elmore Facility. "Geothermal Lease Rights" means the rights in the Geothermal Lease Rights Properties held by Magma pursuant to the Geothermal Leases including, without limitation, certain 5 rights of Magma to (i) that portion of the Geothermal Lease Rights Properties existing below the surface of the land including, without limitation, the right to extract and take Geothermal Brine therefrom and (ii) the Surface Properties including, without limitation, the right to enter upon certain portions of the Surface Properties for the purposes of (1) drilling exploratory, production and injection wells; (2) installing pipelines for the extraction of Geothermal Brine; (3) extracting Geothermal Brine; and (4) constructing facilities designed to convert the heat energy in the Geothermal Brine to electrical energy for sale to public utilities. "Geothermal Lease Rights Properties" means the real property located within the SSKGRA, as more particularly described in Exhibit "A" to the Easement Agreement. "Geothermal Lease Rights Properties Preliminary Title Report" means, collectively, those certain Preliminary Title Report Nos. 105143 dated February 16, 1988 (McCoy), 105142 dated February 16, 1988 (L. Baretta), and 105141-B dated February 17, 1988 (J. Elmore), copies of which are attached as Exhibit "C" to the Easement Agreement. "Geothermal Leases" means those certain geothermal leases delineated on Exhibit "B" to the Easement Agreement. "Geothermal Lessors" means the parties identified as the "lessors," or their successors in interest, in each of the Geothermal Leases. "Grantee" means Elmore, Ltd. for purposes of the Easement Agreement. "Grantor" means Magma for purposes of the Easement Agreement. "Ground Lease" means that certain Ground Lease dated as of March 14, 1988, as the same may be amended from time to time, by and between Magma and Elmore, Ltd., pursuant to which Magma leases to Elmore, Ltd. the Elmore Property. "Guaranteed Capacity Payment" means the payments to be made to Red Hill provided for in Section 13 of the Operating and Maintenance Agreement. "IID" means the Imperial Irrigation District, organized under the Water Code of the State of California. "IID Agreements" mean, collectively, (i) that certain Funding and Construction Agreement dated June 29, 1987, by and among the Imperial Irrigation District ("IID"), and certain "Participants" (as that term is defined in said Funding and Construction Agreement) including Magma, (ii) 6 that certain Joint Funding Agreement dated June 29, 1987, by and among the "Participants" (as that term is defined in said Joint Funding Agreement) including Magma and (iii) any "IID Transmission Service Agreement For Alternative Resources" which may be entered into between IID and Elmore, Ltd., copies of which are attached as Exhibit "G" to the Construction Management Agreement. "Insurance Requirements" means policies of insurance, maintained by or on behalf of Elmore, Ltd. with insurance companies rated at least B+ by A.M. Best Company or such other insurance companies as may be acceptable to the agent for the Project Lender, of the following type, in the following amounts, and on the following terms: (i) at all times after completion of construction of the Elmore Facility, insurance on the Elmore Facility against all risks of physical loss or damage, including flood, earthquake (to the extent possible) and collapse and all other risks and perils normally covered in "all-risk" policies, for the full cost of repair or replacement (excluding the costs of the transmission lines, wells and Geothermal Brine pipelines); (ii) as soon as possible in the course of construction of the Elmore Facility and at all times after completion of construction of the Elmore Facility, boiler and machinery insurance written on a comprehensive form for the full repair and replacement value of the equipment at and of the Elmore Facility; (iii) at all times, comprehensive general liability insurance with a limit of no less than $1,000,000 combined single limit, bodily injury and property damage, for each occurrence; (iv) at all times, excess public liability insurance in the form of an umbrella policy which umbrella policy shall afford coverage of not less than $10,000,000 per occurrence over and above the coverage provided by the policies described above and the policy described in Exhibit "N" to the Construction Management Agreement; (v) on and after the Firm Operation Date, business interruption insurance covering, for an annual term, only amounts due (including, without limitation, interest, principal repayment and any other fees and expenses) on the Project Lender's Loan; and (vi) as soon as practicable after the agent for the Project Lender shall request, such other insurance with respect to the Elmore Facility in such amounts 7 equal to the greater of such amount, and against such insurable hazards, (x) as Magma maintains with respect to other facilities similar to the Elmore Facility, which Magma owns or operates, (y) as in usually carried by corporations of established reputation operating similar properties and (z) as the agent for the Project Lender may from time to time reasonably request. Each insurance policy set forth above (a) shall (except for the liability insurance referred to in clause (iii) above, which shall name the Project Lender as an additional insured) insure the Project Lender's interests under the Project Lenders's Lien and shall provide that all insurance proceeds payable under such policy shall, until notice from the agent for the Project Lender to the contrary, be paid over directly to such agent for the benefit of the Project Lender, (b) shall provide that it cannot be cancelled or terminated without thirty days' prior written notice to such agent, (c) shall include waivers by the insurer of all claims for the payments by the Project Lender and such agent of insurance premiums, (d) shall (except for the liability insurance referred to in clause (iii) above) provide for losses to be payable to the Project Lender notwithstanding (i) any act or failure to act by the insured or violation by the insured of warranties, declarations or conditions contained in the policy, (ii) any foreclosure or sale or other proceeding relating to the Elmore Facility or construction work in progress or (iii) any change in the title to or ownership of the Elmore Facility or construction work in progress, (e) shall (except for the liability insurance referred to in clause (iv) above, which shall have no deductible) provide for deductibles for (i) "all risk" coverage of no greater than $500,000 per occurrence, and (ii) business interruption coverage of no greater than sixty (60) days, and (f) shall be in all other respects satisfactory to the agent for the Project Lender. "Licensee" means Elmore, Ltd. for purposes of the Technology Transfer Agreement. "Licensor" means Magma for purposes of the Technology Transfer Agreement. "Limited Partner" means any of the Original Limited Partners and Substituted Limited Partners as defined in the Limited Partnership Agreement. "Limited Partnership Agreement" means that certain Amended and Restated Limited Partnership Agreement of Elmore, Ltd., dated as of March 14, 1988, as the same may be amended from time to time. "Magma" means Magma Power Company, a Nevada corporation. 8 "Magma Overrun Loan" means any loan made by Magma pursuant to the Magma Undertaking. "Magma Undertaking" means the undertaking of Magma, substantially in the form of Exhibit "K" to the Construction Management Agreement. "Major Capital Expenditure Reserve" means the reserve established pursuant to Section 11.2 of the Operating and Maintenance Agreement. "Major Capital Expenditure Reserve Account" means the segregated bank account established pursuant to Section 11.2 of the Operating and Maintenance Agreement. "Operating Agreements" means the Easement Agreement, the Administrative Services Agreement, the Construction Management Agreement, the Elmore Power Purchase Contract, the Ground Lease, the Operating and Maintenance Agreement, the Technology Transfer Agreement and the IID Agreements. "Operating and Maintenance Agreement" means that certain Operating and Maintenance Agreement dated as of March 14, 1998, as the same may be amended from time to time, by and between Elmore, Ltd. and Red Hill, pursuant to which Red Hill will provide day-to-day operational and maintenance services for Elmore, Ltd. in connection with the operation of the Elmore Facility. "Operator" means Red Hill for purposes of the Operating and Maintenance Agreement. "Ordinary Services" means all of the services, materials, equipment and supplies to be performed or provided by Red Hill on a normal day-to-day basis pursuant to Section 2 of the Administrative Services Agreement. "Owner" means Elmore, Ltd. for purposes of the Administrative Services Agreement, the Construction Management Agreement and the Operating and Maintenance Agreement. "Partially Spent Geothermal Brine" means the Geothermal Brine in an amount not exceeding the Elmore Facility Brine Requirement which has been extracted and Processed by Elmore, Ltd. for the purpose of generating electrical energy in connection with the operation of the Elmore Facility. "Partnership Holding Account" has the same meaning as that term has in the Limited Partnership Agreement. 9 "Permitted Investment" means any investment in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated in the highest grade by a nationally recognized credit rating agency or (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized under the laws of the United States or any state thereof and the certificates of deposit of which are rated in one of the two highest grades by a nationally recognized credit rating agency, provided in each case that such investment matures within one year from the date of acquisition thereof by Elmore, Ltd. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plans and Specifications" means those certain plans and specifications for the construction of the Elmore Facility, as more particularly described on Exhibit "H" to the Construction Management Agreement. "Principal Repayment Date" means the date on which a portion of the principal of the Project Lender's Loan is scheduled to be repaid pursuant to the Credit Facility. "Process," "Processed" or "Processing" means the process by which BTU Energy is extracted from the Geothermal Brine. "Project Lender" means collectively the lender(s) advancing all or a portion of the Project Lender's Loan, or the agent for such lenders. "Project Lender's Lien" means the security interest or lien evidenced by a first deed of trust granted by Elmore, Ltd. in Elmore, Ltd.'s leasehold estate in the Elmore Property to the Project Lender to secure repayment of any indebtedness and/or performance of any obligation created by the Project Lender's Loan. "Project Lender's Loan" means the financing provided by the Project Lender for the Development of the Elmore Facility or the operation of the Elmore Facility, the repayment of which is secured by the Project Lender's Lien. "Project Lender's Loan Documents" means all instruments, agreements and other documents including, without limitation, the Credit Facility, evidencing or related to the Project Lender's Loan and the security 10 therefor including, without limitation, the Project Lender's Lien. "Red Hill" means Red Hill Geothermal, Inc., a Delaware corporation, a general partner of Elmore, Ltd. Red Hill is a wholly owned subsidiary of Magma. "Refunded Capital Contribution" shall have the same meaning as that term has in Section 3.6 of the Limited Partnership Agreement. "Reimbursement Charges" means the payments to Red Hill provided for in Section 14 of the Operating and Maintenance Agreement. "Reserved Geothermal Brine" means the combination of Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine and Excess Unextracted Geothermal Brine. "SEC" means Southern California Edison Company. "SSKGRA" means Salton Sea Known Geothermal Resource Area. "Schedule of Projected Remaining Cost of Construction" means the projected cost of completing construction and development of the Elmore Facility as of the date of the Construction Management Agreement, as reflected on Exhibit "J" to the Construction Management Agreement. "Services" means the services to be provided by Red Hill pursuant to Section 2 of the Operating and Maintenance Agreement. "Spare Parts" means all spare parts necessary for the reliable, continuous operation of the Elmore Facility, other than the Critical Parts and Equipment. "Subcontractor" means a person or entity who performs any duties for or supplies any equipment or material to Red Hill, directly or indirectly, in the performance of the Services. "Substantial Completion Month" means the month in which the Construction Management Agreement terminates in accordance with its terms. "Supporting Equipment" means all items described in Section 2.2.2 of the Easement Agreement, including all such items located on the Elmore Property, and any real property interest associated therewith. 11 "Surface Properties" means that portion of the Geothermal Lease Rights Properties existing above and upon the surface of the land. "Technology Fee" means the payments to be made to Magma provided for in Section 3 of the Technology Transfer Agreement. "Technology Transfer Agreement" means that certain Technology Transfer Agreement dated as of March 14, 1988, as the same may be amended from time to time, by and between Magma and Elmore, Ltd., pursuant to which Magma grants to Elmore, Ltd. the nonexclusive right to use certain "Technology" and "Know-How" which will be utilized by Elmore, Ltd. only in connection with the operation of the Elmore Facility. "Total Electricity Revenues" means all payments received by Elmore, Ltd. for the sale of electricity including, without limitation, payments received by Elmore, Ltd. from SCE pursuant to the Elmore Power Purchase Contract (without deduction for payments made pursuant to the IID Agreements) including, without limitation, (i) all payments for "Energy," "capacity" and "Capacity Bonus Payments" delivered both before and after the Firm Operation Date and below, at and above the "Contract Capacity" level (as those terms are defined in the Elmore Power Purchase Contract) and (ii) all payments received by Elmore, Ltd. in lieu of payments that would have been received for electricity that would have been produced but for the in lieu payments. "Totally Spent Geothermal Brine" means Partially Spent Geothermal Brine which (i) has been processed by Magma, or a licensee of Magma, for use in connection with the operation of Additional Power Production Facilities; (ii) has been used by Magma, or a licensee of Magma, to extract Brine Minerals; or (iii) has been used by Magma, or a licensee of Magma, for any other use including, without limitation, the production of steam or heat for sale to users of steam or heat. "Working Capital" shall have the same meaning as that term has in the Credit Facility. "Working Capital Requirement" shall have the same meaning as that term has in the Credit Facility. Additional Defined Terms. For the convenience of the parties, in addition to the defined terms set forth in this Schedule Z, certain other terms are defined throughout the Operating Agreements. 12 RECORDING REQUESTED BY CHICAGO TITLE COMPANY Recording Requested By and When Recorded Mail To: Magma Power Company c/o CalEnergy Company, Inc. 302 South 36th Street [SEAL OMITTED] Omaha, Nebraska 68131 Attention: General Counsel -------------------------------------------------------------------------------- The undersigned declare that this document does not grant, assign, transfer, convey or vest title to real property within the meaning of Section 11911 of the California Revenue and Taxation Code, and hence NO DOCUMENTARY TRANSFER TAX IS DUE. The real property is located in an unincorporated area of the County of Imperial, State of California. CLARIFICATION AND AMENDMENT THIS CLARIFICATION AND AMENDMENT (this "Amendment") is made as of June 17, 1996, between MAGMA POWER COMPANY, a Nevada corporation ("Grantor"), and ELMORE, L.P., a limited partnership organized under the laws of the State of California and formerly known as Elmore, Ltd. ("Grantee"). RECITALS A. Grantor holds certain geothermal lease rights (the "Geothermal Lease Rights") in certain real property located within the Salton Sea Known Geothermal Resource Area (the "SSKGRA") in Imperial County, California, which real property is described in Exhibit "A" attached hereto (the "Geothermal Lease Rights Properties"). The Geothermal Lease Rights are set forth in those certain geothermal leases described in Exhibit "B" attached hereto (the "Geothermal Leases"). Grantor also holds that certain mineral interest described in Exhibit "C" attached hereto (the "Grantor's Mineral Property"). B. Grantee owns a geothermal electrical generating facility commonly known as the "Elmore Facility", which utilizes Geothermal Brine from certain of the Geothermal Lease Rights Properties. The Elmore Facility is located on that certain real property described in Exhibit "D" attached hereto (the "Elmore Property"). C. Grantee's right to maintain the Elmore Facility on the Elmore Property is derived from that certain Ground Lease dated as of March 14, 1988 between Grantor, as Landlord, and Grantee, as Tenant (the "Ground Lease"), a Memorandum of which was recorded on March 14, 1988 in Book 1599, Page 1002, as Instrument No. 88-04023 in the Official Records of Imperial County, California (the "Official Records"). 1 D. Pursuant to that certain Easement Grant Deed and Agreement Regarding Rights For Geothermal Development dated as of March 14, 1988 (the "Easement Grant Deed"), a Short Form of which was recorded on March 14, 1988 in Book 1599, Page 1007, as Instrument No. 88-04025 in the Official Records (the "Easement Short Form"), Grantor granted to Grantee certain rights in and to the Geothermal Brine contained in certain of the Geothermal Lease Rights Properties, including, without limitation, the right to (i) drill for, produce, Process and use Geothermal Brine up to the amount necessary to meet the Elmore Facility Brine Requirement and (ii) construct, use and maintain roads, pipelines, utility installations, power lines, equipment, buildings and wells in connection therewith, subject to certain limitations and reservations as more particularly set forth in the Easement Grant Deed. E. It has always been the intent of Grantor and Grantee (together, the "Parties") that Grantor reserve and at all times have the right, at its sole option, to (i) drill for, produce, process, extract, treat, convert, take, divert, sell and otherwise use the Excess Unextracted Geothermal Brine, Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Geothermal Brine Scale and Brine Minerals and (ii) use the Elmore Property in connection with such reserved rights. The Parties now desire to amend the Ground Lease and Easement Grant Deed to clarify and further define such rights, and to make certain other modifications thereto, as set forth herein. F. This Amendment is being executed in connection with that certain Second Supplemental Trust Indenture (the "Supplemental Indenture") dated as of June 20, 1996, between Salton Sea Funding Corporation, a Delaware corporation, an Affiliate of Grantor ("Funding Corporation"), as issuer, and Chemical Trust Company of California, a California corporation, as trustee. Chemical Trust Company of California, a California corporation, is also acting as collateral agent (together with its transferees, successors and assigns, the "Collateral Agent") under that certain Collateral Agency and Intercreditor Agreement dated as of July 21, 1995, as amended, by and among Funding Corporation and the other parties named therein. The Collateral Agent's address is 50 California Street, 10th Floor, San Francisco, California 94111. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals, the covenants and conditions herein contained, and other valuable consideration, the receipt of which is hereby acknowledged, the Parties agree as follows: ARTICLE 1. INTRODUCTORY MATTERS 1.1. CAPITALIZED TERMS. Capitalized terms used and not defined herein shall have the meaning given the same in the Easement Grant Deed. ARTICLE 2. AMENDMENTS TO THE EASEMENT GRANT DEED 2.1. USE OF GEOTHERMAL BRINE. Wherever in the Easement Grant Deed (including, without limitation, sections 2.2.1, 2.3.2, 2.3.3, 3.1.1 and 3.1.3 thereof) Grantor reserves or is given the right to "use", "utilize" or make "use" of the Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Brine Minerals and/or Geothermal Brine Scale or any part thereof, 2 Grantor shall further have the right, privilege and power to process, extract from, treat, convert, take, divert, sell and otherwise use the same, in such manner and at such locations as Grantor may deem proper, and without compensation to Grantee other than as expressly provided in the Easement Grant Deed. 2.2. OWNERSHIP OF GEOTHERMAL BRINE. To the extent that Grantor processes, extracts, treats, converts, takes, diverts, sells or otherwise uses the Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Brine Minerals and/or Geothermal Brine Scale or any part thereof as permitted under the Easement Grant Deed or hereunder, which results in the amount thereof that is returned to Grantee for injection or disposal being less than the amount thereof previously delivered to or taken by Grantor, then the title otherwise held by Grantee to any Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Brine Minerals and/or Geothermal Brine Scale that is not returned to Grantee for injection or disposal shall automatically transfer to and vest in Grantor. Without limiting the generality of the foregoing, if Grantor makes any commercial use or sale of the Partially Spent Geothermal Brine, Excess Extracted Geothermal Brine, Brine Minerals and/or Geothermal Brine Scale, the economic benefits of such use or sale shall belong to Grantor. 2.3. INJECTION BY GRANTEE. In addition to its obligations under section 3.1.1 of the Easement Grant Deed, Grantee shall handle, transport, inject and dispose of all geothermal fluids and other substances produced as a result of or which flow from Grantor's use, processing, treatment or conversion of the Geothermal Brine and of geothermal fluids from other lands. To the extent that by performing the above duties Grantee incurs additional costs and expenses over what it would have incurred had Grantor not used, processed, treated or converted Geothermal Brine or geothermal fluids from other lands as provided herein, then Grantor shall pay such excess costs and expenses. 2.4. MODIFICATIONS TO THE ELMORE GEOTHERMAL LEASE UNIT. 2.4.1 The term "Elmore Geothermal Lease Unit", as defined in Schedule "Z" to the Easement Grant Deed, is hereby deleted and replaced with the following: "Elmore Geothermal Lease Unit" means that certain John J. Elmore Unit No. 1 established pursuant to that certain Designation and Declaration of Unit dated as of February 1, 1964 and recorded on March 27, 1964 in Book 1180, Page 519 of the Official Records, as amended by that certain (a) First Restatement and Partial Restructuring of Unit dated as of January 19, 1988 and recorded on February 9, 1988 in Book 1597, Page 1261 of the Official Records, (b) Second Restatement and Partial Restructuring of Unit dated as of May 13, 1988 and recorded on May 16, 1988 in Book 1603, Page 701 of Official Records, (c) Third Restatement and Partial Restructuring of Unit dated as of January 19, 1989 and recorded on January 23, 1989 in Book 1617, Page 1585 of Official Records and (d) Fourth Restatement and Partial Restructuring of Unit dated as of April 28, 1992 and recorded on May 20, 1992 in Book 1699, Page 1675 of Official Records." 2.4.2 In order to expand the Geothermal Lease Rights Properties to include therein lands that were previously added to the Elmore Geothermal Lease Unit pursuant to the 3 Third Restatement and Partial Restructuring of Unit and Fourth Restatement and Partial Restructuring of Unit referred to in Section 2.4.1 hereof: (a) Exhibit "A" to the Easement Grant Deed (including, without limitation, Exhibit "A" to the Easement Short Form) is hereby deleted and replaced with Exhibit "A" attached hereto; (b) Exhibit "B" to the Easement Grant Deed (including, without limitation, Exhibit "B" to the Easement Short Form) is hereby deleted and replaced with Exhibit "B" attached hereto; (c) Exhibit "C" attached hereto is hereby incorporated into the Easement Grant Deed; and (d) all references to the "Geothermal Lease Rights Properties" in the Easement Grant Deed and in this Amendment shall hereafter be deemed to include the Grantor's Mineral Property. 2.5. INSURANCE. Section 3.3 of the Easement Grant Deed is hereby deleted in its entirety. 2.6. PROJECT LENDER PROVISIONS. Article VI of the Easement Grant Deed is hereby revised as follows: 2.6.1 The definition of "Project Lender" is hereby deleted from Schedule "Z" to the Easement Grant Deed, and is replaced with the following: "'Project Lender' means (a) the Collateral Agent (b) any Person who succeeds to the interest of Collateral Agent under that certain Trust Indenture dated as of July 21, 1995, between Funding Corporation, as issuer, and Collateral Agent, as trustee (as amended, modified or supplemented, including pursuant to the Supplemental Indenture, the "Indenture") or (c) any other Person who acquires a first lien on the Easement To Develop Geothermal Rights in connection with or following (i) foreclosure of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of June 20, 1996, executed by Grantee as trustor, in favor of Chicago Title Company as trustee, for the benefit of Collateral Agent as beneficiary (the "Deed of Trust"); (ii) the acquisition by Collateral Agent or its nominee or designee of the Easement To Develop Geothermal Rights by any other means. The term "Project Lender" shall also include any person or entity that acquires a first lien on the Easement To Develop Geothermal Rights at any time after such foreclosure, conveyance by deed in lieu of foreclosure or acquisition by Collateral Agent or its nominee or designee." 2.6.2 The definition of "Project Lender's Loan" is hereby deleted from Schedule "Z" to the Easement Grant Deed, and is replaced with the following: "'Project Lender's Loan' means the financing provided by the Project Lender for the Development, operation, refinancing or acquisition of the Elmore Facility, the repayment of which is secured by the Project Lender's Lien." 2.6.3 Section 6.2.1 of the Easement Grant Deed is hereby deleted in its entirety and replaced with the following: "6.2.1 (i) So long as the Indenture is in effect, Grantor shall not accept or consent to any amendment or modification of this Agreement if the same would be prohibited under the Partnership Credit Agreement (as that term is 4 defined in the Indenture); (ii) at any time when the Indenture is no longer in effect, Grantor shall not accept or consent to any amendment or modification of this Agreement if the same would have a material adverse effect on the Project Lender's Lien, and (iii) except in a case of default by Grantee under this Agreement that has not been cured by the Project Lender under this Section 6.2 within the period of time provided therein, Grantor shall not accept or consent to any abandonment of the Easement to Develop Geothermal Rights or any termination of this Agreement, unless and until Grantee presents evidence to Grantor that Grantee has obtained the prior written consent of the Project Lender thereto." 2.6.4 Sections 6.2.6 and 6.3 of the Easement Grant Deed are hereby deleted in their entireties. 2.7. ARBITRATION. The last eleven (11) words of paragraph (ii) of section 8.11 of the Easement Grant Deed (which currently read "Federal District Court or County Superior Court in San Diego, California") are hereby deleted and replaced with the words "District Court in Omaha, Nebraska." 2.8. EASEMENT SHORT FORM. The Easement Short Form is hereby amended as necessary and appropriate so that the same will in all respects be consistent with this Amendment. ARTICLE 3. AMENDMENTS TO THE GROUND LEASE 3.1. USE OF THE ELMORE PROPERTY. Section 2.2 of the Ground Lease is hereby amended as follows: 3.1.1 The word "sell" is hereby added after the word "use" in the fourth line of such Section. 3.1.2 The words ", the Brine Minerals" are hereby added after the words "Reserved Geothermal Brine" in the fourth line of such Section. 3.1.3 The words "and mineral extraction and processing facilities" are hereby added after the words "Additional Power Production Facilities" in the fourteenth and eighteenth lines of such Section. 3.1.4 The words ", Partially Spent Geothermal Brine, Brine Minerals" are hereby added after the words "Geothermal Brine" in the twenty-first and twenty-fourth lines of such Section. 3.1.5 The following sentence is hereby added at the end of such Section: "Without limiting the foregoing, Landlord may conduct such operations for purposes incidental to Landlord's or its affiliates' operations on lands in the vicinity of and outside the Elmore Property." 3.2. SUBDIVISION OF THE ELMORE PROPERTY. 5 3.2.1 In the event that Grantor's proposed use of the Elmore Property (as permitted under Section 3.1 hereof or in the Ground Lease) causes it to reasonably determine that compliance with the California Subdivision Map Act (Government Code Section 66410 et seq.) and the county ordinances enacted thereunder (together, the "Map Act") may be necessary, then Grantor shall be entitled to apply for, process and cause to be recorded such subdivision maps as may be necessary to cause such portion or portions of the Elmore Property as may be designated by Grantor to be subdivided in compliance with the Map Act. All costs of such application, processing and recordation shall be borne by Grantor. Grantee and Grantor shall cooperate each with the other, to ensure that such maps will be adequate for Grantor's proposed use and to record such reciprocal easements as may be necessary in connection with their existing and proposed operations, and Grantee shall promptly execute such maps as and when requested by Grantor. Notwithstanding the foregoing, in no event shall Grantor subdivide the Elmore Property in a manner that will have a material adverse effect on Grantee's ability to operate the Elmore Facility. 3.2.2 Grantee hereby irrevocably and unconditionally grants to Grantor an option (the "Partial Termination Option"), exercisable at any time during the term of the Ground Lease upon the payment to Grantee of the sum of Ten Dollars ($10.00), to terminate the Ground Lease as to any parcel (each, a "Terminated Parcel") created as a result of such subdivision (other than the parcel on which the Elmore Facility is located). Upon Grantor's exercise of the Partial Termination Option, (a) Grantor and Grantee shall execute and cause to be acknowledged and recorded an amendment to the Ground Lease deleting from the description of the "Premises" each parcel as to which the Ground Lease has been so terminated (each, a "Terminated Parcel"), along with a corresponding quitclaim deed from Grantee to Grantor of all Grantee's right, title and interest in the Terminated Parcels, and (b) Grantee shall deliver possession of the Terminated Parcels to Grantor. Any lender imposing a lien against the Elmore Property shall be deemed, by the recordation of such lien, to have agreed to promptly partially release the Terminated Parcels from the lien of its deed of trust upon Grantor's exercise of the Partial Termination Option. 3.3. DAMAGE OR DESTRUCTION. Section 8.2 of the Ground Lease is hereby deleted in its entirety. 3.4. PROJECT LENDER PROVISIONS. Section 10 of the Ground Lease (consisting of sections 10.1 through 10.6, inclusive) is hereby revised as follows. 3.4.1 The definition of "Project Lender" is hereby deleted from Schedule "Z" to the Ground Lease, and is replaced with the following: "'Project Lender' means (a) the Collateral Agent (b) any Person who succeeds to the interest of Collateral Agent under the Indenture or (c) any other Person who acquires a first lien on this Lease in connection with or following (i) foreclosure of the Deed of Trust; (ii) conveyance of this Lease to Collateral Agent in lieu of foreclosure or (iii) the acquisition by Collateral Agent or its nominee or designee of the Lease by any other means. The term "Project Lender" shall also include any person or entity that acquires a first lien on the Lease at any time after such foreclosure, conveyance by deed in lieu of foreclosure or acquisition by Collateral Agent or its nominee or designee." 6 3.4.2 The definition of "Project Lender's Loan" is hereby deleted from Schedule "Z" to the Ground Lease, and is replaced with the following: "'Project Lender's Loan' means the financing provided by the Project Lender for the Development, operation, refinancing or acquisition of the Elmore Facility, the repayment of which is secured by the Project Lender's Lien." 3.4.3 Section 10.2.1 of the Ground Lease is hereby deleted in its entirety and replaced with the following: "10.2.1 (i) So long as the Indenture is in effect, Landlord shall not accept or consent to any amendment or modification of this Lease if the same would be prohibited under the Partnership Credit Agreement (as that term is defined in the Indenture); (ii) at any time when the Indenture is no longer in effect, Landlord shall not accept or consent to any amendment or modification of this Lease if the same would have a material adverse effect on the Project Lender's Lien, and (iii) except in a case of default by Tenant under this Lease that has not been cured by the Project Lender under this Section 10.2 within the period of time provided therein, Landlord shall not accept or consent to any abandonment or termination of this Lease unless and until Tenant presents evidence to Landlord that Tenant has obtained the prior written consent of the Project Lender thereto." 3.4.4 Sections 10.2.6, 10.3, 10.4 and 10.5 of the Ground Lease are hereby deleted in their entireties. 3.5. INSURANCE. Section 11 of the Ground Lease is hereby deleted in its entirety. 3.6. ARBITRATION. The last eleven (11) words of paragraph (ii) of section 31 of the Ground Lease (which currently read "Federal District Court or County Superior Court in San Diego, California") are hereby deleted and replaced with the words "District Court in Omaha, Nebraska." ARTICLE 4. GENERAL PROVISIONS 4.1. NOTICES. The address for notices to Grantor and Grantee set forth in section 8.3 of the Easement Grant Deed and in section 22 of the Ground Lease shall henceforth be as follows: If to Grantor: c/o CalEnergy Company, Inc. 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Attention: General Counsel If to Grantee: c/o CalEnergy Company, Inc. 302 South 36th Street Suite 400-C Omaha, Nebraska 68131 Attention: General Counsel 7 4.2. ASSIGNMENT. Grantor shall be entitled, from time to time and without the prior consent of Grantee, to transfer, assign, alienate, license, grant easements in, hypothecate, pledge or mortgage to any Person all or any portion of Grantor's right, title or interest in, under and to the Easement Grant Deed and this Amendment. 4.3. COVENANTS TO RUN WITH THE LAND. The Elmore Property shall be held, conveyed, assigned, hypothecated, encumbered, leased, used and operated subject to the covenants, terms and provisions set forth herein, in the Easement Grant Deed and in the Ground Lease, which covenants, terms and provisions shall run with the Elmore Property and each portion thereof and interest therein, and shall be binding upon Grantee and each other Person having any interest therein during their ownership thereof, and their respective grantees, heirs, successors and assigns. 4.4. EFFECT OF THIS AMENDMENT. In the event that any inconsistency exists between this Amendment and the Easement Grant Deed or the Ground Lease, this Amendment shall govern, and any inconsistent terms and provisions contained herein shall be construed as superseding and amending the terms and provisions of the Easement Grant Deed and/or the Ground Lease, as applicable. Except as expressly modified by this Amendment, the Easement Grant Deed and the Ground Lease shall be unchanged and shall remain in full force and effect. This Amendment may be executed in multiple counterparts, all of which shall constitute one and the same Amendment. 8 IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first above written. GRANTOR: MAGMA POWER COMPANY, a Nevada corporation By: /s/ John G. Sylvia ----------------------------------------- John G. Sylvia Its: Senior Vice President ---------------------------------------- GRANTEE: ELMORE, L.P., a limited partnership organized under the laws of the State of California By: CalEnergy Operating Company, a Delaware corporation, General Partner By: /s/ John G. Sylvia ------------------------------------ John G. Sylvia Its: Senior Vice President ----------------------------------- 9 ACKNOWLEDGMENTS STATE OF NEW YORK ) ----------------------------- ) ss. COUNTY OF NEW YORK ) ---------------------------- On June 20, 1996, before me Patricia Peterson, personally appeared John G. Sylvia, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity on behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature /s/ Patricia Peterson -------------------------------- PATRICIA PETERSON Notary Public, State of New York No. 01PE4978514 Qualified in New York County Commission Expires March 4, 1997 STATE OF NEW YORK ) ----------------------------- ) ss. COUNTY OF NEW YORK ) ---------------------------- On June 20, 1996, before me Patricia Peterson, personally appeared John G. Sylvia, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity on behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature /s/ Patricia Peterson -------------------------------- PATRICIA PETERSON Notary Public, State of New York No. 01PE4978514 Qualified in New York County Commission Expires March 4, 1997 EXHIBIT "A" Description of the Geothermal Lease Rights Properties Parcel 1: The North Half of the Northwest Quarter of Section 35, Township 11 South, Range 13 East, San Bernardino Meridian, County of Imperial, State of California, according to Official Plat thereof. Parcel 2: The East Half of the Northeast Quarter of Section 34, Township 11 South, Range 13 East, San Bernardino Meridian, County of Imperial, State of California, according to Official Plat thereof. Parcel 3: Parcel A: The Southwest Quarter of Section 26, the West Half of the Southeast Quarter of Section 26, and the Southeast Quarter of Section 27, all in Township 11 South, Range 13 East, San Bernardino Meridian, County of Imperial, State of California, according to Official Plat thereof. Parcel B: The Southwest Quarter of Section 27, Township 11 South, Range 13 East, San Bernardino Meridian, County of Imperial, State of California, according to Official Plat thereof. Parcel 4: The South Half of the Northwest Quarter of Section 35, Township 11 South, Range 13 East, San Bernardino Meridian, County of Imperial, State of California, according to Official Plat thereof. Parcel 5: The South Half of the Northwest Quarter of Section 26, Township 11 South, Range 13 East, San Bernardino Meridian, County of Imperial, State of California, excepting therefrom an undivided one-half interest in all oil, gas and mineral rights, as reserved by William T. Clarke and Mildred L. Clarke in Deed recorded April 17, 1943 in Book 603, Page 55 of Official Records, in the Office of the County Recorder, Imperial County, California ------------------- Parcel 1/McCoy; Parcel 2/L. Baretta; Parcel 3/Elmore; Parcel 4/Huffman; Parcel 5/State. EXHIBIT "A" Page 1 of 1 EXHIBIT "B" Description of the Geothermal Leases Parcel 1: Geothermal Lease and Agreement dated January 1, 1980, as heretofore and hereafter amended and/or assigned, by and between Wallace W. McCoy and Katherine P. McCoy, as Lessor, and Imperial Magma, a corporation and New Albion Resources Co., a corporation, as Lessee, as disclosed by that certain Memorandum of Geothermal Lease and Agreement (Short Form) of even date therewith, recorded on August 7, 1980, in Book 1456, Page 1376 of Official Records. Parcel 2: Geothermal Lease and Agreement dated January 1, 1979, as heretofore and hereafter amended and/or assigned, by and between Lillian M. Baretta, as Lessor, and Magma Power Company, a corporation, as Lessee, as disclosed by that certain Geothermal Lease and Agreement (Short Form) of even date therewith, recorded on December 14, 1979, in Book 1444, Page 1311 of Official Records. Parcel 3: Lease and Agreement dated June 1, 1963, as heretofore and hereafter amended and/or assigned, by and between John J. Elmore and Ann Kelley Elmore, as Lessor, and Earth Energy, Inc., a Delaware corporation and Magma Power Company, a Nevada corporation, as Lessee, as disclosed by that certain Memorandum of Lease and Agreement of even date therewith, recorded on July 31, 1963, in Book 1156, Page 465 of Official Records. Parcel 4: Lease Agreement dated as of November 15, 1978, as heretofore and hereafter amended and/or assigned, by and between Doil Huffman and Vernon Huffman, as Lessor, and New Albion Resources Co., Inc., as Lessee, as disclosed by that certain Short Form of even date therewith, recorded on December 7, 1978, in Book 1426, Page 634 of Official Records. Parcel 5: Geothermal Resources Lease effective March 1, 1992, as heretofore and hereafter amended and/or assigned, by and between the State Lands Commission of the State of California, as Lessor, and Magma Power Company, a Nevada corporation, as Lessee, as disclosed by that certain Short Form of even date therewith, recorded April 15, 1992, in Book 1697, Page 396 of Official Records. ------------------- Parcel 1/McCoy; Parcel 2/L. Baretta; Parcel 3/Elmore; Parcel 4/Huffman; Parcel 5/State. EXHIBIT "B" Page 1 of 1 EXHIBIT "C" Description of the Grantor's Mineral Property An undivided one-half interest in all oil, gas and mineral rights located in and under the South Half of the Northwest Quarter of Section 26, Township 11 South, Range 13 East, San Bernardino Meridian, State of California, as reserved by William T. Clarke and Mildred L. Clarke in Deed recorded April 17, 1943 in Book 603, Page 55 of Official Records, in the Office of the County Recorder, Imperial County, California. EXHIBIT "C" Page 1 of 1 EXHIBIT "D" Description of the Elmore Property The South Half of the Southwest Quarter of the Southeast Quarter of Section 27, Township 11 South, Range 13 East, San Bernardino Meridian, County of Imperial, State of California, according to Official Plat thereof. Excepting all mineral rights, specifically including, but not limited to, sources of geothermal energy and power as reserved by John Jameson Elmore, Et Ux, by Deed recorded June 5, 1974 in Book 1363, Page 1812 of Official Records. EXHIBIT "D" Page 1 of 1 EX-10.38 15 GROUND LEASE (SALTON SEA UNIT V) GROUND LEASE THIS GROUND LEASE (the "LEASE") is made as of October 13, 1998(the "EFFECTIVE DATE"), by and between IMPERIAL MAGMA, a Nevada corporation ("LANDLORD") and SALTON SEA POWER L.L.C., a Delaware limited liability company ("TENANT"). RECITALS A. Affiliates of Landlord and Tenant currently own and operate eight geothermal electrical generating facilities in the Salton Sea area of Imperial County, California, commonly known as the "Vulcan Plant", "Hoch Plant", "Elmore Plant", "Leathers Plant" and "Salton Sea Units 1, 2, 3 and 4" (collectively, the "EXISTING PLANTS"). B. Each of the Existing Plants and its wellfield is operated pursuant to an easement or profit-a-prendre that entitles such Existing Plant to extract heat from geothermal brine for electrical generating purposes. After the Existing Plants extract heat from the geothermal brine, the partially-cooled geothermal fluid (the "SPENT GEOTHERMAL EFFLUENT") is piped back to the wellfield for reinjection. C. Tenant intends to construct an additional 49 megawatt (net) geothermal electrical facility, to be known as "Salton Sea Unit 5", which will utilize the residual heat in the Spent Geothermal Effluent flowing from Salton Sea Units 1, 2, 3 and 4, and which will be located just to the south thereof on land owned in fee by Landlord, which land is the subject of this Lease. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals, the covenants and conditions herein contained, and other valuable consideration, the receipt of which is hereby acknowledged, Landlord and Tenant agree as follows: ARTICLE I - DEFINITIONS 1.1 Unless the context shall otherwise require, the following capitalized terms used herein shall have the following meanings: 1.1.1 "DAMAGES" means any losses, damages, liabilities, claims, judgments, liens, penalties, costs and expenses, including, without limitation, reasonable attorneys' and consultants' fees. 1.1.2 "FACILITY" means that certain 49 megawatt (net) geothermal electrical generating facility to be known as Salton Sea Unit 5 which Tenant intends to construct on the Premises, together with all buildings, structures, improvements, fixtures, pipelines, utility installations, machinery, equipment and other items associated therewith or related thereto which are or will be located on the Premises. 1.1.3 "FACILITY SITE" shall have the meaning given in Section 16.1 hereof. 1 1.1.4 "FINANCING" means construction financing and any subsequent term financing for the Facility. 1.1.5 "GOVERNMENTAL APPROVALS" means all applicable authorizations, consents, approvals, permissions, permits, franchises, licenses, waivers, exceptions or variances of, and any filings, applications and declarations submitted in order to obtain any of the same from, any Governmental Authority. 1.1.6 "GOVERNMENTAL AUTHORITY" means any federal, state or local governmental body, or any political subdivision, agency, subagency or instrumentality thereof, including, without limitation, the courts and any quasi-adjudicative bodies with jurisdiction. 1.1.7 "LANDLORD'S FACILITIES" means any facilities, structures, wells, pipelines, improvements, machinery and equipment constructed, installed or located on the Premises pursuant to (a) the Senior Rights or (b) Landlord's Reserved Rights. 1.1.8 "LANDLORD'S RESERVED RIGHTS" shall have the meaning given in Section 2.2 hereof. 1.1.9 "LAW" or "LAWS" means all applicable laws, statutes, ordinances, rules, regulations, decrees, policies, orders, permits, requirements, judgments, decisions, injunctions and findings of or issued by any Governmental Authority. 1.1.10 "LENDER" means the lender or lenders collectively advancing all or a portion of the Financing, and their respective agents, trustees (including, without limitation, collateral agents, security agents and loan trustees), grantees, successors and assigns. 1.1.11 "LENDER'S LIEN" means any security interest taken by the Lender in Tenant's right, title and interest under this Lease. 1.1.12 "LENDER'S LOAN DOCUMENTS" means all instruments, agreements and other documents evidencing or relating to the Financing and/or the security therefor. 1.1.13 "MATERIAL ADVERSE IMPACT" means a material adverse impact on (a) the financial position or results of operation of the Facility, (b) the validity or priority of the Lender's Lien, (c) the ability of Tenant to perform its material obligations under the Lender's Loan Documents or (d) the ability of the Lender to enforce any of the payment obligations under the Lender's Loan Documents. 1.1.14 "OFFICIAL RECORDS" means the official records of the County of Imperial, State of California. 1.1.15 "OPTIONED PREMISES AREA" shall have the meaning given in Section 16.3 hereof. 1.1.16 "PARTIAL TERMINATION OPTION" shall have the meaning given in Section 16.3 hereof. 1.1.17 "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a Governmental Authority. 2 1.1.18 "PREMISES" means the real property described on Exhibit "A" attached hereto; subject, however, to the right of Landlord to terminate the Lease as to the Optioned Premises Area as provided in Article 16 hereof. 1.1.19 "RESERVED AREA" shall have the meaning given in Section 16.1 hereof. 1.1.20 "SENIOR RIGHTS" shall have the meaning given in Section 2.5 hereof. ARTICLE 2 - LEASE 2.1 Landlord hereby leases the Premises to Tenant, and Tenant hereby leases the Premises from Landlord, on the terms and conditions, and subject to the reservations, set forth in this Lease. 2.2 Landlord hereby reserves from the leasehold estate granted to Tenant hereunder the right to use the Premises for any purpose or purposes whatsoever ("LANDLORD'S RESERVED RIGHTS"). Without limiting the generality of the foregoing, included within Landlord's Reserved Rights shall be the right to, from time to time: (a) drill, operate and maintain wells and wellsites; (b) develop, construct, operate and maintain (i) additional geothermal electrical generating facilities, (ii) mineral extraction and processing facilities, (iii) other commercial or industrial facilities, (iv) pipelines and pumps (whether for the transportation of geothermal fluids, mineral solutions, water and/or other fluids or substances), (v) transmission facilities, including without limitation, transmission or collector lines, interconnections, transformers, circuit breakers, footings, towers, poles, crossarms, guy lines, anchors or wires, (vi) control, communications or radio relay systems, (vii) safety protection facilities, (viii) signs, (ix) sumps, ponds, evaporation, settling or storage basins, (x) roads and (xi) construction laydown facilities; (c) conduct any other activities and operations and install or construct any other improvements, equipment or machinery, which Grantee reasonably determines to be necessary, useful or convenient in connection with, or incidental to, any of the foregoing; or (d) for any purpose, but in a commercially reasonable manner, "tap" into any pipelines or other facilities carrying or containing any geothermal or other fluids, including, without limitation, Spent Geothermal Effluent, together with ingress and ingress to and from, and access over, the Premises for any of the foregoing purposes. 2.3 Notwithstanding the foregoing, (a) Landlord shall not exercise Landlord's Reserved Rights in a manner that would reasonably be expected to have a Material Adverse Impact, (b) Landlord shall use its best efforts to minimize the effect of its use of the Facility Site under Section 2.2 hereof on Tenants construction, operation and maintenance of the Facility and (c) and Landlord shall pay all reasonable costs actually incurred by Tenant as a result of Landlord's exercise of Landlord's Reserved Rights on the Facility Site. 2.4 Tenant shall not at any time during the term of this Lease, without the prior written consent of Landlord, which consent may be withheld in Landlord's sole discretion, (a) construct or install any structure, building, well, pipeline or other improvements, equipment or machinery in or on the Reserved Area, (b) grade or otherwise disturb the surface of the Reserved Area or (c) except as otherwise expressly provided in this Lease, conduct any other activities or operations in or on the Reserved Area. 2.5 Tenant acknowledges and agrees that its rights under this Lease are and shall at all times remain junior, subordinate and subject to the right, title and interest (collectively, the "SENIOR RIGHTS") of: (a) Magma Land Company I, a Nevada Corporation, and its grantees, assignees, successors and assigns, under that certain Mineral Lease dated as of August 13,1958, 3 between Alice T. Nelson (formerly Alice T. Sinclair and later Alice T. Denman) and Salton Sea Power Company, recorded on August 14, 1958, in Book 1002, Page 211 of the Official Records, as heretofore and hereafter amended, supplemented, restated or superseded; and (b) Magma Land Company I, a Nevada Corporation, and its grantees, assignees, successors and assigns, under that certain Amended and Restated Easement Grant Deed and Agreement Regarding Rights For Geothermal Development dated as of February 23, 1994, between Magma Land Company I, a Nevada corporation, and Salton Sea Brine Processing L.P., a California limited partnership, a Short Form of which was recorded on February 28, 1994 in Book 1762, Page 152 of the Official Records as File No. 1994-0004910, as heretofore and hereafter amended, supplemented, restated or superseded. 2.6 Landlord's Reserved Rights and any other rights reserved by Landlord in this Lease shall be freely assignable by Landlord, in part or in whole, to its grantees, assignees, successors and assigns. ARTICLE 3 - TERM 3.1 The term of this Lease shall commence upon the Effective Date, and, unless sooner terminated as provided in this Lease, shall expire on the date which is thirty-three (33) years after the Effective Date. ARTICLE 4 - RENT 4.1 Tenant shall pay to Landlord, without abatement, deduction or offset, "BASE ANNUAL RENT" for the Premises, commencing on the Effective Date and continuing thereafter on the first day of each calendar year throughout the term of this Lease, in an amount equal to (a) Two Hundred and Fifty Dollars ($250.00) multiplied by (b) the number of acres of the Facility Site. 4.2 The Base Annual Rent shall be subject to adjustment every five (5) years as follows: 4.2.1 On every fifth (5th) anniversary of the Effective Date, the Base Annual Rent shall be adjusted to reflect the increase, if any, in the Consumer Price Index published by the Bureau of Labor Statistics of the Department of Labor for All Urban Consumers, All Items, for the Los Angeles-Anaheim-Riverside Metropolitan Area (the "CPI") as follows: The Base Annual Rent amount provided in Section 4.1 hereof shall be multiplied by a fraction, the numerator of which shall be the CPI for the month of August immediately preceding such adjustment, and the denominator of which shall be the CPI for the month of August, 1998. The sum so calculated shall constitute the new Base Annual Rent hereunder, but in no event shall such new Base Annual Rent be less than the Base Annual Rent payable for the year immediately preceding such adjustment. 4.2.2 In the event that the publication of the CPI shall be transferred to any other Governmental Authority or shall be discontinued, then the index most nearly the same as the CPI, as determined in good faith by Landlord, shall be used to make such adjustments. 4.2.3 Tenant shall continue to pay Base Annual Rent at the rate previously in effect until the next adjustment, if any, is determined. Thereafter, the Base Annual Rent shall be paid at the increased rate. 4.3 Rent for any period during the term hereof which is for less than one year shall be prorated based on a three hundred and sixty-five (365) day year. Rent shall be payable in lawful 4 money of the United States to Landlord at the address stated herein or to such other persons or at such other places as Landlord may designate in writing. ARTICLE 5 - TAXES, ASSESSMENTS AND UTILITIES 5.1 Tenant shall pay all real and personal property taxes and assessments, general or special, levied against (a) this Lease or any right, title or interest of Tenant in the Premises and (b) the Facility, including, without limitation, any possessory interest, license, production, severance or excise taxes, but excluding income, inheritance and estate taxes (collectively, "TENANT'S TAXES"); provided, however, that Landlord shall pay all real and personal property taxes and assessments, general or special, levied against (i) any right, title or interest of Landlord in the Reserved Area and/or (ii) any of Landlord's Facilities. 5.2 Tenant shall pay all Tenant's Taxes before delinquency, whether chargeable against Landlord or Tenant. Tenant shall make all payments of Tenant's Taxes directly to the charging Governmental Authority before delinquency and before any fine, interest or penalty shall become due or be imposed by operation of Law for their nonpayment, and, at the election of Landlord to be exercised from time to time by notice to Tenant, shall either be paid to Landlord or directly to the charging Governmental Authority. If the payment of any or all of the Tenants Taxes in installments is permitted (whether or not interest accrues on the unpaid balance), Tenant may, at Tenant's election, utilize the permitted installment method, but shall pay each installment (with any interest) before delinquency. 5.3 All payments of Tenant's Taxes shall be prorated, on the basis of a 365-day year, for the applicable portion of the tax fiscal years at the commencement and expiration of the term of this Lease. 5.4 If Tenant's Taxes are assessed together with the taxes assessed against the assets described in clauses (i) and (ii) of Section 5.1 hereof or together with taxes on any other real or personal property of Landlord or any other Person, then Landlord shall, in good faith, separate out Tenant's Taxes from such other taxes, using any reasonable method of allocation as Landlord may determine. 5.5 Tenant may contest the legal validity or amount of any of Tenant's Taxes, and may institute such proceedings as Tenant considers necessary or appropriate in connection therewith. If Tenant contests any of Tenant's Taxes, then Tenant may withhold or defer payment or pay under protest, but shall protect Landlord, the Premises, the Facility and Landlord's Facilities from and against any tax lien imposed in connection with such non-payment, by surety bond or other appropriate security reasonably acceptable to Landlord. 5.6 Tenant shall pay, before the same become delinquent, all charges for gas, electricity, sewage, water, telephone, trash removal and other similar or dissimilar public services or commodities furnished to the Facility Site and/or the Facility during the term of this Lease, including all installation, connection and disconnection charges. 5.7 It is the intent of the parties hereto that the rent provided in this Lease shall be absolutely net to Landlord with respect to the Facility Site, and that, except as otherwise expressly provided in this Lease, Tenant shall pay all costs and charges of every kind and nature incurred for, against, or in connection with the Facility Site which may arise or become due from and after the Effective Date and during the term hereof, including, without limitation, all Tenant's Taxes, utilities, insurance premiums and maintenance costs; provided, however, that nothing herein shall 5 be construed as requiring Tenant to pay any installment of interest or principal owing on any encumbrance against the Premises for which Landlord is the obligor. All such costs and charges at the commencement and the end of the term of this Lease shall be appropriately prorated between the parties. ARTICLE 6 - USE 6.1 Subject to Section 2.4 hereof, Tenant shall use and permit the use of the Premises only for the construction, operation, maintenance, repair and replacement of the Facility. 6.2 Tenant shall, at Tenant's expense, promptly comply in all material respects with all Laws now in effect or which may hereafter come into effect during the term hereof, relating in any manner to the Premises or the occupation and use by Tenant of the Facility Site. Further, Tenant shall comply in all material respects with any covenants, conditions and restrictions of record and with the requirements of any fire insurance underwriters or rating bureaus. Tenant shall conduct its business in a lawful and commercially reasonable manner, and shall not use or permit the use of the Premises in any manner that will create waste or nuisance. Tenant shall indemnify, defend and hold harmless Landlord from and against any and all Damages which may be imposed upon or incurred by Landlord or asserted against Landlord by any Person, arising out of or attributable to Tenant's activities or operations on the Premises. 6.3 Tenant shall, at Tenant's expense, comply in all material respects with all environmental Laws now in effect or which may come into effect during the term hereof, including, without limitation, the Resource Conversation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, the California Hazardous Waste Control Act, the California Hazardous Substance Act, the Porter-Cologne Water Quality Control Act and all applicable regulations promulgated pursuant thereto. 6.4 Without limiting the generality of Section 6.2 hereof, Tenant shall indemnify, defend and hold harmless Landlord from and against any and all Damages which may be imposed upon or incurred by Landlord or asserted against Landlord by any third Person in connection with any violation of the provisions of Section 6.3 hereof, arising out of or attributable to the assets, business or operations of Tenant at, on or with respect to the Premises. 6.5 Without in any way limiting the scope of Tenant's obligations under the indemnification provisions of Section 6.4 hereof, but subject to Landlord's obligation under Section 2.3 hereof to pay all reasonable costs actually incurred by Tenant as a result of Landlord's exercise of Landlord's Reserved Rights on the Facility Site, Tenant shall be responsible for all investigations, studies, cleanup, corrective action or response or remedial action required by any Governmental Authority now or hereafter authorized to regulate environmental matters or by any consent decree, or court or administrative order now or hereafter applicable to the Premises, or by any Law now or hereafter in effect. 6.6 As between Landlord and Tenant, Tenant shall have the responsibility and right to participate in the management and control of all investigations and any environmental cleanup, remediation or related activities. However, Tenant may not negotiate with or fulfill any requirements or claims made by a Governmental Authority or third Person, or settle or contest such requirements or third-party claims without the express approval of Landlord which consent will not be unreasonably withheld or delayed, and Landlord shall have the right to participate fully in any and 6 all meetings, negotiations or decisions relevant to the investigation or remediation of any violation of the provisions of this Article 6. 6.7 Tenant hereby accepts the Premises in its condition existing as of the Effective Date, subject to (a) all applicable Laws governing and regulating the use of the Premises, (b) all recorded easements, covenants, conditions, restrictions and other matters of record, (c) the Senior Rights and (d) Landlord's Reserved Rights. Tenant acknowledges that it has satisfied itself by its own independent investigation that the Facility Site is suitable for its intended use, and that neither Landlord nor Landlord's agents or employees has made any representation or warranty as to the present or future suitability of the Facility Site for the conduct of Tenant's business or operations. ARTICLE 7 - MAINTENANCE AND REPAIRS 7.1 Throughout the term, Tenant shall, at Tenant's sole cost and expense, maintain the Facility Site in good condition and repair, ordinary wear and tear excepted, in accordance with (a) all Laws, (b) any insurance underwriting board or insurance inspection bureau having or claiming jurisdiction and (c) any insurance company insuring all or any part thereof; except to the extent any damage to the Facility Site arises from the exercise by the Landlord of its Reserved Rights. 7.2 Tenant shall maintain and repair, in accordance with reasonable engineering standards, any dikes and levees now or hereafter located on the Premises; except to the extent any damage to any such dike or levee arises from the exercise by the Landlord of its Reserved Rights. 7.3 Landlord reserves the right to enter the Premises and to take and utilize the soils and rock contained therein as fill for flood control purposes, at no charge to Landlord; provided, however, that (a) in exercising its rights under this Section 7.3, Landlord shall not take any action that would reasonably be expected to have a Material Adverse Impact and (b) Landlord shall indemnify, defend and hold harmless Tenant from and against any and all Damages, whether or not arising out of third-party claims, which may be imposed upon or incurred by Tenant or asserted against Tenant by any other Person, arising out of or attributable to Landlord's use of any such soils and/or rock on the Facility Site, except to the extent caused by the negligence or wilful acts of Tenant. 7.4 Tenant hereby waives any claim against Landlord for Damages caused by any change or changes in the level of the Salton Sea, including, without limitation, Damages caused by flooding, seepage or other circumstances, and Tenant hereby agrees that such waiver is part of the consideration to Landlord under this Lease. ARTICLE 8 - ALTERATIONS AND ADDITIONS 8.1 Tenant shall be entitled, at its own cost and expense, to construct, install, erect, maintain, repair and operate the Facility on the Facility Site. If Tenant constructs the Facility, then it shall obtain and maintain in force all Governmental Approvals necessary or appropriate in connection therewith. 8.2 Landlord's approval shall not be required for Tenant's minor alterations or additions to the Facility, so long as such alterations or additions does not have a Construction Cost in excess of One Million Dollars ($1,000,000). As used herein, the term "CONSTRUCTION COST" collectively includes all costs that would constitute the basis of a valid claim or claims under the mechanic's 7 lien Laws, including, without limitation, costs for any demolition or removal of existing improvements, equipment or machinery or parts thereof, as well as costs for the preparation, construction and completion of new improvements, equipment or machinery. Any alterations or additions to the Facility which have a Construction Cost in excess of One Million Dollars ($1,000,000), shall require Landlord's prior written content, which shall not unreasonably be withheld. Construction of the Facility, and any alterations and additions thereto, whether or not requiring Landlord's consent hereunder, shall be completed in a good and workmanlike manner and of good quality and materials. 8.3 Tenant shall use only reputable licensed contractors in constructing and repairing the Facility and in making any alterations or additions thereto, and Landlord may require Tenant to provide to Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half (1 1/2) times the estimated cost of such construction and/or such alterations or additions, as the case may be, to insure Landlord against liability for any mechanic's and materialmen's liens and to ensure completion of the work. Should Tenant make any alterations or additions without the prior written consent of Landlord where such consent is required hereunder, or use other than a reputable licensed contractor, Landlord may, at any time during the term of this Lease, require that Tenant remove any part or all of the same from the Premises. 8.4 Tenant shall pay, when due, all claims for labor or materials furnished to or for Tenant at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises, the Facility or any interest therein. 8.5 Tenant shall give Landlord not less than ten (10) days notice prior to Tenant's commencement of construction of the Facility or any alterations or additions thereto, and Landlord shall have the right to post notices of non-responsibility in or on the Premises as provided by Law. If Tenant shall, in good faith, contest the validity of any mechanic's or materialmen's lien or claim, then Tenant shall, at its sole expense, defend itself and Landlord against the same and shall pay and satisfy any adverse judgment that may be rendered thereon before the enforcement thereof, upon the condition that if Landlord shall so require, Tenant shall furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to such contested lien or claim, indemnifying Landlord against liability for the same and holding the Premises, the Facilities and Landlord's Facilities free from the effect of such lien or claim. In addition, Landlord may require Tenant to pay Landlord's reasonable attorneys' fees and costs in participating in such action, if Landlord shall decide it is in Landlord's best interest to so participate. 8.6 Notwithstanding any other provision of this Lease, the Facility and all of Tenant's other fixtures and personal property, whether or not affixed to the Premises, shall be deemed severed from and not a part of the underlying real property and shall not merge therewith, and, subject to the rights of Landlord under Section 9.3 hereof, shall remain the property of Tenant at all times during and after the term of this Lease, and may be removed by Tenant from the Premises. ARTICLE 9 - DAMAGE OR DESTRUCTION; TERMINATION 9.1 If the Facility or any portion thereof is damaged or destroyed during the term of this Lease, then, subject to the provisions of the Lender's Loan Documents, and following written notice to Landlord, Tenant may elect to: (a) repair, restore or remedy such damage or destruction; or 8 (b) dismantle and raze the Facility in accordance with Section 9.2 hereof, and, upon Tenant's completion of the requirements set forth in such Section 9.2, each of Tenant or Landlord, by written notice to the other, shall be entitled to terminate this Lease. 9.2 Within a reasonable period of time (not to exceed one hundred and twenty (120) days) after (a) Tenant delivers notice to Landlord of its intent to dismantle and raze the Facility under Section 9.1 hereof or (b) the expiration or earlier termination by Landlord of this Lease, Tenant shall, at its sole cost and expense, in accordance with good operating practice and in compliance with Law, (i) remove the Facility from the Premises, (ii) demolish and remove all foundations and fix all excavations associated with the Facility, return the surface of the Premises to grade, and leave such surface safe and free from debris and (iii) surrender the Premises to Landlord in good condition and repair. Notwithstanding the foregoing, Tenant shall not remove the Facility or any portion thereof from the Premises (or take any other actions required under this Section 9.2 with respect thereto), to the extent that Landlord has exercised the option set forth in Section 9.3 hereof. 9.3 Notwithstanding any other provision of this Lease, upon the expiration or earlier termination by Landlord of this Lease, or upon receipt by Landlord of Tenant's notice of its intent to dismantle and raze the Facility under Section 9.1 hereof, as the case may be, Landlord shall have an option to acquire all or any portion or portions of the Facility from Tenant, whereupon: (a) in the event Landlord desires to exercise such option in connection with the expiration of this Lease, such option shall be exercised by written notice to Tenant not less than one hundred and twenty (120) days before the expiration date of this Lease; (b) in the event Landlord desires to exercise such option in connection with the earlier termination by Landlord of this Lease, such option shall be exercised by written notice given concurrently with the notice of such termination; or (c) in the event Landlord desires to exercise such option in connection with its receipt of notice of Tenant's election to dismantle and raze the Facility as provided in Section 9.1 hereof, such option shall be exercised by written notice to Tenant within thirty (30) days following Landlord's receipt of such notice from Tenant. In each such case, such notice shall specify which portions (or all, if Landlord so elects) of the Facility are to be acquired by Landlord. In the event Landlord exercises such option as provided herein, then it shall pay to Tenant an amount equal to the fair market value of the portions (or all, if applicable) of the Facility to be acquired by Landlord (which fair market value shall be determined as of the date on which Landlord exercises such option), and payment of such amount shall be deemed payment in full for those portions (or all, if applicable) of the Facility so acquired from Tenant. In the event Landlord and Tenant cannot agree upon such fair market value, then the same shall be determined by an independent appraiser appointed by the American Arbitration Association at the request of either party hereto, and the determination made by such independent appraiser shall be conclusive and binding in all respects upon the parties hereto. Upon the payment of such sum, (i) Tenant shall, by documents and instruments reasonably satisfactory to Landlord, assign, transfer and convey to Landlord those portions (or all, if applicable) of the Facility so acquired by Landlord, and all personal property, Governmental Approvals and contract rights associated therewith and (ii) Landlord shall, by documents and instruments reasonably satisfactory to Tenant, assume Tenant's obligations with respect to those portions (or all, if applicable) of the Facility so acquired by Landlord. Notwithstanding the foregoing, the option granted to Landlord under this Section 9.3 shall be subject and subordinate to the Lender's Lien and to any rights of the Lender under Article 11 hereof. ARTICLE 10 - ASSIGNMENT AND SUBLETTING 10.1 Subject to Article 11 hereof, Tenant shall not voluntarily or by operation of Law, transfer, assign, alienate, license, sublet or grant to any Person all or any portion of the right, title 9 or interest then held by it in the Premises or under this Lease without first obtaining the prior written consent of Landlord, which shall not unreasonably be withheld. ARTICLE 11 -RIGHTS OF LENDER 11.1 Tenant may, from time to time in one or more transactions, without obtaining the consent of Landlord, hypothecate, mortgage, pledge or alienate all or any portion of Tenant's right, title and interest under this Lease to the Lender. Tenant or the Lender shall give written notice to Landlord of the Lender's Lien and the Lender's address for notices hereunder; provided, however, that any failure to give such notice shall not be grounds for denying the Lender the rights and protections provided in this Article 11, so long as Landlord has received actual notice of the Lender's Lien. 11.2 Any surrender or abandonment in whole or in part of this Lease, any material amendment hereto or any termination hereof other than in accordance with Article 14 hereof, in each case which would then reasonably be expected to have a Material Adverse Effect (as that term is defined in the Lender's Loan Documents), shall be ineffective and of no force or effect unless and until the prior written consent of the Lender has been obtained thereto. 11.3 The Lender shall have the right, but not the obligation, at any time prior to the termination of this Lease, and without the payment of any penalty, to (a) make any payments due hereunder, (b) do any other act or thing required of Tenant hereunder and (c) do any act or thing that may be necessary or appropriate to be done in the performance and observance of the terms hereof to prevent any default under or termination of this Lease. All payments so made and all things so done and performed by the Lender shall be as effective to prevent any default under or termination of this Lease as they would have been if made, done and performed by Tenant instead of by the Lender. 11.4 Tenant shall not be in default or material default under this Lease unless Tenant fails to perform the obligations required of it hereunder within the time periods set forth in this Lease, including all applicable cure periods. If Tenant fails to cure any default hereunder within the time so provided, then, commencing upon receipt by the Lender of written notice from Landlord to the effect that Tenant has failed to cure such default within such time, the Lender shall have an additional thirty (30) days to cure such default if such default is a monetary default, or ninety (90) days to cure such default if such default is a non-monetary default; provided, however, that if any such non-monetary default cannot reasonably be cured within such additional ninety (90) day period, then the Lender shall have such additional time to cure such non-monetary default as is reasonably necessary under the circumstances, so long as (a) the Lender shall have fully cured within such thirty (30) day period any default in the performance of any monetary obligations of Tenant hereunder, (b) the Lender shall have fully cured within such ninety (90) day period any default in the performance of any non-monetary obligations of Tenant hereunder that can reasonably be cured within such ninety (90) day period and shall thereafter continue to faithfully perform all such monetary and other obligations and to diligently pursue such cure to completion and (c) if possession of the Premises is reasonably required in order to effect such cure, the Lender shall have acquired Tenant's interest hereunder or commenced foreclosure or other appropriate proceedings in the nature thereof within such ninety (90) day period or prior to the expiration thereof, and shall be diligently prosecuting any such proceedings to completion. All rights of Landlord to terminate this Lease as a result of the occurrence of any default by Tenant shall be subject to, and expressly conditioned upon, (i) the Lender's having received the notice specified above in this Section 11.4 and (ii) the Lender's having failed to take the actions set forth in this Section 11.4. 10 11.5 Any default or material default by Tenant under this Lease that cannot be remedied by the Lender shall nevertheless be deemed to have been remedied so long as (a) the Lender shall have taken the actions described in clauses (a), (b) and (c) of Section 11.4 hereof within the time periods provided therein, (b) if the Lender shall have commenced foreclosure or other appropriate proceedings in the nature thereof under clause (c) of Section 11.4 hereof, then the Lender shall have completed such foreclosure or other appropriate proceedings or otherwise obtained possession of the Premises and (c) the Lender shall perform all obligations of Tenant under this Lease which arise thereafter and which can reasonably be performed by the Lender. 11.6 If the Lender is prohibited by any process or injunction issued by any court or by reason of any action of any court having jurisdiction over any bankruptcy, reorganization, insolvency or other debtor-relief proceeding involving Tenant, from commencing or prosecuting foreclosure or other appropriate proceedings in the nature thereof, then the times specified in Sections 11.4 and 11.5 hereof for commencing or prosecuting such foreclosure or other proceedings shall be extended for the period of such prohibition. 11.7 Landlord shall deliver to the Lender a duplicate copy of any and all notices of default that Landlord may from time to time deliver to Tenant pursuant to the provisions hereof, and such copies shall be delivered to the Lender at, or as near as possible to, the same time such notices are delivered to Tenant. No notice of default by Landlord to Tenant hereunder shall be deemed to have been given unless and until a copy thereof shall have been delivered to the Lender as provided in this Section 11.7. 11.8 Foreclosure of the Lender's Lien or any sale thereunder, whether by judicial proceedings or otherwise, or any conveyance or transfer of the interest of Tenant under this Lease from Tenant to the Lender through, or in lieu of, foreclosure or other appropriate proceedings in the nature thereof, shall not require the consent of Landlord or constitute a breach of any provision of or a default under this Lease, and upon such foreclosure, sale or conveyance Landlord shall recognize the Lender, or any other foreclosure sale purchaser, as the tenant hereunder. In the event the Lender becomes the tenant under this Lease as provided herein, then the Lender shall be personally liable for the obligations of Tenant under this Lease only for the period of time that the Lender remains the tenant hereunder, and the Project Lender shall have the right to assign this Lease without any restriction otherwise imposed on Tenant hereunder; provided, however, that the assignee of the Lender shall have expressly assumed all of the obligations of Tenant hereunder. 11.9 Upon Landlord's receipt of any notice in the nature of a notice of default with respect to any obligation of Landlord secured by any lien upon the Premises, Landlord shall immediately deliver a copy of such notice to Tenant and to the Lender. If and whenever Tenant or the Lender shall deem it necessary or appropriate to do so in order to protect its respective rights under this Lease, it may, at its option, pay and discharge any mortgage or other lien (including, without limitation, the lien of general or special property taxes or assessments) attached to the Premises or any portion thereof, and in such event it shall be subrogated to all the rights of the mortgagee, beneficiary, owner or holder of such mortgage or other lien. 11.10 In the event that this Lease is rejected by a trustee or debtor-in-possession in any bankruptcy or insolvency proceeding, and if, within sixty (60) days after such rejection, the Lender shall so request, Landlord shall execute and deliver to the Lender a new ground lease of the Premises. Such new ground lease shall be for a term equal to the remainder of the term of this Lease before giving effect to such rejection, and shall contain the same covenants, agreements, terms, provisions and limitations as contained in this Lease (except for any requirements which shall have been fulfilled by Tenant prior to such rejection). 11 11.11 Landlord and Tenant acknowledge, agree and covenant that notwithstanding the union of the fee simple title with any right, title or interest in the leasehold estate created hereby or under any other document or instrument in Landlord, Tenant, Lender, or any other Person, whether by purchase or otherwise, it is the declared intention of the parties hereto that the separation of the fee simple estate and the leasehold estate shall be maintained and that a merger shall not take place without the prior written consent of the Lender. 11.12 Tenant and Landlord shall cooperate in including herein, by suitable amendment from time to time, any provision which the Lender or any proposed Lender reasonably requests for the purpose of implementing the Lender-protective provisions contained in this Article 11 and affording the Lender or proposed Lender reasonable protection of its Lender's Lien in the event of a default by Tenant; provided, however, that Landlord shall not be required to include herein any additional provision which materially impairs the rights of Landlord under this Lease. Tenant and Landlord each agree to execute and deliver (and to acknowledge, if necessary for recording purposes) any document or instrument necessary to give effect to any such provision. 11.13 Landlord or Tenant (the "RESPONDING PARTY") shall at anytime upon not less than ten (10) days' prior written notice from the other party hereto or from the Lender (the "REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party a statement in writing (a) certifying, as applicable, that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which any payments due hereunder are paid in advance, if any, and (b) acknowledging that there are not, to the Responding Party's knowledge, any uncured defaults hereunder on the part of the other party hereto, or specifying such defaults if any are claimed. Any such statements may be conclusively relied upon by the Requesting Party and by any prospective purchaser or lessee of, or lender proposing to take a security interest in, the Facility, the Premises or any portion thereof or interest therein. The failure of the Responding Party to deliver such statement within such time shall be conclusive upon such Responding Party that (i) this Lease is in full force and effect and has not been modified and (ii) there are no uncured defaults in the performance of the other party hereto. 11.14 The Lender shall be an express third party beneficiary of the covenants contained in this Lease, with rights and benefits under, and the ability to enforce, this Lease. ARTICLE 12 - INSURANCE 12.1 At all times during the term of this Lease, Tenant shall procure and maintain the following policies of insurance, each of which (a) shall be obtained from an insurance company rated at least B+ by A.M. Best Company and (b) shall provide that it cannot be canceled or terminated without at least thirty (30) days prior notice to Landlord: 12.1.1 Workers compensation insurance as required by Law 12.1.2 Comprehensive general liability insurance with a limit of no less than $1,000,000, combined single limit, bodily injury and property damage, for each occurrence; and 12.1.3 Excess public liability insurance in the form of an umbrella policy, which umbrella policy shall afford coverage of not less than $5,000,000 per occurrence over and above the coverage provided by the policy described in Section 12.1.2 hereof. 12 12.2 Notwithstanding the foregoing, for so long as the Lender's Loan Documents remain in effect, Tenant shall procure and maintain such policies of insurance, in such amounts and containing such provisions, as are required under the Lender's Loan Documents. 12.3 In the event that Tenant has not renewed or replaced any insurance policy required under this Article 12 within ten (10) days prior to the cancellation or termination thereof, then Landlord shall be entitled (but not obligated) to cause such policy or policies to be renewed or replaced, and shall be entitled to invoice Tenant for the premiums paid by Landlord in connection with such renewal or replacement. Tenant shall reimburse Landlord for the amount of such invoice within ten (10) days after receipt thereof, and Tenant's failure to so reimburse Landlord within such ten (10) day period shall be a material default hereunder. ARTICLE 13 - CONDEMNATION 13.1 Subject to any applicable provisions of the Lender's Loan Documents, in the event of a taking of all or any portion of the Facility Site by eminent domain or by inverse condemnation for any public or quasi-public use under any Law, the proceeds therefrom shall be distributed (a) first, to Tenant to the extent of all amounts necessary to pay in full any sums outstanding under the Financing and (b) second, to the parties hereto in accordance with their interests as they may appear. ARTICLE 14 - DEFAULT AND REMEDIES 14.1 Subject to the provisions of Article 11 hereof, the occurrence of any one or more of the following events shall constitute a material default by Tenant under this Lease: 14.1.1 The vacation or abandonment of the Premises by Tenant for a continuous period of sixty (60) days or more, whether or not the rent is paid. 14.1.2 The failure by Tenant to make any payment of rent or any other payment required to be made by Tenant hereunder within five (5) business days after the same shall become due, where such failure shall continue for a period of five (5) business days after written notice thereof from Landlord to Tenant. 14.1.3 The failure by Tenant to observe or perform any of the material covenants, conditions or provisions of this Lease to be observed or performed by Tenant other than those referenced in Section 14.1.2 hereof, where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant's noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said thirty (30) day period and thereafter diligently pursues such cure to completion. 14.1.4 (a) The making by Tenant of any general arrangement for the benefit of creditors, (b) Tenant's becoming a "debtor" as defined in II U.S.C. (Section)101, unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days after filing, (c) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located on the Premises or of Tenant's interest under this Lease, where possession is not restored within sixty (60) days, or (d) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest under this Lease, where such seizure is not discharged within sixty (60) days. 13 14.2 Subject to the provisions of Article 11 hereof, in the event of any material default of this Lease by Tenant, Landlord may at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such default, take any of the following actions: 14.2.1 Terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate, and Tenant shall, subject to Section 9.2 hereof, immediately surrender possession of the Premises to Landlord. In such event, Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including, but not limited to: (a) the unpaid rent which had been earned at the time of termination; (b) the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (c) the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (d) any other amount necessary to compensate Landlord for the detriment proximately caused by Tenant's failure to perform its obligations under this Lease. 14.2.2 Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant shall have vacated or abandoned the Premises. In such event, Landlord shall be entitled to enforce all of Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. 14.2.3 Pursue any other remedy now or hereafter available to Landlord under the Laws of the State of California. 14.3 Landlord shall not be in default in the performance of its obligations under this Lease unless Landlord fails to perform the obligations required of Landlord hereunder within sixty (60) days after written notice by Tenant to Landlord, specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than sixty (60) days are required for its performance, then Landlord shall not be in default if Landlord commences performance within such sixty (60) day period and thereafter diligently pursues the same to completion. 14.4 Tenant hereby acknowledges that the late payment by Tenant to Landlord of any installment of rent or any other sum due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Accordingly, if any installment of rent or any other sum due from Tenant hereunder shall not be received by Landlord within ten (10) days after such amount shall be due, then, without any requirement for notice to Tenant, Tenant shall pay to Landlord a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of such late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, or prevent Landlord from exercising any of the other rights and remedies granted hereunder. 14.5 Except as expressly provided herein, any amount due to Landlord hereunder that is not paid when due shall bear interest at the greater of (a) ten percent (10%) per annum or (b) five percent (5%) per annum above the discount rate established by the Federal Reserve Bank of San Francisco on advances to member banks under Section 13 or 13(a) of the Federal Reserve Act as in effect on the Effective Date, from the date due until fully paid. Payment of such interest shall not excuse or cure any default by Tenant under this Lease. 14 ARTICLE 15 - MISCELLANEOUS LEASE PROVISIONS 15.1 Landlord and its agents shall have the right to enter the Premises and inspect the Facility and the operations and activities of Tenant, at any reasonable time and from time to time. Landlord shall indemnify, defend and hold harmless Tenant from and against any and all Damages which may be imposed upon or incurred by Tenant or asserted against Tenant by any third Person, arising out of or attributable to such inspection of the Facility, except to the extent caused by the negligence or wilful acts of Tenant. 15.2 Upon Tenant's paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Tenant's part to be observed and performed hereunder, Tenant shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 15.3 Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Facility. Tenant assumes all responsibility for the protection of Tenant, its agents, invitees and their property from the acts of third parties. 15.4 Tenant shall surrender possession of the Premises to Landlord at the expiration or earlier termination of the term of this Lease. If Tenant fails to surrender the Premises at the expiration or earlier termination of this Lease, Tenant shall defend and indemnify Landlord from all liability and expense resulting from such failure, including, without limitation, claims made by any succeeding tenant founded on or resulting from such failure by Tenant. 15.5 If Tenant, with Landlord's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Tenant, except that the rent payable shall be one hundred and twenty-five percent (125%) of the rent payable immediately preceding the termination date of this Lease. 15.6 No waiver by Landlord of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Tenant of the same or any other provisions. The acceptance of rent hereunder by Landlord shall not be deemed a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 15.7 No remedy or election of or by Landlord hereunder shall be deemed exclusive, but shall, wherever possible, be cumulative with all other remedies available at Law or in equity. 15.8 All monetary obligations of Tenant to Landlord under the terms of this Lease shall be deemed to be rent. 15.9 Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications as Landlord deems necessary or desirable, and to cause the recordation of final, parcel or other maps or restrictions, so long as such easements, rights, dedications, maps and restrictions would not reasonably be expected to have a Material Adverse Impact. Tenant shall promptly execute any of the aforementioned documents reasonably requested by Landlord, and its failure to do so shall constitute a material default under this Lease. 15 ARTICLE 16 - RESERVED AREA 16.1 Landlord and Tenant acknowledge that Landlord may in the future record one or more parcel or final maps (collectively, the "MAP,") subdividing the Premises into two or more separate parcels or lots complying with the California Subdivision Map Act (Govt. Code (section) 66410 at seq.) consisting of: (a) the site of the Facility, which shall be the land described in Exhibit "B" attached hereto (the "FACILITY SITE"); and (b) one or more other parcels, which shall together or collectively consist of the remainder of the Premises (the "RESERVED AREA"). 16.2 Tenant shall, at Landlord's expense and at no cost to Tenant, cooperate in all respects with Landlord's efforts to obtain and record the Map, including, without limitation, by executing any and all documents and instruments as may reasonably be required by Landlord or any applicable Governmental Authority in connection therewith. 16.3 Landlord shall have an option (the "PARTIAL TERMINATION OPTION") to at any time terminate this Lease as to all or any part of the Reserved Area, by delivering written notice (the "PARTIAL TERMINATION NOTICE") to Tenant describing the portion or portions of the Reserved Area as to which this Lease is to terminate (such portion or portions, together, the "OPTIONED PREMISES AREA") together with the payment to Tenant of the sum of Ten Dollars ($10.00), which shall be the entire consideration for such termination; provided, however, that Landlord's right to exercise the Partial Termination Option shall be contingent upon, and the Partial Termination Notice shall not be given until after, the approval and recordation of the Map by the County of Imperial. The term of the Partial Termination Option shall be the same as, and shall run concurrently with, the term of this Lease as set forth in Article 3 hereof. 16.4 At such time as (a) the Map shall have been recorded in the Official Records and (b) Tenant shall have received the Partial Termination Notice (along with the Ten Dollars ($10.00) consideration provided in Section 16.3 hereof), (i) Tenant shall promptly execute, acknowledge, deliver and cause to be recorded in the Official Records a quitclaim deed satisfactory to Landlord pursuant to which Tenant shall quitclaim to Landlord all its right, title and interest in and to the Optioned Premises Area and (ii) Tenant shall cause the Lender to promptly execute, acknowledge, deliver and cause to be recorded in the Official Records a partial release of the Lender's Lien satisfactory to Landlord, pursuant to which the Lender shall release all its right, title and interest in and to the Optioned Premises Area; and upon the recordation of such quitclaim deed and such partial release, Tenant shall surrender and deliver possession of the Optioned Premises Area to Landlord. By taking a security interest in this Lease, the Lender unconditionally and irrevocably agrees to execute, acknowledge, deliver and cause said partial release to be recorded as and when provided in this Section 16.4. In no event shall any such quitclaim entitle Tenant to any reduction in or offset against any of the rents or other payments due to Landlord hereunder. 16.5 Without limitation on Landlord's Reserved Rights, Landlord shall have the right to designate a right of way on, over, across and through the Facility Site for nonexclusive ingress, egress and use by Landlord for purposes of access to any portion of the Reserved Area and/or for the construction, installation, operation and maintenance of utility lines or pipelines in connection with any geothermal electrical generating facility, mineral processing facility and/or other commercial or industrial facility or improvements hereafter constructed in, on or under the Reserved Area, so long as such right of way would not reasonably be expected to have a Material Adverse Impact. 16 ARTICLE 17 - NOTICES 17.1 Any notices, statements, demands, correspondence or other communications required or permitted to be given hereunder shall be in writing and shall be given (a) personally, (b) by certified or registered mail, postage prepaid, return receipt requested, or (c) by overnight or other courier or delivery service, freight prepaid, to the following address, or, in the case of notices to the Lender, as provided in the notice of the Lender's Lien delivered to Landlord under Section 11.1 hereof. If to Landlord: Imperial Magma 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Attn: Office of the General Counsel If to Tenant: Salton Sea Power L.L.C. 302 South 36th Street Suite 400-K Omaha, Nebraska 68131 Attn: Office of the General Counsel Except as otherwise provided in Article 11 hereof, (i) notices delivered by hand shall be deemed received when delivered and (ii) notices sent by certified or registered mail or by overnight or other courier or delivery service shall be deemed received on the first to occur of (A) five (5) days after deposit in the United States mail or with such overnight or other courier or delivery service, addressed to such address or addresses, (B) written acceptance of delivery by the recipient or (C) written rejection of delivery by the recipient. Each party hereto may change its address for receipt of notices by sending notice hereunder of such change to the other party hereto in the manner specified in this Section, and the Lender may change its address for receipt of notices by sending notice hereunder to each of the parties hereto in the manner specified in this Section. Notwithstanding the foregoing, amounts payable to Landlord hereunder shall be deemed paid three (3) days after a valid check for the same, addressed to Landlord's address above, is deposited in the United States mail, first-class postage prepaid. ARTICLE 18 - FORCE MAJEURE 18.1 Neither Landlord nor Tenant shall be liable in damages to the other for any act, omission or circumstance (an "EVENT OF FORCE MAJEURE") occasioned by or in consequence of any acts or omissions of the other party hereto, acts of God, acts of the public enemy, wars, blockades, insurrections, riots, civil disturbances, strikes, lockouts, delays in transportation, epidemics, landslides, lightning, earthquakes, fires, storms, floods, explosions, sabotage, the binding order of any Governmental Authority which has been contested in good faith, the failure of any Governmental Authority to issue any Governmental Approval within one hundred and twenty (120) days after an application for the same has been submitted, the effect of any Laws, or any other event or circumstance beyond the reasonable control of such party which prevents or hinders such party from performing its obligations hereunder, whether or not similar to the matters and conditions 17 herein enumerated. In no event, however, shall an Event of Force Majeure relieve Tenant from the obligation to pay rents or any other payments due to Landlord under this Lease. ARTICLE 19 - GENERAL PROVISIONS 19.1 In addition to any other indemnities herein set forth, each party hereto (the "INDEMNIFYING PARTY") shall indemnify, defend and hold harmless the other party hereto (the "INDEMNIFIED PARTY") from and against any and all Damages which may be imposed upon or incurred by the Indemnified Party or asserted against the Indemnified Party by any third Person, arising out of or attributable to the failure of the Indemnifying Party to perform its obligations as provided in this Lease. 19.2 The parties hereto shall cooperate each with the other to fully effectuate the purposes and intent of this Lease. Without limiting the generality of the foregoing, the parties hereto covenant that they will execute, cause to be acknowledged and deliver any documents or instruments reasonably necessary to implement the intentions expressed or implied herein. 19.3 The parties shall execute, cause to be acknowledged and deliver a memorandum of this Lease, which shall be recorded in the Official Records, and shall be in the form attached hereto as Exhibit "C". 19.4 If either party hereto commences litigation for the enforcement, termination, cancellation or rescission hereof, or for damages for the breach hereof, the prevailing party shall be entitled to recover its reasonable attorneys' fees and court and other costs incurred. 19.5 Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition. As used herein, the neuter gender includes the masculine and the feminine, and the singular number includes the plural, and vice versa. This Lease shall be governed by the Laws of the State of California. This Lease shall be construed equally as against the parties hereto, and shall not be construed against the party responsible for its drafting. Time is of the essence with respect to the obligations to be performed under this Lease. All exhibits to which reference is made in this Lease are incorporated into this Lease. Captions in this Lease are inserted for convenience of reference only and do not define, describe or limit the scope or intent of this Lease or any of the terms hereof. 19.6 This Lease contains all agreements of the parties hereto with respect to the subject matter of this Lease, and all prior or contemporaneous agreements, understandings, correspondence and negotiations, whether oral or written, pertaining to the subject matter of this Lease, shall be of no further force or effect, and are superseded hereby. 19.7 Any obligations referred to herein to be performed at any time after the expiration or termination of this Lease, and all indemnities and hold harmless agreements provided herein, shall survive the expiration or earlier termination of this Lease. 19.8 No amendment or modification of this Lease or any provision hereof shall be effective unless in writing and signed by the parties in interest at the time of the amendment. 19.9 The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. 18 19.10 This Lease and the covenants contained herein shall be binding upon and inure to the benefit of the parties hereto and their respective grantees, assignees, successors and assigns. [SIGNATURES ON NEXT PAGE] 19 IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date first above written. LANDLORD: IMPERIAL MAGMA, a Nevada corporation By: /s/ Craig H. Hammet Name: Craig H. Hammet Title: Senior Vice President TENANT: SALTON SEA POWER L.L.C., a Delaware limited liability company By:CE Salton Sea Inc., a Delaware corporation, its Manager By: /s/ Craig H. Hammet Name: Craig H. Hammet Title: Senior Vice President EX-10.42 16 LEASE AGREEMENT (POWER RESOURCES) LEASE AGREEMENT THE STATE OF TEXAS S S COUNTY OF HOWARD S This Lease Agreement ("Lease") is entered into on the date last herein written between Fina Oil and Chemical Company, a Delaware corporation, as Lessor, and Power Resources, Inc., a Texas corporation, as Lessee, and is as follows: ARTICLE I TITLE AND QUIET POSSESSION 1.01 Title and Quiet Possession. Lessor covenants that it is the fee simple owner of the real property in Howard County, Texas, more fully described by metes and bounds in Exhibit "A" which is attached hereto and made a part hereof for all purposes ("Leased Premises"), free and clear of all liens and encumbrances (except as provided in Section 16.01); that it has full power to lease the Leased Premises and has full power and authority to enter into this Lease; and that by paying the rent and performing its other obligations herein contained, the Lessee shall peaceably hold and enjoy the Leased Premises during the lease term, without interruption by the Lessor or any person claiming by, through or under it. 1.02 Condition of Premises. Prior to construction or installation of the cogeneration plant and related support facilities on the Leased Premises, Lessor shall make the Leased Premises available to Lessee free of rubbish, trash, junk, waste products, and abandoned or stored equipment and supplies, and otherwise in a generally clean condition. Notwithstanding the foregoing provision, Lessor shall not be required to remove the concrete slabs presently located on the Leased Premises, although Lessee may remove or use the same at its discretion. ARTICLE II LEASE TERM 2.01 Leasing Clause. Lessor hereby leases and lets the Leased Premises to Lessee for construction of improvements thereon for use in the operation of a cogeneration plant and related support facilities to provide power to one or more electric power companies or to Lessor. 2.02 Term. The occupancy of the Leased Premises by Lessee shall commence on November 21, 1986 ("Commencement Date"), at which time Lessor shall deliver to Lessee possession of the Leased Premises. This Lease shall remain in effect for a term ("Term") of eighteen (18) years from the Commencement Date, unless sooner terminated pursuant to the terms and provisions hereof. 2.03 Option to Renew. Provided Lessee is not then in default hereunder, Lessor hereby grants to Lessee the right to extend this Lease for one (1) additional period of fifteen (15) years, provided Lessee shall give notice in writing at least ninety (90) days prior to the then current expiration date of the Term of this Lease of its intent to exercise the renewal option. At the time the renewal option is exercised, the cogeneration plant on the Leased Premises must be in operation. If, ninety (90) days prior to the then current expiration date of the Term of this Lease, the parties are negotiating an extension of the Steam Purchase and Sale Agreement (as described in Section 2.04, below), the renewal option shall be exercised automatically by the parties' agreement to extend the Steam Purchase and Sale Agreement, notwithstanding that Lessee has failed to give timely notice as required herein, and, if necessary, the current Term shall be extended for any such period of negotiation. In the event that the renewal option is exercised, all terms of this Lease shall remain the same. 2.04 Other Agreements. Lessor and Lessee have entered into two (2) agreements entitled "Steam Purchase and Sale Agreement" and "Fuel Purchase and Sale Agreement," which, among other things, address the sale of steam by Lessee to Lessor and -2- the sale of Lessor supplied fuel gas to Lessee for the operation of the cogeneration plant to be constructed by Lessee on the Leased Premises. In the event that either party defaults under either agreement with regard to the performance of any of its obligations or duties thereunder, and the period to cure such default has expired, the other party may, at its option, terminate this Lease by delivery of notice of termination to the defaulting party, provided that such default is material under the circumstances and a default for which the parties have not provided exclusive remedies. ARTICLE III LAWFUL USE 3.01 Use of Leased Premises. Lessor agrees that Lessee may use the Leased Premises and any improvements constructed thereon for the use specified in Section 2.01. Lessee agrees to use the Leased Premises in an orderly fashion and not to violate any law or ordinance on said premises. ARTICLE IV ASSIGNMENT AND SUBLETTING 4.01 Assignment and Subletting. Upon the prior written approval of Lessor (which approval shall not be unreasonably withheld), Lessee shall have the right to (i) assign or transfer this Lease and (ii) sublet all or any part of the Leased Premises. Lessor's consent is not required for assignment or subletting to a parent, subsidiary or affiliated corporation of Lessee. ARTICLE V LESSEE LIABILITY 5.01 Release of Liability Upon Assignment. The term "Lessee" is used in this Lease, so far as covenants or obligations on the part of the Lessee are concerned, shall be limited to mean and include only the owner or owners at the time in question of the improvements on the Leased Premises, and in the event of any assignment, sale or transfer by Lessee -3- of its leasehold estate hereunder as approved by Lessor, the Lessee herein named (and in case of any subsequent transfer or conveyances, the then transferor) shall be automatically freed and relieved from and after the date of such transfer or conveyance of all liability and obligation as respects the performance of any covenants or obligations on the part of the Lessee contained in this Lease thereafter to be performed; provided that any funds in the hands of such Lessee or the then transferor at the time of such transfer, in which the Lessor has an interest, shall be turned over to the transferee, and any amount then due and payable to the Lessor by the Lessee or the then transferor under any provision of this Lease shall be paid to the Lessor; and provided further that upon any such transfer, the transferee shall assume, subject to the limitations of this Section, all of the terms, covenants and conditions in this Lease contained to be performed on the part of the Lessee, it being intended that the covenants and obligations contained in this Lease on the part of the Lessee shall, subject as aforesaid, be binding on the Lessee, its successors and assigns, only during and in respect to their respective successive period of ownership. In the event of any assignment or other transfer, subject as aforesaid, by Lessee pursuant to the provision of this Section, and upon any termination of this Lease, Lessee shall be relieved of all liabilities or obligations under this Lease (including specifically, but without limitation, any obligation to pay any rental, provided that all rental payments due to the date of such assignment have been paid). ARTICLE VI RENT 6.01 Rent Amount. So long as this Lease remains in effect, Lessee agrees and binds itself to keep and perform all of the covenants and agreements stated herein, which on its part are to be kept and performed, and to pay to Lessor an -4- annual rental of $100.00 per year, in advance, on the Commencement Date and on November 21 of each subsequent year during the Term. 6.02 Place of Payment. Rent will be paid to Lessor at P.O. Box 2159, Dallas, Texas 75221, or at such other place as may from time to time be designated in writing by Lessor, its successors or assigns. ARTICLE VII TAXES 7.01 Ad Valorem Taxes on Real Property. Lessor shall pay, or arrange for the payment of, and Lessee shall reimburse Lessor for, when and as requested by Lessor, all ad valorem taxes covering the Leased Premises, with such taxes to be prorated at the beginning (based upon the year in which the Commencement Date occurs) and at the end of this Lease for the then current year. In this connection, Lessor shall be responsible for the tax rendition of such real property separate from the rendition of other real property owned by Lessor, and Lessor shall provide Lessee with copies of the actual rendition, the valuation notice from any appraisal district and final tax receipts evidencing payment of all taxes. The aforementioned documents shall be provided to Lessee prior to or at the same time as Lessor requests reimbursement for taxes paid. Furthermore, Lessee shall have the right to review Lessor's records relative to such rendition and valuation if, in Lessee's judgment, such rendition and valuation are of too high a dollar amount and shall have the right to jointly contest with Lessor any such valuation by said appraisal district. 7.02 Ad valorem Taxes on Personal Property. Lessee shall be responsible for the rendition and payment of the applicable ad valorem taxes covering any improvements and personal property placed upon the Leased Premises by Lessee to the extent improvements and personal property are not covered by the ad valorem taxes referred to in Section 7.01. -5- 7.03 Other Taxes. Except as provided above in Sections 7.01 and 7.02, Lessee shall pay, when due, assessments, levies, fees, water and sewer rents and all other taxes, fees and charges, whether general or special, ordinary and extraordinary, and whether or not the same shall have been within the express contemplation of the parties hereto, together with any interest and penalties thereon, which are, at any time, imposed or levied upon or assessed against the Leased Premises or any part thereof, or which arises in respect of the operation, possession, occupancy or use thereof; however, Lessee shall not be required to pay any income, profits, revenue, corporate or franchise taxes of Lessor, or severance tax. Lessor shall give Lessee prompt notice of any charges for which Lessee is responsible pursuant to this Section 7.03. In the event Lessor fails to promptly notify Lessee of charges otherwise unknown to Lessee, Lessor shall pay any penalty or interest due on such charges. ARTICLE VIII SERVICES AND UTILITIES 8.01 Services and Utilities. Following the Commencement Date, Lessee shall pay for all services and utilities it may require in connection with its use and occupancy of the Leased Premises, and Lessor shall have no obligation to furnish or pay for any such services or utilities, except to the extent agreed to in the Steam Purchase and Sale Agreement and the Fuel Purchase and Sale Agreement, or as otherwise needed during construction of the cogeneration plant. ARTICLE IX ALTERATIONS AND IMPROVEMENTS 9.01 Alterations and Improvements. Following the Commencement Date, the Lessee shall have the right to remove or demolish, at its expense, any improvements constructed upon the Leased Premises and shall have the right to make such improvements to or alterations in the Leased Premises as to it -6- may seem necessary for its use and enjoyment of the same, including, but not limited to, the right to repair, alter, reconstruct, or renovate any structure now hereon or hereafter placed thereon and to alter the topography of the land itself. Any such major topographical alteration must be approved by Lessor prior to the onset thereof. Upon the expiration or termination of this Lease, Lessee shall remove all improvements, trade fixtures, equipment, furniture and other personal property placed or located on the Leased Premises, returning the Leased Premises to as similar a condition as they are in on the Commencement Date, ordinary wear and tear excepted. Lessee will pay for all such work and indemnify and hold the Lessor harmless from any costs in connection therewith. Title to any buildings or improvements situated or erected on the Leased Premises and the building equipment and other items installed thereon or contained therein and any alteration, change or addition thereto shall remain solely in Lessee even after termination of this Lease, and Lessee alone shall be entitled to deduct all depreciation on Lessee's income tax return for any such buildings, building equipment and/or other items, improvements, additions, changes or alterations. 9.02 Lessor' Obligations. Following the Commencement Date, except as provided in Section 1.02, Lessor shall not have any duty to repair or improve the Leased Premises or any structure now located or thereafter placed thereon either prior to the commencement of or during the Term. ARTICLE X INSURANCE AND INDEMNITY 10.01 Coverage and Limits of Liability - During the Term, the parties shall each procure and maintain at its sole expense, the following types of insurance coverage and limits of liability, provided that the required limits may be satisfied by any combination of primary or excess insurance in -7- each party's sole discretion: Limits of Liability Type of Coverage Insurance Policy ---------------- ------------------- (a) Worker's Compensation Insurance Statutory (b) Employer's Liability Insurance $20,000,000 per occurrence (c) Comprehensive General Public Liability $20,000,000 per occurrence Including: Coverage for damage caused by blasting, collapse, underground damage or explosion; Independent Contractors; Products, Completed Operations; Personal Injury; Contractual Public Liability; Property Damage covering liability assumed in the Lease; and Excess Employer's Liability (d) Comprehensive Automobile Liability $20,000,000 per occurrence Including: Coverage for all owned, hired or non-owned licensed automotive equipment. 10.02 Proof of Coverage - Each party shall require that its insurance carriers provide to the other party proof of insurance in the form of certificates of insurance acceptable to the other party. Such certificates shall provide that there will be sixty (60) days' written notice given to the other party of any change in or cancellation of any policy. 10.03 Policies - All policies shall be written on an occurrence basis, unless an occurrence basis policy becomes unavailable, and shall include the party, its directors, officers, agents, servants, employees and/ or independent contractors directly responsible to each party as additional insureds. All policies shall contain an endorsement (if such terminology is not in the printed form) that each party's policy shall be primary in all instances regardless of like coverages, if any, carried by the other party. -8- 10.04 Release and Waiver - Each party agrees to release, and will require its insurers (by policy endorsement) to waive their rights of subrogation against the other party, its directors, officers, agents, servants, employees and/or independent contractors directly responsible to such party for loss under the policies of insurance described herein, damages to such party's properties and/ or any other loss sustained by such party. 10.05 Right to Obtain Insurance for Other Party. If either party shall fail to procure or pay for the required insurance and endorsements when premiums become due, the other party shall have the right, though not be required, to obtain such insurance and endorsements and to pay the premiums for the account of the nonpaying party. Such amount shall be immediately due and payable from the nonpaying party and the paying party may offset amounts otherwise due from the paying party to the nonpaying party for amounts paid hereunder for the account of the nonpaying party. 10.06 Indemnity. Following the Commencement Date, Lessee hereby agrees to indemnify, save and hold harmless Lessor of and from any and all claims, demands and causes of action on account of any loss, damage or injury to persons or property on the Leased Premises other than such as may arise out of or result from (i) the sole negligence or willful misconduct of Lessor or (ii) the use of the property prior to the Commencement Date; provided that Lessee shall be promptly notified of any such claim, demand or suits brought against Lessor and shall be permitted to control the defense against or settlement of such claim, demand or suit through counsel of its choice. Lessee's indemnity shall include court costs, attorneys' fees, administrative costs and penalties, statutory fines and penalties, and any other direct, indirect or consequential damages incurred by Lessor. -9- ARTICLE XI CONDEMNATION 11.01 Condemnation. If all or any part of the Leased Premises or any improvements thereon shall be taken under the exercise of the power of eminent domain by any governmental authority, this Lease shall, at Lessee's option, terminate as of the date of such taking provided that Lessee and Lessor receive their respective portions of the condemnation award for such taking as provided below. The rent shall be apportioned as of the date of such taking, and any remaining balance of prepaid rent shall be repaid to Lessee. If the Leased Premises or any improvements hereon are partially taken under the exercise of the power of the eminent domain by any such governmental authority, and this Lease is not terminated by Lessee, the rent provided for herein shall be proportionately abated during the balance of the term remaining. Lessor shall receive out of such award the value of the Leased Premises (less the value of Lessee's leasehold estate and improvements) and the balance of such award (including the value of Lessee's leasehold estate and improvements) shall belong to Lessee. Any award for improvements constructed by Lessee on the Leased Premises after the Commencement Date shall belong to Lessee. In the event of a condemnation affecting the Leased Premises, Lessor agrees to lease to Lessee additional land or an alternative site owned by Lessor in proximity to Lessor's refinery near Big Spring in Howard County, Texas, provided the lease of such additional land or alternative site does not interfere with the operation of Lessor's refinery. ARTICLE XII ENCUMBRANCE AND DEFAULT 12.01 Leasehold Mortgages and Liens. The Lessee may at any time mortgage its interest in the Leased Premises in favor of a lender ("Leaseholder Mortgagee"). If any claims for labor and materials in connection with the construction of the -10- cogeneration plant on the Leased Premises result in the filing of liens against the fee interest of Lessor in the Leased Premises, Lessee shall cause such liens to be removed with due diligence, provided that it shall not be required to remove any such lien so long as it is contesting the validity or propriety of such lien in good faith through appropriate legal proceedings. Lessor shall provide such assistance as Lessee may reasonably request in connection with such proceedings. 12.02 Lessee's Default and Rights to Cure. If the Lessee shall default in the payment of any installment of rent when it is due, or if it shall default in the performance of any of its other obligations herein stated, Lessor agrees that it will give to Lessee written notice of the existence of such default or claimed default and the Lessee shall have a period of thirty (30) days within which to cure same. In the event Lessor gives notice of a default which cannot be cured solely by the payment of money and is (1) of such a nature that it cannot be cured within such thirty day period or (2) if the curing thereof cannot be completed within said thirty day period due to causes beyond the control of Lessee, then such default shall not be deemed to continue so long as Lessee, after receiving such notice, proceeds to cure the default as soon as reasonably possible, but in no event longer than six (6) months after the date of default and continues to take all steps necessary to complete the same within a period of time which, under all prevailing circumstances; shall be reasonable. In the event that any defaults of Lessee shall be cured in any manner herein provided prior to the cancellation of this Lease, such defaults shall be deemed never to have occurred and Lessee's rights hereunder shall continue unaffected by such defaults. In the event that the Lessee, during the term of this Lease, should mortgage ("Leasehold Mortgage") or otherwise encumber its leasehold estate or interest in any improvements hereafter situated upon the Leased Premises in accordance with the terms hereof, Lessee (or such Leasehold Mortgagee) shall give Lessor -11- written notice of the same and the name and address of any such mortgagee and/or trustee and thereafter, while any such Leasehold Mortgage or encumbrance is in force, Lessor shall give any such Leasehold Mortgagee or trustee a duplicate copy of any and all notices of default or other notices in writing which Lessor may give or serve upon Lessee pursuant to the terms of this Lease, and any such notice shall not be effective until a duplicate copy is actually delivered to such Leasehold Mortgagee or trustee at such addresses as such Leasehold Mortgagee may from time to time designate. Such Leasehold Mortgagee or trustee may change its address for notice by written notice delivered to Lessor from time to time. Any such Leasehold Mortgagee and/or trustee may, at its option, at any time before this Lease has been cancelled and terminated by Lessor as provided for in this Lease, pay any of the rents or other sums of money herein stipulated to be paid by Lessee or do any other thing required of the Lessee by the terms of this Lease, and all payments so made and all things so done or performed by any such Leasehold Mortgagee and/or trustee shall be as effective to prevent a termination of the rights of Lessee hereunder as the same would have been if done and performed by Lessee instead of by any such Leasehold Mortgagee or trustee. It is further agreed that Lessor shall not have the right to terminate this Lease for any non-monetary default by Lessee during such time as the Leasehold Mortgagee in good faith and with reasonable diligence either attempts to cure such default or commences and thereafter prosecutes with diligence appropriate proceedings for foreclosure or other enforcement of the liens securing such Leasehold Mortgagee loan; provided, however, that Lessor shall have the right to terminate this Lease of a non-monetary default if said Leasehold Mortgagee fails to complete such cure or foreclosure within six (6) months from the date of the default. Any such Leasehold Mortgage or deed of trust so given by Lessee may, if -12- Lessee so desires, be conditioned to provide that, as between any such Leasehold Mortgagee or trustee and Lessee, said trustee or Leasehold Mortgagee, on making good and correcting any such default or defaults on the part of Lessee, shall be thereby subrogated to any and all of the rights of the person or persons to whom any payment is made by said Leasehold Mortgagee or trustee, and to all of the rights of Lessee under the terms and provisions of this Lease, but any such subrogation shall not impair Lessor's rights under this Lease. No such Leasehold Mortgagee or trustee of the rights and interests of Lessee hereunder shall be or become liable to Lessor as an assignee of this Lease until such time as said Leasehold Mortgagee or trustee shall by foreclosure or other appropriate proceedings in the nature thereof, or as the result of any other action or remedy provided for by such Leasehold Mortgage or deed of trust, or by proper conveyance from Lessee, either acquire the rights and interests of Lessee under the terms of this Lease or actually take possession of the Leased Premises, and upon such Leasehold Mortagee's or trustee's assigning such rights and interest to another party or relinquishing such possession, as the case may be, such Leasehold Mortgagee or trustee shall have no further such liability, if such assignment be approved by Lessor as provided in Section 4.01 hereof. Upon termination of this Lease for any reason other than expiration by the passage of time of the Term, the Leasehold Mortgagee of first priority upon Lessee's leasehold estate shall have the option, upon written notice delivered to Lessor not later than sixty (60) days after receipt of written notice from Lessor of such termination, to elect to receive, in its own name or in the name of its nominee or assignee, from Lessor a new lease of the Leased Premises for the unexpired balance of the Term on the same terms and conditions as in this Lease set forth, and Lessor agrees to execute such lease provided said -13- Leasehold Mortgagee shall undertake forthwith to remedy any curable default of Lessee. Any such new lease shall have priority equal to this Lease, and notice of such priority is hereby given. 12.03 Postponement of Lease Termination. Notwithstanding the provisions of this Lease, it is agreed that so long as there is a first mortgage on Lessee's interest in this Lease, the effective termination of this Lease by reason of the occurrence of any of the actions specified herein as events of default or reasons for Lessor to have the right to terminate this Lease shall be postponed provided that (i) within a period of six (6) months after such event of default the first Leasehold Mortgagee or trustee shall complete the prosecution of a foreclosure proceeding or sale under its mortgage, (ii) all current rentals and other monetary obligations of the Lessee under and in connection with the Lease are timely paid in full or complied with, and (iii) title to said Leasehold passes in due course (subject, in the case of Lessee's bankruptcy, to delay caused by enjoinder of such foreclosure by a bankruptcy court). 12.04 Default by Lessee and Lessor's Right to Terminate Lease. If any defaults on the part of Lessee are not cured within the time and in one of the manners hereinabove provided, Lessor may, at its option, cancel this Lease and retake possession of the Leased Premises, without prejudice to its rights to recover past due rentals or damages, or Lessor may, at its option, enter upon the Leased Premises, and, as Lessee's agent, relet the Leased Premises to any person, firm or corporation of Lessor's selection, crediting all rents received by it, first, to the payment of the cost and expense of reentry and repossession, and second, to the payment of rentals contracted to be paid by the Lessee hereunder and any deficiency shall be paid by Lessee to Lessor on demand. In the event Lessor exercises either of the foregoing options, it -14- shall be privileged to act through any agent, servant or employee of its selection, and if possession of the Leased Premises is retaken, whether by force or otherwise, Lessor shall not be liable to Lessee in any manner whatsoever and Lessee expressly waives any and all claims, demands or causes of action which it may or might have against Lessor by reason of any such reentry, except for gross negligence or willful misconduct on the part of Lessor. Anything elsewhere herein contained to the contrary notwithstanding, however, Lessor shall not have the right to terminate or attempt to terminate this Lease or take any other action against Lessee hereunder on account of any alleged default of Lessee during the pendency of any good faith arbitration, litigation, or other legal proceedings (including appeals therefrom) determinative of whether such default did, in fact, occur. If it shall be finally determined that a default did occur, Lessee shall have a period of thirty (30) days after such determination to cure the same. 12.05 Third Party Consent to Amendment. No amendment or modification of this Lease shall be valid without first obtaining the prior written consent of any leasehold mortgagee or secured party of Lessee's interest in the Leased Premises or property located thereon. ARTICLE XIII INTEREST 13.01 Interest. If the Lessor shall pay any sum for the account of the Lessee under the terms and provisions of this Lease, Lessee agrees to pay to Lessor, on demand, the amount or amounts so paid. Each such sum of money and all delinquent rentals shall bear interest from their due date until paid at the rate of ten percent (10%) per annum. ARTICLE XIV ENFORCEMENT COSTS 14.01 Enforcement Costs. The court costs and attorneys' -15- fees incurred by either party in a successful prosecution or defense of any legal or equitable proceedings to construe this Lease or enforce any right or obligation arising from it shall become an obligation due and payable from the other party, and each such obligation shall bear interest from the date of its accrual at the rate of ten percent (10%) per annum. ARTICLE XV THIRD PARTY REQUIREMENTS 15.01 Third Party Requests for Amendment. Lessor agrees that in the event TUEC pursuant to Article XXIII, or any mortgagee of Lessee, requires any modification of this Lease agreement, and, in the event Lessor does not consent, in writing, to such modification (which consent will not be unreasonably withheld), Lessee shall have the right to terminate this Lease by giving written notice of such termination to Lessor. In such event, termination of this Lease be Lessee's sole remedy. ARTICLE XVI LEGAL OPINION 16.01 Legal Opinion. Within three (3) days after the execution hereof, Lessor will furnish to Lessee its legal opinion that Lessor is the fee simple owner of the Leased Premises subject to no easements, encumbrances or other title defects (except for an easement granted to Texas Electric Service Company, recorded in Vol. 170, Page 96, Deed Records of Howard County, Texas), that the Leased Premises are legally subdivided, that no building permits are required for the construction and installation of the cogeneration plant and related support facilities, and that no zoning ordinances or restrictive covenants affect the Leased Premises. If Lessee is required to obtain any permit or authorization for the construction or operation of the cogeneration plant on the Leased Premises, Lessor shall sign any application for such permit or authorization, or take such other action or provide such cooperation, as necessary, upon request of Lessee. Also -16- within three (3) days after the execution hereof, Lessor shall furnish to Lessee a current survey of the Leased Premises by a licensed surveyor approved by Lessee and containing a surveyor's certificate in the form attached hereto as Exhibit B. The survey shall show, among other things, the location of all easements, rights of way and means of ingress to and egress from the Leased Premises which will be available to Lessee. If Lessor is unable to furnish such a legal opinion, or the survey discloses problems with title or the condition of the Leased Premises, then Lessee may, at its option, (1) waive any defects in title or in the condition of the property and proceed with this Lease agreement; (2) require Lessor to lease to Lessee additional land or an alternative site owned by Lessor in proximity to Lessor's refinery near Big Spring in Howard County, Texas, provided the lease of such additional land or alternative site does not interfere with the operation of Lessor's refinery or (3) terminate this Lease. Also within three (3) days after the execution hereof, Lessor shall furnish to Lessee a drawing or drawings showing completely and accurately the nature and location of any underground installations (such as, but not limited to, water and gas pipes, sewers, powerlines and telephone lines) on or appurtenant to the Leased Premises that are not so shown on the survey. Lessee shall be entitled to rely on such survey or drawings in building and operating the cogeneration plant on the Leased Premises, and in the event that Lessee encounters any underground installation not shown or incorrectly located on such survey or drawings, Lessor shall defend and indemnify Lessee against and hold Lessee harmless from any third party claims resulting from damage done to such installation and shall also reimburse it for any extra cost incurred by it as a result of encountering such installation. In addition to such indemnity, Lessor agrees to lease to Lessee additional land or an alternative site owned by Lessor in proximity to Lessor's -17- refinery near Big Spring in Howard County, Texas, provided the lease of such additional land or alternative site does not interfere with the operation of Lessor's refinery. ARTICLE XVII NOTICES 17.01 Address for Notices. Any notice given to Lessor hereunder shall be sent by certified mail, postage prepaid, addressed to the attention of: Vice President, Refining, P.O. Box 2159, Dallas, Texas 75221, and any notice given to Lessee hereunder shall be sent by certified mail, postage prepaid, addressed to the attention of: President, 2200 Post Oak Blvd., Suite 509, Houston, Texas 77056. Each party may from time to time designate another place as the address to which such notices shall be sent, such designation to be in writing and to be sent by certified mail, postage prepaid, to the other party at the last address so designated by such other party; and such change of address shall become effective thirty (30) days after the mailing of such notice, properly stamped and addressed. 17.02 Date Notice Given. Any such notice shall be deemed to have been given three (3) days following the date of the mailing thereof in the manner above set out, and such mailing shall constitute delivery. ARTICLE XVIII HOLDING OVER 18.01 Holding Over. If Lessee remains in the Leased Premises beyond the Term of this Lease, such holding over shall be a tenancy from month to month, subject to the terms and conditions and at the rent provided in this Lease for the immediately preceding year. ARTICLE XIX COVENANTS RUN WITH LAND 19.01 Covenants Run With Land. All of the covenants, agreements and conditions contained in this Lease shall be construed as covenants running with the land and shall extend to and be binding upon the successors and assigns of the parties hereto. -18- ARTICLE XX MEMORANDUM 20.01 Memorandum. A memorandum of this Lease shall be filed for record in the Real Property Records of Howard County, Texas. ARTICLE XXI RIGHT OF FIRST REFUSAL 21.01 Right of First Refusal. In the event Lessor, at any time during the Term of the Lease, receives an offer to purchase all or any portion of the Leased Premises which Lessor is willing to accept, Lessor shall, prior to accepting any such offer, give written notice to Lessee of such offer, including a copy thereof, and Lessee shall have a period of sixty (60) days following receipt of such notice to exercise a right of first refusal to purchase the Leased Premises, on the same terms and conditions set forth in such offer. If Lessee agrees to the terms of such offer, it shall exercise its right of first refusal in writing, prior to the termination of such sixty (60) day period, and shall have the right to purchase the Leased Premises on the same terms and conditions as set forth in the offer. If Lessee fails to exercise its right of first refusal prior to the termination of such sixty (60) day period, then the Lessor shall be free to accept such offer and sell to the offeror making such offer on the exact terms and conditions set forth in the offer. This obligation to offer the Leased Premises to Lessee prior to accepting an offer from a third party shall apply each time during the Term of the lease that Lessor, its successors and assigns, shall receive an offer to purchase the Leased Premises which Lessor is willing to accept. If Lessee exercises any such right of first refusal and the sale of the Leased Premises is so consummated, this Lease shall terminate, effective as of the date of such purchase. -19- ARTICLE XXII PRIOR USE OF PROPERTY 22.01 Prior Use of Property. Following the Commencement Date, Lessee agrees to conduct an investigation of the soil of the Leased Premises to establish at what level, if any, the soil contains environmental contaminants. Lessee agrees to provide the results of the soil investigation to Lessor. At the time the soil investigation results are provided to Lessor, Lessor and Lessee shall agree on the suitability or nonsuitability of the surface of the Leased Premises. Lessor agrees to indemnify Lessee against, and hold it harmless from, any loss or damages incurred by Lessee arising from any prior use, any ongoing contamination of the Leased Premises by Fina, or any contamination of the Leased Premises caused by Fina during the term of the Lease, including, without limitation, (i) the storage, transportation, processing or disposal of hazardous waste, industrial solid or municipal solid waste as those terms are defined in the Texas Solid Waste and Disposal Act, Art. 4477-7, Tex. Rev. Civ. Stat. Ann. or (ii) any environmental condition that is actionable under any federal, state or local environmental law or regulation provided that Lessor shall be promptly notified of any claim, demand, order or suit brought against Lessee and shall be permitted to control the defense against or settlement of such claim, demand, order or suit through counsel of its choice and shall be allowed reasonable access to the property to mitigate, eliminate or comply with such claim, demand, order or suit. Lessor's indemnity shall include court costs, attorneys' fees, administrative costs and penalties, statutory fines and penalties, costs incurred for demolishing and rebuilding the improvements on the Leased Premises and any other direct, indirect or consequential damages incurred by Lessee. In the event Lessee discovers an unacceptable environmental condition affecting the surface of the Leased Premises at the -20- time the soil investigation is completed, Lessor agrees to lease to Lessee additional land or an alternative site owned by Lessor in proximity to Lessor's refinery near Big Spring in Howard County, Texas, provided the lease of such additional land or alternative site does not interfere with the operation of Lessor's refinery. Such lease of additional land or alternative site shall be in addition to, and not in lieu of, Lessor's indemnity of Lessee hereunder. ARTICLE XXIII CONTINGENCIES 23.01 Contingencies. Lessee's parent company and Texas Utilities Electric Company ("TUEC") have entered into that certain agreement entitled "Agreement Between Falcon Seaboard Oil Company and Texas Utilities Electric Company," dated July 30, 1986 ("TUEC Agreement"). This Lease shall not be binding upon Lessee until TUEC has evidenced its approval of the terms hereof by executing this Lease in the appropriate manner on the signature page hereof. 23.02 Right to Terminate Lease. Lessee may terminate this Lease in the event it is unable to (i) obtain necessary regulatory approvals within a reasonable period to construct and operate the cogeneration plant and related support facilities (the "Improvements") to be constructed by Lessee on the Leased Premises, (ii) obtain financing for the construction, ownership and operation of the Improvements on terms acceptable to Lessee; (iii) contract for the construction of the Improvements; or (iv) satisfactorily complete the construction of the Improvements. Lessee also may terminate this Lease in the event the TUEC Agreement terminates without breach thereof by Lessee. ARTICLE XXIV MISCELLANEOUS 24.01 Entire Agreement. This Lease, the Fuel Purchase and Sale Agreement, the Steam Purchase and Sale Agreement and -21- easements executed contemporaneously herewith are intended as a full, complete, exclusive and final expression of the terms of the Agreement between the parties. Such agreements constitute and expressly supersede all prior or contemporaneous understandings, agreements, promises, representations, warranties, terms and conditions, both oral or written, including the Letter Agreement between the parties dated May 20, 1986. 24.02 Heading. The descriptive headings of the provisions of this Lease are used for convenience only and shall not be deemed to affect the meaning or construction of any such provision. 24.03 Joint Preparation. This Lease was prepared jointly by the parties hereto and not by either party to the exclusion of the other. 24.04 Modifications. No modifications or change of the terms of this Lease shall be enforceable unless or until such modification or change is reduced to writing and executed by both parties and approved by TUEC and, if necessary, the leasehold mortgagees or secured parties pursuant to Section 12.05. 24.05 Waiver. The failure of either party to insist upon strict performance of any provision hereof shall not constitute a waiver of, or estoppel against asserting, the right to require such performance in the future, nor shall a waiver or estoppel in any one instance constitute a waiver or estoppel with respect to a later breach of a similar nature or otherwise. 24.06 Texas Law Governs. This Lease and the obligations of the parties hereunder shall be interpreted in accordance with and controlled by the laws of the State of Texas in effect at the time of execution of this Lease. 24.07 Additional Assistance. The parties shall provide to each other such additional assistance including the execution -22- of additional documents, as is necessary to evidence or implement the intentions of the parties as expressed herein. EXECUTED in multiple counterparts, each of which shall have the force and effect of an original, as of the 21st day of November, 1986. LESSOR: FINA OIL AND CHEMICAL COMPANY By: /s/ Jerry G. Jenkins ---------------------------------- Name: Jerry G. Jenkins Title: Vice President LESSOR: POWER RESOURCES, INC. By: /s/ David H. Dewhurst ---------------------------------- Name: David H. Dewhurst Title: President APPROVED BY: TEXAS UTILITIES ELECTRIC COMPANY By: ---------------------------------- Name: Title: Exhibit A - Description of Leased Premises. Exhibit B - Surveyor's Certificate. THE STATE OF TEXAS: COUNTY OF Dallas: This instrument was acknowledged before me this 12th day of December, 1986, by Jerry G. Jenkins, Vice President of Fina Oil and Chemical Company, a Delaware corporation, on behalf of said corporation. ---------------------------------- Notary Public in and for The State of Texas My Commission Expires: Dorothy Ann Bassett ---------------------------------- December 27, 1989 (Name - Typed or Printed) ------------------------------- -23- THE STATE OF TEXAS: COUNTY OF Dallas: This instrument was acknowledged before me this 12th day of December, 1986, by David H. Dewhurst, President of Power Resources, Inc., a Texas corporation, on behalf of said corporation. ---------------------------------- Notary Public in and for The State of Texas My Commission Expires: Dorothy Ann Bassett ---------------------------------- December 27, 1989 (Name - Typed or Printed) ------------------------------- THE STATE OF TEXAS: COUNTY OF : This instrument was acknowledged before me this day of , 1986, by , of Texas Utilities Electric Company, a Texas corporation, on behalf of said corporation. ---------------------------------- Notary Public in and for The State of Texas My Commission Expires: ---------------------------------- (Name - Typed or Printed) ------------------------------- 73191 10-4-86 -24- FIRST AMENDMENT TO LEASE AGREEMENT This First Amendment to Lease Agreement between Fina Oil and Chemical Company, as Lessor, and Power Resources, Inc., as Lessee, dated November 21, 1986, is made by and between Lessor and Lessee as follows: Section 4.01 is amended by the addition of the following sentence: "Any leasehold mortgagee shall be entitled to the benefits of the covenants of Lessor to Lessee contained in this Agreement." Except as amended herein, the Lease Agreement is hereby ratified and confirmed in its entirety. Executed effective December 29, 1986. LESSOR: FINA OIL AND CHEMICAL COMPANY By: /s/ Jerry G. Jenkins ---------------------------------- Name: Jerry G. Jenkins Title: Vice President LESSOR: POWER RESOURCES, INC. By: /s/ David H. Dewhurst ---------------------------------- Name: David H. Dewhurst Title: President EX-10.43 17 ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT (SALTON SEA UNIT V) SALTON SEA UNIT 5 EPC CONTRACT THIS SALTON SEA UNIT 5 ENGINEERING, PROCUREMENT, AND CONSTRUCTION CONTRACT (the "CONTRACT") is made and entered into as of this 2nd day of September 1998, by and between Salton Sea Power L.L.C., a Delaware limited liability company (hereinafter "OWNER"), and Stone & Webster Engineering Corporation, a Massachusetts corporation (hereinafter "CONTRACTOR"). Each entity is sometimes individually referred to herein as a "PARTY" and both entities are sometimes collectively referred to herein as the "PARTIES." RECITALS A. Owner desires to develop, finance, construct, own, and operate the Project to be located in or around Imperial County, California. B. Owner desires to engage Contractor to design, engineer, procure, construct, test and start up the Project and to provide training to the persons who will operate and maintain the Project, all on a turnkey, fixed price, date required, basis, and Contractor desires to provide such services, all as further defined by the terms and conditions set forth in this Contract. C. Contractor has: (1) been provided and reviewed the conceptual drawings for the Project and all other documents relating to the Project which Contractor has deemed necessary in connection with this Contract, (2) visually inspected the real property on which the Project shall be constructed, and (3) performed or reviewed such other investigations, studies, and analyses which Contractor has determined to be necessary or prudent under the circumstances in connection with entering into this Contract. AGREEMENT NOW, THEREFORE, in consideration of the sums to be paid to Contractor by Owner and of the covenants and agreements set forth herein, the Parties agree as follows: 1. DEFINITIONS AND RULES OF INTERPRETATION For the purposes of this Contract, except as otherwise expressly provided or unless the context otherwise requires, the following terms shall have the following meanings: 1.1. AAA. The American Arbitration Association. 1.2. Actual Net Electric Energy Production. With respect to any period, the Net Electric Energy Production (in kilowatt hours) during such period divided by the number of hours of such period. SALTON SEA UNIT 5 EPC CONTRACT 1.3. Actual Outlet Brine Temperature. With respect to any hour, the average brine temperature measured at the outlet to the secondary clarifier, expressed in degrees Fahrenheit, as measured in accordance with the Performance Test Procedures. 1.4. Actual Outlet Steam Condition. With respect to any hour, the average output of steam, expressed in pounds per hour and pressure expressed in inches of water pressure, corrected to the Guarantee Point Conditions, as measured in accordance with the Performance Test Procedures. 1.5. Affiliate. With respect to any Person, another Person that is controlled by, that controls or is under common control with, such Person; and, for this purpose, "control" with respect to any Person shall mean the ability to effectively control, directly or indirectly, the operations and business decisions of such Person whether by voting of securities or partnership interests or any other method. 1.6. Applicable Laws. The term "Applicable Laws" shall mean and include all of the following: (a) any applicable statute, law, rule, regulation, code, ordinance, judgment, decree, writ, order or the like, of any national, federal, provincial, state or local court or other Governmental Authority, and the interpretations thereof, including, without limitation, any statute, law, rule, regulation, code, ordinance, judgment, decree, writ, order or the like, regulating, relating to or imposing liability or standards of conduct concerning: (i) Contractor, the Site or the performance of any portion of the Work or the Work taken as a whole, and the operation of the Project or (ii) safety and the prevention of injury to persons and the damage to property on, about or adjacent to the Site or any other location where any other portion of the Work shall be performed, or (iii) protection of human health or the environment or emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, Hazardous Materials or other industrial, toxic materials or wastes, and (b) any requirements or conditions on or with respect to the issuance, maintenance or renewal of any Applicable Permit or any application therefor. 1.7. Applicable Permits. Each and every national, state and local license authorization, certification, filing, recording, permit or other approval with or of any Governmental Authority, including, without limitation, each and every environmental, construction, operating or occupancy permit and any agreement, consent or approval from or with any other Person, that is required by any Applicable Law or that is otherwise necessary for 2 SALTON SEA UNIT 5 EPC CONTRACT the performance of the Work or operation of the Project, including without limitation, the Owner Acquired Permits and Contractor Acquired Permits. 1.8. Business Day. A Day, other than a Saturday or Sunday or holiday, on which banks are generally open for business in Imperial Valley, California and New York City, New York. 1.9. Buy-Down Amount. The amount to be paid by Contractor to Owner in accordance with the provisions of SECTIONS 16.2, 16.3 and, if applicable, 16.6 and calculated in accordance with EXHIBIT "I" for the failure of the Project to achieve the Performance Guarantees during a Capacity Test or a Reliability Test, as applicable. 1.10. Buy-Down Criteria. The satisfaction of all of the following within an individual run of a Capacity Test: (a) the Actual Outlet Steam Condition during such test shall have satisfied the requirements of the Outlet Steam Condition Guarantee; (b) the Actual Outlet Brine Temperature during such test shall have satisfied the requirements of the Actual Outlet Brine Temperature Guarantee; (c) the Actual Net Electric Energy Production shall have equaled or exceeded 96% of the Net Generation Guarantee; (d) all other requirements for the successful completion of a Capacity Test, including the requirements set forth in EXHIBIT "J" and the Performance Test Procedures, shall have been satisfied. 1.13. CalEnergy Safety Program. The regulations for contractors and other requirements set forth in EXHIBIT "AD". 1.14. Cancellation Schedule. The cancellation payment schedule set forth on EXHIBIT "D". 1.15. Capacity Test. The 24 hour capacity test described in EXHIBIT "J". 1.16. Capacity Test Completion. Satisfaction or waiver of all of the conditions set forth in SECTION 15.1. 1.17. Capacity Test Completion Date. The date on which Capacity Test Completion actually occurs. 1.18. Capacity Test Completion Deadline. The date that is six hundred ten days (610) days after the Notice to Proceed Date, as such deadline may be extended in accordance with the terms thereof. 3 SALTON SEA UNIT 5 EPC CONTRACT 1.19. Change In Law. The enactment, adoption, promulgation, modification, or repeal after the date of this Contract of any Applicable Law of any Governmental Authority of the United States or the modification after the date of this Contract of any Applicable Permit issued or promulgated by any Governmental Authority of the United States that establishes requirements that materially and adversely affect Contractor's costs or schedule for performing the Work; provided, however, a change in any national, federal, provincial or any other income tax law or any other law imposing a tax, duty, levy, impost, fee, royalty, or charge for which Contractor is responsible hereunder shall not be a Change In Law pursuant to this Contract. 1.20. Change In Work. A change in the Work as defined in SECTION 17.1. 1.21. Change In Work Form. The form documenting Changes In Work attached hereto as EXHIBIT "E". 1.22. Conditional Waiver of Liens. A sworn statement and waiver of liens prepared by Contractor, Subcontractor or Vendor, as applicable, in the form required by California Civil Code Section 3262 or any successor statute thereto, which provides that such Person conditionally waives and releases all mechanic's liens, stop notices and bond rights with respect to all Work for which Contractor requested payment in the current Contractor's Invoice upon payment of the amount of such Contractor Invoice. 1.23. Confidential Information. Information, ideas or materials now or hereafter owned by or otherwise in the possession or control of, or otherwise relating to, one Party and/or any of its Affiliates, including without limitation, inventions, business or trade secrets, know-how, techniques, data, reports, drawings, specifications, blueprints, flow sheets, designs, or engineering, construction, environmental, operations, marketing or other information, together with all copies, summaries, analyses, or extracts thereof, based thereon or derived therefrom, disclosed by one Party (the "transferor") to the other Party or any of its Affiliates or any of their respective directors, employees or agents (the "transferee"); provided, however, "Confidential Information" of Owner shall also mean information, ideas or materials related to the Work, the Project obtained, developed or created by or for Contractor in connection with the Work, or delivered or disclosed to Owner in connection with the Work, together with all copies, reproductions, summaries, analyses, or extracts thereof, based thereon or derived therefrom; and provided, further, "Confidential Information" of Owner shall also mean information, ideas or materials disclosed by Owner or any of its Affiliates, or deduced by Contractor or any of its Affiliates or any of their respective directors, employees or agents from information supplied by Owner or its Affiliates or agents, or as a result of visits by Contractor or any of its Affiliates or any of their respective directors, employees or agents to the premises of Owner or any of its Affiliates, which relate to the Project, the extraction of minerals from geothermal brine, the production of geothermal energy, or the production of electricity from geothermal brine at any of the geothermal power plants located in the Salton Sea Known Geothermal Resource Area which are owned by Affiliates of Owner, including the Existing Plants. 1.24. Construction Manager. The permanent, on-site Construction Manager designated by Contractor and approved by Owner in accordance with SECTION 4.5. 4 SALTON SEA UNIT 5 EPC CONTRACT 1.25. Consulting Engineer. The consulting engineer (or engineers) selected and designated by the Financing Entities. 1.26. Contract. This Salton Sea Unit 5 Project Engineering, Procurement, and Construction Contract, including all Exhibits hereto, as the same may be modified, amended, or supplemented from time to time in accordance with SECTION 37.4. 1.27. Contract Price. The fixed amount for performing the Work that is payable to Contractor as set forth in SECTION 6.1, as the same may be modified from time to time in accordance with the terms hereof. 1.28. Contractor. Stone & Webster Engineering Corporation, a Massachusetts corporation. 1.29. Contractor Acquired Permits. All (1) building permits required for the construction of the Project, (2) labor or health standard permits and approvals reasonably related to construction of the Project, (3) business permits reasonably related to the conduct of the operations of Contractor and all Subcontractors in California (including all contractors' licenses and related documents), (4) permits, approvals, consents or agreements from or with any Person necessary for the performance by Contractor of its warranty obligations hereunder, for the transportation or importation of Equipment or for the transportation or importation of equipment (other than Owner Furnished Items ), tools, machinery and other items used by Contractor in performance of the Work, (5) permits, visas, approvals and certifications necessary for Contractor's employees to legally perform the Work in the State of California (including documentation of citizenship or legal residency in the United States), or (6) excavation permits for use by Contractor of the backfill material contemplated by EXHIBIT "AA". 1.30. Contractor Deliverables. Each of the design criteria, system descriptions (including any Technology Licensor's), Required Manuals, Drawings and Specifications, design calculations, quality assurance reports and all other material documents relating to the Project to be delivered to Owner for review and comment in accordance with the requirements of ARTICLE 12. 1.31. Cntractor Event of Default. The term "Contractor Event of Default" shall have the meaning set forth in SECTION 20.1. 1.32. Contractor's Invoice. An invoice from Contractor to Owner in accordance with SECTION 7.1 and in the form of EXHIBIT "F" hereto. 1.33. Critical Path Item(s). The items identified as critical path items on the Critical Path Schedule prepared by Contractor. 1.34. Critical Path Schedule. A critical path schedule prepared by Contractor and meeting the requirements set forth in EXHIBIT "G" describing the time of completion of Critical Path Items for completion of the Work by Contractor. 1.35. RESERVED. 5 SALTON SEA UNIT 5 EPC CONTRACT 1.36. "Day" or "day." A calendar day, unless otherwise specified. 1.37. Defect. Unless otherwise specifically defined elsewhere herein, the term "Defect" includes, without limitation, any designs, engineering, materials, Equipment, tools, supplies, or installation or other Work which: (a) do not conform to the Statement of Work or the Drawings and Specifications that have been approved by Owner; or (b) are of improper or inferior workmanship; (c) are not suitable for a commercial facility of this type; (d) are inconsistent with Industry Standards, and either: (i) could materially and adversely affect the mechanical, electrical or structural integrity of the Project; (ii) could materially and adversely affect the continuous efficient, effective or safe operation of the Project during the Project's design life, assuming such operation in accordance with the operating procedures by the Operating Personnel working the normal shifts in accordance with Industry Standards; or (iii) could affect the economic value of the Owner's investment. 1.38. Delay Liquidated Damages. Liquidated damages for delay as set forth in SECTION 16.1.1. 1.39. Delay Notice. A notice of delay as set forth in SECTION 9.2. 1.40. Deliverables Schedule. The schedule identifying the documents to be delivered by Contractor and Owner's period for review thereof, prepared by Contractor and agreed to by Owner in accordance with SECTION 12.4 of this Contract and the requirements of EXHIBIT "A". 1.41. "Dollars" or "$." All amounts in this Contract are expressed in, and all payments required hereunder shall be paid in, the lawful currency of the United States of America. 1.42. Drawings and Specifications. Drawings and specifications that are part of the Statement of Work or that have been prepared by Contractor or any Subcontractor with respect to the Work and submitted to Owner under this Contract (including those drawings identified on EXHIBIT "B"). 1.43. Electrical Energy. Electrical energy conforming to the specifications set forth in EXHIBIT "A". 6 SALTON SEA UNIT 5 EPC CONTRACT 1.44. Elmore Plant. The geothermal power production facility owned by Elmore, L.P., commonly known as the "Elmore plant." 1.45. Equipment. All materials, supplies, apparatus, machinery, equipment, parts, tools, components, instruments, appliances, spare parts and appurtenances thereto that are (a) required for prudent operation of the Project in accordance with Industry Standards, or (b) described in or required by the Statement of Work or the Drawings and Specifications. 1.46. Exhibits. Each exhibit listed in SECTION 2.1 and attached hereto as incorporated herein in its entirety by this reference. 1.47. Existing Plant Owners. The owners and operators of the Existing Plants. 1.48. Existing Plant Sites. The portion of the Site that is more particularly described on EXHIBIT "Z". 1.49. Existing Plants. The Leathers Plant, the Elmore Plant, the Vulcan/Hoch Plants and the Salton Sea Plants. 1.50. Existing Plants Access Schedule. The schedule set forth on EXHIBIT "Y" designating the limited time periods during which Owner will cause Contractor to be permitted to have access, at no cost to Contractor, to each Existing Plant Site for the performance of Contractor's obligations hereunder. 1.51. Final Completion. Satisfaction by Contractor or waiver by Owner of all of the conditions for final completion set forth in SECTION 15.5. 1.52. Final Completion Date. The date on which Final Completion of the Project occurs. 1.53. Final Completion Deadline. The date that is sixty (60) calendar days after the Substantial Completion Date, as such date may be modified in accordance with the terms hereof. 1.54. Final Contractor's Invoice. The final Contractor's Invoice submitted in accordance with SECTION 7.6. 1.55. Final Payment. The final payment made by Owner or the Financing Entities to Contractor in accordance with SECTION 7.6. 1.56. Financial Closing. The date on which the Financing Entities make the first disbursement to Owner from the construction loan for the Project. 1.57. Financing Entities. The holders of, the agent(s) or trustee(s) representing the holders of, or the financial institutions or other Person(s) providing a letter(s) of credit or other guarantees or insurance in support of, any debt or equity financing for the Project, but excluding Owner or members of Owner. 7 SALTON SEA UNIT 5 EPC CONTRACT 1.58. Force Majeure. Each of the following events, matters, or things: any war, declared or not, hostilities, belligerence, blockade, revolution, insurrection, riot, or public disorder including general labor disturbances not specific to Contractor's or Subcontractor's personnel; expropriation, requisition, confiscation, or nationalization; export or import restrictions by any Governmental Authorities; closing of harbors, docks, canals, or other assistances to or adjuncts of the shipping or navigation of or within any place; rationing or allocation, whether imposed by law, decree, or regulation, or by compliance of industry at the insistence of any Governmental Authorities; fire, flood, unusually severe earthquake, volcano, tide, tidal wave, or perils of the sea; unusually severe storms and other weather conditions (other than high temperatures), including typhoons, lightning, and drought; accidents of navigation or breakdown or injury of vessels, accidents to harbors, docks, canals, or other assistances to or adjuncts of the shipping or navigation; epidemic or quarantine; or any other event, matter, or thing, wherever occurring; that, in each case, is not within the reasonable control and is without the fault or negligence of the Party whose performance is affected thereby; provided, however, that the following events, matters or things shall not constitute Force Majeure: (i) any labor disturbance or dispute of Contractor's personnel or those of any Subcontractors at the site, (ii) mechanical failures of Contractor's or Subcontractor's equipment, and (iii) Site Conditions other than Unforseen Site Conditions. 1.59. Geocrete. "Geocrete" means a material comprised of geothermal filter cake product, which has been obtained by removing silica from geothermal brine, and concrete. 1.60. Governmental Authorities. Applicable United States and other national, federal, state, provincial, and local governments and all agencies, authorities, departments, instrumentalities, courts, corporations, or other subdivisions of each having or claiming a regulatory interest in or jurisdiction over the Site, the Project, the Work or the Parties to this Contract or the Parent Guarantor. 1.61. Guarantee Point Conditions. Defined physical conditions of the atmosphere (wet bulb temperature), inlet brine (flow, enthalpy and chemistry) and inlet steam (flow and enthalpy), all as specified in Exhibit A, on which the Performance Guarantees are based. 1.62. Hazardous Materials. Any hazardous materials, hazardous waste, hazardous constituents, hazardous or toxic or radioactive substances or petroleum products (including crude oil or any fraction thereof), defined or regulated as such under any Applicable Law. 1.63. Hydrochloric Acid. Hydrochloric acid with a concentration of 2.0% or greater. 1.64. "Industry Standards" or "Industry Grade." Those standards of design, engineering, construction, workmanship, equipment, and components specified in EXHIBIT "A", provided, however, if the relevant standard is not so specified or is ambiguous therein, then "Industry Standards" or "Industry Grade" shall mean those standards of care and diligence normally practiced by internationally recognized engineering and construction firms in performing services of a similar nature and in accordance with good engineering design practices, Applicable Law, Applicable Permits, and other standards established for such work. 8 SALTON SEA UNIT 5 EPC CONTRACT 1.65. Insignificant Subcontractors. The term "Insignificant Subcontractors" shall have the meaning set forth in Section 7.3. 1.66. Interconnection. The interconnections set forth in Attachment2 to EXHIBIT "A". 1.67. Key Personnel. The natural persons named in EXHIBIT "K". 1.68. Land Rights Agreements. Those agreements, leases and other documents or instruments with respect to the Site described on EXHIBIT "X". 1.69. Leathers Plant. The geothermal power production facility owned by Leathers, L.P., commonly known as the "Leathers plant." 1.70. LIBOR. The London inter-bank offered rate for six-month United States dollar deposits, as published in The Financial Times. 1.71. License Agreement(s). The technology license and royalty agreements described on EXHIBIT "L" and sub-licensed to Contractor in accordance with SECTION 28.1. 1.72. Lien Indemnitees. The term "Lien Indemnitees" shall have the meaning set forth in ARTICLE 32. 1.73. Loss(es). Any and all liabilities (including but not limited to liabilities arising out of the application of the doctrine of strict liability), obligations, losses, damages, penalties, claims, actions, suits, judgments, costs, expenses and disbursements, whether any of the foregoing be founded or unfounded (including legal fees and expenses and costs of investigation), of whatsoever kind and nature and whether or not involving damages to the Project or the Site. 1.74. Materials Warranty. The warranty of Contractor under SECTION 18.2. 1.75. Maximum Aggregate Damages. Twenty percent (20%) of the Contract Price (as the Contract Price may be adjusted from time to time in accordance with the terms hereof). 1.76. Mechanical Completion. Satisfaction of all of the conditions for mechanical completion set forth in SECTION 13.1. 1.77. Mechanical Completion Date. The date on which Mechanical Completion of the Project actually occurs. 1.78 Mechanical Completion Deadline. The date that is six hundred ten (610) days after the Notice to Proceed Date, as such deadline may be modified in accordance with the terms hereof. 9 SALTON SEA UNIT 5 EPC CONTRACT 1.79. Mechanical Completion Test Procedures. The written procedures for the Mechanical Completion Tests produced by Contractor and agreed to by Owner in accordance with SECTION 14.1. 1.80. Mechanical Completion Tests. Those "Mechanical Completion Tests" identified in EXHIBIT "J". 1.81. Milestone Payment(s). A discrete portion of the Contract Price payable pursuant to the Progress Payment Schedule as a progress payment for completion of Milestones in accordance with SECTION 7.1. 1.82. Milestone Schedule. The summary milestone schedule prepared by Contractor and attached as EXHIBIT "M" describing the estimated time of completion of major Milestones and for completion of the Work by Contractor. 1.83. Milestone(s). Various elements of the Work to be completed by a certain deadline as described in the Progress Payment Schedule. 1.84. Monthly Progress Report. A written monthly progress report prepared by Contractor in form and content generally in accordance with EXHIBIT "N". 1.85. Net Electric Energy Production. With respect to any period, the output of electrical energy, expressed in kilowatt-hours, produced by the Project, exclusive of any electrical energy consumed by the Project for operating equipment or lighting purposes and corrected to the Guarantee Point Conditions, as measured in accordance with Exhibit J and the Performance Test Procedures. For purposes of this calculation, Contractor shall take into account that the electrical energy consumed by the Project for operating equipment or lighting purposes includes a load of 1530 kilowatts which is the auxiliary load of equipment and machinery, the procurement and installation of which is excluded from the Work. 1.86. Net Generation Guarantee. The Actual Net Electric Energy Production during the period of the Capacity Test will not be less than 49,000 kilowatts. 1.87. "Notice" or "notice." A written communication between the Parties required or permitted by this Contract and conforming to the requirements of ARTICLE 33. 1.88. Notice For Payment of Buy-Down Amount. A Notice from Owner to Contractor specifying the Buy-Down Amount and the actual performance levels of the Project during a Capacity Test used in calculating the Buy-Down Amount. 1.89. Notice of Final Completion. A Notice from Contractor to Owner in accordance with SECTION 15.5(I) that the Project has satisfied the requirements for Final Completion. 1.90. Notice of Mechanical Completion. A Notice from Contractor to Owner in accordance with SECTION 13.2 that the Project has satisfied the requirements for Mechanical Completion. 10 SALTON SEA UNIT 5 EPC CONTRACT 1.91. Notice of Capacity Test Completion. A Notice from Contractor to Owner in accordance with SECTION 15.2 that the Project has satisfied the requirements for Capacity Test Completion. 1.92. Notice of Substantial Completion. A Notice from Contractor to Owner in accordance with SECTION 15.4 that the Project has satisfied the requirements for Substantial Completion. 1.93. Notice to Proceed. A written Notice signed by a duly authorized officer of Owner to Contractor directing Contractor to commence and complete all Work under this Contract. 1.94. Notice to Proceed Date. The Notice to Proceed Date set forth in SECTION 8.1. 1.95. Operating Consumables. Operating Consumables, including chemicals, lubricants (including lube oil and grease), filters, lamps, light bulbs, and other consumable equipment and materials, necessary for the operation and maintenance of the Project other than Production Inputs. 1.96. Operating Personnel. The personnel hired by Owner, or by an entity providing operating or maintenance services for Owner, to operate and maintain the Project (including all operators, maintenance personnel, instrument technicians and supervisors). 1.97. Operating Tests. Those "Operating Tests" identified in EXHIBIT "J". 1.98 Outlet Brine Temperature Guarantee. During each hour, the Actual Outlet Brine Temperature shall be between 210(degree) F and 230(degree) F. 1.99. Outlet Steam Condition Guarantee. During each hour, the Actual Outlet Steam Condition shall be a minimum delivery rate of 117,000 pounds per hour at a minimum pressure of two inches of water pressure. 1.100. Owner. Salton Sea Power L.L.C., a Delaware limited liability company. 1.101. Owner Acquired Permits. The term "Owner Acquired Permits" shall have the meaning set forth in SECTION 3.5. 1.102. Owner Caused Delay. A material delay in Contractor's performance of the Work to the extent actually and demonstrably caused by Owner's failure to perform any covenant of Owner hereunder (other than as a result of Force Majeure or by exercise of rights under this Contract, including the exercise by Owner of the right to have defective or nonconforming Work corrected or re-executed); provided, however, Owner Caused Delay shall exclude any delay caused by Force Majeure. 1.103. Owner's Certificate of Final Completion. A Certificate of Owner certifying that Final Completion has occurred. 11 SALTON SEA UNIT 5 EPC CONTRACT 1.104. Owner's Certificate of Mechanical Completion. A Certificate of Owner certifying that Mechanical Completion has occurred. 1.105. Owner's Certificate of Capacity Test Completion. A Certificate of Owner certifying that Capacity Test Completion has occurred. 1.106. Owner's Certificate of Substantial Completion. A Certificate from Owner certifying that Substantial Completion has occurred. 1.107. Owner's Engineer. The engineering firm or other engineer or engineers (which may be employees of Owner) selected and designated by Owner. 1.108. Owner Event of Default. The term "Owner Event of Default" shall have the meaning set forth in SECTION 20.4. 1.106A. Owner Furnished Items. The items identified on EXHIBIT "AA" to be furnished by Owner. 1.109. Parent Guaranty. The Guarantee of the Parent Guarantor referred to in SECTION 35.2 in the form set forth in EXHIBIT "O". 1.110. Parent Guarantor. Stone & Webster Inc., a Delaware corporation traded on the New York Stock Exchange. 1.111. Parent Legal Opinion. A legal opinion of legal counsel to the Parent Guarantor reasonably acceptable to Owner in the form set forth in EXHIBIT "O". 1.112. Performance Guarantees. The Net Generation Guarantee, the Outlet Brine Temperature Guarantee, the Outlet Steam Condition Guarantee, and the Reliability Guarantee. 1.113. Performance Test Procedures. The written test and commissioning procedures, standards, protective settings, and the testing and commissioning program produced by Contractor and agreed to by Owner for the Performance Tests in accordance with SECTION 14.4. 1.114. Performance Tests. Those "Performance Tests" identified on EXHIBIT "J", including the Operating Tests, the Capacity Test and the Reliability Test. 1.115. Person. Any individual, corporation, company, voluntary association, partnership, incorporated organization, trust, limited liability company, or any other entity or organization, including any Governmental Authority. 1.116. Plan. The term "Plan" shall have the meaning set forth in SECTION 8.4. 1.117. RESERVED. 1.118. Products. Electrical Energy, outlet steam, silica filter cake, and outlet brine. 12 SALTON SEA UNIT 5 EPC CONTRACT 1.119. Production Inputs. Geothermal brine, water (potable, service, and fire), Hydrochloric Acid, compressed air, steam, lime, flocculant, condensate, cooling tower chemicals, NORMs inhibitor, and start-up power, that, in each case, satisfies the requirements set forth in EXHIBIT "P". 1.120. Progress Payment Schedule. The Progress Payment Schedule attached as EXHIBIT "D" setting forth payments to Contractor for completion of various Milestones of the Work. 1.121. Project. The complete project to be designed, procured, constructed, tested and commissioned under this Contract, together with all ancillary equipment and subsystems, all Equipment necessary to produce the Project outputs, together with all supporting improvements and interconnections, as generally described in, and including all items described in, the Statement of Work. 1.122. Project Contracts. The Land Rights Agreements and the Sales Contracts. 1.123. Project Deadlines. The Mechanical Completion Deadline, the Capacity Test Completion Deadline, the Substantial Completion Deadline and the Final Completion Deadline. 1.124. Project Manager. The Project Manager designated by Contractor and approved by Owner pursuant to SECTION 4.5. 1.125. Project Representative. The Project Representative designated by Owner pursuant to SECTION 3.1. 1.126. Project Schedules. The Milestone Schedule and the Critical Path Schedule. 1.127. Project Warranties. The warranties of Contractor under SECTION 18.1. 1.128. Punchlist. A schedule of Punchlist Items developed pursuant to SECTION 15.3(E), which list must be reasonably satisfactory to the Owner. 1.129. Punchlist Items. Each item of Work that (a) Owner, Financing Entities or Contractor identifies as requiring completion or containing Defects, (b) does not impede the ability of Owner to safely operate the Project in accordance with Industry Standards, (c) does not affect the operability, safety or mechanical or electrical integrity of the Project and (d) the completion or repair of which will neither interfere with, nor adversely affect, the performance of the Project. 1.130. Reliability Guarantee. The Actual Net Electric Energy Production will not be less than 96% of 49,000 kilowatts, subject to SECTION 16.2.4. 1.131. Reliability Test. The 28-day reliability test described in EXHIBIT "J". 1.132. Remedial Plan. A plan of corrective action, submitted by Contractor pursuant to SECTION 16.2, specifying in reasonable detail the actions Contractor proposes to undertake to 13 SALTON SEA UNIT 5 EPC CONTRACT cause the Project to satisfy the Performance Guarantees and the period of time in which Contractor proposes to complete the corrective action, which period of time shall not extend beyond the date that is ninety (90) days after the Capacity Test Completion Deadline. 1.133. Required Manuals. All operating data and manuals, spare parts manuals, integrated and coordinated operation and maintenance manuals and instructions, and training aids reasonably necessary to safely and efficiently commission, test, start up, operate, maintain and shut down the Project . The information shall be incorporated into a "Facilities Manual" and an "Equipment Maintenance Manual" in accordance with Exhibit A. 1.134. Retainage. The amount withheld from payments to Contractor pursuant to SECTION 7.5. 1.135. Sales Contracts. Those agreements set forth on EXHIBIT "T". 1.136. Salton Sea Plants. The geothermal power production facilities owned by Salton Sea Power Generation L.P., Salton Sea Brine Processing L.P. and Fish Lake Power Company, commonly known as the "Salton Sea Units 1, 2, 3 and 4." 1.137. Site. Those areas designated by Owner in EXHIBIT "A" for the performance of Work, including the Existing Plant Sites and any additional areas as may, from time to time, be designated in writing by Owner for Contractor's use hereunder. 1.138. Site Conditions. The term "Site Conditions" shall have the meaning set forth in SUBSECTION 5.1.5. 1.139. Spare Parts. Those Spare Parts identified on EXHIBIT "Q" or required to be obtained by Contractor pursuant to Section 4.31 hereof. 1.140. Statement of Work. The requirements regarding the Work set forth in this Contract or in EXHIBIT "A". 1.141. Subcontractor. Any Person other than Contractor performing any portion of the Work (including any subcontractor of any tier) in furtherance of Contractor's obligations under this Contract. For the avoidance of doubt, each Vendor is a Subcontractor. 1.142. Substantial Completion. Satisfaction or waiver of all of the conditions set forth in SECTION 15.3. 1.143. Substantial Completion Date. The date on which Substantial Completion of the Project actually occurs. 1.144. Substantial Completion Deadline. Six hundred thirty-eight (638) days after the Notice to Proceed Date, as such deadline may be modified in accordance with the terms hereof. 1.145. Supplier. Any Person who will supply Production Inputs to the Project, including the Imperial Irrigation District. 14 SALTON SEA UNIT 5 EPC CONTRACT 1.146. RESERVED 1.147. Technology Licenses. Each of the licenses under the License Agreements. 1.148. Technology Licensors. Each of the licensors under the License Agreements. 1.149. Transporter. Any Person that will transport Production Inputs to the Project or Products or other outputs or materials from the Project. 1.150. Unconditional Waiver of Liens. A sworn statement and waiver of liens prepared by Contractor, Subcontractor or Vendor, as applicable, in the form required by California Civil Code Section 3262 or any successor statute thereto, which provides that such Person unconditionally waives and releases all mechanic's liens, stop notices and bond rights with respect to all Work for which Contractor requested payment in a previous Contractor's Invoice and for which Contractor has received payment. 1.151. Unforseen Site Conditions. Unforseen Site Conditions shall have the meaning ascribed to it as set forth in Section 5.1.5 1.152. U.S. Customary System. The primary system of weights and measures (other than the metric system) used in the U.S. today inherited from, but now different from, the British Imperial System of weights and measures. 1.153. Vendor(s). Persons that supply machinery, equipment, or materials to Contractor or any Subcontractor in connection with the performance of the Work and the construction of the Project. 1.154. Vulcan/Hoch Plants. The geothermal power production facilities owned by Vulcan/BN Geothermal Power Company and Del Ranch, L.P., commonly known as the "Vulcan plant" and the "Hoch (Del Ranch) plant," respectively. 1.155. Warranty Period. The greater of the eighteen (18) month period from delivery of Equipment to the Site (it being understood that, for any specific item of Equipment, such 18-month period shall commence on the delivery of such item of Equipment to the Site) or the twelve (12) month period commencing on the Substantial Completion Date and as deemed extended with respect to any given item of Equipment, material, or device as specified in SECTION 18.3. 1.156. Warranty Procedures. Those warranty procedures set forth on EXHIBIT "S". 1.157. Work. All obligations, duties, and responsibilities assigned to or undertaken by Contractor under this Contract with respect to the Project, workshops, and warehouses, including all engineering and design, procurement, manufacturing, construction and erection, installation, Equipment, training, start-up (including calibration, inspection, and start-up operation), and testing. Where this Contract describes a portion of the Work in general, but not in complete detail, the Parties acknowledge agree that the Work includes any incidental work that within 15 SALTON SEA UNIT 5 EPC CONTRACT the engineering industry and the construction industry is customarily included in projects of the type contemplated by this Contract. 1.158. Zinc Contractor. The contractor pursuant to that certain Zinc Recovery Project Engineering, Procurement, and Construction Contract entered into between such contractor and CalEnergy Minerals LLC. with respect to the construction of the Zinc Recovery Facility. 1.159. Zinc Recovery Facility. The zinc recovery facility, together with all ancillary and related equipment, to be constructed adjacent to the Site and at other sites near the Existing Plants concurrently with the Project pursuant to that certain Zinc Recovery Project Engineering, Procurement, and Construction Contract entered into between the Zinc Contractor and CalEnergy Minerals LLC. 2. AGREEMENT, EXHIBITS, CONFLICTS 2.1. Exhibits. This Contract includes the Exhibits annexed hereto, and any reference in this Contract to a "EXHIBIT" by letter designation or title shall mean one of items listed in the Table of Exhibits below: TABLE OF EXHIBITS A Statement of Work B Drawings C Owner Acquired Permits D Progress Payment Schedule E Change In Work Form F Form of Contractor's Invoice G Critical Path Schedule Requirements H RESERVED I Determination of Buy-Down Amount J Testing Required for Completion K Key Personnel L Owner Provided License and Royalty Agreements M Summary Milestone Schedule N Form of Monthly Progress Report O Form of Parent Guaranty and Legal Opinion P Production Inputs Q Spare Parts to be Provided by Contractor R Unit Rates S Warranty Procedures T Sale Contracts U Form of Assignment Clause for Subcontracts V-1 Contractor Acquired Insurance V-2 Owner Acquired Insurance 16 SALTON SEA UNIT 5 EPC CONTRACT V-3 General Insurance Provisions W Site Drawings X Owner's Land Rights Agreements Y Existing Plants Access Schedule AA Owner Furnished Items AB Reserved AC Reserved AD CalEnergy Safety Program 2.2. Terms; References. Terms defined in a given number, tense, or form shall have the corresponding meaning when used in this Contract with initial capitals in another number, tense, or form. Except as otherwise expressly noted, reference to specific Sections, Subsections, and Exhibits are references to such provisions of or attachments to this Contract. References containing terms such as "hereof," "herein," "hereto," "hereinafter," and other terms of like import are not limited in applicability to the specific provision within which such references are set forth but instead refer to this Contract taken as a whole. "Includes" or "including" shall not be deemed limited by the specific enumeration of items, but shall be deemed without limitation. 2.3. Conflicts in Documentation. If there is an express conflict between the provisions of this Contract and any Exhibit hereto, the terms of this Contract shall take precedence over the conflicting provisions of the Exhibit. 2.4. Documentation Format. This Contract and all documentation to be supplied hereunder shall be in the English language. All dimensions shall be specified in U.S. Customary System dimensions. 3. RESPONSIBILITIES OF OWNER Owner shall, at Owner's cost and expense: 3.1. Project Representative. Designate (by a Notice delivered to Contractor) a Project Representative, who shall act as a single point of contact for Contractor with respect to the prosecution of the Work (but who shall not be authorized to execute or make any amendments to, or provide waivers under, this Contract), the Owner's Engineer it has selected for itself and the Consulting Engineer selected by the Financing Entities. 17 SALTON SEA UNIT 5 EPC CONTRACT 3.2. Operating Personnel. Commencing three (3) months prior to the anticipated Mechanical Completion Date (as determined based on mutual agreement on the circumstances existing at the time of determination), provide a reasonably sufficient number of Operating Personnel from the operating personnel working at the Existing Plants for training by Contractor as provided pursuant to SECTION 4.21 and for testing, start-up, operation, commissioning, and maintenance of the Project; provided, however, that Contractor shall remain solely responsible for performing the Work in accordance with this Contract, including Contractor's obligation to achieve Mechanical Test Completion, Substantial Completion, Capacity Test Completion, and Final Completion on or before the applicable Project Deadline, regardless of any failure, non-achievement, or non-performance of the Operating Personnel, with the exception of their willful misconduct. 3.3. Ministerial Assistance. Execute applications as Contractor may reasonably request in connection with obtaining any of Contractor Acquired Permits. Contractor shall indemnify, defend, and hold harmless Owner from and against any and all claims, damages, losses, and expenses (including attorney's fees and expenses) that Owner may incur as a result of executing any such applications at Contractor's request. 3.4. Production Inputs and Products. Provide Production Inputs to Contractor and ensure the ability to receive the Products as reasonably necessary for the commissioning and testing of the Project. 3.5. Owner Acquired Permits. Obtain, with Contractor's reasonable assistance (to be provided at no cost to Owner), and pay for all Applicable Permits, other than Contractor Acquired Permits, including, without limitation, those Applicable Permits set forth on EXHIBIT "C" (collectively, the "OWNER ACQUIRED PERMITS"). 3.6. Access to Site. Subject to SECTION 4.19, the Land Rights Agreements and the Existing Plants Access Schedule, Owner shall make the Site reasonably available to Contractor and assure reasonable rights of ingress and egress to and from the Site for Contractor for performance of the Work; provided, however, that Contractor shall coordinate with Owner regarding initial entry onto the Site or any part thereof and contact with the persons identified to Contractor who own property on or near, or have granted license or easement rights in and to, the Site. 3.7. Owner Furnished Items. Supply certain materials, equipment, and other items listed in EXHIBIT "AA" (which shall be installed by Contractor at Contractor's expense) for the Project. 18 SALTON SEA UNIT 5 EPC CONTRACT 4. RESPONSIBILITIES OF CONTRACTOR In order for Contractor to complete the Work, Contractor shall: 4.1. Cost of Work. Except as delineated in Article 3.7, furnish, be responsible for, and pay the cost of all of the Work, on a turnkey basis, including labor, materials, Equipment and supervision necessary to engineer, deliver, receive, off-load, store, construct, inspect, start-up, commission and test the Project in accordance with the provisions of this Contract, including all site work, levees, footings, foundations (including deep foundations), pilings, drilled piers, construction materials, construction equipment, and auxiliaries. 4.2. Performance of Work. Except as delineated in Article 3.7, perform and complete the Work, without any Defects, in accordance with the terms of the Contract and in compliance with Industry Standards, Applicable Laws, Applicable Permits and the Project Contracts. In addition , Contractor shall perform and complete all of the Work such that the Work will not have a material adverse effect on the operations of the Existing Plants. 4.3. Facilities. Provide all communication facilities, construction water, construction electricity and sanitary facilities to be used by Contractor and Subcontractors through Substantial Completion. 4.4. Organization. Maintain a qualified and competent organization at the Site with adequate capacity and numbers of construction and start-up personnel, Equipment, and facilities to execute the Work in a safe, efficient, environmentally sound, and professional manner at a rate of progress in accordance with the Milestone Schedule and the Critical Path Schedule. 4.5. Project Manager/Staff. Designate a Project Manager acceptable to Owner who will have full responsibility for the prosecution of the Work and will act as a single point of contact in all matters on behalf of Contractor. Provide staff to supervise and coordinate the Work of Contractor, Subcontractors and Vendors on the Site. The Key Personnel shall at all times hold the positions and be dedicated to the performance of the duties described in EXHIBIT "K". Any replacement of the Key Personnel shall be subject to the prior written consent of Owner. If Owner fails to respond to a request for consent within ten (10) Business Days after Contractor's request, Owner shall be deemed to have consented to the proposed individual. 19 SALTON SEA UNIT 5 EPC CONTRACT 4.6. Contractor Acquired Permits. Obtain all Contractor Acquired Permits and provide copies to Owner at Owner's request upon Substantial Completion. 4.7. Inspection. Perform all inspection, expediting, quality surveillance, and other like services required for performance of the Work, including inspecting all materials and Equipment that comprise the Project or that are to be used in the performance of the Work. 4.8. Maintenance of Site. Maintain the Site clear of debris, waste material, and rubbish. 4.9. Price Allocation Schedule. Provide a price allocation schedule for the Work and other information reasonably necessary for Owner to maintain segregated accounts for its tax records and fixed asset records. (Owner will establish its code of accounts within thirty (30) days of contract execution and deliver the same to Contractor). 4.10. Claims. In the event of a claim under this Contract involving an amount greater than $10,000, grant audit rights to Owner with respect to all relevant documentation pertaining to such claim. 4.11. Safeguards. Comply with the requirements of EXHIBIT "A" and EXHIBIT "AD" and provide all necessary and reasonably appropriate safeguards at the Site for the protection of the Work, the Project, and all persons and other property related thereto, including lights and barriers, guard service, controlled access, and other measures developed pursuant to a safety assurance program reasonably acceptable to Owner, or otherwise reasonably required to prevent vandalism, theft, and danger to the Project and personnel. Within thirty (30) days after the Notice to Proceed Date, Contractor shall provide a Notice to Owner describing such safety assurance program to be used by Contractor in the performance of the Work. Owner shall have the right to promptly review and comment on such program as described in Contractor's Notice hereunder; provided, however, that Contractor shall remain solely responsible for performing the Work in accordance with this Contract. If Owner provides any comments with respect to such safety program to Contractor, then Contractor shall incorporate changes into such safety program addressing such comments, and resubmit the same to Owner. Such incorporation of changes to address Owner's comments shall not be considered a Change In Work. If Owner fails to comment within twenty (20) Business Days after receipt of such Notice, Owner shall be deemed to have accepted such safety program. To the extent the Work is conducted at the Existing Plant Sites, Contractor shall at all times, at a minimum, meet the requirements of the CalEnergy Safety Program (REFERENCE EXHIBIT "AD"). 20 SALTON SEA UNIT 5 EPC CONTRACT 4.12. Equipment. Arrange for complete handling of all Equipment, and construction equipment, including inspection, expediting, shipping, loading, unloading, customs clearance, receiving, storage, and claims. 4.13. Temporary Materials. Provide all temporary construction materials, equipment, supplies, construction utilities and facilities, special tools, and commissioning supplies reasonably necessary or appropriate for, and replace any Spare Parts used during, the construction, start-up, testing, commissioning, and operation and maintenance of the Project until achievement of Substantial Completion. By delivery of a Notice to Owner prior to the disposition of any surplus construction materials, Spare Parts, or supplies remaining on the Site on the Substantial Completion Date (other than materials and supplies necessary to achieve Final Completion), Contractor shall give Owner the option to purchase such items at a price not exceeding Contractor's cost therefor. Owner shall exercise such right, if it so elects, within thirty (30) days after receipt of such Notice. 4.14. Operating Consumables. Provide all Operating Consumables necessary or appropriate for the start-up, testing, commissioning, operation and maintenance of the Project until achievement of Substantial Completion, which shall be for Owner's account except for lube oils and grease which shall be for Contractors' account. 4.15. Applicable Laws/Permits. Provide all technical support and information, and other reasonably requested information, to enable Owner to apply for and obtain Owner Acquired Permits. Comply in all respects with all Applicable Laws and Applicable Permits relating to the Project, the Site, and the performance of the Work, and perform the Work so that, upon Substantial Completion, the Project meets, and will be capable of being operated in compliance with all requirements of, Applicable Laws and Applicable Permits and using methods and Equipment that satisfy Industry Standards; provided that Contractor shall be entitled to a Change In Work in accordance with ARTICLE 17 if any Owner Acquired Permit identified on EXHIBIT "C" which is not in final form on the date hereof and is issued with material modifications from the conditions, obligations, and/or requirements identified in the permit application or draft permit previously provided to Contractor. Contractor shall be responsible for all damages, fines, and penalties that may arise (including those that Owner pays or becomes liable to pay) because of non-compliance with such requirements to the extent due to acts or omissions of Contractor or any Subcontractor or Vendor, other than any damages, fines, and penalties to the extent due to the acts or omissions of Owner, Owner's employees and agents, or other third parties under the control of Owner, and shall assume responsibility for any costs and liabilities arising from any environmental damage or adverse health impacts that may be caused by Contractor's negligence or willful misconduct in constructing or failing to construct the Project or performing or failing to perform the Work. 21 SALTON SEA UNIT 5 EPC CONTRACT 4.16. Replacement at Owner's Request. Within ten (10) days after request by Owner, remove from the Site and performance of the Work, and cause any Subcontractor or Vendor to remove from the Site and performance of the Work, and as soon as reasonably practicable, replace, any individual performing the Work (including any of the Key Personnel) whom Owner believes to be creating a safety hazard or a material risk of either (i) non-achievement of Final Completion or (ii) material non-performance by Contractor in accordance with this Contract. 4.17. Quality Assurance Programs. Use effective quality assurance programs, acceptable to Owner and consistent with the requirements of EXHIBIT "A" and EXHIBIT "AC", in performing the Work. Within thirty (30) days after the Notice to Proceed Date, Contractor shall provide a Notice to Owner describing such quality assurance programs to be used by Contractor in the performance of the Work. Owner shall have the right to promptly review and comment on such programs as described in Contractor's Notice hereunder; provided, however, that Contractor shall remain solely responsible for performing the Work in accordance with this Contract. If Owner provides any comments with respect to such quality assurance programs to Contractor, then Contractor shall incorporate changes into such quality assurance programs addressing such comments, and resubmit the same to Owner. Such incorporation of changes to address Owner's comments shall not be considered a Change In Work. If Owner fails to comment within fifteen (15) Business Days after receipt of such Notice, Owner shall be deemed to have accepted such programs. 4.18. Access 4.19. Generally. Use only the entrance(s) to the Site specified by Owner for ingress and egress of all personnel, equipment, vehicles, and materials. Contractor shall perform the Work consistent and in accordance with the Land Rights Agreements, and the Existing Plants Access Schedule, in and to the Site. 4.20. Access to Existing Plant Sites. Contractor shall undertake any Work that will or reasonably might be expected to interfere with or disrupt the operations of any Existing Plant only during the times and in the manner set forth in the Existing Plants Access Schedule. Contractor shall neither disrupt nor interfere with the operations of any Existing Plant during any other period. The Parties expressly understand that the Existing Plants Access Schedule has been developed so as to minimize the lost revenues that the Existing Plant Owners would suffer as a result of Contractor's performance of the Work while providing Contractor with sufficient access to perform the Work, and any deviation by Contractor from such Existing Plants Access Schedule likely would have a material adverse effect on the operations and revenues of the Existing Plants. If Contractor requires access to an Existing Plant to undertake any Work that will or reasonably might be expected to interfere with or disrupt the operations of any Existing Plant other than as set forth in the Existing Plants Access Schedule, then Contractor shall promptly provide Notice thereof to Owner. Contractor and Owner shall endeavor to reach a reasonable accommodation with regard to such access that would minimize any interruption or disruption to the operations of any Existing Plant, but failure 22 SALTON SEA UNIT 5 EPC CONTRACT to reach such accommodation shall not relieve the Contractor from any of its obligations under this Contract. 4.21. Other Assistance. Until Final Completion, (i) to the extent reasonably requested by Owner, Contractor will assist Owner in dealing with Suppliers, Customers, Transporters, Governmental Authorities, and the Financing Entities in any and all matters relating to the Work (including any Interconnection facilities) and (ii) cooperate to the extent reasonably necessary to enable Owner to perform its obligations under Owner's agreements with the Financing Entities. 4.22. Data; Drawings. Provide all operating data and preliminary and final as-built drawings necessary to safely and efficiently start up, test, operate, shut down, and maintain the Project (including those set forth in EXHIBIT "A"). 4.23. Training of Operating Personnel 4.24. Commencement of Training. Commencing on the date that is three (3) months prior to the anticipated Mechanical Completion Date (as determined by Owner based on the circumstances existing at the time of determination), train the designated Operating Personnel in the requirements for the start-up, shut-down, operation and maintenance of, and safety, general process understanding and emergency procedures for, the Project and all of its sub-systems. Until Substantial Completion, the Operating Personnel provided by Owner pursuant to SECTION 3.2 shall work under the management, supervision, and direction of Contractor; provided, however, that such Operating Personnel shall not be deemed employees or Subcontractors of Contractor; provided, further, that Contractor shall remain solely responsible for performing the Work in accordance with this Contract, including Contractor's obligation to achieve Mechanical Test Completion, Capacity Test Completion, Substantial Completion and Final Completion by the applicable Project Deadline, regardless of any failure, non-achievement, or non-performance of the Operating Personnel, with the exception of their willful misconduct. 4.25. Design and Review of Training Program. Contractor will design the training program (in accordance with the provisions of EXHIBIT "A") and submit it to Owner by no later than the date that is seven (7) months prior to the anticipated Mechanical Completion Date. Owner will review, comment on, and approve or disapprove such program in writing within forty-five (45) days after such submission by Contractor. If Owner conditions its approval on reasonable changes in the program submitted by Contractor, Contractor will effect such changes at no additional cost to Owner and resubmit the program to Owner within ten (10) days after Contractor receives Owner's conditional approval. Owner will 23 SALTON SEA UNIT 5 EPC CONTRACT have ten (10) days after such resubmission to review, comment on, and approve or disapprove the program resubmitted by Contractor. Such procedure shall continue with the same ten (10) day time periods until a program is approved by Owner; provided, however, that if the Parties cannot reach agreement after the third submittal by Contractor, the differences of the Parties shall be resolved in accordance with the expedited payment dispute procedures provided in Article 36. If Owner fails to respond within any of the applicable periods specified above, Owner shall be deemed to have approved the last such program submitted by Contractor. 4.26. Announcements; Publications. Coordinate with Owner with respect to, and provide advance copies to Owner for review of, the text of, any proposed announcement or publication that includes any non-public information concerning the Work prior to the dissemination thereof to the public or to any Person other than Subcontractors, Vendors, the Financing Entities, or advisors of Contractor, in each case, who agree to keep such information confidential. If Owner delivers written notice to Contractor rejecting any such proposed announcement or publication within two (2) Business Days after receiving such advance copies, the Contractor shall not make such public announcement or publication; provided, however, that Contractor may disseminate or release such information in response to requirements of Governmental Authorities. 4.27. Intentionally Deleted 4.28. Documents Requested by Financing Entities. Provide such data, reports, certifications, opinions of counsel, and other documents, up to a maximum of ten (10) copies each, or assistance related to the Work or this Contract as may be reasonably requested by the Financing Entities with respect to the financing of the Project; provided, however, that the provision of this information shall not in any manner modify Contractor's rights or obligations under any other provision of this Contract. 4.29. Critical Path Schedule. Within sixty (60) days after the Notice to Proceed Date, Contractor shall provide Owner with a Critical Path Schedule that satisfies the requirements set forth in EXHIBIT "G" and is consistent with the Milestone Schedule. This schedule shall become the baseline schedule that all updates shall be compared against, and may only be revised with Owner's written concurrence. Thereafter, Contractor shall advise Owner of any proposed Critical Path Schedule changes of more than thirty (30) days and promptly provide Owner with any revisions thereto and reasons therefor. In connection therewith, Contractor shall employ a project management system able to provide schedule monitoring and analysis which shall include a comparison of the Critical Path Schedule with the actual progress for each time period with all variances noted. Schedule analysis shall include a determination of the impact of such variance, if material, on the Critical Path Schedule and any action necessary to correct the variance. Utilizing the critical path method, Contractor shall continually be aware of factors that are delaying or that could delay the Milestone Schedule and shall take remedial actions reasonably within its control to eliminate or minimize schedule delays including, without limitation, over-time for the employees of Contractor and Subcontractors and the assignment of additional personnel and/or other resources. 24 SALTON SEA UNIT 5 EPC CONTRACT During construction, the Contractor will update its Critical Path Schedule to reflect the current status of the Work. At a minimum, the updates will be performed and provided to the Owner on a monthly basis as part of the Monthly Progress Report. 4.30. Monthly Progress Report. Following the Notice to Proceed, Contractor shall prepare a Monthly Progress Report in the form of EXHIBIT "N" and submit it to Owner within ten (10) days after the end of each calendar month and as part of the Contractor's Invoice submitted pursuant to SECTION 7.1. In addition, Contractor shall keep, and furnish to Owner at Owner's request, such information as Owner, Consulting Engineer or any of the Financing Entities may reasonably require to determine that the Work is progressing according to the Milestone Schedule and the Critical Path Schedule and for the purpose of confirming that Milestone Payments are due hereunder. Contractor also shall keep daily logs at the Site and shall provide to Owner copies of weekly reports of actual construction progress as compared with scheduled progress. 4.31. Accident Reports. Provide Owner with written accident reports for accidents that occur at the Site, prepared in accordance with the safety assurance program approved by Owner pursuant to SECTION 4.11. Provide Owner with copies of all written communications with Governmental Authorities and insurance companies (including any notices) with respect to accidents that occur at the Site, and thereafter provide such written reports relating thereto as Owner may reasonably request. 4.32. Punchlist. On a bi-weekly basis after Substantial Completion, revise and update the Punchlist and schedule and budget therefor as initially prepared in accordance with SECTION 15.3(E). 4.33. Measurements. Exclusively use the U.S. Customary System units of measurement in the design process and in all specifications, drawings, and other documents except for foreign supply sources on lists of approved Subcontractors pursuant to SECTION 10.1. 4.34. Meetings. Schedule and conduct periodic meetings with Owner in accordance with the requirements of EXHIBIT "A", before mobilization, at Contractor's office, the Zinc Contractor's office, or such other location as the Parties may agree, and after mobilization, at the Site, the Zinc Contractor's office, or such other location as the Parties may agree, for the purpose of reviewing the progress of the Work and adherence to the Milestone Schedule and the Critical Path Schedule. The frequency of such meetings shall be established and modified, from time to time, by mutual agreement of Owner and Contractor; provided, however, Owner shall be entitled to require that meetings occur as frequently as weekly. However, Owner shall not request meetings more frequently than monthly at locations other than Contractor's facilities or the Site. If Owner requests that Contractor cause a representative of any Subcontractor (having a subcontract value 25 SALTON SEA UNIT 5 EPC CONTRACT in excess of $250,000) to attend any such meeting, then Contractor shall cause a representative of such Subcontractor to attend such meeting. 4.35. Spare Parts. Deliver the Spare Parts listed in EXHIBIT "Q" so that they arrive at the Site at least three (3) months prior to the anticipated Substantial Completion Date (as such date is then reasonably estimated by Owner based on the circumstances existing at the time of the determination). No later than fifteen (15) days prior to the purchase of any Equipment, Contractor shall provide Owner with (1) a list of available Spare Parts associated with such Equipment, (2) those of such Spare Parts that the applicable Vendor recommends that Owner obtain for the Project and (3) those of such Spare Parts that Contractor reasonably suggests that Owner obtain for the Project. If Owner prior to the expiration of such fifteen (15) day period requests Contractor to purchase any such Spare Parts for the Project then Contractor shall purchase such parts for Owner's account and shall cause such Spare Parts to be delivered to the Site no later than three (3) months prior to the anticipated Substantial Completion Date. 4.36. Hazardous Materials. Contractor shall not and shall not permit any of its Subcontractors, directly or indirectly to, permit the manufacture, storage, transmission or presence of any Hazardous Materials on the Site except in accordance with Applicable Laws. Contractor shall not and shall not permit any of its Subcontractors to release, discharge or otherwise dispose of any Hazardous Materials on the Site. Owner shall conduct and complete all investigations, studies, sampling and testing of the Site in connection with the potential presence of Hazardous Materials at the Site to the extent required in connection with the Work under any Applicable Laws and Contractor shall promptly comply with all lawful orders and directives of all Governmental Authorities regarding Applicable Laws except to the extent any such orders or directives are being contested in good faith by appropriate proceedings in connection with the Work. If Contractor discovers, encounters or is notified of the existence of any contaminated materials or Hazardous Materials at the Site, then Contractor shall (i) promptly notify Owner thereof and cordon off the area containing such contaminated materials or Hazardous Materials; (ii) if Contractor or any Subcontractor is responsible for the placement of or discharge of such contaminated materials or Hazardous Materials, remove such contaminated materials or Hazardous Materials from the Site and remediate the Site at Contractor's sole cost and expense; and (iii) if Contractor or any Subcontractor is responsible for the placement of or discharge of such contaminated materials or Hazardous Materials, not be entitled to any extension of time or additional compensation hereunder for any delay or costs incurred by Contractor as a result of the existence of such contaminated materials or Hazardous Materials. If Contractor or any Subcontractor is not responsible for the placement or discharge of such contaminated materials or Hazardous Materials, Contractor and Owner may agree on an appropriate Change in Work which provides for Contractor to remediate the Site. Such a Change in Work will entitle Contractor to additional time and money to perform the remediation effort as well as an extension of time or additional compensation hereunder for delay or costs incurred by Contractor as a result of the original scope of Work being delayed or made more difficult by the existence of such contaminated materials or Hazardous Materials. Contractor however will not be obligated to remediate the Site and may, even if it does not perform such activity, be entitled to an adjustment to the Contract Price, the Substantial Completion Deadline or any other Project 26 SALTON SEA UNIT 5 EPC CONTRACT Deadline as if such an event constituted an Owner request for Change in Work or Owner Caused Delay in accordance with Article 17. Owner shall furnish Owner Furnished Items free and clear of all Hazardous Materials. Contractor shall treat Geocrete in accordance with Section 5.1.5. 4.37. Design of Project. Contractor shall design the Project so that it is capable of operation, at the design levels specified in the Statement of Work, in compliance with Industry Standards, Applicable Law and Applicable Permits in effect at the time of Substantial Completion. In addition, Contractor shall design the Project such that the Work and the Project will not have a material adverse effect on the operations of the Existing Plants. 4.38. Coordination With Zinc Contractor. Contractor shall cooperate and coordinate with Owner and with the Zinc Contractor who will construct the Zinc Recovery Facility to avoid any disruption in the progress of the Work or the progress of the work to be performed by the Zinc Contractor. Contractor shall afford the Zinc Contractor reasonable opportunity for the introduction and storage of its materials and equipment and performance of its activities and shall connect and coordinate Contractor's construction and operations with the Zinc Contractor's construction and operations. Notwithstanding any other provision of this Contract, Contractor understands that the Zinc Contractor will be constructing certain improvements on various locations adjacent to the Site and near the Existing Plants, and Contractor shall not claim Force Majeure or Owner Caused Delay or request a Change In Work as a result of any act or omission of the Zinc Contractor. The foregoing release however shall not relieve Owner of its obligations for timely delivery of Production Inputs or for ensuring its ability to receive the Products produced by the Project. 4.39. Coordination With Existing Plant Owners. While performing work on Existing Plant Sites, Contractor shall cooperate and coordinate with Owner and with the Existing Plant Owners to avoid any disruption or interference with the operations of any Existing Plant. Contractor understands that the Existing Plant Owners will be performing certain operation and maintenance activities at the Existing Plant Sites and various other locations at or near the Existing Plants, and, to the extent the Existing Plant Owners are performing such activities in accordance with their standard operating and maintenance procedures, Contractor will not claim Force Majeure or Owner Caused Delay or request a Change In Work as a result of any act or omission of the Existing Plant Owners. 5. COVENANTS, WARRANTIES AND REPRESENTATIONS 5.1. Of Contractor. Contractor covenants, represents, and warrants to Owner that: 27 SALTON SEA UNIT 5 EPC CONTRACT 5.1.1. Organization, Standing and Qualification. Contractor is a corporation, duly organized, validly existing, and in good standing under the laws of Massachusetts, and has, or will have by the Notice to Proceed Date, full power to engage in the business it presently conducts and contemplates conducting, and is and will be duly licensed or qualified and in good standing under the laws of California and in each other jurisdiction wherein the nature of the business transacted by it makes such licensing or qualification necessary and where the failure to be licensed or qualified would have a material adverse effect on its ability to perform its obligations hereunder. 5.1.2. Professional Skills. Contractor has all the required authority, ability, skills, experience and capacity necessary to perform and shall diligently perform the Work in a timely and professional manner, utilizing sound engineering principles, project management procedures, construction procedures and supervisory procedures, all in accordance with Industry Standards. Contractor has the experience and skills necessary to determine, and Contractor has reasonably determined, that Contractor can perform the Work for the Contract Price. 5.1.3. Enforceable Contract. This Contract has been duly authorized, executed, and delivered by Contractor and constitutes the legal, valid, and binding obligation of Contractor, enforceable against Contractor in accordance with its terms. 5.1.4. Due Authorization. The execution, delivery, and performance by Contractor of this Contract will not violate or conflict with (i) any Applicable Laws, (ii) any covenant, agreement, or understanding to which it is a party or by which it or any of its properties or assets is bound or affected, or (iii) its organizational documents; and will not subject the Project or any component part thereof or the Site or any portion thereof to any lien other than as contemplated or permitted by this Contract. 5.1.5. Site Conditions. Contractor and Owner have both conducted investigations regarding the Site. As a result the Parties agree to the following apportionment of risks related to the Site Conditions. 5.1.5.1. Contractor's Risks. Contractor has investigated the Site and each other location where any portion of the Work shall be performed and surrounding locations, including both surface and subsurface conditions, to the extent Contractor deems necessary for Contractor's purposes and is familiar with and has satisfied itself with respect to the nature and location of the Work and the general and local conditions in and around the Site with respect to the environment, transportation, access, waste disposal, handling and storage of materials, availability and quality of electric power, availability and quality of water, availability and quality of roads, climatic conditions and seasons, physical conditions at the Site and the surrounding area as a whole, topography and ground surface conditions, sound attenuation conditions, subsurface geology and conditions, nature and quantity of surface and subsurface materials to be encountered (excluding Hazardous Materials) but including equipment and facilities needed before and during performance of all 28 SALTON SEA UNIT 5 EPC CONTRACT Contractor's obligations under this Contract. (the foregoing, collectively, the "Site Conditions"). Contractor also acknowledges that the Site and surrounding area is subject to high temperatures and hot weather during summer months which may interfere with Contractor's ability to perform the Work. Contractor specifically acknowledges and accepts the foregoing Site Conditions and agrees that neither the Substantial Completion Deadline nor any other Project Deadline shall be extended, the Contract Price shall not be modified, and Contractor shall not be entitled to, request or be granted any Change in Work, as a result of any such Site Conditions. Should the Site Conditions be at variance with the condition of the Site indicated by this Contract, or should unknown physical conditions below the surface of the ground or water or should physical or unknown conditions in an existing structure of an unusual nature, differing in any way from those ordinarily encountered and generally recognized as inherent in work of the character provided for in this Contract, be encountered neither the Contract Price nor the Substantial Completion Deadline nor any other Project Deadline shall be adjusted, and Contractor shall complete the Work for the Contract Price, absorbing all unexpected expenses. 5.1.5.2. Owner's Risks. Owner accepts the risks that any manmade subsurface structures encountered in any location where the Work is to be performed (which are found in any location(s) (other than those which have been previously identified to Contractor and included in (i) as-built drawings for Salton Sea Units 3 and 4 (which Owner shall make available to Contractor on request), (ii) Exhibit A or (iii) Exhibit A, Part 4, along with any archeological finds (each an "Unforeseen Site Conditions") may be the basis for adjustment to the Contract Price, the Substantial Completion Deadline or any other Project Deadline as if such event constituted an Owner request for Change In Work or Owner Caused Delay in accordance with Article 17. 5.1.5.3. Geocrete. To the extent that Contractor encounters Geocrete in the quantities and locations specified in the Exhibit W Contractor shall excavate the Site and remove the Geocrete to a location on Site designated by Owner for temporary storage disposal of this material into containers provided by Owner. Contractor hereby waives any right to claim any delay or increase costs as a result of Contractor encountering this Geocrete in quantities specified in the Exhibit W. Owner agrees to assume responsibility for the ultimate disposal of this material in containers in accordance with Applicable Laws and hereby agrees to defend and indemnify Contractor from any and all claims arising from the ultimate disposal of this material. 5.1.6. Government Approvals. No authorization, approval, exemption, or consent by any Governmental Authority (other than the Applicable Permits) is required in connection with the authorization, execution, delivery, and performance of this Contract by Contractor. The Contractor Acquired Permits either have been obtained by Contractor and are in full force and effect on the date hereof or will be obtained by Contractor and will be in full force and effect on or prior to the date on which they are required, under Applicable Law, to be in full force and effect, so as to permit Contractor to commence and prosecute the Work to completion in accordance with the Project Schedules. 29 SALTON SEA UNIT 5 EPC CONTRACT 5.1.7. No Suits, Proceedings. There are no actions, suits, proceedings, patent or license infringements, or investigations pending or, to Contractor's knowledge, threatened against it at law or in equity before any court (United States or otherwise) or before any Governmental Authority (whether or not covered by insurance) that individually or in the aggregate could result in any materially adverse effect on the business, properties, or assets or the condition, financial or otherwise, of Contractor or in any impairment of its ability to perform its obligations under this Contract. Contractor has no knowledge of any violation or default with respect to any order, writ, injunction, or decree of any court or any Governmental Authority that may result in any such materially adverse effect or such impairment. 5.1.8. Patents. Other than those patents, trademarks, service marks, tradenames, copyrights, licenses, franchises and permits included in the License Agreements and the Owner Acquired Permits, Contractor owns or has the right to use all patents, trademarks, service marks, tradenames, copyrights, licenses, franchises, and permits necessary to perform the Work without conflict with the rights of others. 5.1.9. Legal Requirements. The Project shall be built in conformity with Applicable Laws and Applicable Permits as of the Substantial Completion Date. 5.1.10. Business Practices. Contractor and its representatives have not made any payment or given anything of value, and Contractor will not, and Contractor will direct its employees, agents, and Subcontractors directly contracting with Contractor, and their employees or agents to not, make any payment or give anything of value, in either case to any government official (including any officer or employee of any Governmental Authority) to influence his, her, or its decision or to gain any other advantage for Owner or Contractor in connection with the Work to be performed hereunder. None of Contractor, its Subcontractors or Vendors, or any of their employees or agents shall take any action that in any way violates the United States Foreign Corrupt Practices Act or any similar Applicable Law. Contractor shall immediately notify Owner of any violation of this covenant (or of the direction described in the immediately preceding sentence) and shall indemnify and hold Owner harmless for all losses, expenses, damages, and liabilities arising out of such violation. 5.1.11. Turnkey Project. Contractor acknowledges that this Contract constitutes a fixed price obligation to engineer, design, procure, construct, test and start up through Substantial Completion a turnkey Project (including the training of Owner's operating staff), complete in every detail, within the time and for the purpose designated herein by Owner. References to the obligations of Contractor under this Contract as being "TURNKEY" and performing the Work on a "TURNKEY BASIS" means that Contractor is obligated to supply all of the Equipment (except Owner Furnished Items ), labor and design services and to supply and perform all of the Work, in each case as may reasonably be required, necessary, or appropriate (whether or not specifically set forth in this Contract) to 30 SALTON SEA UNIT 5 EPC CONTRACT complete the Work such that the Project satisfies the applicable terms and conditions set forth in this Contract, all for the Contract Price. 5.1.12. Owner-Provided Information. Owner may provide or may have provided Contractor with copies of certain studies, reports or other information (including oral statements) and Contractor acknowledges that all such documents or information have been or will be provided as background information and as an accommodation to Contractor. Except as provided in Owner Furnished Items in EXHIBIT "AA", Contractor further acknowledges that Owner makes no representations or warranties with respect to the accuracy of such documents or the information (including oral statements) or opinions therein contained or expressed. Contractor further represents and warrants that it is not relying on Owner for any information, data, inferences, conclusions, or other information with respect to Site Conditions, including the surface and sub-surface conditions of the Site and the surrounding areas. 5.1.13. Legal Requirements. Contractor has knowledge of all of the legal requirements and business practices that must be followed in performing the Work and Contractor's warranty obligations herein. The Work and Contractor's warranty obligations herein will be performed in conformity with such requirements and practices and in compliance with all Applicable Laws. 5.1.14. Financial Condition. Contractor is financially solvent, able to pay its debts as they mature, and possessed of sufficient working capital to complete its obligations under this Contract. Contractor is able to furnish the Equipment, labor, and design services needed for the Project, is experienced in and competent to perform the Work, both construction and design, contemplated by this Contract, and is qualified to do the Work. 5.1.15. Licenses. All Persons who will perform any portion of the Work have and will have all business and professional certifications required by Applicable Law to perform the services under this Contract. 5.1.16. Building Codes. The Project can and shall be built in conformity with applicable California building codes, construction related regulations and construction related directives of all Governmental Authorities. 5.2. Of Owner. Owner covenants, represents, and warrants to Contractor that: 31 SALTON SEA UNIT 5 EPC CONTRACT 5.2.1. Organization, Standing and Qualification. Owner is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware, has full power to engage in the business Owner presently conducts and contemplates conducting, and is and will be duly licensed or qualified and in good standing in each jurisdiction wherein the nature of the business transacted by it makes such licensing or qualification necessary and where the failure to be licensed or qualified would have a material adverse effect on its ability to perform its obligations hereunder. 5.2.2. Enforceable Contract. This Contract has been duly authorized, executed, and delivered by Owner and constitutes the legal, valid, and binding obligation of Owner, enforceable against Owner in accordance with its terms. 5.2.3. Due Authorization. The execution, delivery, and performance by Owner of this Contract will not conflict with (i) any Applicable Laws, (ii) any covenant, agreement, or understanding to which it is a party or by which it or any of its properties or assets is bound or affected, or (iii) its certificate of incorporation or by-laws. 5.2.4. Governmental Approvals. No authorization, approval, exemption, or consent by any Governmental Authority (other than the Applicable Permits) is required in connection with the execution, delivery, and performance of this Contract by Owner. The Owner Acquired Permits either have been obtained by Owner and are in full force and effect on the date hereof or will be obtained by Owner and will be in full force and effect, so as to permit Contractor to commence and prosecute the Work to completion in accordance with the Project Schedules. 5.2.5. No Suits, Proceedings. There are no material actions, suits, proceedings, or investigations pending or, to its knowledge, threatened against it at law or in equity before any court (United States or otherwise) or before any Governmental Authority (whether or not covered by insurance) that individually or in the aggregate could result in any materially adverse effect on the business, properties, or assets or the condition, financial or otherwise, of Owner or in any impairment of its ability to perform its obligations under this Contract. Owner has no knowledge of any violation or default with respect to any order, writ, injunction, or any decree of any court or any Governmental Authority that may result in any such materially adverse effect or such impairment. 5.2.6. Business Practices. Owner will not, and Owner will direct its employees, agents, and subcontractors, and their employees and agents to not, make any payment or give anything of value to any government official (including any officer or employee of any Government Authority) to influence his, her, or its decision or to gain any other advantage for Owner or Contractor in connection with the Work to be performed hereunder. Neither Owner nor any of its employees or agents shall take any action that violates the United States Foreign Corrupt Practices Act or any similar Applicable 32 SALTON SEA UNIT 5 EPC CONTRACT Law. Owner shall immediately notify Contractor of any violation of this covenant (or of the direction described in the immediately preceding sentence) and shall indemnify and hold Contractor harmless for all losses, expenses, damages, and liabilities arising out of such violation. 6. COST OF WORK 6.1. Contract Price. As full compensation for the Work, Owner shall pay to Contractor a fixed price amount of U.S. $91,787,000 (the "CONTRACT PRICE"). The Contract Price shall be changed only by Changes in Work approved in accordance with ARTICLE 17. The Contract Price shall be paid in accordance with ARTICLE 7. 6.2. All Items of Work Included. The Contract Price includes payment for (i) all costs of Equipment, temporary equipment, materials, labor, transportation, engineering, design and other services relating to Contractor's performance of its obligations under this Contract and the Work (including any intellectual property rights licensed under this Contract, expressly or by implication) provided by Contractor or such Subcontractors or Vendors, (ii) all United States federal, state, regional, and local taxes, effective or enacted as of the date of execution of this Contract or thereafter , each as imposed on Contractor or its Subcontractors or Vendors or the Work, (iii) all other taxes, duties, levies, imposts, fees, or charges of any kind (whether in the United States or elsewhere and including, without limitation, any of the foregoing related to the importation of any items into the United States) arising out of Contractor's or any such Subcontractor's or Vendor's performance of the Work, and (iv) any duties, levies, imposts, fees, charges, and royalties (and including, without limitation, any of the foregoing related to the importation of any items into the United States) imposed on Contractor or its Subcontractors or Vendors with respect to any Equipment, materials, labor, or services provided under this Contract. The taxes covered hereby include occupational, excise, unemployment, ownership, value-added, gross receipts, and income taxes and any and all other taxes and duties on any item or service that is part of the Work, whether such tax is normally included in the price of such item or service or is normally stated separately, all of which shall be for the account of Contractor. The Contract Price shall not be increased with respect to any of the foregoing or with respect to any withholdings in respect of any of the foregoing items that Owner may be required to make. Notwithstanding the foregoing, Contractor shall not be liable for, and the Contract Price shall not include any real estate taxes or ownership taxes on the Site. 7. TERMS OF PAYMENT Payments to Contractor shall be made as follows: 33 SALTON SEA UNIT 5 EPC CONTRACT 7.1. Milestones; Contractor's Invoices. Within two (2) Business Days after the Notice to Proceed Date, Owner shall pay Contractor the amount shown on the Progress Payment Schedule as the first Milestone Payment. Thereafter, on or about the tenth (10th) day of each month after receipt of the Notice to Proceed, Contractor shall submit a Contractor's Invoice in the form of EXHIBIT "F" to Owner for the Work performed thereunder in the then immediately preceding month. Contractor specifically agrees that it shall not request in any Contractor's Invoice the payment of any sum attributable to Work which has been rejected by Owner or Contractor or which otherwise constitutes or relates to a Subcontractor's application for payment, billings or invoices which Contractor disputes or for any other reason does not intend to pay in accordance with the terms of Contractor's agreements with its Subcontractors. Subject to the provisions of this ARTICLE 7, Owner shall pay Contractor each Milestone Payment described on the Progress Payment Schedule upon Contractor's completion of the corresponding Milestone. 7.2. Certification by Contractor. Each Contractor's Invoice: (a) shall describe (i) the completion of the Milestones as described in the Progress Payment Schedule, (ii) the related Milestone Payments set forth on the Progress Payment Schedule that are then due as of the end of the immediately preceding month, and (iii) any other amounts then payable by Owner to Contractor under ARTICLE 17 or any other provision hereof and, without limiting Owner's right to dispute any amounts requested for payment; and (b) shall include documentary evidence of the completion of each Milestone described in such Contractor's Invoice sufficient for Owner to verify that such Milestone has been completed; (c) shall include the following certification: "there are no known mechanic's or materialmen's liens outstanding at the date of this Contractor's Invoice, all due and payable bills with respect to the Work have been paid to date or are included in the amount requested in the current application, and, except for such bills not paid but so included, there is no known basis for the filing of any mechanic's or materialmen's liens on the Project or the Work except as described below, and sufficient releases from Subcontractors have been obtained so as to cover all amounts requested (save amounts owing to Insignificant Subcontractors) in such form as to constitute an effective release of lien (corresponding to payments received by them) under the laws of the State of California. Contractor, or a Subcontractor, has actually performed and Contractor has not been paid for the Work covered by this Contractor's Invoice."; (d) shall include an Unconditional Waiver of Liens and a Conditional Waiver of Liens from Contractor and from each Subcontractor and Vendor contracting directly with Contractor other than Insignificant Subcontractors; and (e) shall include a schedule listing all Insignificant Subcontractors and the amount that each Insignificant Subcontractor is or will be entitled to be paid in respect of Work or any related activities, including fabrication of equipment or other materials to be incorporated 34 SALTON SEA UNIT 5 EPC CONTRACT into the Project, performed (but not necessarily completed) by such Subcontractors or Vendors, or anyone performing work under them including sub-subcontractors or employees, on or before the date of such Contractor's Invoice and documentary evidence sufficient for Owner to verify the facts set forth in such schedule; it being understood and agreed by Contractor that any Contractor's Invoice that is inaccurate or incomplete or that lacks detail, specificity, or supporting documentation required by this ARTICLE 7 shall not, to the extent of such deficiency, constitute a valid request for payment. Each Milestone Payment shall be due and payable only to the extent it is supported by the completion of the corresponding individual Milestones, it being acknowledged and understood that no Milestone Payment shall be made for any partially or improperly completed individual Milestones or for Work that remains subject to Owner's review in accordance with SECTION 12.5. Notwithstanding the foregoing, in no event shall the cumulative amount paid for any month exceed the cumulative amounts of the Milestone Payments payable for such month pursuant to the "Expenditure Schedule" set forth on the Progress Payment Schedule. 7.3. Insignificant Subcontractors. Contractor shall not be required to include with any Contractor's Invoice (other than the Final Contractor's Invoice) any Unconditional Waiver of Lien or Conditional Waiver of Lien from any Insignificant Subcontractor properly designated as such by Contractor in such Contractor's Invoice. "Insignificant Subcontractors" shall mean Subcontractors or Vendors designated as such by Contractor in the applicable Contractor's Invoice who are or will be entitled to be paid in the aggregate for all such designated Subcontractors or Vendors less than One Million Dollars ($1,000,000) in respect of Work or any related activities, including fabrication of equipment or other materials to be incorporated into the Project, performed (but not necessarily completed) by such Subcontractors or Vendors or anyone performing work under them, including sub-contractors or employees, on or before the date of such Contractor's Invoice. 7.4. Owner Review; Payments. Without limiting Owner's rights of review under SECTION 10.1 and ARTICLE 12, within ten (10) days after receipt by Owner of a Contractor's Invoice and all accompanying documentation required by SUBSECTION 7.2(B), Owner and the Financing Entities shall, in consultation with their respective Consulting Engineers, (i) determine whether the Work covered thereby has been done as described by Contractor; (ii) determine whether the Work performed conforms with the requirements of this Contract; (iii) determine whether the Contractor's Invoice has been properly submitted; and (iv) determine and notify Contractor concerning any invoiced amount that is in dispute and the basis for such dispute. Owner shall use its best efforts to pay Contractor, within twenty (20) days after receipt by Owner of Contractor's Invoice (but in no event later than 30 days), all Milestone Payments and other amounts then payable and not in dispute; provided, however, that Owner may offset against such payment any amount then due from Contractor to Owner pursuant to SECTION 16.1, 16.2 OR 16.3 or any other provision of this Contract. Failure by Owner to pay any amount in dispute and identified pursuant to clause (iv) above until resolution of such dispute pursuant to SECTION 7.7 shall not alleviate, diminish, or modify in any respect Contractor's obligations to perform hereunder, including Contractor's obligation to meet the Project Deadlines. Upon receipt of payment from Owner, Contractor shall promptly pay each 35 SALTON SEA UNIT 5 EPC CONTRACT Subcontractor and Vendor directly contracting with Contractor the amount to which said Subcontractor or Vendor is entitled under its agreement with Contractor with respect to the Work covered by such payment by Owner in accordance with the terms of its subcontract. Contractor shall, by an appropriate agreement with each Subcontractor and Vendor directly contracting with Contractor where the applicable subcontract price or purchase order value exceeds Two Hundred Fifty Thousand Dollars ($250,000), contractually require each such Subcontractor and Vendor to make payments to its Subcontractors and Vendors in a similar manner. 7.5. Retainage. Owner shall retain and withhold payment of ten percent (10%) of all payments made to Contractor pursuant to SECTION 7.4 (the "RETAINAGE") other than the Final Payment. Such amount shall be held by Owner and any interest thereon shall accrue for the account of Owner and not Contractor. In lieu of the above, Contractor may, at its option, post a letter of credit issued by a financial institution and in such form and graduated amount, in each case as are acceptable to Owner in its good faith discretion to secure an equivalent hold back position for Owner. 7.6. Final Payment. Upon the delivery of Owner's Certificate of Final Completion in accordance with SECTION 15.5(J), Contractor shall submit a final Contractor's Invoice (the "FINAL CONTRACTOR'S INVOICE") which shall set forth all amounts due to Contractor that remain unpaid (including amounts relating to the Punchlist Items), and upon approval thereof by Owner, Owner or the Financing Entities shall pay to Contractor the amount due under such Final Contractor's Invoice ("FINAL PAYMENT"). Subject to achievement of Final Completion pursuant to SECTION 15.5 AND TO ARTICLE 16, Final Payment shall include release of the Retainage. Owner shall have no obligation to make Final Payment until Contractor shall have delivered the following items to Owner: (a) with respect to each Subcontractor and Vendor contracting directly with Contractor, either: (i) (x) a certification from such Subcontractor or Vendor to the effect that such Subcontractor or Vendor has been paid all amounts that are owing or may become owing to such Subcontractor or Vendor with respect to the Project and the performance of the Work (other than retainage in an amount not to exceed ten percent (10%) of such amounts), and (y) an Unconditional Waiver of Liens, and (z) a Conditional Waiver of Liens; or (ii) a bond in form and substance acceptable to Owner to indemnify Owner against any claim by such Subcontractor or Vendor with respect to its right to be paid in connection with the Project or the performance of the Work; and (b) with respect to Contractor, 36 SALTON SEA UNIT 5 EPC CONTRACT (i) a certification to the effect that: (x) Contractor has been paid all amounts owing or that may become owing to Contractor with respect to the Project and the performance of the Work except for amounts requested in the Final Contractor's Invoice, and (y) Contractor has paid all amounts that Contractor will be required to pay in connection with the performance of the Work, including all amounts to be paid to any Subcontractor or Vendor with respect to the Project and the performance of the Work, except for amounts that in the aggregate shall be less than the Final Payment; and (ii) an Unconditional Waiver of Liens and a Conditional Waiver of Liens. Owner shall pay the Final Payment within twenty five (25) days after proper receipt of the Final Contractor's Invoice and the certifications and waivers of liens, or the bonds required by SUBSECTIONS 7.6(A) AND (B) above. 7.7. Disputes. Contractor's acceptance of any payment shall not be deemed to constitute a waiver of amounts that are then in dispute. Contractor and Owner shall use their reasonable efforts to resolve all disputed amounts as expeditiously as possible in accordance with the provisions of ARTICLE 36. 7.8. Method of Payment. All payments to be made to Contractor under this Contract shall be paid in United States Dollars and shall be wire transferred in immediately available funds on the date due or, if such date is not a banking day in the United States, on the immediately succeeding banking day to the following account (or such other account as may be designated by Contractor from time to time by Notice to Owner in accordance with ARTICLE 33): Bank Boston Account Number: 521-51437 ABA Number: 011-000-390 7.9. Holdbacks. Any provision hereof to the contrary notwithstanding, upon the occurrence and continuance of any of the following events, Owner, upon Notice to Contractor, may, but shall have no obligation to withhold, or retain such portion (including all) of any payment due to Contractor under this Contract as reasonably necessary to insure the performance of the Work or to protect fully Owner's rights hereunder: (a) A Contractor Event of Default shall have occurred hereunder as defined in SECTION 20.1 below; 37 SALTON SEA UNIT 5 EPC CONTRACT (b) Contractor shall have improperly failed to make prompt payments to its Subcontractors for material or labor used in the Work for which Owner has paid Contractor; (c) Owner in good faith shall have determined that Contractor cannot with prompt and reasonable acceleration of the Work achieve Substantial Completion before the Substantial Completion Deadline; provided, however, the amount withheld or retained on account of this SECTION 7.9(D) shall not exceed the amount of Delay Liquidated Damages which would be payable under SECTION 16.1 on account of the then estimated delay in Substantial Completion; (d) Contractor shall have failed to deliver a Plan acceptable to Owner as set forth in SECTION 8.4, (e) Contractor shall have failed to deliver any Contractor Deliverable (prepared by Contractor in good faith) to Owner on or before the date set forth on the Deliverables Schedule for the delivery of such Contractor Deliverable. No payment made hereunder shall be construed to be acceptance or approval of 4that part of the Work to which such payment relates or to relieve Contractor of any of its obligations hereunder. Should any dispute arise with respect to Owner's exercise of its rights under this SECTION 7.9, such dispute shall be subject to resolution in accordance with the expedited payment dispute procedures provided in ARTICLE 36. Notwithstanding the provisions of SECTIONS 20.5 AND 36.3, Contractor shall not have any rights of termination or suspension under SECTION 20.5 as a result of Owner's exercise or attempted exercise of its rights under this SECTION 7.9. 7.10. Application of Monies. Contractor shall use the sums paid to it pursuant to this ARTICLE 7 for the purpose of performing the Work and designing, furnishing, equipping, testing and commissioning the Project in accordance with the Statement of Work and this Contract. No provision hereof shall be construed, however, to require Owner or any Financing Entity to see to the proper disposition or application of the monies so paid to Contractor. 7.11. Release of Payment Liability. Acceptance by Contractor of the Final Payment shall constitute a release by Contractor of Owner and every officer and agent thereof from all liens (whether statutory or otherwise and including mechanics' or suppliers' liens), hereunder with respect to any Work performed or furnished in connection with this Contract, or for any act or omission of Owner or of any person relating to or affecting Owner's payment obligations under this Contract, except claims not known to Contractor at the time of Final Payment or claims for which Contractor has delivered a dispute Notice to Owner. Such release by Contractor shall not constitute a waiver of any of Contractor's defenses under this Contract. No payment by Owner shall be deemed a waiver by Owner of any obligation of Contractor under this Contract. 38 SALTON SEA UNIT 5 EPC CONTRACT 8. COMMENCEMENT AND PROSECUTION OF THE WORK 8.1. Notice to Proceed. The date on which Owner provides Contractor with a Notice to Proceed shall be the Notice to Proceed Date. If the Notice to Proceed is not received by Contractor on or before October 31, 1998, Contractor's schedule and cost will be subject to adjustment. Any activities undertaken prior to receipt of a Notice to Proceed will be compensated for as set forth in a separate written agreement between the parties. On the Notice to Proceed Date, Contractor shall commence and shall thereafter diligently pursue the Work assigning to it a priority that should reasonably permit the attainment of Mechanical Completion on or before the Mechanical Completion Deadline, Capacity Test Completion on or before the Capacity Test Completion Deadline, and Substantial Completion on or before the Substantial Completion Deadline, and Final Completion on or before the Final Completion Deadline. Contractor shall proceed with the performance of the Work in accordance with the Project Schedules. 8.2. Right to Terminate. If a Notice to Proceed has not been issued by December 31, 1998, either Party shall have the right to terminate this Contract upon Notice to the other Party (which right shall terminate upon the issuance of the Notice to Proceed). If this Contract is terminated pursuant to this SECTION 8.2, then neither Party shall have any further rights or obligations hereunder (other than such rights and obligations that by their express terms survive the expiration or earlier termination of this Contract). 8.3. Prosecution of Work. Contractor shall prosecute the Work in accordance with the Project Schedules. Contractor shall cause Mechanical Completion, Capacity Test Completion, Substantial Completion and Final Completion to occur on or before the applicable Project Deadline (as such dates may be extended pursuant to ARTICLES 17 OR 22 or any other provision hereof). 8.4. Plan. If (a) Contractor fails, other than by reasons not attributable to Contractor, to stay within forty five (45) days of the schedule (as determined using the Critical Path Schedule) for achieving Mechanical Completion and Substantial Completion on or before the applicable Project Deadline, or (b) Contractor fails to complete any of the items set forth in the Milestone Schedule within sixty (60) days after the date set forth on the Milestone Schedule for completion of such item, then Contractor shall, within ten (10) days after Contractor becomes aware of such delay, submit for approval by Owner and the Consulting Engineer, a written plan (the "PLAN") to complete all necessary Work to achieve Mechanical Completion or Substantial Completion not later than sixty (60) days after the applicable Project Deadline, including revised Project Schedules. Within ten (10) days after receipt of the Plan, Owner and the Consulting Engineer shall deliver written approval or disapproval of the Plan to Contractor, the approval thereof not to be unreasonably withheld. Approval by Owner and the Consulting Engineer of a Plan shall not be deemed in any way to have relieved Contractor of its obligations under this Contract relating to the failure to achieve Mechanical Completion, Substantial Completion or Final Completion by 39 SALTON SEA UNIT 5 EPC CONTRACT the applicable Project Deadline, be a basis for an increase in the Contract Price, or limit the rights of Owner under SECTION 16.1. 8.5. Performance Guarantees. Subject to SECTIONS 16.2 AND 16.3, Contractor shall perform the Work so that the Project satisfies the Performance Guarantees. Contractor shall demonstrate that the Project satisfies the Performance Guarantees prior to Substantial Completion by satisfactorily running and completing the Performance Tests. 9. FORCE MAJEURE, OWNER CAUSED DELAY AND CHANGES IN LAW 9.1. Events of Force Majeure. No failure or omission to carry out or observe any of the terms, provisions, or conditions of this Contract shall give rise to any claim by any Party against any other Party hereto, or be deemed to be a breach or default of this Contract if such failure or omission shall be caused by or arise out of an event of Force Majeure. No obligations of either Party that arose before the occurrence of an event of Force Majeure causing the suspension of performance shall be excused as a result of such occurrence. The obligation to pay money in a timely manner for obligations and liabilities that matured prior to the occurrence of an event of Force Majeure shall not be subject to the Force Majeure provisions. 9.2. Notice. If either Party's ability to perform its obligations under this Contract is affected by an event of Force Majeure, Owner Caused Delay or Change In Law, such Party shall promptly as reasonably possible, upon learning of such event and ascertaining that it will delay its performance hereunder (but in any event within forty-eight (48) hours after such Party becomes aware of such delay), give written Notice to the other Party (a "DELAY NOTICE") stating the nature of the event, its anticipated duration and effect upon the performance of such Party's obligations, and any action being taken to avoid or minimize its effect. The burden of proof shall be on the Party claiming to be affected pursuant to this SECTION 9.2. 9.3. Scope of Suspension; Duty to Mitigate. The suspension of performance due to an event of Force Majeure, Owner Caused Delay or Change In Law shall be of no greater scope and no longer duration than is required to overcome the consequence of such event. The excused Party shall use its reasonable efforts (i) to mitigate the duration of, and costs arising from, any suspension or delay in the performance, (ii) to continue to perform its obligations hereunder, and (iii) to remedy its inability to perform. When the affected Party is able to resume performance of its obligation under this Contract, such affected Party shall give the other Party written Notice to that effect. 40 SALTON SEA UNIT 5 EPC CONTRACT 9.4. Removal of Force Majeure. If, within a reasonable time after an event of Force Majeure that has caused Contractor to suspend or delay performance of the Work, action to be undertaken at the expense of Owner has been identified and recommended by Owner to Contractor, and Contractor has failed within five (5) days after receipt of Notice thereof from Owner to take such action as Contractor could lawfully and reasonably initiate to remove or relieve either the Force Majeure occurrence or its direct or indirect effects, Owner may, in its sole discretion and after written Notice to Contractor, initiate such reasonable measures as will be designed to remove or relieve such Force Majeure occurrence or its direct or indirect effects and thereafter require Contractor to resume full or partial performance of the Work. To the extent Contractor's failure to take such measures results in expense in addition to what Owner would have paid to Contractor (whether as part of the original Contract Price or as additional compensation to the extent the requested measures constituted a Change In Work altering the scope of the Work) had Contractor taken such measures, such additional expense shall be for Contractor's account. 9.5. Responsibility of Contractor. Damages or injuries to persons or properties resulting from an event of Force Majeure during the performance of the obligations provided for in the Contract shall not relieve the Contractor of the responsibility to bear the cost of the damage or injuries caused by Contractor's negligence or misconduct to the extent such costs are not covered by the insurance described in ARTICLE 23. 9.6. Contractor's Remedies. Contractor's sole remedies for the occurrence of an event of Force Majeure, Owner Caused Delay or Change In Law shall be pursuant to ARTICLE 17. 10. SUBCONTRACTORS 10.1. Use of Subcontractors and Vendors; Owner's Right to Object. Within thirty (30) days after the date hereof, Contractor shall provide Owner with a list of potential Subcontractors and Vendors that would be directly contracting with Contractor for all components and services in connection with the Work, broken down by component and service in excess of $ $100,000. Within thirty (30) Business Days after receipt of such list, Owner shall have the right to advise Contractor of any such potential Subcontractors or Vendors to which it objects, together with the reasons for objection. Contractor shall remove from the list any potential Subcontractor or Vendor to which Owner objects. If Owner fails to respond within such thirty (30) Business Day period, Owner shall be deemed not to have objected to any potential Subcontractor or Vendor on the list. Notwithstanding the foregoing, each Subcontractor or Vendor listed in Attachment 4 to EXHIBIT "A" shall be deemed accepted by Owner for the portion of the Work described for such Subcontractor or Vendor in Attachment 4 to Exhibit A. Contractor shall have the right to add potential Subcontractors and Vendors to the list subject to the procedures set forth above; provided, however, that the review period for Owner shall be reduced to fifteen (15) Business Days after physical construction of the Project has commenced. No Subcontractor or Vendor for any material component or service in 41 SALTON SEA UNIT 5 EPC CONTRACT connection with the Work covered by this SECTION 10.1 shall be engaged by Contractor prior to Owner acceptance or completion of the review process set forth in this SECTION 10.1. Contractor shall provide as part of its Monthly Progress Report a list of all Subcontractors currently working on the Project. 10.2. No Approvals; Contractor Responsible for Work. The review by Owner of any Subcontractor or Vendor under this ARTICLE 10 shall not (i) constitute any approval of the Work undertaken by any such Person, (ii) cause Owner to have any responsibility for the actions, the Work, or payment of such Person or to be deemed to be in an employer-employee relationship with any such Subcontractor or Vendor, or (iii) in any way relieve Contractor of its responsibilities and obligations under this Contract. Notwithstanding anything in ARTICLE 7 to the contrary, in no event shall Contractor submit or Owner be obligated to review any Contractor's Invoice with respect to work performed by any Subcontractor or Vendor prior to the expiration of the review period provided in SECTION 10.1. 10.3. Assignment. No subcontract or purchase order shall bind or purport to bind Owner, but each subcontract and purchase order entered into by Contractor with respect to the Work where the applicable subcontract price or purchase order value exceeds One Hundred Thousand Dollars ($100,000) shall contain a provision in the form of EXHIBIT "U" permitting its assignment to Owner or the Financing Entities, upon Owner's written request, following default by Contractor or termination or expiration of this Contract. 10.4. Information; Access. Contractor shall furnish such information and access relative to its Subcontractors and Vendors as Owner may reasonably request. 11. LABOR RELATIONS 11.1. General Management of Employees. Subject to SECTION 4.16, and notwithstanding the provisions of SECTION 11.2, Contractor shall preserve its rights to exercise and shall exercise its management rights in performing the Work. Such management rights shall include the rights to hire, discharge, promote, and transfer employees; to select and remove foremen or other persons at other levels of supervision; to establish and enforce reasonable standards of production; to introduce, to the extent feasible, labor saving Equipment and materials; to determine the number of craftsmen necessary to perform a task, job, or project; and to establish, maintain, and enforce rules and regulations conducive to efficient and productive operations. 42 SALTON SEA UNIT 5 EPC CONTRACT 11.2. Labor Disputes. Contractor shall use reasonable efforts to minimize the risk of labor related delays or disruption of the progress of the Work. Contractor shall promptly take any and all reasonable steps that may be available in connection with the resolution of violations of collective bargaining agreements or labor jurisdictional disputes, including the filing of appropriate processes with any court or administrative agency having jurisdiction to settle, enjoin, or award damages resulting from violations of collective bargaining agreements or labor jurisdictional disputes. Contractor shall advise Owner promptly, in writing, of any actual or threatened labor dispute of which Contractor has knowledge that might materially affect the performance of the Work by Contractor or by any of its Subcontractors. Notwithstanding the foregoing, the settlement of strikes, walkouts, lockouts or other labor disputes shall be at the discretion of the Party having the difficulty, but no strike, walkout, lockout or other labor dispute of Contractor's personnel or any Subcontractor's personnel shall be the basis for a claim for delay or Force Majeure by Contractor. 11.3. Personnel Documents. Contractor shall ensure that all its personnel and personnel of any Subcontractors performing the Work are, and at all times shall be, in possession of all such documents (including, without limitation, visas, driver's licenses and work permits) as may be required by all any and all Applicable Laws. 11.4. Social Benefits. Contractor shall contract for the provision of such social benefits for its employees and those of its Subcontractors as may from time to time be required in the United States. 12. INSPECTION; EFFECT OF REVIEW AND COMMENT 12.1. Inspection. Owner shall have the right to inspect any item of Equipment or material, design, engineering, service, or workmanship to be provided hereunder, and Contractor shall make available for review by Owner, and provide to Owner if requested by Owner, all design criteria, system descriptions, Drawings and Specifications, design calculations, quality assurance reports, design drawings, shop drawings, Required Manuals and other documents relating to the Work as required by this Contract, and, to the extent reasonably feasible, arrange for inspection of Equipment or material at the point of fabrication if requested by Owner. Owner shall be responsible for the costs of its personnel and their transportation with respect to such inspections. 12.2. Right to Reject Work. Regardless of whether payment has been made therefor, Owner shall have the right to reject any portion of the Work that contains any Defect. Upon such rejection, Contractor shall promptly remedy, at its sole cost and expense, any Defect that is identified by Owner as giving rise to such rejection. 43 SALTON SEA UNIT 5 EPC CONTRACT 12.3. Third Party Inspection. Contractor understands that Owner and the Financing Entities and their respective representatives have the right to observe and inspect the Work, any item of Equipment (including Equipment under fabrication), material, design, engineering, service, or workmanship to be provided hereunder and to observe all tests of the Work and the Project (including factory or other tests performed at a location other than the Site). Upon reasonable Notice to Contractor by Owner, Contractor shall allow Owner, and the Financing Entities and their respective representatives (including Consulting Engineer) reasonable access to the Work (including Equipment under fabrication) and the Project. Owner and the Financing Entities (including Consulting Engineer) also shall be entitled to inspect and review all Contractor's Drawings and Specifications or technical details pertaining thereto as reasonably requested by either Owner, or the Financing Entities, or their respective representatives (including Consulting Engineer). Contractor shall incorporate such inspection rights in all Equipment purchase orders and subcontracts. To facilitate such observations and inspections, Contractor shall maintain at the Site a complete set of all Drawings and Specifications and current Project Schedules. 12.4. Deliverables Schedule. Within thirty (30) days after the Notice to Proceed Date, Contractor shall provide a Notice to Owner attaching a schedule identifying all Contractor Deliverables to be delivered to Owner, the deadline for delivery thereof, and Owner's time period for review and comment with respect thereto. Owner shall have the right to promptly review and comment on such Deliverables Schedule. If Owner provides any comments with respect to the Deliverables Schedule to Contractor, then Contractor shall incorporate changes into such Deliverables Schedule addressing such comments, and resubmit the same to Owner. Such incorporation of changes to address Owner's reasonable comments shall not be considered a Change In Work. If Owner fails to comment within ten (10) days after receipt of such Notice, Owner shall be deemed to have accepted such Deliverables Schedule. 12.5. Owner Review of Documents. Contractor shall submit for review to Owner (which shall have the right to make them available to the Financing Entities and the Consulting Engineer) hard (printed) copies and soft copies (in a format agreed to by Owner) of all Contractor Deliverables in accordance with the requirements of EXHIBIT "A" and the Deliverables Schedule. Contractor shall ensure that all such items undergo a comprehensive independent in-house review and approval process before submission of such items to Owner. Within fifteen (15) days from receipt of any Contractor Deliverable, Owner shall have the right to describe any Defects in the design identified in such Contractor Deliverable. Owner's failure to respond within the specified time will be deemed to waive such right to describe Defects in such design. Notwithstanding anything in ARTICLE 7 to the contrary, in no event shall Contractor submit any Contractor's Invoice with respect to Work performed pursuant to any such Contractor Deliverables prior to the expiration of the review period set forth in this SECTION 12.5. Issuance by Contractor of any purchase orders prior to Owner completing its review shall be at Contractor's own risk. 44 SALTON SEA UNIT 5 EPC CONTRACT 12.6. Remedy of Defects. If Owner identifies any Defects in the design with respect to any Contractor Deliverables submitted for review, then Contractor shall incorporate changes into such Contractor Deliverables addressing and remedying the Defects and resubmit the same to Owner, and such incorporation of changes to address Owner's comments shall not be considered a Change In Work. No Contractor Deliverable subject to this SECTION 12.6 shall be released for use in connection with the Work prior to completion of the review process set forth in SECTION 12.5. 12.7. Limitation on Owner's Obligations. Inspection, review, acceptance or comment by Owner with respect to any subcontract or purchase order or any Drawings and Specifications, samples, and other documents, or any other work or services performed by Contractor or any Subcontractor or Vendor, is solely at the discretion of Owner and shall not in any way affect or reduce Contractor's obligations to complete the Work in accordance with the provisions of this Contract or be deemed to be a warranty or acceptance by Owner with respect to such Work. 13. MECHANICAL COMPLETION OF THE WORK 13.1. Mechanical Completion. The following are conditions precedent to Mechanical Completion: (a) the Project is mechanically, electrically, and structurally constructed in accordance with the requirements of this Contract, the Statement of Work and Industry Standards, including completion of the Mechanical Completion Tests; (b) the Project may be operated without damage to the Project and any sub-system or any other property on or off the Site, and without injury to any Person; (c) the Project and each sub-system of the Project is mechanically and functionally complete, and ready for initial operation, adjustment and testing; and (d) Contractor has complied with all provisions of this Contract relating to the installation of all necessary components and sub-systems of the Project except for Punchlist Items. 13.2. Notice of Mechanical Completion. When Contractor believes that it has satisfied the provisions of SECTION 13.1(A) THROUGH (D), Contractor shall deliver to Owner and the Consulting Engineer a Notice of Mechanical Completion. Such Notice of Mechanical Completion shall contain a report of results of the Mechanical Completion Tests and the Work completed with sufficient detail to enable Owner and the Consulting Engineer to determine whether Mechanical Completion has been achieved. The Mechanical Completion Date shall be the date on which the conditions of SECTION 13.1 were satisfied or, in the sole discretion of Owner, waived. Promptly after Mechanical Completion has been achieved as provided in SECTIONS 13.1 AND 13.2 (including any correction of Defects 45 SALTON SEA UNIT 5 EPC CONTRACT pursuant to SECTION 13.3), Owner shall issue an Owner's Certificate of Mechanical Completion dated to reflect the Mechanical Completion Date. Owner shall be deemed to have given such Owner's Certificate of Mechanical Completion unless Owner has identified in writing any additional or remaining Defects within the applicable period set forth in SECTION 13.3. Contractor shall not begin operation of the Project until Contractor has achieved Mechanical Completion and provided notice that Contractor intends to commence start-up to Owner and those manufacturer's representatives required to be given notice in accordance with the terms of their subcontracts to maintain the validity of the manufacturer's warranty. 13.3. Correction of Defects. Within fifteen (15) days after receipt of any Notice of Mechanical Completion pursuant to SECTION 13.2, Owner shall have the right to advise Contractor in writing of any Defects. Contractor shall then perform, at Contractor's sole cost and expense, corrective measures to remove such Defects and shall again notify Owner, in accordance with SECTION 13.2, when Mechanical Completion of the Work has occurred. Within five (5) days after receipt of each subsequent notification, Owner shall have the right to advise Contractor, in writing, of any additional or remaining Defects that must be corrected by Contractor as a condition to Mechanical Completion of such Work. Any disputes regarding the existence or correction of any such alleged Defects shall be resolved pursuant to SECTION 14.5. 13.4. Early Operation. Subject to Contractor's right to conduct Work necessary to achieve Substantial Completion, from Mechanical Completion through Substantial Completion of the Project, Contractor shall operate the Project on Owner's behalf to convert Production Inputs provided by Owner into the Products. (a) The Project shall be operated by the Operating Personnel under the supervision of Contractor after training in accordance with SECTIONS 3.2 and 4.21 until Substantial Completion of the Project; (b) Owner shall provide those Production Inputs reasonably necessary to operate the Project at no cost to Contractor; (c) Owner and Contractor shall work together to schedule deliveries of Production Inputs necessary for operation of the Project; and (d) Owner and Contractor shall work together to schedule the hours of operation of the Project and deliveries of the Products to maximize net revenues. 14. MECHANICAL COMPLETION AND PERFORMANCE TESTS 14.1. Mechanical Completion Test Procedures. Contractor shall provide for Owner's review and approval detailed Mechanical Completion Test Procedures in accordance with the requirements of EXHIBIT "J" not less than ninety (90) 46 SALTON SEA UNIT 5 EPC CONTRACT days prior to the start of testing, which Mechanical Completion Test Procedures must be agreed upon by Contractor and Owner at least sixty (60) days prior to the commencement of testing, with the Mechanical Completion Test Procedures clearly indicating when in the testing schedule the Contractor will require Interconnection and any Production Inputs 14.2. Conduct of Tests. Contractor shall perform all Work necessary for the conduct of the tests required hereunder, shall conduct the tests, and shall satisfy all of its other obligations under this Contract to ensure that the Project has been completed and that all components have been properly adjusted and tested. The representatives of Owner, Owner's Engineer, any Financing Entity and Consulting Engineer shall have the right, but not the obligation, to be present during any tests performed by Contractor under this ARTICLE 14. 14.3. Test Schedules. Contractor and Owner shall agree on test schedules with the Financing Entities and Consulting Engineer. Contractor shall give Owner and the Financing Entities and Consulting Engineer written Notice at least thirty (30) days before it anticipates conducting each of the Performance Tests. When Contractor establishes the scheduled dates(s) for the Performance Tests required pursuant to this Contract, it shall give Owner at least ten (10) days' prior Notice thereof. Contractor shall keep the Project Representative continuously apprised of the specified schedule, and changes therein, for the commencement and performance of Performance Tests, and shall give the Project Representative at least two (2) days prior Notice of the re-performance of any Performance Tests, except those tests that will be recommenced within two (2) days and for which Contractor is able to give notice of re-performance within twelve (12) hours of the previous test. A Performance Test conducted without the required Notice to Owner and the Financing Entities and Consulting Engineer shall not be valid for the purposes of this Contract. 14.4. Performance Test Procedures. Contractor shall perform all Performance Tests of the Project in accordance with the provisions of EXHIBIT "J". Contractor shall provide Owner for Owner's review and approval detailed Performance Test Procedures to be followed by Contractor not less than ninety (90) days prior to the date on which Contractor anticipates the commencement of the Performance Tests. Contractor and Owner shall cooperate reasonably to reach agreement on the Performance Test Procedures to be followed by Contractor not less than sixty (60) days prior to the date on which Contractor anticipates commencing the Performance Tests. 14.5. Non-Conforming Work. At any time during and promptly after completion (whether or not successful) of the Performance Tests under SECTION 14.2 (or any re-performance of any Performance Test under this SECTION 14.5), Owner shall advise Contractor and Contractor shall advise Owner in writing of any Defect that was discovered during a Performance Test. If Contractor is notified of or discovers any such Defect, Contractor shall, at Contractor's sole cost and expense, correct such Defect and promptly provide Notice to Owner in writing that such corrective measures have been 47 SALTON SEA UNIT 5 EPC CONTRACT completed. Any dispute regarding the existence or correction of any such Defect shall be resolved pursuant to SECTION 14.6. 14.6. Certificate of Completion of a Performance Test. Upon completion of any Performance Tests, Contractor and Owner shall jointly issue a certificate that testing has been done on the Project and that the Performance Test Procedures have been followed. If there is a difference of opinion about any test results or the existence or correction of any Defects claimed by Owner pursuant to SECTIONS 13.3 OR 14.5 that cannot be resolved by the Parties, either Party shall have the right to avail itself of its rights under ARTICLE 36. 14.7. Revenues. Any revenues generated by the Project during the performance of any Mechanical Completion Test or Performance Tests or otherwise shall be paid to and for the benefit of Owner. 15. CAPACITY TEST COMPLETION, SUBSTANTIAL COMPLETION AND FINAL COMPLETION OF THE PROJECT 15.1. Capacity Test Completion. The following are conditions precedent to Capacity Test Completion: (a) Contractor has completed the Capacity Test; and (b) the Project shall have achieved One Hundred Percent (100%) of the following Performance Guarantees: Outlet Steam Condition Guarantee and the Outlet Brine Temperature Guarantee; and (c) Either (i) the Project shall have achieved One Hundred Percent (100%) of the Net Generation Guarantee during the Capacity Test or (ii) all Buy-Down Amounts due pursuant to SECTION 16.2 shall have been paid and all of the other requirements set forth in SECTION 16.2 shall have been satisfied, as applicable; (d) Owner has received copies of all Contractor Acquired Permits, described in clauses (1) and (4) of the definition of Contractor Acquired Permits required for operation of the Project; (e) Owner has received copies of those Contractor Deliverables including ten (10) copies of all Required Manuals that are reasonably necessary to operate the Project in a safe, reliable and efficient manner through Substantial Completion; (f) Contractor has certified by Notice to Owner that all training of Operating Personnel is complete; and 48 SALTON SEA UNIT 5 EPC CONTRACT (g)all other requirements for the successful completion of a Capacity Test, including the requirements set forth in EXHIBIT "J" and the Performance Test Procedures, have been satisfied. 15.2. Notice of Capacity Test Completion. When Contractor believes that it has satisfied the provisions of SECTION 15.1, Contractor shall deliver to Owner and the Consulting Engineer a Notice of Capacity Test Completion. Such Notice of Capacity Test Completion shall contain a report of results of the Capacity Test and the Work completed with sufficient detail to enable Owner and the Consulting Engineer to determine whether Capacity Test Completion has been achieved. The Capacity Test Completion Date shall be the date on which the conditions of SECTION 15.1 were satisfied or, in the sole discretion of Owner, waived. Promptly after Capacity Test Completion has been achieved as provided above, Owner shall issue an Owner's Certificate of Capacity Test Completion dated to reflect the Capacity Test Completion Date. Contractor shall not commence the Reliability Test unless and until Contractor shall have achieved Capacity Test Completion; provided that upon Capacity Test Completion, the Reliability Test may, at Contractor's option, be deemed to have commenced as of the commencement of the Capacity Test that resulted in Capacity Test Completion. 15.3. Substantial Completion. The following are conditions precedent to Substantial Completion: (a) Contractor shall have paid all Delay Liquidated Damages due pursuant to SECTION 16.1; (b) [Reserved] (c) Owner has received all Contractor Deliverables in accordance with the provisions of EXHIBIT "A" and the Deliverables Schedule, including all ten (10) copies of all Required Manuals necessary to operate the Project in a safe, efficient, and reliable manner, and has received five (5) original copies of preliminary as-built drawings of the Project, one (1) Mylar reproducible copy thereof, and one (1) electronically prepared computer drawing file as prepared by Contractor for a software program acceptable to Owner; provided, however, if Owner determines by written notice to Contractor in the exercise of Owner's good faith discretion that a prudent owner would not require all such Contractor Deliverables by such date for the safe, efficient or reliable operation of the Project then (i) such Contractor Deliverables as Owner determines would not then be required shall not be required by such date and (ii) Contractor shall deliver such Contractor Deliverables to Owner by later date as shall be designated in writing by Owner ; (d) [Reserved] (e) The Punchlist and a schedule and budget for completion of each Punchlist Item, in each case reasonably satisfactory to Owner and the Consulting Engineer, have been 49 SALTON SEA UNIT 5 EPC CONTRACT developed by Contractor and delivered to Owner, and all Work other than those Punchlist Items shown on the Punchlist shall have been completed; (f) All Spare Parts described on EXHIBIT "Q" or required to be purchased and delivered to the Site by Contractor pursuant to Section 4.3.1 have been received by Owner at the Site; provided however, if Owner determines by written notice to Contractor in the exercise of Owner's good faith discretion that a prudent owner would not require all such Spare Parts by such date for the safe, efficient or reliable operation of the Project, then such Spare Parts as Owner determines would not be then required shall not be a condition to Substantial Completion. (g) Contractor has achieved Capacity Test Completion, completed the Reliability Test and paid all Buy-Down Amounts as required under SECTIONS 16.2 AND 16.3. (h) Mechanical Completion has been achieved pursuant to the terms of ARTICLE 13. 15.4. Notice of Substantial Completion. When Contractor believes that it has satisfied the provisions of SECTION 15.3(A) THROUGH (H), Contractor shall deliver to Owner and the Consulting Engineer a Notice of Substantial Completion. Such Notice of Substantial Completion shall contain a report of results of the Reliability Test and the Work completed with sufficient detail to enable Owner and the Consulting Engineer to determine whether Substantial Completion has been achieved. The Substantial Completion Date shall be the date on which the conditions of SECTION 15.3 were satisfied or, in the sole discretion of Owner, waived. Promptly after Substantial Completion has been achieved as provided above, Owner shall issue an Owner's Certificate of Substantial Completion dated to reflect the Substantial Completion Date. 15.5. Final Completion. Final Completion of the Work shall be deemed to have occurred only if all of the following have occurred: (a) Substantial Completion; (b) Owner has received all Drawings and Specifications (including five (5) copies of final as-built drawings of the Work, one (1) Mylar reproducible copy thereof, and one (1) electronically prepared computer drawing file as prepared by Contractor for a software program acceptable to Owner), calculations, test data, performance data, Equipment descriptions, Required Manuals, training aids, Spare Parts lists, and other technical information each as required hereunder for Owner to start up, operate, commission, and maintain the Project; (c) All tools and Spare Parts purchased by Contractor to replace those used by Contractor during start-up have been purchased for delivery to Owner free and clear of liens; (d) All Contractor's and Subcontractors' personnel, supplies, tools, equipment, machinery, surplus materials, waste materials, rubbish, and temporary facilities to which Owner does not hold title have been removed from the Site, and any permanent facilities 50 SALTON SEA UNIT 5 EPC CONTRACT used by Contractor and the Site have been restored to like new condition. All cleanup and disposal shall be conducted in accordance with all Applicable Laws; (e) Owner has received from Contractor all information requested by Owner and required for Owner's final fixed asset records with respect to the Project in accordance with SECTION 4.9; (f) Contractor has delivered to Owner a certification identifying all outstanding claims of Contractor under this Contract with documentation sufficient to support such claims; (g) Contractor has assigned to Owner or provided Owner with all warranties or guarantees that Contractor received from Subcontractors or Vendors to the extent Contractor is obligated to do so pursuant to SECTION 18.6; (h) Contractor has delivered the certifications, Conditional Waivers of Liens and Unconditional Waivers of Lien, or the bonds, in accordance with SECTION 7.6 and has delivered such other documents and certificates as Owner has reasonably requested to ensure compliance with all applicable labor laws and regulations of United States; (i) Contractor has delivered to Owner a Notice of Final Completion stating that Contractor believes it has satisfied the provisions of SECTIONS 15.5(A) THROUGH (H); and (j) Owner has delivered an Owner's Certificate of Final Completion to Contractor evidencing that, to the best of Owner's knowledge, the Punchlist Items have been completed to the reasonable satisfaction of Owner and all of Contractor's other construction obligations ( but not warranty, indemnification or other post-Final Completion obligations) under this Contract have been satisfied in full, which Owner's Certificate of Final Completion Owner shall deliver as soon as possible, and in no event more than ten (10) days after satisfaction in full by Contractor of all of its obligations under the provisions of SECTIONS 15.5(A) THROUGH (I). If Owner fails to notify Contractor of any alleged nonsatisfaction of Contractor's obligations under SECTIONS 15.5(A) THROUGH (I) within ten (10) days after the date Contractor gives Notice of Final Completion to Owner, Contractor shall be deemed to have satisfied such obligations; provided, however, that failure to so notify Contractor shall not void the Plant Warranties or Materials Warranty. 15.6. RESERVED. 15.7. Contractor's Access After Substantial Completion. Following Substantial Completion, Owner shall provide Contractor with reasonable and timely access to complete Punchlist Items and to satisfy the other requirements for Final Completion. The Parties expect that Contractor will accomplish any necessary modifications or repairs with minimal interference with commercial operation of the Project and that reductions in and shut-downs of Project operations will be required only when necessary, taking into consideration (i) 51 SALTON SEA UNIT 5 EPC CONTRACT the length of the proposed reduction or shut-down, (ii) the improvement in performance that is likely to be achieved by adjustment, repair, replacement or modification and (iii) Owner's obligations and liabilities with respect to any Transporters, Suppliers and Customer(s). 16. DELAY DAMAGES AND BUY-DOWN AMOUNTS 16.1. Delay Liquidated Damages and Early Completion Bonus. 16.1.1. Liquidated Damages for Delay. Contractor understands that if the Capacity Test Completion Date does not occur on or before the Capacity Test Completion Deadline, Owner will suffer substantial damages, including additional interest and financing charges on funds obtained by Owner to finance the Work, reduction of the return on Owner's equity investment in the Project, and other operating and construction costs and charges. Therefore, Contractor agrees that if Capacity Test Completion is not achieved by the Capacity Test Completion Deadline, Contractor shall pay liquidated damages ("DELAY LIQUIDATED DAMAGES") to Owner in the amount of Fifteen Thousand Four Hundred Dollars ($15,400) per day for each day by which the Capacity Test Completion Date is delayed beyond the Capacity Test Completion Deadline for the first thirty (30) days of such delay and Twenty-Three Thousand Two Hundred Dollars ($23,200) per day for each day of delay beyond such thirty (30) day period but prior to the sixtieth (60th) day after the Capacity Test Completion Deadline and Thirty-Two Thousand Seven Hundred Fifty Dollars ($32,750) per day for each day of delay thereafter. Any amount Contractor is obligated to pay to Owner under this SECTION 16.1.1 shall be due and payable two (2) days after receipt of a request therefor from Owner. If, pursuant to Section 23.1.2 hereof, (1) Owner obtains Marine Delay in Start Up or Delay in Start Up insurance coverage that is payable without deduction for Delay Liquidated Damages payable under this Contract; (2) Owner receives proceeds of such Marine Delay in Start Up insurance or such Delay in Start Up insurance to reimburse Owner for Losses arising out of delays in completion of the Project; (3) such proceeds are both (x) paid without deduction for Delay Liquidated Damages and (y) attributable to an event or circumstance which has delayed Contractor in achieving a Project Deadline; and (4) Contractor has paid all Delay Liquidated Damages to Owner hereunder for such delay, then Owner shall refund to Contractor the lesser of (i) the Delay Liquidated Damages paid by Contractor for the portion of such period of delay that is directly caused by the event or circumstance for which Owner receives such proceeds or (ii) the amount by which such insurance proceeds attributable such portion of such period of delay are greater than those that would have been payable had Owner obtained a Marine Delay in Start Up or Delay in Start Up insurance policy, as applicable, that is payable with deduction for Delay Liquidated Damages payable under this Contract; provided, however, if Owner receives Marine Delay in Start Up or Delay in Start Up insurance proceeds arising from an event or circumstance which permits Contractor to obtain an adjustment of the Project Deadlines or Milestone Schedule pursuant to Article 17 hereof, then no such refund shall be required in connection with such proceeds. 52 SALTON SEA UNIT 5 EPC CONTRACT 16.1.2. Early Completion Bonus. Owner understands that if the Substantial Completion Date occurs before the Substantial Completion Deadline, Owner will accrue a Benefit, including reduced interest and financing charges on funds obtained by Owner to finance the Work, increase of the return on Owner's equity investment in the Project, and other reductions of operating and construction costs and charges. Therefore, Owner agrees that if Substantial Completion is achieved before the Substantial Completion Deadline, Owner shall pay a Bonus ("Early Completion Bonus") to Contractor in the amount of Twenty Two Thousand Five Hundred Dollars ($22,500) per day for each of the first sixteen (16) days by which the Substantial Completion Date is prior to the Substantial Completion Deadline, and Fifteen Thousand Four Hundred Dollars ($15,400) per day for each day in excess of sixteen (16) days by which the Substantial Completion Date is prior to the Substantial Completion Deadline up to a total of ninety (90) days. Any amount Owner is obligated to pay to Contractor under this Section 16.1.2 shall be due and payable thirty (30) days after receipt of a request therefor from Contractor. 16.2. Buy-Down for Capacity Test. If Contractor has completed a Capacity Test on or before the date that is ninety (90) days after the Capacity Test Completion Deadline and Contractor has successfully satisfied the Performance Guarantees (other than the Reliability Guarantee) during such Capacity Test then the remaining provisions of this SECTION 16.2 shall no longer apply. 16.2.1. Where Contractor Satisfies Buy-Down Criteria, But Fails to Meet the Capacity Guarantee. If on, or before ninety (90) days after, the Capacity Test Completion Deadline, (a) Contractor has achieved Mechanical Completion; (b) Contractor has run a Capacity Test; (c) Contractor's most recent Capacity Test shall have satisfied the Buy-Down Criteria; and (d) Contractor shall have delivered Notice to Owner certifying that the requirements described in clause (a) through clause (c) above have been satisfied; then Contractor, at its option, shall complete either of the following courses of conduct: (x) pay Owner the Buy-Down Amount based on the results of Contractor's most recently completed Capacity Test, in which case Owner shall calculate the Buy-Down Amount and deliver a Notice For Payment of Buy-Down Amount to Contractor, or (y) continue to attempt to satisfy the Performance Guarantees during a Capacity Test. 53 SALTON SEA UNIT 5 EPC CONTRACT Contractor shall exercise the foregoing option by delivery of Notice to Owner not later than five (5) days after the later of the Capacity Test Completion Deadline or the date when Contractor shall have satisfied the requirements set forth in clauses (a) through (c) above. If Contractor shall have failed to achieve 100% of the Performance Guarantees during a Capacity Test prior to the end of the ninety-day period following the Capacity Test Completion Deadline, or if, at any time prior thereto, Contractor so requests, then Owner shall calculate the Buy-Down Amount based on Contractor's most recently attempted Capacity Test and shall send a Notice for Payment of Buy-Down Amount to Contractor. Thereafter, Contractor shall commence the Reliability Test. 16.2.2. Where Contractor Fails to Satisfy Buy-Down Criteria. If on, or within ninety (90) days after, the Capacity Test Completion Deadline, (a) Contractor has achieved Mechanical Completion; and (b) Contractor shall have failed to satisfy the Buy-Down Criteria; then Contractor shall, within ten (10) days after the later of the Capacity Test Completion Deadline or the date when Contractor shall have completed its initial attempted Capacity Test, submit a Remedial Plan to Owner; and Owner shall, at Owner's option exercised in Owner's sole discretion, direct Contractor to undertake either of the following sources of action: (x) to pay Owner the Buy-Down Amount based on Contractor's most recent attempted Capacity Test, in which case Owner shall calculate the Buy-Down Amount and deliver a Notice For Payment of Buy-Down Amount to Contractor; or (y) to continue to attempt to satisfy the Performance Guarantees and to pay Delay Liquidated Damages under SECTION 16.1.1 for a period of up to ninety (90) days beyond the Capacity Test Completion Deadline; provided that Contractor shall: (i) continuously and diligently pursue completion of the Remedial Plan at Contractor's sole cost; and (ii) make substantial and demonstrable progress toward completing the Remedial Plan. Owner shall exercise the foregoing option in Owner's sole and absolute discretion without being limited by doctrines of good faith or commercial reasonableness by delivering a Notice to Contractor within five (5) days after the earlier of the date Owner receives Contractor's Remedial Plan or the date Owner receives Notice from Contractor that Contractor will not submit a Remedial Plan. If during the ninety (90) day period beginning on the Capacity Test Completion Deadline, Contractor satisfies the Buy- Down Criteria, then the provisions of SUBSECTION 16.2.1 shall apply. If at the end of such ninety (90) day period, Contractor has failed to achieve the Performance Guarantees, then Owner shall calculate the Buy-Down Amount based on Contractor's most recently attempted Capacity Test and shall send a Notice For Payment of Buy-Down Amount to Contractor. 54 SALTON SEA UNIT 5 EPC CONTRACT 16.2.3. Failure to Run Capacity Test. In the event that Contractor has not run a Capacity Test by the date that is ninety (90) days after the Capacity Test Completion Deadline, then the Buy-Down Amount shall be deemed to equal the Maximum Aggregate Damages, and Contractor shall have no right to conduct the Reliability Test. 16.2.4. Payment of Buy-Down. Within five (5) days after Owner delivers a Notice For Payment of Buy-Down Amount to Contractor, Contractor shall pay the Buy-Down Amount based on the Performance Test to Owner. If Contractor shall have run a Capacity Test that satisfied the Buy-Down Criteria, then upon receipt by Owner of the full Buy-Down Amount, whether by direct payment by Contractor, by offset, or both, the Performance Guarantees shall be deemed amended to reflect the actual performance levels of the Project used in calculation of the Buy-Down Amount for the Capacity Test and Contractor shall thereafter commence the Reliability Test. 16.3. Buy-Down Following Reliability Test. If either (a) Contractor shall have completed the Reliability Test on or before the date that is ninety (90) days after the Substantial Completion Deadline, but Contractor shall have failed to satisfy any of the Performance Guarantees during such Reliability Test, or (b) Contractor shall have failed to complete the Reliability Test on or before such date, then Owner shall deliver a Notice For Payment of Buy-Down Amount to Contractor. Contractor shall pay a Buy-Down Amount based on the most recently completed Reliability Test. In the event that Contractor has not run a Reliability Test by the date that is ninety (90) days after the Substantial Completion Deadline, then the Buy-Down Amount shall be calculated as if the output of the Reliability Test were zero. Within five (5) days after Owner delivers such Notice For Payment of Buy-Down Amount to Contractor, Contractor shall pay the Buy-Down Amount, if any, based on the Reliability Test to Owner. 16.4. Offset. If Contractor is obligated to pay any amount to Owner pursuant to SECTION 16.1.1, 16.2 OR 16.3 and such amount is not paid within the time period referred to in such Section, then Owner shall have the right to offset any such amount against any amount then or thereafter due from Owner to Contractor under this Contract and to exercise its rights against any security provided by or for the benefit of Contractor in such order as Owner may elect in its sole discretion. 16.5. Sole Remedy. The amounts payable under SECTIONS 16.1.1, 16.2, 16.3, 16.4 AND 16.6, as limited by ARTICLE 35, shall be Owner's sole remedies for delays in achieving Capacity Test Completion and Substantial Completion by Contractor and for failure of the Project to meet the Performance Guarantees during the Performance Tests. Contractor and Owner agree that Owner's actual damages in the event of such delays and failures would be extremely difficult or impracticable to determine and that, after negotiation, Owner and Contractor have agreed that the Delay 55 SALTON SEA UNIT 5 EPC CONTRACT Liquidated Damages or Buy-Down Amounts set forth in SECTIONS 16.1.1, 16.2, 16.3 AND 16.6 are a reasonable estimate of the damages that Owner would incur as a result of such delays or failures. 16.6. Additional Opportunity to Run Performance Tests. Within twenty (20) days after paying any Buy-Down Amounts for the Performance Tests to Owner (the "First Buy-Down Amount"), Contractor may elect to continue to attempt to meet the Performance Guarantees by submitting a Remedial Plan to Owner setting forth Contractor's proposed schedule and plan for satisfaction of the Performance Guarantees. In the event that Contractor so elects to proceed, then within twenty (20) days after Owner receives Contractor's Remedial Plan, Owner, in its sole discretion, may grant to Contractor an opportunity to attempt to meet the Performance Guarantees during a re-run of one or all of the Performance Tests in accordance with a Remedial Plan approved by Owner (such opportunity and re-test(s), the "Post Buy-Down Performance Tests"). When determining whether to grant Contractor an opportunity to perform any Post Buy-Down Performance Tests, Owner may take into consideration (a) the length and amount of potential reductions in the Project's electric output, (b) the improvement in the Project's performance that is likely to be achieved by the proposed adjustments, repairs, replacements, or modifications set forth in Contractor's Remedial Plan, (c) Owner's obligations and potential liabilities with respect to any customers, potential customers, Financing Entities or Governmental Authorities, (d) the liquidated damages that Contractor is required to pay hereunder, (e) the type of assurances, indemnities and protections that Contractor proposes to provide against damage to the Project, injury to third parties, and acts of Contractor, any Subcontractor, their respective employees and Owner or the Operating Personnel acting under Contractor's direction during the Post Buy-Down Performance Tests, and (f) the type of security that Contractor proposes to provide as security for its obligations and liabilities under this Section 16.6. Notwithstanding any other provision hereof, Contractor shall only have one such opportunity to request to continue to attempt to meet the Performance Guarantees. In the event Contractor shall have received Notice from Owner granting to Contractor an opportunity to perform any Post Buy-Down Performance Tests, Contractor shall undertake corrective measures set forth in the Remedial Plan, Owner shall provide Contractor with reasonable access to perform such corrective measures; provided that Owner shall be under no obligation (other than as may be set forth in the approved Remedial Plan) to interrupt operations, including the overhaul, to accommodate such corrective measures undertaken by Contractor. Owner shall run all of the Post Buy-Down Performance Tests as reasonably directed by Contractor and as provided in the approved Remedial Plan. Notwithstanding the fact that Owner shall run all of the Post Buy-Down Performance Tests of the Project, Contractor shall remain solely responsible for performing the Post Buy-Down Performance Tests and satisfying the Performance Guarantees, regardless of any failure, non-achievement, or non-performance of Owner or the Operating Personnel. If, by (i) 11:59 p.m. (California time) the second day following the end of such Post Buy-Down Capacity Test, or (ii) 11:59 p.m. (California time) the thirtieth day following the end of such Post Buy-Down Reliability Test (each such deadline, a "Re-testing Deadline"), each of the Post Buy-Down Performance Tests has been run but Contractor has failed to meet the Performance Guarantees, then Owner shall re-calculate the Buy-Down Amount for each Post Buy-Down Performance Test (the " Second Buy-Down Amount") based on the most recently attempted Capacity Test or Reliability Test, as applicable. 56 SALTON SEA UNIT 5 EPC CONTRACT In the event that all of the Post Buy-Down Performance Tests have not been completed by the Re-testing Deadline, then the Actual Net Electrical Energy Production (in kW) of the Project shall be deemed to equal zero for the purposes of calculating the Second Buy-Down Amount. (1) If the difference between the Second Buy-Down Amount minus the First Buy-Down Amount is greater than zero, Contractor shall, if called for in the Remedial Plan approved by Owner, reinstate the Project to the condition existing prior to any such remedial work by Contractor, and Contractor shall perform the reinstatement at its sole expense; (2) If the difference between the First Buy-Down Amount minus the Second Buy-Down Amount is greater than zero, Owner shall refund such difference to Contractor within fifteen (15) days; provided, however, that Owner shall be paid or the refund shall be adjusted by an amount necessary to compensate Owner for: (A) any excess costs, lost revenues, consequential damages or other Losses, if any, incurred by Owner that result from (x) granting Contractor such Post Buy-Down Performance Test, or (y) any acts of Contractor, Subcontractors or their respective employees while performing such corrective measures or during such Post Buy-Down Performance Test; and (B) any amounts that would have been due and owing to Owner but were not paid to Owner due to the limitations on Contractor's liability set forth in Section 35.3 hereof. In addition, if the Second Buy-Down Amount is less than the First Buy-Down Amount, then Contractor shall compensate Owner for any revenues that Owner would have obtained had the Project generated and sold Electrical Energy at the levels established in the Post Buy-Down Performance Test rather than at the levels at which the Project actually operated during the period from the date the Performance Test (upon which the First Buy-Down Amount was based) was completed until date upon which the Post Buy-Down Performance Tests of the Project were completed, as measured by the Project's meters. Notwithstanding any other provision to the contrary, Contractor's liability under this Section 16.6 shall not be subject to any of the limitations on Contractor's liability set forth in Section 35.1 or Section 35.3. 17. CHANGES IN THE WORK 17.1. Change In Work. A Change In Work may result only from any of the following: (a) Changes in the Work required by Owner in writing, including an acceleration of Work, in accordance with SECTION 17.2; (b) The occurrence of an event of Force Majeure; (c) The occurrence of an Owner Caused Delay; (d) A Change In Law; (e) Unforeseen Site Conditions as allowed by Article 5.1.6 57 SALTON SEA UNIT 5 EPC CONTRACT 17.2. By Owner. Owner shall have the right to make changes in the Work, within the general scope thereof, whether such changes are modifications, accelerations, alterations, additions, or deletions. All such changes shall be made in accordance with this ARTICLE 17 and shall be considered, for all purposes of this Contract, as part of the Work. Notwithstanding the foregoing, unless Contractor and Owner shall have agreed upon a Change In Work Form in accordance with the provisions of SECTION 17.6, Contractor shall have no obligation to perform or comply with any modification, acceleration, alteration, addition, or deletion by Owner to the Work after execution of this Contract that (i) conflicts with this Contract, (ii) accelerates the Critical Path Schedule or Milestone Schedule, (iii) may affect the performance of the Project under the Performance Guarantees, or (iv) may increase the costs of the Contractor. 17.3. By Contractor. Upon the occurrence of a Change In Law, an Owner Caused Delay, an event of Force Majeure, or Unforeseen Site Conditions, if Contractor shall be actually, demonstrably delayed in the performance of the Work, then Contractor may request a Change In Work under which (i) the Project Schedules (and each Project Deadline referenced therein) shall be extended by the period of time Contractor is so actually and demonstrably delayed and as set forth in the Change In Work Form accepted by Owner, (ii) the Contract Price shall be changed to reflect the amount of the increased or decreased costs in accordance with requirements set forth in SECTION 17.4, calculated as set forth in the Change In Work Form so accepted by Owner, and (iii) the Work shall be modified to reflect additions, deletions, or substitutions to the Work previously approved by Owner, as set forth in the Change In Work Form so accepted by Owner. 17.4. Adjustments to Contract Price. 17.4.1. Owner Caused Delay and Unforeseen Site Conditions. If as a result of an Owner Caused Delay or Unforeseen Site Conditions, Contractor is entitled to request a Change In Work pursuant to SECTION 17.3 or if Owner requests a Change In Work, then, in the corresponding Change In Work Form, the Milestone Schedule and Project Deadlines shall be adjusted, and the Contract Price shall be increased by either, at Owner's sole discretion (1) an agreed to fixed price, time and materials, compensation, or unit rates as the Parties may agree, or (2) compensation in accordance with EXHIBIT R. 17.4.2. Change in Law. If Contractor is entitled to request a Change In Work pursuant to SECTION 17.3 as a result of a Change In Law, then in the corresponding Change In Work Form, the Milestone Schedule and Project Deadlines shall be adjusted, and the Contract Price shall be increased by either , at Owner's sole discretion (1) an agreed to fixed price, time and materials, compensation or unit rates as the Parties may agree, or (2) compensation in accordance with EXHIBIT R. 58 SALTON SEA UNIT 5 EPC CONTRACT 17.4.3. Force Majeure. If Contractor is entitled to request a Change In Work pursuant to SECTION 17.3 as a result of Force Majeure, then the Changes In Work Form, the Milestone Schedule and Project Deadlines shall be adjusted. 17.4.4. Reduction In Cost. If a Change In Work involves a reduction in the cost to perform the Work including a reduction in the use of less labor resulting in reduced labor costs, there shall be a lump-sum deduction from the Contract Price, which deduction will be based on the amount that Contractor has in its budget for the Work involved, inclusive of direct and indirect costs, overhead, margins, contingencies and fees. 17.4.5. Adjustments. If necessary and specified on the Change In Work Form accepted by Owner or as decided by the arbitrators in accordance with SECTION 17.5, Owner shall promptly adjust the Contract Price and the Project Schedules, the Progress Payment Schedule and any other Exhibits and schedules requiring adjustment to reflect the accepted Change In Work. 17.5. Disputes. If there is a dispute between the Parties about a request for a Change In Work by either Party under this ARTICLE 17, such dispute shall be resolved in accordance with the expedited dispute resolution procedures set forth in ARTICLE 36 for payment disputes, and, notwithstanding any provision of this ARTICLE 17 to the contrary, the arbitrators shall decide the appropriate Contract Price change, schedule change, and related matters, if any, such decision shall be treated as a Change In Work, and this Contract shall be deemed to have been amended to reflect such terms. 17.6. Procedures. 17.7. Contractor's Estimate. If Contractor is notified of or becomes aware of a Change In Work permitted pursuant to SECTIONS 17.2 OR 17.3, Contractor shall, as soon as practicable after notification or becoming aware of such an event, prepare a detailed estimate of the increase, if any, in the cost and time required to complete the Work on the Change In Work Form, together with an explanation of the basis therefor, and shall inform Owner whether and to what extent, in Contractor's opinion, there should be a change in the Work, the Contract Price, the Project Schedules, or the Progress Payment Schedule. Contractor shall not charge Owner for the costs of preparing the Change In Work Form unless the Change In Work Form is not implemented. 17.8. Execution of Change In Work Form. If Contractor and Owner reach agreement on the matters listed in the Change In Work Form submitted by Contractor, Contractor shall execute such Change In Work Form in accordance with SECTION 37.4, and Owner shall sign "Accepted by Owner" on such Change In Work Form 59 SALTON SEA UNIT 5 EPC CONTRACT and execute such Change In Work Form (indicating any amendments necessary to reflect the agreement of the Parties) in accordance with SECTION 37.4. 17.9. No Obligation or Payment Without Executed Change In Work Form. IN NO EVENT SHALL CONTRACTOR BE ENTITLED TO UNDERTAKE OR BE OBLIGATED TO UNDERTAKE A CHANGE IN WORK UNTIL CONTRACTOR HAS RECEIVED A CHANGE IN WORK FORM SUBMITTED BY CONTRACTOR AND ACCEPTED BY OWNER OR DECIDED BY THE ARBITRATORS, AND, IN THE ABSENCE OF SUCH SIGNED CHANGE IN WORK FORM, IF CONTRACTOR UNDERTAKES ANY CHANGES IN THE WORK, CONTRACTOR SHALL MAKE ANY SUCH CHANGES AT CONTRACTORS SOLE RISK AND EXPENSE AND SHALL NOT BE ENTITLED TO ANY PAYMENT HEREUNDER FOR UNDERTAKING SUCH CHANGES. 17.10. No Suspension. Contractor shall not suspend the Work pending resolution of any proposed Change In Work unless directed by Owner in writing in accordance with ARTICLE 22. 18. WARRANTIES CONCERNING THE WORK 18.1. Project Warranties. Contractor warrants and guarantees with respect to the Project (the "PROJECT WARRANTIES") as follows: (a) that all Work (other than Work covered by the Materials Warranty), including the construction and design of the Project and the installation of the Equipment shall be (i) Industry Grade, (ii) free from Defects and other defects of manufacture, construction or design, (iii) shall conform to all applicable requirements of any Applicable Law and the Applicable Permits and (iv) shall be fit for Owner's use as a geothermal power production facility; (b) that all the Equipment furnished or installed in the construction of the Project shall be furnished (except Owner Furnished Items) or installed in a professional manner in accordance with manufacturers' requirements and Industry Standards, and that such furnishment or installation shall conform in all respects with the Statement of Work, all Applicable Laws and Applicable Permits and the requirements of this Contract and be free of any Defects. 18.2. Materials Warranty. Contractor further warrants that all Equipment and other items furnished by Contractor (except Owner Furnished Items) and any Subcontractors and Vendors hereunder shall be new and of good and suitable quality when installed, shall conform to the requirements of the Statement of Work, shall be free from any charge, lien, security interest or other encumbrance and shall be free 60 SALTON SEA UNIT 5 EPC CONTRACT of any Defects including Defects in design, materials or fabrication (the "MATERIALS WARRANTY"). If requested by Owner, Contractor shall provide Owner with satisfactory evidence that any item(s) of Equipment satisfy the Materials Warranty. 18.3. Warranty Period. Contractor shall have no liability under SECTION 18.1 OR 18.2 from and after the end of the Warranty Period (as such period may be extended in accordance with the terms hereof); provided, however, that the Warranty Period for any item or part required to be repaired, corrected or replaced following discovery of a Defect during the original Warranty Period shall be extended from the time of such repair, correction or replacement for a period of twelve (12) months, (it being understood that if the original Warranty Period would extend longer than such 12-month period, the original Warranty Period will still apply to such item or part) not to exceed in aggregate a duration of twenty-four (24) months from Substantial Completion. Notwithstanding the foregoing if (a) Owner fails to observe any Defect during the Warranty Period and (b) such Defect would not have been revealed to Owner during the Warranty Period despite Owner's operation of the Project in accordance with commercially acceptable practices, then the Warranty Period (and the corresponding rights and obligations of the Parties under this ARTICLE 18) shall be extended to effect repair of such Defect provided that Owner delivers written Notice of such Defect to Contractor within twelve (12) months from the end of the Warranty Period. Contractor's Project Warranties and its Materials Warranty (including re-warranties under this SECTION 18.3) shall be assignable to the Financing Entities without additional approval by Contractor. 18.4. Enforcement After Expiration. Commencing on the expiration of each of the respective Project Warranties and Materials Warranty, or such later date as is provided in SECTION 18.3, Owner shall be responsible for enforcing all representations, warranties, and guarantees from Subcontractors and Vendors, and Contractor shall provide reasonable assistance to Owner, on a reimbursable basis, in enforcing such representations, warranties, and guarantees, when and as reasonably requested by Owner. In addition, prior to the expiration of each of the respective Project Warranties and Materials Warranty, or such later date as is provided in SECTION 18.3 with respect to Work required to be re-performed, Owner, at its option and upon prior written Notice to Contractor, may enforce any such warranty against any Subcontractor or Vendor if (i) Owner determines that Contractor has not enforced such warranty against the Subcontractor or Vendor in a timely and diligent manner or performed the warranty work itself, or (ii) a Contractor Event of Default exists. 18.5. Exclusions. The Project Warranties and Materials Warranty set forth in SECTIONS 18.1 AND 18.2 shall not apply to: (a) Damage to any Equipment to the extent such damage is caused by: (i) Owner's failure to operate and maintain such Equipment in accordance with the recommendations set forth in the Required Manuals; 61 SALTON SEA UNIT 5 EPC CONTRACT (ii) Owner's operation of such Equipment in excess of operating specifications for such Equipment as set forth in the Required Manuals; (iii) The use of spare parts and normal consumables in the repair or maintenance of such Equipment that are not in accordance with specifications and recommendations set forth in the Required Manuals; (iv) Any event of Force Majeure (which excludes warranty failure hereunder). Notwithstanding the foregoing and without limiting the applicability of insurances placed pursuant to EXHIBIT "V", damage caused by Operating Personnel while under the direction of Contractor shall be the responsibility of Contractor. (b) Normal Operating Consumables or items that require replacement due to normal wear and tear or casualty loss (other than as a result of a warranty failure). 18.6. Subcontractor and Vendor Warranties. All representations, warranties, guarantees, and obligations of such Subcontractors and Vendors shall, at the request and direction of Owner, and without recourse to Contractor, be assigned ,in accordance with the provisions of EXHIBIT "U", to Owner or any Financing Entity upon default by Contractor or termination or expiration of this Contract; provided, however, that, notwithstanding such assignment, Contractor shall be entitled to enforce each such representation, warranty, guarantee, and obligation through the end of the warranty periods. Contractor shall deliver to Owner promptly following execution thereof duly executed copies of all contracts containing such representations, warranties, guarantees, and obligations. 18.7. Correction of Defects. (a) Owner shall promptly notify Contractor in writing upon discovery of any failure of any of the Work to satisfy the Project Warranties or the Materials Warranty during the applicable Warranty Periods (including Subcontractor and Vender warranty period). In the event of any such failure under circumstances in which there is an immediate need as defined in EXHIBIT "S", then Owner shall perform such warranty work for Contractor's account in accordance with the Warranty Procedures; provided, however, that the failure to comply with such Warranty Procedures shall not void the Project Warranties or the Materials Warranty. In all other cases, Contractor shall, at its own cost and expense (except to the extent of insurance proceeds actually received), re-perform any necessary engineering and purchasing relating to such Equipment, material, labor, and shipping, as well as the cost of removing any Defect and the cost of replacement thereof, including any damage to the surrounding Work, as shall be necessary to cause the Work and the Project to conform to the Project Warranties or Materials Warranty. Within five (5) days after receipt by Contractor of a Notice from Owner specifying a failure of any of the Work to satisfy Contractor's Project Warranties or the Materials Warranty and requesting Contractor to correct the violation, Contractor and Owner shall mutually agree when and how Contractor shall remedy said violation. If Contractor does not use its best efforts to 62 SALTON SEA UNIT 5 EPC CONTRACT proceed to complete said remedy within the time agreed to, or should Contractor and Owner fail to reach such an agreement within such five (5) day period, Owner shall have the right to perform the necessary remedy, or have third parties perform the necessary remedy, in accordance with the Warranty Procedures; provided, however, that the failure to comply with such Warranty Procedures shall not void the Project Warranties or the Materials Warranty, and the costs as established pursuant to the Warranty Procedures shall be borne by Contractor. (b) Notwithstanding the foregoing, Contractor shall have the right to request Owner to perform all or any portion of Contractor's obligations with respect to any warranty claim, and, if Owner determines that it has the capability and expertise to perform such obligations, Owner shall perform such obligations for Contractor's account in accordance with the Warranty Procedures; provided, however, that the failure to comply with such Warranty Procedures shall not void the Project Warranties or the Materials Warranty. 18.8. Operating Consumables. After Substantial Completion, in connection with the performance by Contractor of any warranty work, Owner shall supply all normal Operating Consumables (other than as specified herein or in EXHIBIT "A"). In addition, Owner shall, to the extent the same would not materially interfere with the operations of the Project not affected by the warranty work, allow Contractor the use of any special rigging, cranes, heavy equipment, the workshop and workshop tools, and equipment located at the Site. 18.9. Limitations On Warranties. EXCEPT FOR THE EXPRESS WARRANTIES AND REPRESENTATIONS SET FORTH IN THIS CONTRACT (INCLUDING IN ANY EXHIBIT HERETO), CONTRACTOR DOES NOT MAKE ANY OTHER EXPRESS WARRANTIES OR REPRESENTATIONS, OR ANY IMPLIED WARRANTIES OR REPRESENTATIONS, OF ANY KIND WHATEVER RELATING TO THIS CONTRACT, THE WORK, OR DESIGN, EQUIPMENT, OR MATERIALS TO BE SUPPLIED BY CONTRACTOR UNDER THIS CONTRACT OR TO THE PROJECT, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY. 19. EQUIPMENT IMPORTATION; TITLE 19.1. Importation of Equipment. Contractor, at its own cost and expense, but with the benefit of insurances supplied to the project through EXHIBIT "V", shall make all arrangements, including the processing of all documentation, necessary to import into the United States Equipment to be incorporated into the Project (except Owner Furnished Items) and any other equipment and other items necessary to perform the Work and shall coordinate with the applicable Governmental Authorities in achievingclearance of United States customs for all such Equipment and other items and, to the extent available under United States law but without limiting Contractor's liability for any and all import duties, taxes and levies as specified in SECTION 6.2, achieving such importation duty- and 63 SALTON SEA UNIT 5 EPC CONTRACT tax-free. In no event shall Owner be responsible for any delays in customs clearance or any resulting delays in performance of the Work. 19.2. Title. 19.2.1. Contractor warrants good title, free and clear of all liens, claims, charges, security interests, and encumbrances whatsoever, to all Equipment and other items furnished by it or any of its Subcontractors or Vendors that become part of the Project or that are to be used for the operation, maintenance, or repair thereof. 19.2.2. Title to all Equipment and other items shall pass to Owner, free and clear of all liens, claims, charges, security interests, and encumbrances whatsoever, upon the earlier of payment in full therefor or incorporation into the Project. 19.2.3. The transfer of title shall in no way affect Owner's rights as set forth in any other provision of this Contract. Contractor shall have care, custody, and control of all Equipment and other items (including Equipment and other items imported into the United States) and exercise due care with respect thereto until the earlier of the Substantial Completion Date and the termination of this Contract. 19.3. Protection. For the purpose of protecting Owner's interest in all Equipment and other items with respect to which title has passed to Owner pursuant to SECTION 19.2 but that remain in possession of another party, Contractor shall take or cause to be taken all steps necessary under the laws of the appropriate jurisdiction(s) to protect Owner's title and to protect Owner against claims by other parties with respect thereto. 19.4. Owner's Possession. On the Substantial Completion Date, Owner shall take complete possession and control of the Project and assume responsibility for the daily operation and maintenance of the Project. Contractor's access to and continued presence at the Site thereafter shall be for the sole purpose of achieving Final Completion pursuant to SECTION 15.5 and completing its obligations under ARTICLE 15. 20. DEFAULT 20.1. Contractor Events of Default. Contractor shall be immediately in default of its obligations pursuant to this Contract upon the occurrence of any one or more events of default below (each, a "CONTRACTOR EVENT OF DEFAULT"): (a) Contractor becomes insolvent, generally does not pay its debts as they become due, admits in writing its inability to pay its debts, or makes an assignment for the 64 SALTON SEA UNIT 5 EPC CONTRACT benefit of creditors, or insolvency, receivership, reorganization, or bankruptcy proceedings are commenced by Contractor; (b) Insolvency, receivership, reorganization, or bankruptcy proceedings are commenced against Contractor and such proceeding shall remain undismissed or unstayed for a period of thirty (30) days; (c) Any representation or warranty made by Contractor herein was false or materially misleading when made and Contractor fails to remedy such false or misleading representation or warranty, and to make Owner whole for any consequences thereof, within thirty (30) days after Contractor receives a Notice from Owner with respect thereto; (d) Contractor assigns or transfers this Contract or any right or interest herein, except as expressly permitted under ARTICLE 30; (e) Contractor fails to maintain any insurance coverages required of it in accordance with ARTICLE 23; (f) Contractor fails to perform or observe in any respect any provision of this Contract providing for the payment of money to Owner or any other material provision of this Contract not otherwise addressed in this SECTION 20.1, and such failure continues for five (5) days in the case of such a payment obligation and thirty (30) days in the case of any other obligation, in each case after Contractor receives a Notice from Owner with respect thereto; (g) Following approval of a Plan pursuant to SECTION 8.4, Contractor fails, other than for Owner Caused Delay, to meet the schedule set forth in the Plan (as determined from the revised Critical Path Schedule established by the Plan); (h) RESERVED (i) The Capacity Test Completion Date has not occurred on or before the date that is ninety (90) days after the Capacity Test Completion Deadline, as such deadline may be extended pursuant to the provisions hereof; (j) The Substantial Completion Date has not occurred on or before the date that is ninety (90) days after the Substantial Completion Deadline, as such deadline may be extended pursuant to the provisions hereof; (k) The Final Completion Date has not occurred on or before the date that is thirty (30) days after the Final Completion Deadline, as such deadline may be extended pursuant to the provisions hereof; or 65 SALTON SEA UNIT 5 EPC CONTRACT (l) Contractor suspends or abandons the Work. "SUSPENSION" for the purposes of this SECTION 20.1(L) shall mean that Contractor has not accomplished any progress toward any of the Milestones for a period of sixty (60) or more days. "Abandonment" for the purposes of this SECTION 20.1(L) shall mean that Contractor has substantially reduced personnel at the Site or removed further required equipment from the Site such that, in the opinion of an experienced construction manager, Contractor would not be capable of maintaining progress in accordance with the Critical Path Schedule. 20.2. Owner's Rights and Remedies. In the event of a Contractor Event of Default, Owner or its assignee shall have the following rights and remedies, in addition to any other rights and remedies that may be available to Owner or its assignee under this Contract, and Contractor shall have the following obligations: (a) Owner, without prejudice to any of its other rights or remedies, may terminate this Contract as provided in SECTION 21.2. (b) Owner may, without prejudice to any of its other rights or remedies, seek performance by any guarantor of Contractor's obligations hereunder; (c) If requested by Owner, Contractor shall withdraw from the Site, shall assign to Owner (without recourse to Contractor) such of Contractor's subcontracts as Owner may request, and shall deliver and make available to Owner all information, patents, and licenses of Contractor related to the Work reasonably necessary to permit Owner to complete or cause the completion of the Work, and in connection therewith Contractor authorizes Owner and its agents to use such information in completing the Work, shall remove such materials, equipment, tools, and instruments used by and any debris or waste materials generated by Contractor in the performance of the Work as Owner may direct, and Owner may take possession of any or all Drawings and Specifications, Required Manuals, and Site facilities of Contractor related to the Work necessary for completion of the Work (whether or not such Drawings and Specifications, Required Manuals, and Site facilities are complete); (d) Owner, without incurring any liability to Contractor, shall have the right (either with or without the use of Contractor's equipment) to have the Work finished whether by enforcing any security given by or for the benefit of Contractor for its performance under this Contract or otherwise, in which case Owner shall have the right to take possession of and use all equipment of Contractor necessary for completion of the Work, and Contractor shall have no right to remove such items from the Site until such completion; (e) Owner may seek equitable relief to cause Contractor to take action or to refrain from taking action pursuant to this Contract, or to make restitution of amounts improperly received under this Contract; (f) Owner may, but is not obligated to, make such payments or perform such obligations as are required to cure Contractor's Event of Default and offset the cost of such payment or performance against payments otherwise due to Contractor under this Contract; and 66 SALTON SEA UNIT 5 EPC CONTRACT (g) Owner may seek damages as provided in SECTION 20.3, including proceeding against any bond, guarantee, letter of credit, or other security given by or for the benefit of Contractor for its performance under this Contract. 20.3. Damages for Contractor Default. In the event of a Contractor Event of Default, but in such case subject to the limitations of ARTICLE 35, Contractor shall be liable to Owner for any and all actual damages to Owner as a result of such Contractor Event of Default, it being understood that, to the extent that the actual costs of completing the Work, including compensation for obtaining a replacement contractor or for obtaining additional professional services required as a consequence of Contractor's Event of Default, exceed those costs that would have been payable to Contractor but for Contractor's Event of Default, Contractor shall be obligated to pay the difference to Owner. In addition, in the event of a Contractor Event of Default, Owner shall be entitled to withhold further payments to Contractor for the Work performed prior to termination of this Contract until Owner determines the liability of Contractor, if any, under this SECTION 20.3. Upon determination of the total cost of the Work, Owner shall notify Contractor in writing of the amount, if any, that Contractor shall pay Owner or Owner shall pay Contractor. If, in the event of a Contractor Event of Default set forth in clauses (h) (i) or (j) of SECTION 20.1, Owner elects to terminate this Contract pursuant to SECTION 20.2(A) above, then Contractor shall immediately pay to Owner the lesser of: (a) the Maximum Aggregate Damages or (b) the Delay Liquidated Damages and Buy-Down Amounts due and payable under ARTICLE 16 (provided that clause (b) shall not apply unless Contractor has performed a Capacity Test and a Reliability Test before such termination); as liquidated damages for such Contractor Event of Default and for Contractor's failure to proceed with or make adequate progress towards the completion of the Work as required by this Contract. Owner and Contractor agree that Owner's actual damages in the event of any Contractor Event of Default set forth in clauses (i) or (j) of SECTION 20.1 would be extremely difficult or impracticable to determine and that, after negotiation, Owner and Contractor have agreed that the Delay Liquidated Damages, Buy-Down Amounts and/or Maximum Aggregate Damages required to be paid hereunder are a reasonable estimate of the damages that Owner would incur as a result of such a Contractor Event of Default. 20.4. Owner Event of Default. Owner shall be immediately in default of its obligations pursuant to this Contract upon the occurrence of any one or more events of default below (each, an "OWNER EVENT OF DEFAULT"): (a) Any representation or warranty made by Owner herein was false or materially misleading when made and Owner fails to remedy such false or misleading representation or warranty, and to make Contractor whole for any consequences thereof, within thirty (30) days after Owner receives a Notice from the Contractor with respect thereto; (b) Owner assigns or transfers this Contract or any right or interest herein, except as expressly permitted under ARTICLE 29 ; or (c) Owner fails to perform or observe in any respect any provision of this Contract providing for the payment of money to Contractor or any other material provision of this Contract not otherwise addressed in this SECTION 20.4, and such failure continues for ten (10) 67 SALTON SEA UNIT 5 EPC CONTRACT days in the case of such a payment obligation and thirty (30) days in the case of any other obligation, in each case after Owner receives a Notice from Contractor with respect thereto. 20.5. Contractor's Remedies. In the event of an Owner Event of Default, and subject to ARTICLE 35, Contractor shall have all rights and remedies that may be available under law against Owner with respect to this Contract, including the right to suspend performance of the Work or to terminate this Contract (and including the right to immediately stop work upon an Owner Event Of Default for non-payment). 21. EARLY TERMINATION 21.1. General. Owner may in its sole discretion terminate the Work with or without cause at any time by giving Notice of termination to Contractor, to be effective upon the receipt of such Notice by Contractor or upon such other termination date specifically identified by Owner therein; provided, however, that Owner may not terminate the Work for the sole purpose of substituting a new contractor willing to finish the Work for a price lower than the remaining unpaid portion of the Contract Price. If Owner terminates the Work without cause or for any cause other than a Contractor Event of Default specified in SECTION 20.1, then Owner and Contractor shall have the following rights, obligations and duties: 21.1.1. Prior to Notice to Proceed. If the Contract is terminated by Owner pursuant to SECTION 21.1 prior to the issuance of the Notice to Proceed, then Contractor shall receive payment only for any Work performed after the date hereof pursuant to a specific written agreement between the Parties. 21.1.2. After Notice to Proceed. Contractor shall receive as compensation for the Work performed through the effective date of termination: (a) the sum, without duplication, of (i) the aggregate amount set forth on the Project Payment Schedule for completion of items of Work that have been properly completed by Contractor, (ii) for each item of Work properly commenced but not yet completed by Contractor, a percentage of the aggregate amount set forth on the Project Payment Schedule for completion of such item based on the percentage of completion of such item, and (iii) reasonable demobilization costs; minus (b) any amounts previously paid to Contractor under this Contract. 68 SALTON SEA UNIT 5 EPC CONTRACT 21.1.3. Adjustment for Defects. Notwithstanding the foregoing, the amount owed pursuant to SUBSECTIONS 21.1.1 OR 21.1.2 shall be subject to adjustment to the extent any Work contains Defects and provided, further, that Contractor shall use its reasonable efforts to minimize costs that arise between the date of its receipt of a Notice of termination and the effective date thereof, including, without limitation, by promptly notifying its Subcontractors of such termination. 21.1.4. Assumption of Contractor Contracts. Owner shall have the right, at its sole option, to assume and become liable for any reasonable obligations that Contractor may have in good faith incurred for its Site personnel and for any reasonable written obligations and commitments that Contractor may have in good faith undertaken with third parties in connection with the Work to be performed at the Site, which obligations and commitments shall not have been covered by the payments made to Contractor under SUBSECTION 21.1.1 or 21.1.2. If Owner elects to assume any obligation of Contractor as described in this SUBSECTION 21.1.4, then, as a condition precedent to Owner's compliance with any subsection of this ARTICLE 21, Contractor shall execute all papers and take all other reasonable steps requested by Owner which may be required to vest in Owner all rights, set-offs, benefits and titles necessary to such assumption by Owner of such obligations described in this ARTICLE 21 Owner shall simultaneously provide to Contractor indemnities against liabilities thereafter arising under the assumed obligations or commitments. 21.2. Claims for Payment. All claims for payment by Contractor under this ARTICLE 21 must be made within forty-five (45) days after the effective date of a termination hereunder. Owner shall make payments under this ARTICLE 21 in accordance with ARTICLE 7. 21.3. Termination Payments. The payments described in SECTIONS 21.1.1 AND 21.1.2 include payment for (i) all costs of Equipment, temporary equipment, materials, labor, transportation, engineering, design and other services relating to Contractor's performance of its obligations under this Contract and said Owner-requested Work (including any intellectual property rights licensed under this Contract, expressly or by implication) provided by Contractor or such Subcontractors or Vendors, (ii) all national, state, regional and local taxes, and other sales taxes effective or enacted as of the date of execution of this Contract or thereafter, each as imposed on Contractor or its Subcontractors or Vendors or said Owner-requested Work, (iii) all other taxes, duties, levies, imposts, fees, or charges of any kind (whether in the United States or elsewhere) arising out of Contractor's or any such Subcontractor's or Vendor's performance of said Owner-requested Work, including any increases thereof that may occur during the term of this Contract, and (iv) any duties, levies, imposts, fees, charges, and royalties imposed on Contractor or its Subcontractors or Vendors with respect to any such Equipment, materials, labor, or services provided under this Contract. The taxes covered hereby include occupational, excise, unemployment, ownership, value-added, gross receipts, and income taxes and any and all other taxes and duties on any item or service that is part of said Owner-requested Work, whether such tax is normally included in the price of such item or service or is normally stated separately, all of which shall be for the account of Contractor. The above-described payments shall not be increased with respect to any of the 69 SALTON SEA UNIT 5 EPC CONTRACT foregoing or with respect to any withholdings in respect of any of the foregoing items that Owner may be required to make. 22. SUSPENSION 22.1. General. If at any time (i) Owner, in its sole discretion, elects to suspend performance of the Work for reasons related to the safe and proper conduct of the Project and the construction thereof, or (ii) the Financing Entities shall have ceased to disburse funds or shall have given notice of their intent to do so, Owner may suspend performance of the Work by giving Notice to Contractor. Such suspension shall continue for the period specified in the suspension Notice. The Contract Price shall be adjusted as provided in clauses (a), (b), (c) and (d) of SECTION 22.2 to reflect any additional increased costs of Contractor resulting from any such suspension, as demonstrated by Contractor to Owner's reasonable satisfaction. No adjustment shall be made to the extent that performance is suspended, delayed, or interrupted for any cause due to Contractor's negligence, willful misconduct, or noncompliance with the terms of this Contract. At any time after the effective date of the suspension, Owner may require Contractor to resume performance of the Work on five (5) days' Notice. 22.2. Contractor's Termination and Compensation Rights If, at the end of the specified suspension period, Owner has not requested a resumption of the Work or has not notified Contractor of any extension of the suspension period (but in no event beyond 365 days in the aggregate for all such suspensions, other than suspensions for any reason due to Contractor's negligence, willful misconduct, or noncompliance with the terms of this Contract) at Contractor's option the Work shall be deemed terminated as of the commencement date of the suspension period, and Owner shall promptly pay Contractor for the Work performed pursuant to SUBSECTION 21.1.2. In addition, in the event of any such suspension, Owner shall pay Contractor within thirty (30) days after receipt of Contractor's monthly invoice for those costs incurred during the suspension period that are documented by Contractor to the reasonable satisfaction of Owner, to the extent attributable to the suspension, and that are: (a) For the purpose of safeguarding and/or storing the Work and the materials and equipment at the point of fabrication, in transit, or at the Site; (b) For personnel, Subcontractors, Vendors, or rented equipment, the payments for which, with Owner's prior written concurrence, are continued during the suspension period; (c) For reasonable costs of demobilization and remobilization; or (d) For rescheduling the Work (including penalties or additional payments to Subcontractors and Vendors for the same). 70 SALTON SEA UNIT 5 EPC CONTRACT 22.3. Extension of Time. In the case of any suspension under this ARTICLE 22, other than from a cause due to Contractor's negligence, willful misconduct, or noncompliance with the terms of this Contract, the Project Deadlines shall be extended by a period equal to the suspension period, plus a reasonable period for demobilization and remobilization approved by Owner, and the Project Schedules, and the Progress Payment Schedule shall be adjusted to account for same. 22.4. Claims for Payment. All claims by Contractor for compensation or extension of time under this ARTICLE 22 must be made within sixty (60) days after the suspension period has ended and the Work has been either terminated or resumed. Failure of Contractor to make such claim within said period shall be deemed a waiver by Contractor of any such claims. 23. INSURANCE 23.1. General. 23.1.1. Contractor's Insurance. Contractor, at its own expense, shall procure or cause to be procured and maintain or cause to be maintained in full force and effect at all times commencing no later than upon commencement of the Work at the Site and until the expiration of the Warranty Periods, all insurance coverages specified in EXHIBIT "V-1". All insurance coverage shall be in accordance with the terms of this ARTICLE 23 and EXHIBIT "V-1", using companies, to the extent required by Applicable Law, authorized to do business in California. 23.1.2. Owner's Insurance. Owner, at its own expense, shall procure or cause to be procured and maintain or cause to be maintained in full force and effect at all times during the period commencing on the Notice to Proceed Date through the expiration of the Warranty Periods, all insurance coverages specified in EXHIBIT "V-2". All insurance coverages shall be in accordance with this ARTICLE 23 and EXHIBIT "V-2", using companies, to the extent required by Applicable Law, authorized to do business in California. Owner agrees to request a quote from Owner's Contractor's All Risks insurer, for Delay in Start Up insurance coverage, and Owner's Marine Delay in Start Up insurer, for Marine Delay in Start Up insurance coverage, to provide that such coverage is payable without deduction for Delay Liquidated Damages payable under this Contract and to notify Contractor of the amount by which the premium for such coverage is greater than would be the case had such policy provided that the amount of the Delay Liquidated Damages payable under this Contract would be deducted from the insurance proceeds that are payable under such policy. In the event that any such greater coverage is available on reasonable terms, without otherwise affecting coverage, Contractor may elect to have Owner obtain the policy with such greater coverage and Contractor agrees to promptly reimburse Owner for the amount by which the premium for such policy is greater than the premium that would have applied had such insurance 71 SALTON SEA UNIT 5 EPC CONTRACT provided that the amount of Delay Liquidated Damages payable under this Contract would be deducted from the insurance proceeds that would be payable under such coverage. 23.1.3. Non-Violation. Contractor shall not knowingly violate nor knowingly permit to be violated any conditions of the policies provided by Owner under the terms of this Contract and shall at all times satisfy the requirements of the insurance companies issuing them. All requirements imposed by such policies and to be performed by Contractor shall likewise be imposed upon and assumed by each Subcontractor. 23.2. Subrogation Waivers. All policies shall provide for a waiver of subrogation rights against Owner, Contractor, Subcontractors and the Financing Entities, and their assigns, subsidiaries, Affiliates, employees, insurers, and underwriters, and of any right of the insurers to any set-off or counterclaim or any other deduction, whether by attachment or otherwise, in respect of any liability of any such person insured under any such policy. Contractor releases, assigns, and waives any and all rights of recovery against Owner, the Financing Entities, and all their Affiliates, subsidiaries, employees, successors, permitted assigns, insurers, and underwriters that Contractor may otherwise have or acquire in or from or in any way connected with any loss covered by policies of insurance maintained or required to be maintained by Contractor pursuant to this Contract or because of deductible clauses in or inadequacy of limits of any such policies of insurance. A full and complete waiver of subrogation in favor of Contractor and Subcontractors under Owner's permanent or operational policies shall survive the expiration of this Contract. 23.3. Evidence of Insurance. Evidence of insurance required hereunder, in the form required to be delivered by Owner pursuant to the Financing Entities' loan documentation, but in any event in the form of certificates of insurance and copies of the forms of policies and endorsements certified by such Party's insurance brokers, shall be furnished by each when required to be delivered no later than the date on which coverage is required to be in effect pursuant to EXHIBITS "V-1", "V-2" and "V-3" as applicable. If requested by Owner, copies of the actual insurance policies shall be provided to Owner within the time required by the Financing Entities after the coverage date, excluding any claims history or premium information. Such insurance policies shall be subject to review and approval by the other Party, which approval shall not be unreasonably withheld, and shall, at a minimum, provide a severability of interests or cross-liability clause; provided, however, that the insurance shall be primary and not excess to or contributing with any insurance or self-insurance maintained by Owner, Contractor, and the Financing Entities and contain a provision that the policies may not be canceled or changed except (i) as provided in EXHIBITS "V-1", "V-2" and "V-3" as applicable, or (ii) if not therein provided, without thirty (30) days' or, in the case of nonpayment of premium, ten (10) days' prior written Notice given by certified mail to Owner, Contractor, and the Financing Entities. Not later than the one-year anniversary of the date of delivery of the policies of insurance hereunder or the expiration date of the policy if for a term of more than one year, and not later than each one-year anniversary or policy renewal date thereafter, each Party shall deliver copies of the renewal insurance policies certified as aforesaid. 72 SALTON SEA UNIT 5 EPC CONTRACT 23.4. Insurance Coverages. All amounts of insurance coverage under this Contract specified in EXHIBITS "V-1", "V-2" and "V-3" are required minimums. Owner and Contractor shall each be solely responsible for determining the appropriate amount of insurance, if any, in excess thereof. The required minimum amounts of insurance shall not operate as limits on recoveries available under this Contract. 23.5. Failure to Maintain Insurance. If at any time the insurance to be provided by Owner or Contractor hereunder shall be reduced or cease to be maintained, then (without limiting the rights of the other Party hereunder in respect of any default that arises as a result of such failure) the other Party may at its option maintain the insurance required hereby, but subject to SECTION 23.6, and, in such event (a) Owner may withhold the cost of insurance premiums expended for such replacement insurance from any payments to Contractor, or (b) Owner shall reimburse Contractor for the premium of any such replacement insurance, as applicable. 23.6. Scope of Coverage. Contractor shall require such liability insurance of Subcontractors who perform services at the Site as shall be reasonable and in accordance with Industry Standards in relation to the Work or other items being provided by each such Subcontractor. 24. RISK OF LOSS OR DAMAGE 24.1. Contractor Assumption of Risk. Until the Substantial Completion Date, Contractor assumes risk of loss and full responsibility for the cost of replacing or repairing the damage to the Project and all materials, Equipment, supplies and maintenance equipment (including temporary materials, equipment and supplies) which are purchased by Contractor or Owner for permanent installation in or for use during construction of the Project regardless of whether Owner has title thereto under this Contract, unless such loss or damage is a result of the negligence or intentional misconduct of Owner or Owner's agents during such time as such agents are acting under Owner's control, in which case Owner shall be responsible for the amount of any deductible amounts under applicable policies as identified in EXHIBIT "V-2". Owner shall bear this risk and responsibility after the Substantial Completion Date. 24.2. Loss or Damage; Limitations. If any portion of the Work is lost or damaged, then Contractor shall replace or repair any such loss or damage and complete the Work in accordance with this Contract; provided, however, that Contractor shall not be obligated to replace or repair any such loss or damage unless Owner has properly carried and maintained the insurance which Owner is required to maintain pursuant to Article 4.23 and Contractor has received reasonable assurances from Owner or the Financing 73 SALTON SEA UNIT 5 EPC CONTRACT Entities that Owner will prosecute such claim in a commercially reasonable manner and Contractor will receive the insurance proceeds, if any, paid under such Owner maintained insurance coverages in accordance with the disbursement provisions of this Contract. Should a loss be sustained under a third party liability policy, Contractor shall assume all responsibilities of an insured under the terms of said insurance. 25. INDEMNIFICATION 25.1. By Owner. Except for matters expressly made Contractor's responsibility hereunder or otherwise expressly limited as set forth in this Contract, Owner shall defend, indemnify, and hold harmless Contractor, its Subcontractors and Vendors, and all their respective employees, Affiliates, agents, officers, partners, and directors from and against all third party claims, or Losses for bodily injury or property damage, that arise out of or result from, but only to the extent of, the negligent, reckless, or tortious acts or omissions (including strict liability) of Owner or anyone directly or indirectly employed by Owner (other than Contractor, any Affiliate of Contractor, or any Subcontractor or Vendor). 25.2. By Contractor. Except for matters expressly made Owner's responsibility hereunder or otherwise expressly limited as set forth in this Contract, Contractor shall defend, indemnify, and hold harmless Owner, the Existing Plant Owners and the Financing Entities and any Person acting for or on behalf of Owner and their respective employees, agents, partners, Affiliates, shareholders, directors, officers, and assigns, from and against: (a) All third party claims, or all Losses for bodily injury or property damage, that directly or indirectly arise out of or result from, but only to the extent of, any negligent, reckless, or otherwise tortious act or omission (including strict liability) during the performance of the Work, or any curative action under any warranty following performance of the Work, of Contractor or any Affiliate thereof, any Subcontractor or Vendor, or anyone directly or indirectly employed by any of them, or anyone for whose acts such Person may be liable; or (b) All Losses incurred by Owner, the Existing Plant Owners, or any of the Financing Entities or such employee, agent, partner, Affiliate, shareholder, director, officer, that result in either any liens filed by Contractor, Subcontractors, Vendors or any other Person performing any Work or any employer's liability or worker's compensation claims filed by any employees of Contractor or any of its Subcontractors or Vendors; (c) All Losses that directly or indirectly arise out of or result from the failure of Contractor to comply with Applicable Laws or the conditions or provisions of Applicable Permits; or (d) All Losses that directly or indirectly arise out of any insurance policy procured under ARTICLE 23 being vitiated as a result of Contractor's failure to comply with any of 74 SALTON SEA UNIT 5 EPC CONTRACT the requirements set forth in such policy or any other act by Contractor or any Subcontractor or Vendor. 25.3. Actions by Government Authorities. Contractor shall defend, indemnify, and hold Owner and the Financing Entities and their respective employees, agents, partners, Affiliates, shareholders, directors, officers, and assigns harmless from and against all claims by any Governmental Authority claiming taxes based on gross receipts or on income of Contractor, any of its Subcontractors or Vendors, or any of their respective agents or employees with respect to any payment for the Work made to or earned by Contractor, any of its Subcontractors or Vendors, or any of their respective agents or employees under this Contract. 25.4. Limitations. Except as described in SECTION 25.2(C), nothing contained in this Contract shall obligate either Party to indemnify or hold harmless the other Party or any of their respective employees, agents, partners, Affiliates, shareholders, directors, officers, and assigns from any claims to the extent of the negligent, reckless, or otherwise tortious conduct (including strict liability) of the Party seeking indemnification. The Parties intend that, where negligence is determined to have been contributory, principles of comparative negligence will apply, and each Party shall bear the proportionate cost of any loss, damage, expense, and liability attributable to that Party's negligence. 25.5. Notice; Defense; Settlement. An indemnitee under this ARTICLE 25 or any other indemnification provision set forth in the Contract shall, within ten (10) Business Days after the receipt of notice of the commencement of any legal action or of any claims against such indemnitee in respect of which indemnification will be sought, notify the indemnitor with a Notice thereof. Failure of the indemnitee to give such Notice will reduce the liability of the indemnitor by the amount of damages attributable to the failure of the indemnitee to give such Notice to the indemnitor, but the failure so to notify shall not relieve the indemnitor from any liability that it may have to such indemnitee otherwise than under the indemnity agreements contained in this ARTICLE 25. In case any such claim or legal action shall be made or brought against an indemnitee and such indemnitee shall notify the indemnitor thereof, the indemnitor may, or if so requested by such indemnitee shall, assume the defense thereof, without any reservation of rights. After notice from the indemnitor to such indemnitee of an election to assume the defense thereof and approval by the indemnitee of counsel selected by the indemnitor, the indemnitor will not be liable to such indemnitee under this ARTICLE 25 for any legal fees or expenses subsequently incurred by such indemnitee in connection with the defense thereof so long as the indemnitor continues to provide such defense. No indemnitee shall settle any indemnified claim over which the indemnitor has not been afforded the opportunity to assume the defense without the indemnitor's approval. The indemnitor shall control the settlement of all claims over which it has assumed the defense; provided, however, that the indemnitor shall not conclude any settlement that requires any action or forbearance from action by the indemnitee or any of its Affiliates without the prior approval of 75 SALTON SEA UNIT 5 EPC CONTRACT the indemnitee. The indemnitee shall provide reasonable assistance to the indemnitor, at the indemnitor's expense, in connection with such legal action or claim. If the indemnitor assumes the defense of any such claim or legal action, any indemnitee shall have the right to employ separate counsel in such claim or legal action and participate therein, and the reasonable fees and expenses of such counsel shall be at the expense of such indemnitee, except that such fees and expenses shall be for the account of the indemnitor if (i) the employment of such counsel has been specifically authorized by the indemnitor, or (ii) the named parties to such action (including any impleaded parties) include both such indemnitee and the indemnitor and representation of such indemnitee and the indemnitor by the same counsel would, in the reasonable opinion of the indemnitee, be inappropriate under applicable standards of professional conduct due to actual or potential conflicting interests between them. Notwithstanding anything to the contrary in this SECTION 25.5, the indemnitee shall have the right, at its expense, to retain counsel to monitor and consult with indemnitor's counsel in connection with any such legal action or claim. 26. PATENT INFRINGEMENT AND OTHER INDEMNIFICATION RIGHTS 26.1. Indemnity by Contractor. Contractor shall defend, indemnify, and hold harmless Owner, the Existing Plant Owners and the Financing Entities and their respective employees, partners, directors, officers and assigns against all Losses arising from any claim or legal action for unauthorized disclosure or use of any trade secrets, or of patent, copyright, or trademark infringement arising from Contractor's performance (or that of its Affiliates, Subcontractors, or Vendors) under this Contract or otherwise asserted against Owner that either (a) concerns any Equipment, materials, supplies, or other items provided by Contractor, any of its Affiliates, or any Subcontractor or Vendor under this Contract; (b) is based upon or arises out of the performance of the Work by Contractor, any of its Affiliates, or any Subcontractor or Vendor, including the use of any tools or other implements of construction by Contractor, any of its Affiliates, or any Subcontractor or Vendor; or (c) is based upon or arises out of the design or construction of any item by Contractor under this Contract or the operation of any item according to directions embodied in Contractor's final process design, or any revision thereof, prepared or approved by Contractor. 26.2. Lawsuits. If such claim or legal action for such infringement results in a suit against Owner, the provisions of SECTION 25.5 shall apply. 26.3. Injunction. If Owner is enjoined from completion of the Project or any part thereof, or from the use, operation, or enjoyment of the Project or any part thereof, as a result of such claim or legal action or any litigation based thereon, Contractor shall promptly use its best efforts to have such injunction removed at no cost to Owner. 76 SALTON SEA UNIT 5 EPC CONTRACT 26.4. Effect of Owner's Actions. Owner's acceptance of the Contractor Deliverables or proposed or supplied materials and Equipment shall not be construed to relieve Contractor of any obligation hereunder. 26.4.1. Indemnity by Owner. Owner shall defend, indemnify, and hold harmless the Contractor and its respective employees, partners, directors and officers against all Losses arising from any claim or legal action for unauthorized use of any proprietary processes, or of patent, copyright, or trademark infringement arising from Contractor's performance (or that of its Affiliates, Subcontractors, or Vendors) when implementing specific contract requirements to provide Owner specified processes for control or removal of silica from the geothermal brine, including the process of NORMS and acid addition to control silica deposition and the reactor/crystalizer design for silica control of the geothermal brine. 27. TREATMENT OF CONFIDENTIAL INFORMATION 27.1. Confidential Information. 27.1.1. Any Confidential Information is disclosed in confidence, and the transferee shall restrict its use of such information solely to uses related to the Project or performance of this Contract. Neither the transferee nor any consultant or other person to whom any confidential or proprietary information is provided in connection with the Project or performance of this Contract shall publish or otherwise disclose such information to others or use such information for any purpose except as expressly provided above without the written approval of the transferor; provided, however, that nothing herein shall limit (i) the right of Owner to provide any information regarding Contractor, any Subcontractor, any Vendor, this Contract, or the Work to any Financing Entity (or advisors retained on their behalf) or their successors and assigns, (ii) the right of either Party to supply such information to any Governmental Authority asserting a right to such information, or as may be required by Applicable Law, or (iii) the right of Owner to reproduce and/or use as many copies of any Drawings and Specifications or other documents provided to Owner as Owner in its sole discretion considers useful or necessary for the furtherance of the Work, regardless of any notices, legends, or disclaimers on such specifications, drawings, or other documents. 27.1.2. Notwithstanding the designation of any information as proprietary by a transferor, such information shall not be deemed proprietary or confidential if it (i) was furnished by such Party prior to the execution of this Contract without restrictions, (ii) becomes knowledge available within the public domain, (iii) is received by either Party from a third party without restriction and without breach of this Contract, or (iv) is or becomes generally available to, or is independently known to or has been or is developed by, either Party or any of its Affiliates other than solely as a result of any disclosure of proprietary information by the transferor to the transferee. 77 SALTON SEA UNIT 5 EPC CONTRACT Title to the Confidential Information shall remain with the transferor, except that and subject to Owner's payment obligations under this Contract, all Confidential Information obtained, developed or created by or for Contractor exclusively for the Project, including copies thereof, is the exclusive property of Owner whether delivered to Owner or not. Contractor shall deliver such Confidential Information, including all copies thereof, to Owner upon request, except that Contractor shall be entitled to retain one copy for its files. 28. INVENTIONS AND LICENSES 28.1. Sublicenses. To the extent that any License Agreement authorizes Owner to do so, Owner hereby grants to Contractor a non-exclusive, non-transferable, non-assignable and royalty-free sublicense pursuant to Owner's rights under such License Agreement to use the technology described in such License Agreement in Contractor's design, construction, testing and operation of the Project. As between Owner and Contractor, all improvements to any technology made by Contractor, Owner or any other Person during the design, development, construction, start-up, testing and operation of the Project shall be the property of Owner.) 28.2. Invention License. Should Contractor or any employee or agent of Contractor make any invention or discovery in connection, in whole or part, with performing the Work, such invention or discovery shall be deemed to be the sole and exclusive property of Owner, and Contractor hereby assigns (and shall cause the assignment of) all right and title to, and interest in, any such invention or discovery to Owner. Contractor shall promptly notify Owner of any such invention or discovery. Contractor shall, at Owner's expense and request, cooperate in pursuing and effecting the transfer to Owner of all right and title to and interest in any such invention or discovery, including, without limitation, executing or causing the execution of assignments and applications, and assign with prosecution and enforcement of rights with respect to any such invention or discovery, including, without limitation, executing patent applications and powers of attorney with respect thereto. Notwithstanding the above, in the event Owner is granted the rights on a patent on which Contractor or any of its employees or agents is a named inventor, Owner shall pay Contractor (in addition to the amounts otherwise required to be paid hereunder) a reasonable sum not to exceed of $500 for such patent (for this purpose, a U.S. patent and any foreign counterparts thereof shall be deemed a single patent). 28.3. Patents and Proprietary Licenses. Contractor further agrees to grant and hereby grants to Owner an irrevocable, non-exclusive, royalty-free license under all patents and other proprietary information of Contractor related to the Work now or hereafter owned or controlled by Contractor to the extent reasonably necessary for the operation, maintenance, repair, or alteration of the Project or any subsystem or component thereof designed, specified, or constructed by Contractor under this Contract. No other license in such patents and proprietary information is granted pursuant to this Contract. 78 SALTON SEA UNIT 5 EPC CONTRACT 28.4. Owner's Intellectual Property. Owner hereby grants Contractor the right to use, solely in the performance of the Work, any intellectual property related to the Work that is owned by Owner or its Affiliates, without charge. 29. ASSIGNMENT BY OWNER 29.1. Assignment of Contract. Without the prior consent of Contractor Owner may, upon reasonable advance written notice, assign all or part of its right, title, and interest in this Contract to any Financing Entity. Any Financing Entity may, in connection with any default under any financing document related to the Project, assign any rights assigned to it hereunder to any Person. In addition, Owner may assign all or part of its right, title, and interest in this Contract to any other Person with the prior written approval of Contractor, which approval shall not be unreasonably withheld. Contractor agrees that, upon receipt of written notice of such assignment, it shall deliver all documents, data, Notices, and other communications required to be delivered to Owner hereunder to the Financing Entities or other permitted assignee at such address as they shall designate to Contractor in writing. 29.2. Transfer of Work; Third-Party Beneficiaries. Without the prior consent of Contractor, Owner may, upon reasonable advance written notice, assign, convey or transfer all or part of its right, title, and interest in the Work to any Affiliate of Owner (whether or not such Affiliate provides consideration to Owner for such assignment, conveyance or transfer). Each such Affiliate-assignee shall be deemed to be a third-party beneficiary of the following provisions of this Contract, with the power to enforce such provisions against Contractor: ARTICLE 18 (Warranties Concerning the Work), but only to the extent any portion of the Work is assigned, conveyed or transferred to such Affiliate-assignee; ARTICLE 25 (Indemnification); ARTICLE 26 (Patent Infringement and Other Indemnification Rights), but only to the extent any portion of the Work is assigned, conveyed or transferred to such Affiliate-assignee; and ARTICLE 32 (Non-Payment Claims). Owner shall have the right to enforce any provisions of this Contract with respect to any Work assigned, conveyed or transferred to an Affiliate (including any warranties, indemnities or rights to receive liquidated damages with respect to such Work) and such assignment, conveyance or transfer shall not affect Owner's rights or obligations (including payment) hereunder with respect to any Work. 30. ASSIGNMENT BY CONTRACTOR Contractor understands that this Contract is personal to Contractor. Contractor shall have no right, power, or authority to assign or delegate this Contract or any portion thereof either voluntarily or involuntarily, or by operation of law. Contractor's attempted assignment or delegation of any of its Work hereunder shall be null and void and shall be ineffective to relieve contractor of its responsibility for the Work assigned or delegated. 79 SALTON SEA UNIT 5 EPC CONTRACT 31. INDEPENDENT CONTRACTOR 31.1. General. Contractor is an independent contractor, and nothing contained herein shall be construed as constituting any relationship with Owner other than that of owner and independent contractor, or as creating any relationship whatsoever between Owner and Contractor's employees. Neither Contractor nor any of its employees is or shall be deemed to be an employee of Owner. 31.2. Employees. Subject to SECTIONS 4.5, 4.16 and 10.1, Contractor has sole authority and responsibility to employ, discharge, and otherwise control its employees, Subcontractors, and Vendors. 32. NON-PAYMENT CLAIMS Contractor shall indemnify and hold harmless Owner, the Existing Plant Owners and the Financing Entities (collectively, the "Lien Indemnitees") and defend each of them from and against any and all Loss arising out of any and all claims for payment, whether or not reduced to a lien or mechanics lien, filed by Contractor or any Subcontractors, Vendors, or other Persons performing any portion of the Work for which Contractor has received full payment under this Contract, including reasonable attorneys' fees and expenses incurred by any Lien Indemnitee in discharging any such liens or similar encumbrances. If Contractor shall fail to discharge promptly any such lien or claim filed against the Project or any interest therein, upon any materials, equipment, or structures encompassed therein, or upon the premises upon which they are located, any Lien Indemnitee may so notify Contractor in writing, and Contractor shall then (a) satisfy all such liens and claims or (b) defend Lien Indemnitees against all such liens or claims and provide assurances of payment as described in the last sentence of this Article 32. If Contractor does not promptly satisfy such liens or claims, give such Lien Indemnitee reasons in writing that are satisfactory to such Lien Indemnitee for not causing the release of such liens or paying such claims, or contest such liens or claims in accordance with the provisions of the last sentence of this Article 32, any Lien Indemnitee shall have the right, at its option, after written notification to Contractor, to cause the release of, pay, or settle such liens or claims, and Owner at its sole option may (i) require Contractor to pay, within five (5) days after request by Owner, or (ii) offset against any Retainage or other amounts due or to become due to Contractor (in which case Owner shall, if it is not the applicable Lien Indemnitee, pay such amounts directly to the Lien Indemnitee causing the release, payment, or settlement of such liens or claims) all costs and expenses incurred by the Lien Indemnitee in causing the release of, paying, or settling such liens or claims, including administrative costs, attorneys' fees, and other expenses. Contractor shall have the right to contest any such lien, provided it first provides to Owner a bond or other assurances of payment reasonably satisfactory to Owner in the amount of such lien and in form and substance reasonably satisfactory to Owner. 80 SALTON SEA UNIT 5 EPC CONTRACT 33. NOTICES AND COMMUNICATIONS 33.1. Requirements. Any Notice pursuant to the terms and conditions of this Contract shall be in writing and (i) delivered personally, (ii) sent by certified mail, return receipt requested, (iii) sent by a recognized overnight mail or courier service, with delivery receipt requested, or (iv) sent by confirmed facsimile transmission with telephonic confirmation, to the following addresses: If to Contractor: Stone & Webster Engineering Corporation 7677 East Berry Avenue Englewood, CO 80111-2137 Attn: Carl Harrell Project Manager Salton Sea Unit 5 Project Telephone: (303) 741-7266 Facsimile: (303) 741-7071 If to Owner: Salton Sea Power L.L.C. c/o CalEnergy Company, Inc. 302 South 36th Street Suite 400-K Omaha, NE 68131 Attn: Vice President, Construction Facsimile: (402) 231-1678 And with a copy of any Attn: General Counsel notices relating to a Facsimile: 1-402-231-1658 a dispute to: 33.2. Effective Time. Notices shall be effective when received by the other Party. 33.3. Representatives. Any technical or other communications pertaining to the Work shall be with the Parties' designated representative. Each Party shall notify the other in writing of the name of such representatives. The Project Manager shall be satisfactory to Owner, the Project Representative shall be satisfactory to Contractor, and each shall have knowledge of the Work and be available at all reasonable times for consultation. Each Party's representative shall be authorized on behalf of such Party to administer this Contract, agree upon procedures for coordinating the efforts of Owner and Contractor, and, when appropriate, to furnish information to or receive information from the other Party in matters concerning the Work. 81 SALTON SEA UNIT 5 EPC CONTRACT 34. CONDITIONS PRECEDENT All rights, obligations, and liabilities of the Parties hereunder (other than those set forth in Sections 3.1, 4.15, 4.19, 4.24 and 4.35 and Articles 25, 27, 34, 35, 36 and 37) shall be subject to the execution and delivery of construction loan documentation reasonably satisfactory to Owner, with all conditions to Financial Closing satisfied other than those the non-satisfaction of which has been consented to or waived by Owner in its sole discretion. Owner agrees that its issuance of the Notice to Proceed certifies that Financial Closing has occurred. 35. LIMITATIONS OF LIABILITY AND REMEDIES 35.1. Limitations on Damages. Except for the damages and obligations specified under SECTIONS 16.1.1, 16.2, 16.3, and 16.6 and notwithstanding anything else in this Contract to the contrary, neither Party shall be liable to the other for any consequential or special damages (including lost profits, lost revenue, or loss of use of the Project) arising from a failure to perform any obligation under this Contract, whether such liability arises in contract, tort (including negligence or strict liability), or otherwise. 35.2. Parent Guaranty. All of Contractor's obligations under this Contract shall be secured by the Parent Guaranty. Contractor shall deliver the Parent Guaranty (duly executed by the party thereto) and the Parent Legal Opinion to Owner contemporaneously with Contractor's execution of this Contract. 35.3. Limitations on Contractor's Liability. 35.3.1. In no event shall Contractor's liability pursuant to this Contract, whether arising in contract, warranty, default or otherwise, be greater in the aggregate than an amount equal to one hundred percent (100%) of the Contract Price (as the same may increase from time to time in accordance with the terms of this Contract); provided, however, that nothing contained in this SECTION 35.3 or in any other provision of this Contract shall be construed to limit Contractor's liability or obligations (i) to achieve Mechanical Completion, (ii) with respect to vitiation of any insurance policy as set forth in SECTION 25.2(D) of the Contract, (iii) any willful misconduct of Contractor, or (iv) with respect to Section 16.6 hereof. 35.3.2. In no event shall Contractor's aggregate liability under SECTION 16.1.1 for Delay Liquidated Damages and under SECTIONS 16.2 AND 16.3 for the Buy-Down Amount exceed the Maximum Aggregate Damages. 35.3.3. Notwithstanding anything herein to the contrary, amounts paid by Contractor to or on behalf of Owner in respect of third party claims arising out of the negligence or willful misconduct of Contractor (other than claims of Owner's Affiliates or the Financing Entities) shall not be included in Contractor's aggregate liability for purposes of determining the limit on Contractor's liability pursuant to this Contract. The cost of warranty work performed by 82 SALTON SEA UNIT 5 EPC CONTRACT any Subcontractor at such Subcontractor's expense and the cost of any warranty work paid for by any Subcontractor or recovered by Contractor from any Subcontractor shall be included in Contractor's aggregate liability for the purpose of determining the limit of Contractor's liability pursuant to this Contract. Contractor liabilities pursuant to this Contract shall include those covered by proceeds of insurance for purposes of determining the limit on Contractor's liability pursuant to this Contract. 35.4. Limitation on Owner's Liability. Contractor's sole recourse for any damages or liabilities due to Contractor by Owner pursuant to this Contract shall be limited to the assets of Owner (which include the Project) without recourse individually or collectively to the assets of the members or the Affiliates of Owner or the officers, directors, employees or agents of Owner, its members or their Affiliates. 35.5. Releases, Indemnities and Limitations. Releases, indemnities, or limitations on liability expressed in this Contract shall apply in accordance with the terms of this Contract, notwithstanding other legal bases of responsibility such as negligence, strict liability, fault, or breach of contract of the Party indemnified or whose liability is released or limited. 36. DISPUTES 36.1. Negotiations. Any disputes arising pursuant to this Contract that cannot be resolved between Owner's Project Representative and Contractor's Project Manager within fourteen (14) days or, in the case of payment disputes, three (3) days after receipt by each thereof of Notice of such dispute (specifically referencing this SECTION 36.1) shall be referred, by Notice signed by Owner's Project Representative and Contractor's Project Manager, to the executive officers of the Parties designated in SECTION 37.4 as their designated representatives (which shall not be the Owner's Project Representative or the Contractor's Project Manager) for resolution. If the Parties, negotiating in good faith, fail to reach an agreement within a reasonable period of time, not exceeding twenty (20) days or, in the case of payment disputes, ten (10) days after such referral, then Owner and Contractor shall enter into binding arbitration as set forth in SECTION 36.2. 36.2. Arbitration. 36.2.1. Scope. All disputes arising pursuant to this Contract that are not settled pursuant to SECTION 36.1 shall be decided by binding arbitration in accordance with the Construction Industry Arbitration Rules of the AAA then pertaining, unless the Parties mutually agree otherwise. If there is a conflict between the provisions of this Contract and the provisions of the Construction Industry 83 SALTON SEA UNIT 5 EPC CONTRACT Arbitration Rules of the AAA, the provisions of this Contract shall prevail. The Parties hereto agree that, notwithstanding such rules of the AAA, the arbitrators in any such arbitration shall apply the governing law specified in SECTION 37.2 of this Contract. This agreement to arbitrate shall be specifically enforceable. Any award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction. 36.2.2. Demands for Arbitration. Notice of the demand for arbitration shall be filed with the other Party and with the AAA. Any demand for arbitration shall be made within the time beyond which legal or equitable proceedings based on such claim, dispute, or controversy would be barred by the applicable statute of limitations. 36.2.3. Designation of Arbitrators. Each Party shall have the right to designate an arbitrator of its choice, who need not be from the AAA's panel of arbitrators but who (i) shall be an expert in the construction and industrial processes field and (ii) shall not be employed by or otherwise affiliated with such Party. Such designation shall be made by Notice to the other Party and to the AAA within ten (10) Business Days or, in the case of payment disputes, five (5) Business Days following the giving of Notice of the demand for arbitration. The arbitrators designated by the Parties shall designate a third arbitrator, who shall have a background in legal and judicial matters, within ten (10) Business Days or, in the case of payment disputes, five (5) Business Days after the date of the designation of the last of the arbitrators to be designated by the Parties, and the arbitration shall be decided by the three arbitrators. If the two arbitrators cannot or do not select a third independent arbitrator within such period, either Party may apply to the AAA for the purpose of appointing any person listed with the AAA as the third independent arbitrator. 36.2.4. Miscellaneous. The Parties shall proceed with the arbitration expeditiously and shall conclude all proceedings thereunder, including any hearing, in order that a decision may be rendered within 120 days or, in the case of a payment dispute, forty-five (45) days after the filing of the demand for arbitration by the filing Party. Unless the Parties agree otherwise, the arbitration of all disputes shall be held in San Diego, California and shall be conducted solely in the English language. In any arbitration proceeding, the Parties shall have the discovery rights established under Section 1283.05 of Title 9 (Arbitration) of the California Code of Civil Procedure. 36.3. Work to Continue. Unless otherwise agreed in writing, Contractor shall diligently carry on the Work during the pendency of any disputes or arbitration proceedings so long as all undisputed amounts payable to Contractor hereunder have been paid. If it shall be determined, either by agreement of the Parties or through arbitration, that any payment of the Contract Price or any other amount payable to Contractor hereunder shall have been unduly paid by Owner to Contractor, Contractor shall promptly refund the amount of such excess payment together with interest thereon at the lesser of LIBOR in effect from time to time plus three percent (3%) per annum and the highest rate 84 SALTON SEA UNIT 5 EPC CONTRACT permitted by Applicable Law, from the day following the date of such payment until the date of full refund to Owner. If it shall be determined, either by agreement of the Parties or through arbitration, that any payment of the Contract Price or other amount payable to Contractor hereunder shall have been unduly withheld by Owner, Owner shall pay or cause to be paid to Contractor within thirty (30) days after the final arbitration decision is made such withheld amount together with interest thereon at the lesser of the LIBOR in effect from time to time plus three percent (3%) per annum and the highest rate permitted by Applicable Law, from the day following the date on which such payment is determined to have been unduly withheld (as so determined) until the date of payment in full to Contractor. 37. MISCELLANEOUS 37.1. Severability. The invalidity or unenforceability of any portion or provision of this Contract shall in no way affect the validity or enforceability of any other portion or provision hereof. Any invalid or unenforceable portion or provision shall be deemed severed from this Contract and the balance of the Contract shall be construed and enforced as if the Contract did not contain such invalid or unenforceable portion or provision. If any such provision of this Contract is so declared invalid, the Parties shall promptly negotiate in good faith new provisions to eliminate such invalidity and to restore this Contract as near as possible to its original intent and effect. 37.2. Governing Law. This Contract shall be governed by the internal laws of the State of California, United States of America. 37.3. Survival of Termination. The provisions of ARTICLES 18, 19, 25, 26, 27, 28, 32, 35, 36 and 37 and SECTION 23.2 shall survive the termination (whether by completion of the Work or otherwise) of this Contract. 37.4. No Oral Modification. No oral or written amendment or modification of this Contract (including a Change In Work Form accepted under ARTICLE 17) by any officer, agent, or employee of Contractor or Owner, either before or after execution of this Contract, shall be of any force or effect unless such amendment or modification is in writing and is signed by any President, any Vice President or the Chief Executive Officer of the Party (or of the managing member of the Party on behalf of the Party) to be bound thereby. 37.5. No Waiver. Either Party's waiver of any breach or failure to enforce any of the terms, covenants, conditions, or other provisions of this Contract at any time shall not in any way affect, limit, modify, or waive that Party's right thereafter to enforce or compel strict compliance with every 85 SALTON SEA UNIT 5 EPC CONTRACT term, covenant, condition, or other provision hereof, any course of dealing or custom of the trade notwithstanding. All waivers must be in writing and signed on behalf of Owner and Contractor by the individuals identified in SECTION 37.4. 37.6. Time of Essence. Except as otherwise expressly provided herein, time is of the essence of each provision of this Contract. 37.7. Contract Interest Rate. Overdue payment obligations of the Owner and the Contractor hereunder shall bear interest from the date due until the date paid at a rate per annum equal to the lesser of (i) LIBOR in effect from time to time plus three percent (3%), and (ii) the highest rate permitted by Applicable Law. 37.8. Headings for Convenience Only. The headings contained herein are not part of this Contract and are included solely for the convenience of the Parties. 37.9. Third Party Beneficiaries. The provisions of this Contract are intended for the sole benefit of Owner and Contractor and there are no third party beneficiaries hereof, except the Financing Entities where expressly provided, other than assignees contemplated by the terms herein (including SECTION 29.2). 37.10. Language. The language of this Contract is the English language, which shall be the ruling language in which the Contract shall be construed and interpreted. All correspondence, Drawings and Specifications, test reports, Notices, certificates, Required Manuals and other information shall be entirely in the English language. 37.11. Financing Matters. 37.11.1. Contractor Cooperation. Owner contemplates obtaining financing for the Project consisting of one or more construction or permanent loans, to be secured by all or a portion of the Project and its rights under this Contract. In connection therewith and the assignment to the Financing Entities contemplated by ARTICLE 29, Contractor shall agree to and execute any amendments and modifications hereto reasonably requested by the Financing Entities, and shall also promptly execute or consent to other documents to the extent reasonably required by the Financing Entities, and shall cause to be delivered customary legal opinions of counsel to Contractor. Without limiting the foregoing, Contractor shall enter into such arrangements as Owner or the Financing Entities may reasonably request to ensure the continued availability of the Contractor's equipment at the Site and the right 86 SALTON SEA UNIT 5 EPC CONTRACT to use such Equipment (whether by Contractor, Owner, or Owner's nominees) in the prosecution of the Work as contemplated by this Contract until the Work is completed, including the granting of security interests in such equipment or entering into lease/leaseback or similar arrangements, and shall keep such equipment free and clear of any liens or encumbrances that could materially affect Contractor's, Owner's, or Owner's nominee's rights with respect to such equipment. Contractor shall respond promptly to requests for information regarding the qualifications, experience, past performance and financial condition of Contractor and other matters pertaining to Contractor's obligations hereunder. 37.12. Joint and Several Liability. The obligations of each entity constituting Contractor under this Contract shall be joint and several. 37.13. Further Assurances. Owner and Contractor will each use its best efforts to implement the provisions of this Contract, and for such purpose each, at the request of the other, will, without further consideration, promptly execute and deliver or cause to be executed and delivered to the other such assistance, or assignments, consents or other instruments in addition to those required by this Contract, in form and substance satisfactory to the other, as the other may reasonably deem necessary or desirable to implement any provision of this Contract. 37.14. Record Retention. Contractor agrees to retain for a period of seven (7) years from the Final Completion Date all records relating to its performance of the Work or Contractor's warranty obligations herein, and to cause all Subcontractors and Vendors engaged in connection with the Work or the performance by Contractor of its warranty obligations herein to retain for the same period all their records relating to the Work. 37.15. Binding on Successors, Etc. Subject to ARTICLES 29 AND 30, this Contract shall be binding on the Parties hereto and on their respective successors, heirs and assigns. 37.16. Merger of Prior Contracts. This Contract supersedes any other agreement, whether written or oral, that may have been made or entered into between Owner and Contractor or by any officer or officers of such Parties relating to the Project or the Work. This Contract and Exhibits hereto constitute the entire agreement between the Parties with respect to the Project, and there are no other agreements or commitments with respect to the Project except as set forth herein. 87 SALTON SEA UNIT 5 EPC CONTRACT 37.17. Construction of Terms. Unless the context clearly intends to the contrary, words singular or plural in number shall be deemed to include the other and pronouns having a masculine or feminine gender shall be deemed to include the other. 37.18. Counterpart Execution. This Contract may be executed by the Parties hereto in any number of counterparts (and by each of the Parties hereto on separate counterparts), each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 37.19. Opinions of Contractor's Counsel. Concurrently herewith, and at the request of any Financing Entity in connection with any financing, Contractor shall deliver to Owner and any such Financing Entity, an opinion of counsel to Contractor opining as to the matters set forth in SUBSECTIONS 5.1.1, 5.1.3, 5.1.4 AND 5.1.7. 37.20. Set-Off. Either Party may at any time, but shall be under no obligation to, set off any and all sums due from the other Party against sums due to such Party hereunder. 37.21. Attorneys' Fees. In the event any action by arbitration or other legal proceeding shall be instituted between Owner and Contractor in connection with this Contract, the Party prevailing in such action shall be entitled to recover from the other Party all of its reasonable costs and expenses incurred in connection with such action by arbitration or other legal proceeding, including reasonable attorneys' fees. 37.22. Contractor's License Information. Contractor's California Contractor's State License Number is 005012. Contractors are required by law to be licensed and regulated by the Contractors' State License Board which has jurisdiction to investigate complaints against contractors if a complaint regarding a patent act or omission is filed within four (four) years of the date of the alleged violation. A complaint regarding a latent act or omission pertaining to structural defects must be filed within ten (10) years of the date of the alleged violation. Any questions concerning a contractor may be referred to the Register, Contractors' State License Board, P.O. Box 26000, Sacramento, California 95826. The Parties agree that this Section 37.22 is not intended to extend the Warranty Period hereunder. [SIGNATURE PAGE FOLLOWS] 88 SALTON SEA UNIT 5 EPC CONTRACT IN WITNESS WHEREOF, the Parties hereto have caused this Construction Contract to be executed as of the date and the year first above written. OWNER: Salton Sea Power L.L.C., a Delaware limited liability company By: CE Salton Sea Inc., Its: Manager By: /s/ Vincent R. Fesmire --------------------------------- Its: Vice President -------------------------------- CONTRACTOR: Stone & Webster Engineering Corporation a Massachusetts corporation By: /s/ Illegible --------------------------------- Its: -------------------------------- 2 SALTON SEA UNIT 5 EPC CONTRACT TABLE OF EXHIBITS "A" STATEMENT OF WORK "B" DRAWINGS AND SPECIFICATIONS "C" OWNER ACQUIRED PERMITS "D" PROGRESS PAYMENT SCHEDULE "E" CHANGE IN WORK FORM "F" FORM OF CONTRACTOR'S INVOICE "G" CRITICAL PATH SCHEDULE REQUIREMENTS "H" RESERVED "I" DETERMINATION OF BUY-DOWN AMOUNTS "J" TESTING REQUIRED FOR COMPLETION "K" KEY PERSONNEL "L" OWNER PROVIDED LICENSE AND ROYALTY AGREEMENTS "M" SUMMARY MILESTONE SCHEDULE "N" FORM OF MONTHLY PROGRESS REPORT "O" FORM OF PARENT GUARANTEE AND LEGAL OPINION "P" PRODUCTION INPUTS "Q" SPARE PARTS TO BE PROVIDED BY CONTRACTOR "R" SUPPLY CONTRACTS "S" WARRANTY PROCEDURES "T" SALE CONTRACTS "U" FORM OF ASSIGNMENT CLAUSE FOR SUBCONTRACTS "V-1" OWNER ACQUIRED INSURANCE "V-2" CONTRACTOR ACQUIRED INSURANCE "V-3" GENERAL INSURANCE PROVISIONS "W" SITE DRAWINGS "X" OWNER'S LAND RIGHTS AGREEMENTS "Y EXISTING PLANTS ACCESS SCHEDULE "Z" RESERVED "AA" REQUIRED MANUALS "AB" SAFETY ASSURANCE PROGRAM "AC" QUALITY ASSURANCE PROGRAMS "AD" CALENERGY SAFETY PROGRAM UNIT 5 EPC CONTRACT - EXHIBIT A EXHIBIT "A" STATEMENT OF WORK 1. INTRODUCTION 1.1 GENERAL This Statement of Work consists of a project description, design criteria, basic design data and a description of the work required by the Contractor to design, construct, and start-up the Project and related facilities. If it becomes apparent to either Owner or Contractor that this Statement of Work is incomplete or ambiguous, Owner and Contractor will reach mutual agreement based on the Value Engineering Report dated July 20, 1998, (summary of results contained in Attachment 7). Contractor's Proposal dated May 19, 1998 and Owner's Request for Proposal dated March 23, 1998, with addenda (the RFP) in that order of precedence. A list of technical documents, based on the Owner's geothermal operating experience, is provided in Attachment 6, to be used in the Contractor's design. The Contractor's Proposal and the Owner's Request for Proposal are NOT incorporated into this Contract by reference. Capitalized terms used in this EXHIBIT A and not otherwise defined have the meanings given thereto in the Contract, of which this EXHIBIT A is a part. In the event of any conflict between Exhibit A and the main body of the Contract, the main body of the Contract shall prevail. 1.2 SCOPE OVERVIEW The Statement of Work is to engineer, design, procure, construct, startup, and test the Project known as Salton Sea Unit No. 5, a 49 MW net geothermal bottoming cycle power plant with a silica control system. The Project will be connected to Region 1 geothermal power generation facilities, Salton Sea Units 1-4, located in the Imperial Valley of Southern California. In addition to power generation, the Project is intended to reduce the temperature, of the geothermal brine presently exiting the Region 1 Facilities. This brine conditioning is required by the associated Zinc Recovery Project which is being implemented by the Owner, under separate contract with others, and in parallel with the Unit No. 5 Project. The Project is a complete unit capable of producing 49 MW (net) and includes: steam generation (from geothermal brine) and conditioning equipment, a single geothermal turbine and generator; a steam condensing system including shell and tube condenser, cooling tower and circulating water pumps; a non-condensable gas removal system; an electrical distribution system with major electrical equipment housed in a prefabricated enclosure; a Distributed Control System (DCS) including upgrades for control integration with the existing Salton Sea Units 1 - 4control systems; an overhead gantry crane for maintenance of the turbine and generator; and utilities including service water, potable water, fire water, and compressed air distribution. The silica control system includes hydrochloric acid and NORMS addition; primary and secondary reactor/crystallizers; a lime addition system; primary and secondary clarification with flocculant addition; and a silica dewatering system with filter press and solids handling equipment. The Project will receive steam and brine from existing Units 3 and 4 steam production equipment. Additional steam will be produced from the brine by the Project for generation of electric power. The remaining brine will be flashed to near atmospheric pressure generating at least 117,000 lbs/hr of steam. Both the steam and cooled brine will be delivered to a new Zinc Recovery Facility (ZRF) that is to be constructed concurrently with the Project. The Project is being designed to have a net capacity of less than 50 MW at Guarantee Point Conditions. A-1 UNIT 5 EPC CONTRACT - EXHIBIT A 2. SITE DESCRIPTION 2.1 LOCATION The Project is located at 6922 Crummer Road, Calipatria, California, near the south east corner of the Salton Sea in the Salton Sea Known Geothermal Resource Area in the Imperial Valley of Southern California. The Project site is located 8 miles north of the town of Westmoreland, California immediately south of the Salton Sea Units 3 and 4 project area. The project location is shown on the area maps and site plans included as Exhibits W and X 2.2 ACCESS Vehicle access to the site is via Crummer Road or Kuns Road. There is no rail access to the site. 2.3 TOPOGRAPHY The Site is level agricultural land. With the exception of Salton Sea Units 3 and 4 located just north of the Site the surrounding land is also level agricultural land. Elevation of the site is approximately 230 ft below mean sea level. The site is approximately 4 ft below the level of the Salton Sea. The southeast shore of Salton Sea is approximately 1 mile west of the project site. Obsidian Butte and the Salton Sea National Wildlife Refuge are located approximately 1 mile northeast of the Site. 2.4 CLIMATOLOGY California's Imperial Valley is an arid area with low annual precipitation. The area experiences high summertime temperatures and moderate winter temperatures. The irrigated agricultural lands contribute to elevated humidity in the Valley. Hydrogen sulfide, salt spray, agricultural organics and blowing dust are also present in the atmosphere. The following weather data from El Centro is representative of the Project site. Annual Average High Dry Bulb Temperature 88.4(Degree)F Annual Average Low Dry Bulb Temperature 55.6(Degree)F Annual Average Mean Dry Bulb Temperature 72.0(Degree)F Average Summer High Dry Bulb Temperature 105.7(Degree)F Average Winter Low Dry Bulb Temperature 40.5(Degree)F Extreme High Dry Bulb Temperature 120(Degree)F Extreme Low Dry Bulb Temperature 20(Degree)F Annual Average Precipitation 2.7 inches One-Day maximum Precipitation 3 inches A-2 UNIT 5 EPC CONTRACT - EXHIBIT A 3. INTERCONNECTIONS 3.1 GENERAL The Project requires numerous interconnections with the existing Salton Sea Units 3 and 4, a Zinc Recovery Facility that will be constructed concurrently with the Project, and the Imperial Irrigation District (IID) 92 kV transmission system. The Contractor is required to design, plan, coordinate, install, and test the Contractor's Work for all interconnections to the Project. The Contractor shall work with the Owner, the Owner's other contractors, IID, and any and all others designated by the Owner. Where the interconnection is with the Zinc Recovery Facility, the contractor of the facility actually using the interconnected utility or raw material will complete the interconnection. 3.2 PIPING, ELECTRICAL AND INSTRUMENTATION INTERFACES Attachment 2 provides descriptions, details and a drawing of the interties with the Project. The Contractor is responsible for engineering, detail design and installation for the interties. The ZRF Contractor will make the final intertie connections. The Contractor shall coordinate completion of design, installation, and testing of the interties with the Owner, other Contractors, or other affected Parties to minimize operational outages of existing systems and to not delay completion of the Project and other concurrent projects. 3.3 BRINE BY-PASS Contractor shall provide space on the newly installed pipeway for Owner to furnish and install a brine by-pass line around the silica control system (ref. Article 13.). The brine by-pass will consist of 2 ea. 24-inch cement lined pipes. Owner will provide to the Contractor four (4) 24-inch stainless steel isolation valves for installation at the brine by-pass tie points. 1. 4. GEOTECHNICAL INFORMATION Reference Exhibit AA for Geotechnical Reports. Kuns Road is known to contain Geocrete. Contractor's Work includes excavation and disposal in Owner supplied bins of up to 300 tons of Geocrete from Kuns Road. If Contractor requires disposal by Owner of additional Geocrete from Kuns Road excavations, Contractor will be charged $180/ton. The Contractor shall assume subsurface tile drains exist throughout the proposed Project Site. The Work should be based on taking all lines out of service that are located between the dirt retention basin and the concrete ditch. (Owner has previously taken out of service the lines located between Kuns Road and the dirt retention pond.) The remaining tile drains located south of the concrete ditch are to remain in service and drain to the existing sump (SS-16) located in the Northwest corner of this section. The lines are typically constructed of corrugated plastic pipe. A-3 UNIT 5 EPC CONTRACT - EXHIBIT A 5. BRINE AND STEAM SPECIFICATIONS The Project is a bottoming cycle facility and uses geothermal brine and steam from existing Units 3 and 4. Geothermal brine is delivered from the geothermal resource to Units 3 and 4 where High Pressure (HP) steam and Standard Pressure (SP) steam are produced in cascading flash vessels. The SP brine is then delivered to the Project where the pressure is reduced further to produce Low Pressure (LP) steam and Very Low Pressure (VLP) steam. SP steam is also delivered from Unit 3 to the Project to supplement the LP and VLP steam produced by the Project. For process condition definitions, refer to Table 5-1. The amount of steam that is produced at each pressure level is proportional to brine flow. Due to resource production limitations, the amount of SP steam that is available for the Project is limited. Varying the amount of SP steam delivered to the Project results in changing the amount of brine that is delivered to the Project for the production of LP and VLP steam. Table 5-1 provides the minimum and maximum values for SP steam flow along with the corresponding values for LP and VLP steam that will be produced from the available brine flow. Two sets of values are given for VLP steam, each at a different pressure. The Contractor's design may select the optimum pressure for VLP steam within the limits given in the table. VLP steam flow at pressures between those given in the table may be determined by interpolation. The Contractor shall design the Project to operate with steam and brine flows that are within the bounds of flows given in Table 5-1. A-4
UNIT 5 EPC CONTRACT - EXHIBIT A TABLE 5-1 STEAM AND BRINE CONDITIONS AT SEPARATORS ---------------------------------------- At Minimum At Maximum Brine Flow Brine Flow Standard Pressure (SP) Conditions into Unit 5 --------------------------------------------- Brine Flow KLb/Hr 10,757 11,472 Brine Enthalpy Btu/Lb 250 250 Brine TDS Wt% 26.45 26.45 Steam Pressure Psig 118 118 Steam Enthalpy Btu/Lb 1,203 1,203 Maximum Available Steam Flow KLb/Hr 0 140 Low Pressure (LP) Separator Outlet Conditions --------------------------------------------- Brine Flow KLb/Hr 10,232 10,913 Brine Enthalpy Btu/Lb 200 200 Brine TDS Wt% 27.81 27.81 Steam Pressure Psig 42.5 42.5 Steam Enthalpy Btu/Lb 1,185 1,185 Steam Flow KLb/Hr 535.6 571.1 Very Low Pressure (VLP) Separator Outlet Conditions at 6.5 Psig Separator Pressure ---------------------------------------------------------------------------------- Brine Flow KLb/Hr 9,776 10,426 Brine Enthalpy Btu/Lb 154 154 Brine TDS Wt% 29.10 29.10 Steam Pressure Psig 6.5 6.5 Steam Enthalpy Btu/Lb 1,163 1,163 Steam Flow KLb/Hr 472.1 503.5 Very Low Pressure (VLP) Separator Outlet Conditions at 10 Psig Separator Pressure --------------------------------------------------------------------------------- Brine Flow KLb/Hr 9,840 10,494 Brine Enthalpy Btu/Lb 160 160 Brine TDS Wt% 28.92 28.92 Steam Pressure Psig 10 10 Steam Enthalpy Btu/Lb 1,167 1,167 Steam Flow KLb/Hr 408.9 436
Note: Small differences in mass balances are due to Hydrochloric Acid injection upstream of separators and LP Scrubber drains to the VLP Separators. A-5 UNIT 5 EPC CONTRACT - EXHIBIT A The following tables give the expected analysis of the brine, SP steam, and non-condensable gas that is delivered to the Project TABLE 5-2 PROJECT INLET BRINE ANALYSIS Analysis Concentration, mg/l -------- ------------------- Ag 0.47 Al ND less than .94 As 8.5 Ba 432 Ca 218 Cu 14 Fe 897 K 17,302 Li 224 Mn 1,051 Na 75,093 Pb 98 Sb ND less than .6 Zn 377 TDS,ppm 286,850 SO4-2 29 F- 1 Cl- 195,384 Br 41 I- less than 6 TSS 1,201 NH3 487 HCO3-2 97 CO3- 0 NO3- less than 14 H2S-S 14 SiO2 678 A-6 UNIT 5 EPC CONTRACT - EXHIBIT A TABLE 5-3 PROJECT SP STEAM ANALYSIS Analysis Concentration, mg/l -------- ------------------- pH 6.7 B 16 Fe 0.06 K 1.2 Na 4.6 SO4 6 Cl, ppm 13 TDS, ppm 43 TSS, ppm 6 NH3 350 HCO- 1200 CO2- ND H2S 102 TABLE 5-3 PROJECT SP STEAM ANALYSIS Analysis Mole % -------- ------ CO2 97.7 CH4 and C2H6 0.9 H2S 1.4 N2 0.66 N2 0.15 A-7 UNIT 5 EPC CONTRACT - EXHIBIT A 6. WATER SOURCES 6.1 FIRE WATER Fire protection water for the Project shall be provided from the existing Unit 3 Fire Protection System. The Contractor shall install a perimeter fire main around the Project site. The Contractor shall connect this main to the existing Unit 3 fire main in two places to permit supplying the Project fire protection system from two separate directions. The fire main shall be designed and installed in accordance with NFPA 24. The fire main shall include stub-ups for the Project fire protection services as well as two stub-ups for the Region 1 ZRF IX facility. 6.2 POTABLE WATER The Contractor shall provide potable water to the Project from Unit 3 for use in emergency shower and eyewash stations. System design for the emergency showers and eyewashes must account for solar heating and the high local ambient temperature. Safety shower and eyewash water temperature must not exceed OSHA limits at the extreme environmental conditions. 6.3 SERVICE WATER The Contractor shall provide Service water at appropriate locations around the Project for maintenance and equipment washdown. Service water shall be provided from the Region 1 ZRF IX facility. 7. EMISSIONS Emissions limits for the Project have been established in filings with the State of California and Imperial County. The Contractor shall design and construct the Project such that emissions from the Project do not exceed those permitted by the State or County or other Applicable Laws, unless noted below. Permitted emissions limits for the Project are contained in the following permit documents. o Petition for Expedited Clearance and Jurisdictional Determination for Desert Valley/Salton Sea the Project filed with the California Energy Commission January 9, 1997 o Application for Modification and Conditional Use Permits including Environmental Information filed with Imperial County, December 1997 o Application for Authority to Construct Permit filed with Imperial County, December 1997 o Application for silica control modifications to the Project. o Permits issued for the above applications 7.1 AIR EMISSIONS 7.1.1 HYDROGEN SULFIDE The dissolved non-condensable gasses in the geothermal fluids delivered to the Project contain very small amounts of hydrogen sulfide. The non-condensable gases collect in the main condenser and are extracted and compressed by the gas removal system for release to the atmosphere with the cooling tower plume. Based on current gas analyses and permitting commitments Hydrogen Sulfide abatement is not required. A-8 UNIT 5 EPC CONTRACT - EXHIBIT A 7.1.2 PARTICULATE The only particulate emissions currently expected from the process are solids contained in the cooling tower drift. The Contractor's design shall limit cooling tower drift as specified herein. 7.1.3 VISIBLE PLUMES Steam generated in the 1st stage reactor crystallizer, up to 150,000 lb/hr, if not consumed by the ZRF will be vented directly to atmosphere. LP and VLP steam will be vented directly to atmosphere during Unit 5 startup and at part load operation. Design in all other areas shall be such that visible plumes will be kept to a minimum. 7.2 LIQUID EMISSIONS 7.2.1 STORM WATER Storm water shall be collected from the entire site and pumped to the existing Unit 3 brine pond see Attachment 2 for more information on the intertie. 7.2.2 PROCESS EFFLUENT The Owner's design returns all liquid effluent from the process to the geothermal resource. Project permits are based on this condition. The Contractor's design shall not generate any liquid effluent from the Project. 7.2.3 WASTE LIQUIDS Normal operation of the Owner's design does not generate any liquid waste. Project permits are based on this condition. The Contractor's design shall not generate any liquid waste. 7.3 NOISE EMISSIONS The Project shall be designed and constructed to operate with the least practicable noise emissions. Contractor shall guarantee that the noise levels at 3 feet from any surface of any operating Project item including valves or acoustic enclosures shall not exceed an A-weighted sound pressure level of 85dBA. When the noise contains a distinct tone and/or other distinctive audible character, the above limits shall be reduced by 5dBA. Contractor will demonstrate compliance with noise requirements specified above during the Performance Testing. 7.4 SOLIDS EMISSIONS 7.4.1.1 PROCESS EFFLUENT Except for sludge from the silica control system, the Owner's design does not generate any solid effluent from the process. Project permits are based on this condition. The Contractor's design shall not generate any solid effluent from the process, except for silica sludge. A-9 UNIT 5 EPC CONTRACT - EXHIBIT A 7.4.2 WASTE SOLIDS Normal operation of the Owner's design does not generate any solid waste. Project permits are based on this condition. The Contractor's design shall not generate any solid waste 8. DESIGN CRITERIA Refer to Attachment 1 to this Exhibit A 9. CIVIL/STRUCTURAL/ARCHITECTURAL 9.1 GENERAL Civil, structural and architectural engineering shall be performed under the direction of engineers licensed in the State of California with experience in the requirements for this highly seismic area. Copies of calculations and drawings submitted to obtain local building permits shall be provided to Owner. 9.2 CIVIL WORK CRITERIA The Site is currently under agricultural use and, as such, requires no clearing or grubbing. Excavating, backfilling, compaction, and grading shall be performed in accordance with the geotechnical report. The Contractor shall be responsible for rough grading of the complete Site, including the area for the Region 1 ZRC IX facility. Final grading of the Site will also be the responsibility of the Contractor. The battery limits for this work are shown on Exhibit W. The Site shall be graded to control runoff both during and after construction The Contractor shall determine the grades required including ditches or other diversion methods to channel the runoff. The drainage system shall be designed for a 100 year, 24 hour storm. The agricultural sumps at the Northwest corner of the Site shall be protected. Access to structures and equipment as shown on the plot plan shall be paved. The surfacing material for specific exterior areas shall be as follows: A-10 UNIT 5 EPC CONTRACT - EXHIBIT A ---------------------------------------------------------------------------- Roads Bituminous Asphalt Concrete ---------------------------------------------------------------------------- Parking Areas Bituminous Asphalt Concrete ---------------------------------------------------------------------------- Steam Turbine Area Concrete ---------------------------------------------------------------------------- Cooling Tower Apron Concrete ---------------------------------------------------------------------------- Separator Area Crushed Rock ---------------------------------------------------------------------------- Steam Treatment Area (Scrubbers, etc.) Crushed Rock ---------------------------------------------------------------------------- Aprons Around Power Distribution Center Area Crushed Rock ---------------------------------------------------------------------------- Process Equipment Containment Pads Concrete (as shown on Site Plan) ---------------------------------------------------------------------------- Switchyard Crushed Rock ---------------------------------------------------------------------------- Drainage Swales Crushed Rock ---------------------------------------------------------------------------- Other Crushed Rock ---------------------------------------------------------------------------- The Contractor shall conduct such additional geotechnical investigation and exploration as necessary for the purposes of his final foundation design and construction. A berm for flood control is to be constructed near the East, West and South boundaries of the site. The top shall be [224 ft.] below mean sea level, be 10 ft. in width across the top, approximately [2 ft.] high and the side slope shall be 3:1. Materials for erecting the berm shall be transported from off-site. Materials have been identified on land which is located on the adjacent property just South of the Unit 5 jobsite. The Owner has acquired this land and will make backfill materials available to the Contractor. Crummer Road shall also be properly graded by the Contractor to intersect with the berm at the northwest corner of the project site while maintaining the grade of the road within the requirements of the County. Roads shall be designed in accordance with the requirements specified in the Geotechnical Design Criteria. The battery limits for the Contractor's responsibility for the berm are shown on the drawings. The eastern most segment of the berm shall be blended into Kuns Road which borders the jobsite on the North. Owner will conduct a flood study as required by the Conditional Use Permit. Should structural backfill materials for foundations be required, a source must be identified. 9.2.1 ROADS AND PARKING Roads shall be provided for access to the site for personnel, delivery of goods and equipment and fire fighting vehicles. A minimum of two (2) access points to the Site shall be provided. 9.2.2 FENCING Fencing shall be provided for plant security during and after construction. Permanent fencing shall be placed on the plant boundary lines to enclose all equipment. Fencing shall be electrically grounded. Materials shall be galvanized steel with posts set in concrete. Fence fabric shall be galvanized chain link six feet high with tension wires at top and bottom. A-11 UNIT 5 EPC CONTRACT - EXHIBIT A Manually operated double swinging gates shall be provided at both plant entrances. The main gate opening shall be sufficiently wide to accommodate wide loads such as dirt haulers and truck mounted heavy cranes. 9.3 STRUCTURAL WORK CRITERIA Design for buildings and structures shall conform with minimum design live loads shown in the Uniform Building Code for a Zone 4 seismic area. 9.4 ENCLOSURES The Power Distribution Center which houses the electrical distribution equipment will consist of prefabricated building modules. Details on the requirements for these structures are given in the Specification for Power Distribution Center, listed in Attachment 6, document 17.6. 9.5 ARCHITECTURAL WORK CRITERIA The architectural design will be based on aesthetics, function and space relationships, and code requirements. The Project will be unmanned under normal operating conditions. Therefore, only functional amenities are required. There will be no locker space, toilet facilities, or washing facilities except those required for safety requirements such as eyewash and emergency showers in the areas of chemical handling such as the hydrochloric acid handling facilities. 10. MECHANICAL SYSTEMS 10.1 GENERAL The Project is a bottoming cycle flash steam geothermal power plant. Standard Pressure (SP) steam is delivered to the Project from the Unit 3 SP steam system. Brine is delivered to the Project from the Unit 3 separators. Low Pressure (LP) and Very Low Pressure (VLP) steam will be produced from the brine in cascading separators that are part of the Project. Following the very low pressure flash the brine is cooled further by flashing at near atmospheric pressure and processed to remove silica for delivery to a minerals recovery process. The power cycle uses steam at all three pressures.. 10.2 TURBINE GENERATOR The turbine generator shall be a three pressure entry, condensing design in accordance with Technical Requirements for Geothermal Steam Turbine Generator included as Attachment 6, document 10.2.1. The selected turbine generator manufacturer shall have substantial proven experience with geothermal applications. 10.3 PIPING Brine handling and steam production piping shall be designed, fabricated, installed, and tested in accordance with ANSI B31.3 Process Piping. All other piping shall be designed, fabricated, installed, and tested in accordance with ANSI B31.1, Power Piping. A-12 UNIT 5 EPC CONTRACT - EXHIBIT A V-5212 /5213/5214/5215 alloy brine and steam pipe to the LP and VLP scrubbers shall be ANSI B-31.3. Alloy pipe from SP steam to SP scrubber shall be B-31.3. Steam and drain pipe from the scrubbers to the power plant shall be B-31.1. Carbon steel drains from the LP and VLP separators shall be B-31.1. Brine lines shall be B-31.3. All inspection will be to the more stringent of B-31.1 or B-31.3 for NDE inspection and project quality control measures. Materials for piping systems shall be as shown on the Station Materials Diagram included in Attachment 6, document 8.1.1. All piping shall be in accordance with the Piping Material Specifications included in Attachment 6. 10.4 STEAM SUPPLY SYSTEMS The Project includes three steam supply systems to be designed and constructed by the Contractor. Standard Pressure (SP) steam is supplied to the Project from the existing Unit 3 SP steam header. Low Pressure (LP) steam and Very Low Pressure (VLP) steam are produced from geothermal brine that has passed through the Units 3 and 4 steam separators. The SP steam system will deliver steam from the intertie with Unit 3 to the Project turbine generator. A steam scrubber shall be installed in the SP steam system on the Unit 3 site, as close to the Unit 3 intertie as possible. Purge water will be added to the steam before it enters the scrubber to wash chlorides and other compounds from the steam. The scrubber will remove the purge water and contaminants from the steam. The steam will exit the scrubber and will be piped to a demister for a final step of moisture removal prior to delivery to the Project turbine generator. Refer to Attachment 2 for more information on the interties with existing systems. Low Pressure (LP) steam will be produced in steam separators provided and installed by the Contractor on the Project site. Purge water will be added to the steam before it enters a scrubber to wash chlorides and other compounds from the steam. The scrubber removes the purge water and contaminants from the steam. The steam exits the scrubber and is piped to the Project turbine generator. Very Low Pressure (VLP) steam will be produced in steam separators provided and installed by the Contractor on the Project site. Purge water will be added to the steam before it enters a scrubber to wash chlorides and other compounds from the steam. The scrubber will remove the purge water and contaminants from the steam. The steam will exit the scrubber and will be piped to the Project turbine generator. The steam systems shall be designed to limit the chloride concentration of the steam entering the turbine to no more than 1 ppm with the SP steam and brine analysis as specified in Section 5. Steam purity shall be tested as part of the performance tests detailed in Section 10.24 to confirm Chloride concentration of the steam entering the turbine. The SP, LP, and VLP steam systems shall each include a water wash system that is designed to spray water at up to 3% of the design steam flow into the steam system piping upstream of the steam strainers for on-line water washing of the turbine steam path. Wash water shall be supplied from the main condenser. A-13 UNIT 5 EPC CONTRACT - EXHIBIT A The SP, LP, and VLP steam systems shall each include an annubar flow element for performance testing of the Unit. Annubar differential pressure taps shall be installed so that accumulation of geothermal gas or solids can not affect readings. Upstream temperature shall be measured at two different points close together. 10.4.1 SP, LP AND VLP STEAM SCRUBBERS The SP, LP and VLP steam scrubbers shall be EGS Systems, formerly Porta-Test Systems Inc. separators. Detail design and fabrication requirements for the scrubbers are provided in Attachment 6, document 10.4-1, in the form of the specification for the existing Unit 4 steam scrubber. The SP, LP, and VLP steam scrubbers for the Project shall be designed, fabricated, tested, and installed in accordance with the technical requirements presented in Attachment 6, document 10.4.1. The SP, LP and VLP steam scrubbers shall be designed fabricated, installed, and tested in accordance with Section VIII of the ASME Boiler and Pressure Vessel Code. 10.4.2 SP, DEMISTER The SP demister shall be as manufactured by Peerless Mfg. Co. Detail design requirements for the demister are provided in Attachment 6, document 10.4-2, in the form of the specification and drawing for the existing Unit 4 demister. The SP demister for the Project shall be designed, fabricated, tested, and installed in accordance with the technical requirements presented in Attachment 6, document 10.4.2. The SP demister shall be designed fabricated, installed, and tested in accordance with Section VIII of the ASME Boiler and Pressure Vessel Code. 10.4.3 LP STEAM TO UNITS 3 AND 4 the Project shall be designed to permit the flow of LP steam to Units 3 and 4 when the Project is out of service. The steam shall flow to Units 3 and 4 through the SP steam line that connects Unit 3 and the Project and then exiting the SP steam line through a line that interties to the existing Region 1 LP steam system. See Section 3.0 and Attachment 2 for more information on the intertie. The system shall include appropriate piping, isolation valves, and controls. 10.5 AUXILIARY STEAM SYSTEMS Auxiliary steam is supplied from the SP steam header to the Noncondensable Gas Removal system and from the LP steam system to the Silica Control System and the ZRF. Auxiliary Steam System pressure to the gas removal system shall be controlled to 20 psi less than the SP steam pressure. Auxiliary steam used to supply the jets shall be metered. The material of construction shall be 2205 stainless steel downstream of the auxiliary steam strainer. The tie-point of the Aux. steam system to the SP steam system shall be isolated with a 316L SS two-piece ball valve. (with PEEK seats). Flanges on the Aux. steam line can be 316L SS raised face slip on as long as they are welded with Alloy 625 electrodes to dilute the combination alloy up. A-14 UNIT 5 EPC CONTRACT - EXHIBIT A 10.6 GAS REMOVAL SYSTEM The noncondensable Gas Removal System shall be a two (2) stage system employing three (3) parallel trains of 35%, 40% and 65% of the design conditions as specified in Table 10.6-1, that is capable of flexible and efficient operation over the entire range of expected noncondensable gas content in the steam. The system shall have maximum efficiency at the specified design conditions. The system shall be designed to operate reliably and efficiently at any gas content from the minimum conditions up to, and including, the maximum conditions as shown in Table 10.6-1. Table 10.6-1 GAS REMOVAL SYSTEM
Design Minimum Maximum Conditions Conditions Conditions Noncondensable Gas, lb/hr 1262 442 1767 Saturation vapor, lb/hr by Contractor by Contractor by Contractor Suction Pressure, in HgA by Contractor by Contractor by Contractor Discharge Pressure, psig 0.5 0.5 0.5 Atmospheric Pressure, psia 14.82 14.82 14.82 Motive Steam Pressure, psia see Sec. 10.5 see Sec. 10.5 see Sec. 10.5 Temperature, F Saturated Saturated Saturated NCG in motive steam, %wt. 0.2 0.1 0.5
Geothermal gas in the total flow to the Project shall be measured in the gas removal system. The system shall employ steam jet ejector(s) to compress the gas. Steam jet ejectors shall exhaust to a single direct contact intercondenser or aftercondenser. Multiple steam jet ejector elements, intercondensers, and aftercondensers shall be provided to permit continuous operation at design capacity with one ejector element out of service. Valves shall be installed to permit maintenance disassembly of an ejector element with the system operating at design capacity. Materials of construction and fabrication of the gas removal equipment shall be in accordance with the Station Materials Diagram and as specified in Attachment 6, document 10.6-1, Technical Requirements for Gas Removal Equipment. Steam jet ejectors shall be designed and tested in accordance with Heat Exchanger Institute (HEI) Standards for Steam Jet Ejectors. Intercondensers (and aftercondensers) shall be designed in accordance with HEI Standards. A-15 UNIT 5 EPC CONTRACT - EXHIBIT A Additional design and fabrication requirements are included in Reference 10.6.1 of Attachment 6. 10.7 CONDENSATE SYSTEM The Condensate System shall pump condensed geothermal steam from the condenser hotwell to the circulating water system and purge water system. The system shall consist of two 100% capacity vertical can type condensate pumps, piping, valves, controls, and instrumentation. Condensate flow shall be controlled to maintain proper level in the condenser. The primary flow path for the condensate shall be to the circulating water system. The system shall also supply purge water to the steam and brine handling systems and excess condensate to the Region 1 ZRF IX facility. The system shall be constructed from the materials shown on the Station Materials Diagram. 10.7.1 CONDENSATE PUMPS The designs offered shall be no less than utility grade, suitable for continuous operation at the design conditions or any other load between minimum continuous safe flow and 110% of the design capacity. Each pump shall be performance tested at the factory. The pump design offered shall be vertical shaft pump set in a suction can or barrel. The physical design and construction of the pump, motor and other accessories shall be rated for continuous duty with no cyclic limitations and no hydraulic limitations from minimum continuous flow to 110% of design capacity. As a minimum the guidelines of ASME VIII, Div. 1 shall be addressed in the design of pressure retaining parts of the assembly to ensure long term operability. The suction barrel or can shall be a fabrication designed to provide a stable suction flow to the pump. It shall be capable of a working pressure range of 0-20 psia. It shall be fitted with a vent connection at the highest point to be piped back to the condenser. The complete pump assembly of pump, thrust bearing and motor shall be protected from damage from reverse rotation by an anti-reverse rotation ratchet or design for a maximum reverse speed of 115% of design with the motor de-energized. All wetted metallic parts of the pump shall be 316L construction or compatible. Internally wetted parts shall not utilize coatings. The soleplate and above head/bend parts of the thrust bearing assembly, motor stand/support and all fasteners required for the assembly may be coated non-corrosion resistant materials such as carbon steel or other alternates. The Contractor shall provide the following documentation for the Condensate Pumps: A-16 UNIT 5 EPC CONTRACT - EXHIBIT A Performance Curves Outline, Detail, Erection and Maintenance Drawings Operation and Maintenance Manuals Vendor shop test and inspection reports Performance tolerances shall be per HIS. Purge water system shall provide non-oxygenated condensate for the following systems: o LP Separator steam wash, primary and secondary wash (continuous full cone and hollow cone nozzles) o VLP Separator steam wash (continuous full cone and hollow cone nozzles) o SP Scrubber steam wash (intermittent full cone nozzle) o Brine pump seal flush water o LP Scrubber steam wash (intermittent service) o VLP Scrubber steam wash (intermittent service) The system may be fabricated from either Type 316L stainless steel or FRP. A 20,000 gal storage FRP Storage tank shall be provided to store hotwell condensate. Pump system shall consist of a low pressure purge pump system and a high pressure purge pump system. Two 100% pumps shall be provided for each system. High pressure purge pumps may be supplied with suction pressure by the low pressure pump system. Purge pumps shall be designed for 40 gpm supply water per separator and 15 gpm of SP turbine wash. Design pressure shall be 180 psig. Additional rates for pump seal flush system shall be additive to these rates. Purge water to LP and VLP steam systems shall be designed for up to 5% of the steam rate, with normal operating conditions of 2.5%. The nozzle system shall be designed to remove contaminants from the steam, and to keep the walls of the pipe wet to prevent build up or concentration of HCl on the pipe walls. This shall be done using a full cone spray pattern to clean and de-superheat the steam, followed by a hollow cone spray pattern to keep the steam pipe walls wet. The first nozzle shall be located directly on the steam out nozzle of the horizontal separator, the second nozzle shall be on the first horizontal run of pipe. A-17 UNIT 5 EPC CONTRACT - EXHIBIT A Seal flush pumps shall be designed for 3 gpm per pump seal, with all pumps operating, including standby pumps. Design max rate per seal is 5 gpm. Provisions to supply the seals with pH 3.0 condensate shall be made. These provisions can be breakout valves and flanges to supply the seal flush system with a constant flow of 2% HCl solution for future use. Scrubber steam wash water does not require a special nozzle, but must enter the pipe through a 2" branch connection on the steam line. This will be an SE pipe spec, consisting of an isolation valve, check valve, local flow indicator, flow control valve controlled by a hand station near the nozzle area, and a downstream isolation valve. These nozzles should be located such that mixing of the water and the steam is maximized. Nominal flow rate is 30 gpm per station, on a non-concurrent basis of operation. The SP steam system shall require a Demister wash station. Nozzles for stations shall be BETE Model TF Spiral style, with 1200 deg. full cone and a 1200 deg. hollow cone. The full cone shall be placed very near to the outlet of the vessel, on the first horizontal pipe run, and the hollow cone will be place 20 ft downstream of the full cone spray. The nozzles will be made of alloy 625 or Hastelloy C. 10.8 CONDENSER AND AUXILIARIES The condenser shall be designed and manufactured to HEI Standards for Steam Surface Condensers. The condenser shall dissipate the total exhaust heat from the turbine at maximum rated capacity. The condenser shall be designed to minimize the dissolved gas content in the condensate in the condenser hotwell. The condenser shall be a one or two pass surface type unit. The condenser may be designed for multi-pressure operation. The condenser shall be complete with steam condensing zone, noncondensable gas collection and cooling section (internal or external), hotwell, transition pieces and ductwork from the turbine exhaust connections, expansion joints, baffles, vacuum breaker connection, manholes (minimum 24 in. diameter), drain connections, instrumentation and control connections, condensate pump recirculation connections, sample connections and test connections. The condenser shall be complete with all required internal distribution systems and baffles to admit without damage the steam and drains flows as specified. The condenser shall be designed to prevent local overheating from any of the specified flows. Waterboxes shall be larger than the tube hole pattern on the tubesheet. Waterboxes shall be provided with suitably sized vents and drains. Waterboxes shall be provided with lifting lugs. Each waterbox, the hotwell, and the steam dome shall be provided with at least two manholes of a minimum 24 inch diameter. Manholes shall have hinged covers. A-18 UNIT 5 EPC CONTRACT - EXHIBIT A Internals shall be free draining and self cleaning and shall avoid fouling and clogging from foreign material or deposit build up. Any internals such as nozzles or diffusers that are required to be removed for maintenance shall, along with any associated tools, be capable of fitting through the access manholes. All steam and condensate wetted parts shall be 316L, or 2205 stainless steel. Alloy 825 and Alloy 625 may be substituted for 2205. The shell shall be designed to accommodate thermal expansion without damage. The hotwell shall include separate connections for two 110% capacity condensate pumps. The hotwell shall be provided with a dirt dam and screens to retain solids in the condenser hotwell. The screens shall have openings sized to protect the condensate pumps. The exhaust ductwork shall include expansion joints at the connections to the turbine exhaust casing. The expansion joint(s) shall be rubber or shall use 2205 stainless steel bellows. The exhaust ductwork shall be designed so as to not impose unacceptable stress on the turbine casing or condenser shell. The condenser shall include a noncondensable gas (NCG) cooling section. The NCG cooling section may be either internal or a separate external vessel. If an external NCG cooling section design is selected, it may have its own cooling water inlet connection. Tube-to-tubesheet joints shall be tested in accordance with HEI Standards. No leakage shall be permitted. The condenser shell and exhaust necks shall be subjected to a water fill test to verify shell integrity. The complete condenser shall be filled with water up to the turbine exhaust connection and examined for leaks. No leakage is acceptable. The Contractor will provide the following documentation for the Condenser: Performance Curves Outline, Detail, Erection and Maintenance Drawings Operation and Maintenance Manuals Material certifications for tubes, tubesheets, and shell 10.9 COOLING TOWER The Cooling tower shall be a counterflow wet mechanical draft design employing splash fill. Film fill will not be acceptable. Balcke-Durr Trickle Bloc fill is an acceptable alternative to splash fill. The cooling tower shall comprise a number of cells modularized such that one complete cell can be taken out of service for cleaning or maintenance while the balance of the cells remain in operation. The cooling tower shall be designed and tested in accordance with the Cooling Tower Institute (CTI) standards. A-19 UNIT 5 EPC CONTRACT - EXHIBIT A The tower structure shall be ACC pressure treated Douglas fir or Redwood suitable for the 30 year design life of the project. Alternate structural materials may be offered. All structures, components, piping and valves shall be designed for full Project life. The tower shall be equipped with heavy gauge, clog-resistant splash fill, high efficiency mist and splash eliminators which hold drift losses to less than 0.002 percent of the inlet water flow. The air path shall be designed to minimize air pressure drop, water drift, and splash. All fasteners and hardware shall be ANSI 316 stainless steel. All non-metallic cooling tower components and equipment shall be resistant to deterioration from ultra-violet light. All non-metallic components shall have a flame spread rating of 25 or less per ASTM E-84. The fill shall be splash type, not film. The fill material shall be stainless steel or fire retardant plastic, with a minimum thickness of 0.9 mm. It shall have a maximum temperature limit that is compatible with all operating conditions of the Project, including dry shut down and subject to solar heat gain. Timber or asbestos fill packs shall not be acceptable. Galvanized material shall not be used on the cooling tower deck , basin, or immediate structure. All metal components shall be epoxy coated to prevent corrosion. Cable trays and conduit on the structure shall be FRP, or epoxy coated steel, or other corrosion resistant material approved by the Owner. Ladders and an access walkway suitable for inspection and cleaning of the upper level tower fill/mist eliminators in a counter flow tower shall be provided. These shall be made of non-corrosive material. Galvanized or painted steel, and wood shall not be permissible. FRP material is preferred. Nozzles shall be threaded to permit easy removal for cleaning of the nozzles and the distribution pipe work. Cleanout provisions shall be made at the end of all headers and distribution pipe work. The cooling tower shall be capable of operating with 125% of the design water flow without damage. The design of the water distribution system shall allow for 90% of the plan area of the cell to receive a water flow within 5% of the average flow. The water flow to no portion of the plan area shall deviate by more than 10% from the average. Lockable flow regulators shall be provided to equalize water flow between individual tower cells. Non-condensable gas that is removed from the condenser shall be piped to the cooling tower for release to the atmosphere with the cooling tower plume. Piping and valves shall be installed on the tower fan deck to distribute non-condensable gas to and into two adjacent fan cylinders. A-20 UNIT 5 EPC CONTRACT - EXHIBIT A The noncondensable gas distribution system shall be designed to permit isolation of one cell from the distribution system with the remainder of the system capable of distributing the design flow of non-condensable gas to the other cell. Each branch line to a fan cylinder shall include a 316 SS butterfly valve followed by a spectacle blind flange. The system shall be designed to accept and distribute the maximum expected flow of non-condensable gas. The non-condensable gas discharge system shall be fabricated with FRP or other approved piping material. Any metallic components shall be fabricated from 316L Stainless Steel. A tower wet-down system shall be provided to keep the tower structure wet during periods when the tower is out of service. The wet-down system shall be designed for a coverage of at least 0.02 gpm per sq. ft. A stairway and a caged 316 stainless steel or FRP fire escape ladder shall be provided at opposite ends of the cooling tower for access to the fan deck, including handrails and toe boards on the stairway and fan deck. Fan cylinders shall have easily removable external hatches of sufficient size to permit removal of all mechanical equipment and components. An access catwalk shall be provided. The fan deck shall be capable of supporting fan components, driving motor, gearing and shafting during overhaul. Means shall be provided of lowering such components to ground level. All doors shall be easily opened from inside the tower. Counterflow towers shall include internal platforms for maintenance access. Fans shall be balanced, multi blade, adjustable pitch (with indexing), manufactured from corrosion resistant material with airfoil profile. Fan tip speed and air velocity shall be such as to ensure operation within the allowable noise limits. Motor drives shall include vibration switches to trip and alarm on abnormal condition. Fan, gear, drive shaft and motor shall be mounted on a unitized base designed and constructed to prevent misalignment of the drive train and fan within the stack under all operating conditions. The base and any associated structural members shall be ANSI 316L stainless steel or epoxy coated carbon steel. The drive shaft shall be composite or ANSI 316L stainless steel and shall be provided with flexible couplings. Support and attached structures shall be designed to avoid blade passing frequency harmonic excitation. Belt drives shall not be used. A-21 UNIT 5 EPC CONTRACT - EXHIBIT A Gear boxes shall have an oil level sight glass, fill line, vent line, drain line, a low level switch and grease fittings connections all located outside the fan stack for convenient maintenance access. External oil pumps will not be acceptable. Gear boxes shall have a minimum AGMA service factor of 2.0 and be designed for the life of the Project; bearings shall be designed for a minimum L10 life of 100,000 hours. Adequate lubrication shall be automatically provided for windmilling. End walls and louvers shall be fire retardant. Each cell shall be separated from adjacent cells by a 1/2 hour rated fire wall extending from the minimum water level to the fan deck. The fan deck shall have a weather resistant fire retardant coating. Water risers and distribution pipe work shall be manufactured from fiber reinforced plastic, HDPE, ANSI 316L stainless steel or equivalent. Valves shall be appropriate for the pressures and temperatures of each specific application. Gate valves shall not be used for throttling in any critical service. The depth of the cooling tower basin shall include 1 ft for sludge accumulation. The basin shall be designed to allow sufficient freeboard above the High-High operating level to contain the water contained in the distribution system and fill without overflowing. A concrete mat shall extend 12 ft beyond the edge of the basin wall in all directions. The mat shall be sloped to drain to a sump. The sump shall drain to the storm water system. The water distribution system shall be subjected to a water fill leak test, or appropriate hydrostatic test, to the top of the inlet overflow pipe. No leakage will be permitted. The Contractor will provide the following documentation: Completed Equipment Data Sheets Performance Curves Outline and Detail Drawings Seismic Analysis Report Operation and Maintenance Manuals 10.10 MAIN COOLING WATER SYSTEM The Circulating Water System pumps cooling water from the cooling tower basin to, and through, the main condenser and returns the water to the cooling tower distribution system. The system is comprised of circulating water pumps, piping, valves, specialties, controls, and instrumentation. A-22 UNIT 5 EPC CONTRACT - EXHIBIT A 10.10.1 CIRCULATING WATER PUMPS The circulating water pumps shall be motor driven vertical wet pit pumps. The pumps shall be installed in a concrete structure that is an extension of the cooling tower basin. Each pump shall be performance tested at the factory. The designs offered shall be no less than utility grade, suitable for continuous operation at the design conditions or any other load between minimum continuous safe flow and 110% of the design capacity. The physical design and construction of the pump, motor and other accessories shall be rated for continuous duty, no cyclic limitations and no hydraulic limitations from minimum continuous flow to 110% of design capacity. The complete pump assembly of pump, thrust bearing and motor shall be protected from damage from reverse rotation by an anti-reverse rotation ratchet or design for a maximum reverse speed of 115% of design with the motor de-energized. A-23 UNIT 5 EPC CONTRACT - EXHIBIT A The pump casing shall be epoxy coated ductile iron. All other wetted metallic parts of the pump shall be 316L construction or compatible. Internally wetted parts shall not be coated. The soleplate and above head/bend parts of the thrust bearing assembly, motor stand/support and all fasteners required for the assembly may be coated non-corrosion resistant materials such as carbon steel or other alternates. The Contractor will provide the following documentation for the Circulating Water Pumps: Performance Curves Outline, Detail, Erection and Maintenance Drawings Operation and Maintenance Manuals Vendor inspection and pump test reports Performance tolerances shall be per HI Standards. Vibration acceptance criteria shall be in accordance with half of the field allowable levels in HEI Standards. 10.10.2 PUMP INTAKE STRUCTURE The pump intake structure shall accommodate the circulating water pumps and the auxiliary cooling water pumps. The circulating water pumps shall be segregated from the auxiliary cooling water pumps to permit de-watering of the circulating water pump intake while the auxiliary cooling water pumps remain in service. The pump intake structure shall be designed in accordance with HI Standards. The intake structure shall be designed to prevent the formation of vortexes in the water flowing to the pumps. Removable stationary screens shall be provided. The screens shall have 3/8 inch square openings and shall be fabricated from Type 316L stainless steel. The intake structure shall include two sets of slots for the installation of a screen or stop logs. One spare screen and a complete set of stop logs shall be provided. All necessary structure and lifting apparatus for the screens and stop logs shall be provided. A concrete pad shall be installed adjacent to the screen well to allow laydown and cleaning of the screens. The lifting apparatus shall allow moving the screens between the screen well and the laydown pad. 10.10.3 PIPING The system shall be constructed of fiber reinforced plastic (FRP). Buried pipe work shall be FRP. This buried pipe work shall be laid, bedded in, and back filled with clean sand of a depth recommended by the manufacturer but not less than 18 inches. Special care shall be taken with the sub-base beneath trenches for FRP pipe work to ensure that the piping is installed in cut material. Where this is not possible, all materials used shall be structural fill compacted to ensure that differential settlement causing potentially damaging shear forces on the buried pipe work is avoided. Great care shall be taken when back filling to ensure that stones and other sharp objects are excluded from the back fill material and that compaction equipment is not allowed to impact on the pipe. Where above ground pipe work is FRP material, it shall be suitably supported in accordance with manufacturer's A-24 UNIT 5 EPC CONTRACT - EXHIBIT A requirements and protected from damage from impact or other accidental causes. Pipe joints shall be made only by suitably qualified and experienced tradesmen to an approved procedure. Joining and repair procedures for FRP piping shall be developed by the Contractor and included in the documentation delivered to the Owner. Special tools for the repair of the piping during the life of the Project shall be provided. Transitions between stainless steel and FRP shall be accessible and above grade. Manway access shall be provided to all cooling water piping 24 inch diameter and greater. The manway shall be installed with suitable backing plates to reduce the impact on hydraulic losses in the piping system. 10.11 AUXILIARY COOLING WATER SYSTEM The auxiliary cooling water system shall pump water from the cooling tower basin to, and through coolers for plant auxiliary equipment and return the water to the cooling tower distribution system. The auxiliary cooling water system shall serve the gas removal system intercondensers, aftercondensers, the turbine lube oil coolers, generator air coolers, the waste heat exchanger, and other services as required. The system shall be comprised of two 100% capacity auxiliary cooling water pumps, heat exchangers, piping, valves, specialties, controls, and instrumentation. 10.11.1 AUXILIARY COOLING WATER PUMPS The auxiliary cooling water pumps shall be motor driven vertical wet pit pumps. The pumps shall be installed in a concrete structure that is an extension of the cooling tower basin. Each pump shall be performance tested at the factory. The designs offered shall be no less than utility grade, suitable for continuous operation at the design conditions or any other load between minimum continuous safe flow and the 120% of the design capacity. The pump design offered shall be a vertical shaft pump. The equipment will be located in a seismically active area. Mechanical integrity is to be maintained during an event. The physical design and construction of the pump, motor and other accessories shall be rated for continuous duty, no cyclic limitations and no hydraulic limitations from minimum continuous flow to 120% of design capacity. The complete pump assembly of pump, thrust bearing and motor shall be protected from damage from reverse rotation by an anti-reverse rotation ratchet or design for a maximum reverse speed of 115% of design with the motor de-energized. A-25 UNIT 5 EPC CONTRACT - EXHIBIT A The pump casing shall be epoxy coated ductile iron. All other wetted metallic parts of the pump shall be 316L construction or compatible. Internally wetted parts shall not use coatings. The soleplate and above head/bend parts of the thrust bearing assembly, motor stand/support and all fasteners required for the assembly may be coated non-corrosion resistant materials such as carbon steel or other alternates. The Contractor shall provide the following documentation for the Auxiliary Cooling Water Pumps: Performance Curves Outline, Detail, Erection and Maintenance Drawings Operation and Maintenance Manuals Vendor inspection and pump test reports 10.11.2 PIPING The system shall be constructed of fiber reinforced plastic (FRP) or Type 316L stainless steel pipe. 10.12 BRINE HANDLING AND INJECTION SYSTEMS The brine handling and injection systems for Units 3 and 4 will be modified by the Contractor as part of this Project. Brine from Units 3 and 4 will be redirected to the Project for additional steam production and cooling. The brine will then be delivered to the Region 1 Zinc Recovery Facility. From there the brine will be pumped to the injection wells for return to the geothermal resource. The modifications to the brine handling and injection systems must be planned and coordinated with the Owner in accordance with Section 4.18 of the Contract, to minimize operational outages at Units 3 and 4. The Contractor shall, to the maximum extent possible, schedule the intertie work on the brine handling and injection systems to occur during planned system outages. Refer to the attached Intertie Document Attachment 2 for additional information on the interties with existing systems and facilities as well as concurrent new construction by Others. Brine from the existing brine injection booster pumps will be rerouted to, and through, two 60% capacity Low Pressure (LP) steam separators installed in parallel, two 60% capacity Very Low Pressure (VLP) steam separators installed in parallel. The brine will then be piped to the silica control system. Brine from the silica control system will be pumped by one of two new 100% minerals recovery feed pumps to the Region 1 ZRF IX facility within a guaranteed temperature range. The brine exiting the ZRF will be delivered to three new 60% capacity brine injection booster pumps and then to the three existing, but relocated, 60% capacity brine injection pumps. New discharge piping from the brine injection pumps will connect with the existing brine injection system piping. 10.12.1 BRINE INJECTION BOOSTER PUMPS (EXISTING P-3210A/B/C) It is intended to use the three existing brine injection booster pumps as-is and in their current location. However the Contractor must evaluate the required hydraulic performance for the pumps. Any required changes to the pump and/or driver to accommodate the revised operating conditions shall be completed A-26 UNIT 5 EPC CONTRACT - EXHIBIT A by the Contractor. Design details of the existing pumps are included in Attachment 6, document 10.12-3. Refer to the Intertie Document included in Attachment 2 for more information on the interties with existing equipment and systems. 10.12.2 LOW PRESSURE AND VERY LOW PRESSURE STEAM SEPARATORS Two 60% capacity LP steam separators and two 60% capacity VLP steam separators shall be provided by the Contractor. Technical requirements for the LP and VLP steam separators are included in Attachment 6, document 10.12-1, in the form of the specification for the existing Unit 4 steam separator. The LP, and VLP steam separators for the Project shall be designed, fabricated, tested, and installed in accordance with the technical requirements presented in Attachment 6 and shall be similar to the Unit 4 SP steam separator shown on the drawings included as Attachment 6. The separator design including the internal vortex clusters shall be designed by EGS Systems, formerly Porta-Test Systems, Inc., Houston Texas. The internals shall be designed to be fully removable, and shall be constructed of Alloy 625, or Hastelloy C-276. Minimum required thickness shall not be less than 1/8" thick for the tubes. The vessel OD, seam to seam and, vessel support spacing shall be the same as the Unit 4 vessels. VLP vessel height above grade shall be sufficient to drain to the 1st Stage Reactor vessel (V-5216) without cavitation. The LP and VLP steam separators shall be designed fabricated, installed, and tested in accordance with Section VIII of the ASME Boiler and Pressure Vessel Code. Over-pressure protection shall be designed and installed in accordance with Section 8 and ANSI B31.3. 10.12.3 ZINC RECOVERY FEED PUMPS Two 100% capacity motor driven zinc recovery feed pumps shall be provided to deliver cooled brine from the silica control system outlet, through the ZRF to the suction of the new brine injection booster pumps. Each pump shall be performance tested (including an NPSH test) at the factory. Pumps shall be capable of operating continuously over their full operating range without overheating, cavitating, excessive noise or vibration, surging or instability when operating in single or in parallel with other pumps. Pumps shall be selected for maximum efficiency at the design condition and shall have a head/flow curve that rises steadily from rated flow to shut off. The new zinc recovery feed pumps shall meet the technical requirements in the specification for the existing brine injection pumps and brine injection booster pumps. The specification for the existing brine injection pumps and brine injection booster pumps is included in Attachment 6 document 10.12-3. The Contractor will provide the following documentation for the Zinc Recovery Feed Pumps: Performance Curves Outline, Detail, Erection and Maintenance Drawings Operation and Maintenance Manuals A-27 UNIT 5 EPC CONTRACT - EXHIBIT A Vendor shop test and inspection reports 10.12.4 BRINE INJECTION BOOSTER PUMPS (NEW) Three 60% capacity motor driven injection booster pumps are required to receive the brine exiting the ZRF and increase the fluid pressure to meet the NPSH requirements of the existing P-3211A, B, and C brine injection pumps and limit the power consumption of the brine injection pumps to approximately 85% of the rated power at the injection pump rated capacity. Each pump shall be performance tested at the factory. Pumps shall be capable of operating continuously over their full operating range without overheating, cavitating, excessive noise or vibration, surging or instability when operating in single or in parallel with other pumps. Pumps shall be selected for maximum efficiency at the design condition and shall have a head/flow curve that rises steadily from rated flow to shut off. The new brine injection booster pumps shall meet the technical requirements in the specification for the existing brine injection booster pumps and brine injection booster pumps. The specification for the existing brine injection pumps and brine injection booster pumps is included in Attachment 6, document 10.12-3. The Contractor will provide the following documentation for the Brine Injection Booster Pumps: Performance Curves Outline, Detail, Erection and Maintenance Drawings Operation and Maintenance Manuals Vendor shop test and inspection reports 10.12.5 BRINE INJECTION PUMPS (EXISTING P-3211A, P-3211B, AND P-3211C) The three 60% capacity horizontal split case brine injection pumps currently installed in the Units 3 and 4 brine injection system are to be relocated as part of this project. These pumps are motor driven with variable frequency drives (VFD) to control pump output. Power and control feeds for these pumps shall remain from Unit 3, unless changed by Owner in a Change in Work under Section 17.2 of the Contract. The VFD equipment will remain in its present location. The current pump installation includes vibration monitoring equipment. This equipment is not required at the new location. This equipment shall be dismantled and disposed of by the Contractor. Design details and pump performance curves of the existing pumps are included in as Attachment 6, document 10.12-3. Recommendations from Flowserve for the new pumps are also included in Attachment 6 document 10.12.3. Refer to Intertie Document, Attachment 2, for more information on the interties with existing equipment and systems. 10.12.6 PRESSURE RELIEF AND BRINE DUMP SYSTEM Two Atmospheric Flash Tanks (AFT) will serve as steam relief for the brine handling system. These shall be similar in design to the Unit 3 AFTs TK-301 and TK-302. Drawings of the Unit 3 AFTs are A-28 UNIT 5 EPC CONTRACT - EXHIBIT A included as Attachment 6, document 10.12-4. Inlet nozzles shall be provided for the rupture disc steam relief system. These tanks will drain either to a site drainage sump or vessel T-5203. The nozzle configuration shall be from top to bottom as: 1. Low pressure vessel steam relief 2. Very low pressure brine relief Design conditions shall be for 225 (Degree)F and 1 psig positive pressure. Vessel drain shall be a 24" diameter nozzle of alloy 625 or Hastelloy C grade material. This drain nozzle shall project 24 inches from the bottom of the cone, and shall be flush on the inside of the cone. The nozzle flange may be either a Van-Stone type or a 150 lb. 316L Raised Face Slip On welded with an electrode of equal alloy to the nozzle material. Vessel cone shall be roll clad with 0.08" nominal thickness Type 2205 stainless steel. Vessel body shall be of SA 516 Grade. 70, vessel draft tube and stack shall be of SA 516 Grade 70. The brine/steam inlet nozzle box shall be SA 516 Grade 70. Vessel design shall be meet API standards for tanks, and ASME Section VIII for vessel weld design and inspection standards where applicable. The carbon steel vessel body of the AFT can be made of3/4" SA 516 grade. 70. A-36 will not be allowed for any component of the AFT. 10.12.7 BRINE PIPING Brine transport piping shall be cement lined piping designed, fabricated, and installed in accordance with the Owner's specification for cement lined piping included as Attachment 6, document 10.12-5. The proposed and preferred arrangement for the brine piping at the steam separators is shown in Attachment 6, document 10.12-6 10.12.8 BRINE SERVICE TANK EFFLUENT PUMPS (RELOCATED P-323A, P-323B) The brine service tank effluent pumps shall take suction from the brine service tank. Two pumps shall be installed in parallel. The pumps shall be the existing P-323A and P-323B currently installed at Unit 3. The pumps shall be relocated to the Project area by the Contractor. Details of the existing pumps are included in Attachment 6, document 10.12-7. 10.13 FIRE PROTECTION SYSTEMS The fire protection systems for the Project shall include an underground fire main, yard hydrants and hose houses, monitors around the perimeter of the cooling tower, automatic sprinklers for the turbine generator and auxiliary equipment, risers for automatic sprinklers in the ZRF, automatic spray system for the main step-up transformer, and a complete fire detection and alarm system. The fire protection system shall be designed, installed, and tested in accordance with the NFPA Codes. The systems shall include the features specified herein as a minimum. The Contractor shall obtain approval from the local Authority having jurisdiction for the complete fire protection system design and installation. Documentation of test results and approval by the Authority having jurisdiction shall be submitted to the Owner. A-29 UNIT 5 EPC CONTRACT - EXHIBIT A The Project fire protection system shall be an extension of the existing Unit 3 system. The Unit 3 system will deliver 2500 gpm at 110 psig at the two connections with the Project fire protection system. The Contractor shall design the Project fire protection system to provide a minimum pressure of 95 psig at the stubups for the Region 1 ZRF and 90 psig anywhere else in the system while the system is delivering the design flow. 10.13.1 UNDERGROUND MAIN An underground main shall be installed around the perimeter of the Site in accordance with NFPA 24. The main shall be an extension of the existing fire water main surrounding Unit 3. The Project fire main shall connect to the existing system at two independent locations. The Contractor shall coordinate the time for completing the interties with the Owner to schedule and minimize system down time. Refer to the Intertie Document included as Attachment 2, for more information on the interties. Buried and sub-surface carbon steel pipe shall be wrapped and coated externally for corrosion resistance. Non-metallic pipe is permitted, but design consideration must take into account surface loads on the above ground area, and settlement potential of the pipe. Fire hydrants and hose houses shall be located at suitable locations around the site. Hydrant locations shall permit full coverage of the protected areas with 75 ft long hoses. Threaded connections shall conform to the local standards. Monitor stations shall be installed around the cooling tower that provide complete coverage of the cooling tower. 10.13.2 FIRE PROTECTION SYSTEMS The turbine generator lube oil system, including the turbine and generator bearings shall be protected with an automatic sprinklers and/or water spray systems designed and installed in accordance with NFPA 13 and NFPA 15. The main step-up transformer shall be protected with an automatic water spray system designed and installed in accordance with NFPA 15. Two independent stub-ups shall be provided for fire protection in the ZRF. The ZRF fire protection systems will be designed and installed by others. Electrical equipment buildings shall be monitored with a smoke detection system. A central fire protection control panel shall be provided and installed in the Unit 3 control room with relevant alarms indicated on the DCS. The fire protection control panel shall monitor and alarm the complete the Project fire protection system. The fire detection and monitoring systems shall be designed and installed in accordance with NFPA 72D and 72E. 10.14 POTABLE AND SERVICE WATER SYSTEMS Potable water for the Project shall be delivered from an Intertie with Unit 3. Service water for the Project shall be supplied from the Region 1 ZRF. Refer to the Intertie Document in Attachment 2for additional information on the interties. A-30 UNIT 5 EPC CONTRACT - EXHIBIT A Potable water shall be delivered to safety showers and eyewash stations at all locations in the Project where acid or other hazardous chemicals are used. The potable water system shall also provide water to the Region 1 ZRF for an emergency shower and eyewash station. The Unit 3 potable water supply has insufficient capacity to support operation of a safety shower. The Contractor's design shall include sufficient water storage and pump capacity to support simultaneous operation of two emergency showers. The Contractor's design for the water supply to the safety showers and eyewashes shall account for the very high ambient temperatures at the site. Safety shower and eyewash water temperature must not exceed OSHA limits at the extreme environmental conditions. Service water hose stations shall be provided at locations around the plant site for maintenance, cleaning, and washdown. Along with locations for general maintenance service water shall be available at the following locations: o Gas removal equipment area o Turbine crane lift bay grade level o Condensate pumps o Cooling tower stationary screen cleaning area o Steam separators o Silica control system o Acid storage and distribution areas o Acid injection locations o Supply to ZRF (see attached Intertie document) 10.15 COMPRESSED AIR SYSTEM 10.15.1 SYSTEM REQUIREMENTS The Project shall receive compressed air from the Region 1 ZRF. Refer to the Intertie Document included as Attachment 2 for more information on the interties. 450 SCFM of oil-free air at 100 psig air will be supplied from Region 1 ZRF. The Contractor shall provide air filtered to 10 microns, and dried to -40(Degree)F dew point for instrument and control services within the Project, Materials of construction for the air distribution system shall be either galvanized pipe or 304L stainless steel. A-31 UNIT 5 EPC CONTRACT - EXHIBIT A Service air shall be supplied to the Project from the ZRF compressed air system. The service air system shall be automatically isolated from the compressed air system to maintain a minimum pressure of 90 psig in the instrument air system. Service air shall be available at various locations around the Project including, but not limited to: o Turbine deck o Gas removal equipment area o Turbine crane lift bay grade level o Condensate pumps o Stationary screen cleaning area o Brine and Steam separators o Filter press area o Brine injection pumps o Acid injection locations o Primary and secondary clarifiers 10.16 COOLING TOWER BLOWDOWN 10.16.1 SYSTEM REQUIREMENTS The cooling tower blowdown system pumps water from the cooling tower basin to the existing injection system. The system maintains a set level in the cooling tower basin. It is intended to limit the cooling water system to 20 cycles of concentration by controlling makeup to the cooling tower. The cooling tower blowdown system shall consist of piping from the circulating water system to the existing Unit 3 injection system, valves, controls, and instrumentation. Refer to the attached Intertie Document included as Attachment 2 for more information on the intertie with the existing injection system. 10.17 HEATING, VENTILATION, AND AIR CONDITIONING Heating, ventilation and air conditioning shall be provided for the electrical equipment buildings. The system shall be sized to maintain design conditions within the electrical equipment building with the ambient conditions described in Section 4.4. A programmable control system shall be installed for the control of the HVAC in a stable and automatic manner. The control system installed shall have a temperature fault alarm on the site DCS system A system graphic shall be provided for the HVAC system. The HVAC system shall be stand alone with no water use from the plant system. The HVAC control system shall be operated locally from the PDC. A-32 UNIT 5 EPC CONTRACT - EXHIBIT A Electrical control IC cards shall not be mounted on any ductwork or any other piece of equipment directly attached to rotating equipment. 10.17.1 TEMPERATURE CONTROL Provide an air conditioning package to ensure the room temperature outside any electrical cabinets does not exceed 95(Degree)F under all operating conditions. Heating is not required in power distribution center. 10.17.2 PARTICULATE FILTRATION 5 micron filters shall be provided on air supplies to all rooms requiring air conditioning. 10.17.3 PRESSURIZATION All electrical rooms shall be rendered free of air leakage and be pressurized with the equivalent of two air changes per hour minimum of filtered and purified air. Air lock doors shall be provided on all equipment rooms. 10.18 EQUIPMENT AND FLOOR DRAINS Equipment and floor drains shall be installed to collect normal leakage, maintenance drain and cleaning flows, and other liquids. The equipment drain system shall direct all drain flows to an oil-water separator(s) for processing. Out flow from the oil-water separator(s) shall de directed to Unit 3 brine pond. Oily liquids will be periodically pumped from the oil-water separator(s) for disposal off site. All surface drains for brine and other process fluids will be of corrosion resistant material. Drains in the brine process area will be a minimum of 8" in width and have removable covers for washdown and clean out. A storm water system shall be installed to collect, detain and dispose of water from a 100 year storm. A 100 year storm is 3 inches of rain in one hour, and 3 inches of rain in 24 hours. The storm water system shall also receive storm drains from the Region 1 ZRF. Storm water shall be directed to the North-West corner of the site for detention and shall be pumped to the Unit 3 brine pond. 10.19 WATER TREATMENT SYSTEMS AND WATER MAKEUP 10.19.1 COOLING TOWER WATER TREATMENT SYSTEM The Contractor shall provide a concrete pad with spill containment, 110 v, single phase power, and a safety shower for a cooling tower water treatment system. The system shall be designed by Nalco. The system shall be designed to meet the requirements presented in Attachment 6, document 10.20-1. 10.19.2 COOLING TOWER MAKEUP WATER Cooling tower makeup water for the Project will originate from the condensate system (primary) and from the service water intertie with the Region 1 Zinc Recovery Facility (secondary). Refer to the Intertie Document included as 2 for more information on the interties. A-33 UNIT 5 EPC CONTRACT - EXHIBIT A 10.20 CHEMICAL FEED SYSTEMS Reliable operation of the chemical feed system is critical to the "pH Mod" process. The chemical feed systems shall be designed with 100% installed spare capacity and automatic transfer to spare equipment upon the failure of any active component in the system. The automatic transfer capability shall be verified during Mechanical Completion Tests (Chemical dosing system) 10.20.1 NORMS INJECTION SYSTEM The NORMS injection system shall be designed to receive, store, transport, dilute, and inject NORMS solution (Nalco 1387 scale inhibitor) into the brine. Refer to Attachment 6, document 10.21-1 for MSDS information on the NORMS solution The system shall consist of a storage tank with liquid tanker unloading station, tank fill pump, two 100% capacity feed pumps, inline water dilution and mixing equipment, surge tank, two NORMS metering pumps for injection into the LP brine, three 100% capacity NORMS metering pumps for injection into the VLP brine, piping, valves, and specialties. The metering pumps shall be arranged with one pump for injection into the LP brine, one pump for injection into the VLP brine, and one common spare pump. Injection devices (quills designed by the Owner) for NORMS shall be located just upstream from the LP separator LCV and the VLP separator LCV. A spool piece with provisions for a future injection nozzle shall also be installed downstream from the VLP separator for future use including an isolation valve and a pipe cap. Detail drawings of the Owner's injection device are included as Attachment 6, document 10.21-2. The system shall include provisions for pump calibration and flow rate verification down stream of the NORMS metering pumps. Flow measurement data and alarms shall be sent to the DCS. The NORMS storage tank shall be FRP or other suitable material. 10.21 HYDROCHLORIC ACID INJECTION SYSTEM The "pH Mod" process employed for Units 3 and 4 requires the addition of hydrochloric acid to the brine to prevent the formation of silica scale. The existing system shall be modified and expanded to store, dilute, deliver, meter, and inject hydrochloric acid into the brine handling system at Units 3, 4, and 5. Reliable operation of the chemical feed system is critical to the "pH Mod" process. Failure of the chemical injection system will result in significant scale formation in the brine handling system. Damage to the injection wells will result if the HCl addition is not performing to specified requirement for correct HCl dosage and reliable operation. NO LAPSE IN SYSTEM OPERATION CAN BE TOLERATED. THIS SYSTEM MUST WORK AT 100% RELIABILITY. POWER SHALL BE ON A DIESEL GENERATOR BACK-UP BUS. The chemical feed systems shall be designed with 100% installed spare capacity and automatic transfer to spare equipment upon the failure of any active component in the system. The automatic transfer A-34 UNIT 5 EPC CONTRACT - EXHIBIT A capability shall be verified during pre-operational testing of the chemical feed system. The Contractor's design shall include space for future redundant acid piping. Modifications to the existing system include the addition of two new 32% HCl storage tanks, two 100% capacity 32% HCl supply pumps, dilution equipment, one dilute (2%) HCl storage tank with 90,000 gallon storage capacity, two dilute HCl standard pressure pumps, and two 100% capacity dilute HCl high pressure pumps. The total HCl storage capacity (32% plus dilute) shall be sufficient for 3 days of normal operation. The hydrochloric acid injection system requires modification of the existing hydrochloric acid injection systems at Units 3 and 4 for the injection of suitable amounts of dilute hydrochloric acid in lieu of the 32% acid currently used. The Contractor may use any existing acid system components or piping in the new system provided the existing components do not impair the operability or reliability of the system. The system shall include flow measurement and pressure monitoring at each injection point. Flow measurement data and pressure alarms shall be sent to the DCS. The Owner has developed a hydrochloric acid injection device that has proven successful at Units 3 and 4. The Project brine handling system shall use injection devices of the same design. The hydrochloric acid injection devices for the brine handling system will be provided by the Owner for installation by the Contractor. Detail drawings of the Owner's hydrochloric acid injection device are included as Attachment 6, document 10.22-1. 10.22 INSULATION Contractor shall insulate all brine, steam and other hot and cold piping, equipment piping and vessels provided as required for thermal energy conservation and/or personnel protection. Insulation design shall make adequate provision for differential expansion between the piping and the insulation jacketing. Standard insulation thickness for steam and brine pipe for thermal heat loss protection shall be 2". All removable spool pieces, pipe below 6 ft in elevation, and pipe with in personnel access where it is likely to get stepped on or walked on will be calcium silicate. Fiberglass tank wrap style is acceptable for carbon steel steam lines which are not removable. All alloy steam and brine pipe shall be considered removable. Calcium silicate shall be used on all insulated piping within personnel access which is likely to be stepped on or walked on. Calcium silicate shall be used on all alloy piping. Asbestos insulation is not acceptable anywhere within the Project. Fiberglass insulation may be used on carbon steel steam piping. Insulation fitted to stainless steel shall be chloride free. Insulation for personnel protection shall meet requirements for maximum exterior casing temperatures and shall be applicable for all equipment within personnel access and not insulated for energy conservation. In general, no surface that can be touched as part of normal operating or maintenance activities shall exceed 150(Degree)F. Insulation for cool piping shall be provided to prevent "sweating" and for energy conservation. A-35 UNIT 5 EPC CONTRACT - EXHIBIT A All insulation shall be covered with aluminum jacketing strapped with stainless steel strapping. Aluminum cladding is used over piping insulation, minimum cladding thickness shall be 0.020 in for piping 10" diameter and less and 0.025 in for piping greater than 10" diameter. Banding shall be on 12" centers with 3/4" 316L painted SS bands. Paint shall match existing Region I color scheme. All elbow gores shall be fastened with stainless fasteners, and sealed with high temperature silicon. Cut-outs for nozzles, pipe shoes, etc., will also be sealed and fastened as required to prevent liquid intrusion. 18" of clearance is required on each side of a flanged connection to allow for air equipment to be used without damaging the insulation. These areas will be insulated with 1" nominal thickness removable soft insulation jacketing of the type currently in use at Region I. The Contractor shall coordinate with the Owner and shall provide at locations as instructed plugs in the insulation to allow subsequent implementation by the Owner of an NDE inspection program incorporating ultrasonic thickness testing of pipe wall thickness. The plugs shall allow ready removal to enable inspection and shall ensure that moisture does not enter the insulation when closed. The following shall not be insulated if in areas not accessible to personnel during normal operation: o Valves, flanges and in-line instruments with surface temperatures below 220(Degree)F o Intermittently used plant drains o Steam trap discharge piping o Pipe, ducts and vessels engaged in the conveyance of hot fluids and gases to waste (indoor: intermittent use, outdoor : intermittent or continuos use) o Lifting lugs, clips and hangers shall be left free of the lagging and cladding o The upper part of valve gland packing shall not be insulated Cladding for valves and flanges shall be in two halves to facilitate maintenance without disturbing adjacent insulation and cladding. Outdoor clad flat horizontal surfaces shall be cambered to shed water. Cladding shall be designed to prevent ingress of water and dirt. Removable insulation blankets are preferred for flanges, valves, strainers and in-line instruments for indoor or covered applications. 11. ELECTRICAL SYSTEMS 11.1 GENERAL 11.1.1 SYSTEM SUMMARY The Generator and electrical systems for this plant shall produce electrical power for use within the Project, for the Owner's Zinc Recovery Facility just south of the Power Generating Facility, and 49MW for delivery to third parties via transmission by the Imperial Irrigation District (IID) which includes power for the Owner's mineral processing facilities near the Hoch and Vulcan plants. Electrical power will be produced by an electrical generator driven by a geothermal steam turbine at 3600 A-36 UNIT 5 EPC CONTRACT - EXHIBIT A rpm. Its power will be delivered to the nearby 92 kV switchyard by way of a step-up transformer and a series of circuit breakers and switches as shown on the one-line diagram. Power to start the Project will be fed through a tie to the13.8 kV bus of Unit 3 which can receive its power from either Unit 3 or Unit 4. The Project will also be connected such that it can be started via back-feed from the IID 92 kV system. The Contractor shall furnish and install a new 13.8 kV circuit breaker on Unit 3 13.8 kV Bus ESC SWGR-301 to tie the Project to Unit 3. This will include extending the existing bus and installing a metal-clad cubicle complete with a 1200 amp circuit breaker, instruments, relays, controls and other accessories, as required. The Project will be synchronized to the IID system as follows: 1. Circuit Breakers 52-12, 52-13, 52-14, 52-15 and 52-21 (see One-Line Diagram will be closed. Breakers 52-10 and 52-11 will be open. 2. Auxiliary equipment for the Project will be started and put into operation using power fed from the Unit 3-4 13.8kV bus. 3. When the auxiliary equipment is running and stable, the Project Turbine will be brought to speed, the Generator excitation system energized and the Project will be synchronized to the 13.8 kV bus across Circuit Breaker 52-11. Circuit Breaker 52-11 will then be closed. 4. Auxiliary power will then be picked up on the Project T-G and Circuit Breaker 52-14 will be opened. 5. When stable operation has been achieved, the Project will be synchronized to the IID System across Circuit Breaker 52-10. Circuit Breaker 52-10 will then be closed. 6. Breaker 52-10 will be designed to open, and breaker 52-14 will be designed to close, in the event of a turbine trip. Power for internal plant usage shall be taken from the generator output at 13.8 kV through four unit auxiliary transformers to a single 4.16 kV bus and three 480 V buses. Transformers will be sized to carry the plant running load. In general, distribution equipment for the Project including 13.8kV switchgear, 4.16kV switchgear, Motor Control Centers, UPS System, DC System and the DCS I/O and logic cabinets will be housed in an atmospherically controlled modular Power Distribution Center (PDC) located adjacent to the Turbine Building. No electric mimic panel will be installed for the Project. The following equipment shall be controlled from the DCS: o All 13.8 kV breakers o 92 kV transformer tap changer A-37 UNIT 5 EPC CONTRACT - EXHIBIT A o Generator voltage regulator o Generator synchronization o Substation and switchgear metering The Zinc Recovery Facility will be powered from the Project 13.8 kV bus. Breaker 52-15 shall be furnished and installed to meet this requirement, and the feeder shall be able to carry approximately 2,400 kVA the Project. A UPS system will be furnished for critical plant loads. The station battery shall provide DC power to emergency lube oil pump, switchgear control and other emergency loads. Vital power will be fed at 4,160 volts from a diesel-generator connected to the 4,160 V bus of the Project, through the 4,16 kV-480V transformer XF-04 to MCC-03. Vital power supplied from the Project Bus MCC-03 is required for such loads as selected acid, norms and silica control equipment the UPS and DC system battery chargers, and other critical loads. Some loads such as the acid system pumps and valves will be connected directly to the Unit 3 vital bus, ESE-MCC306. The Contractor shall be responsible for installing the necessary feeder breakers and contactors to the existing MCC306 and shall install cables to the loads from Unit 3. The Contractor shall cooperate with the Owner to schedule the Unit 3 work at a time when Unit 3 is out of operation for scheduled maintenance. Motors larger than 200 hp will be fed from the 4.16 kV bus. Motors and other loads larger than 0.5 hp (or 500 watts) but no larger than 200 hp will be fed from the 480 volt system. Small loads less than 0.5 hp will be fed from the 120/208 V system. 11.1.2 MATERIAL AND EQUIPMENT All material and equipment shall be designed, manufactured, tested, installed and operated in accordance with the latest issues of accepted and applicable American Codes and Standards listed in Section 8 of this document and California Codes. Certain equipment and devices may be manufactured outside the United States. These shall conform to U.S. Codes to the greatest extent possible but shall, as a minimum, comply to all Applicable Laws and the latest issues of the International Electrotechnical Commission (IEC) Codes provided that the IEC standard is equal to or more stringent than the American or California equivalent. All equipment, devices and materials provided for the electrical work shall be new, standard products of manufacturers regularly engaged in the production of such items, and shall be the manufacturer's latest proven standard design that is applicable to the installation. Attachment 4 included with this document lists the acceptable and preferred suppliers of many of these devices and materials. Electrical equipment, devices and materials shall, as much as practical, conform to the requirements of A-38 UNIT 5 EPC CONTRACT - EXHIBIT A Underwriters Laboratories (UL) or Factory Mutual (FM) and be listed and labeled by those organizations for the intended application. 11.1.3 STUDIES As a minimum, the Contractor will perform the following studies: Fault Study Load Study - Each Bus Voltage Drop Study Grounding Study Cathodic Protection Study Motor Starting Coordination Study Stability Study Emergency Power Study 11.2 GENERATOR SYSTEM The generator system shall consist of the generator complete with brushless excitation system, regulation, synchronizing, control, and neutral grounding system. The generator will be air/water cooled, rated at approximately 62.5 MVA, 13.8 kV, 0.90 lagging and 0.90 leading power factor. Final ratings will be established by the Contractor's turbine - generator supplier in compliance with the Contract guarantees and other requirements The generator shall be connected to the 13.8 kV generator breaker by non-segregated phase bus. The generator manufacturer shall provide a neutral grounding cubicle complete with distribution transformer, secondary resistor and applicable relaying. Components in the generator output power system shall be sized and rated for the maximum nameplate rating of the generator. 11.3 GENERATOR BREAKER AND GSU SUPPLY BREAKER A generator breaker will be provided between the generator and the 13.8 kV bus. The breaker will serve as the primary generator disconnect device in the protection system and as the point for synchronizing the generator to the 13.8 kV bus during startup. A 13.8 kV GSU supply breaker of similar rating will be the primary disconnect device to separate the Project from the utility system, shall be connected to the Generator Step-up transformer by 15 kV non-segregated phase bus or cable bus, and shall be the point of synchronizing the Project to the external power system. The breakers shall be standard metal-clad draw-out design rated for the application. They shall be furnished with vacuum interrupting systems and current transformers for relaying. Metal-clad switchgear A-39 UNIT 5 EPC CONTRACT - EXHIBIT A assemblies shall conform to the requirements of ANSI C37.20 and NPDCA SG5. Circuit breakers shall have preferred ratings per ANSI C37.06 and conform to ANSI C37.04 rating structure. Protective relays shall conform to ANSI C37.90 and indicating instruments to ANSI C39.1. These breakers shall have a full load continuous rating of 3000 amperes at rated voltage of 15 kV and a frequency of 60 Hz. The BIL shall not be less than 150 kV; the symmetrical short circuit or interrupting capability shall be equal to or exceed * kA. The units will be housed in the nearby Power Distribution Center (PDC). *- by Contractor after fault study. 11.4 GENERATOR STEP-UP TRANSFORMER The Generator Step - Up Transformer shall take Power at a nominal 13.8 kV and raise it to the switchyard voltage of 92 kV. The transformer shall be designed, constructed and tested to the applicable standards of ANSI and NEMA. It shall be rated to take the power from the generator during any normal mode of operation at the FA rating of the OA/FA/FOA rated transformer. In addition to the factory test and inspection requirements defined in the specification, field inspection tests shall be performed after the assembly of the unit. These shall include visual checks, oil and gas analyses, power factor, insulation and bushing tests, CT polarity and ratio checks, fan and pump control system operation checks and others as appropriate. All transformers shall be provided with oil spill containment. Oil tight concrete sumps, gravel filled, and with a free volume sufficient to contain twice the volume of the oil in the transformer shall be provided. PCB free certification shall be provided. 11.5 GENERATOR BUS Non-segregated phase bus shall be provided to convey power from the generator to the 13.8 kV switchgear lineup located in the PDC. Taps will be provided for excitation systems, potential transformers and surge arrestors. It shall be of the outdoor self-ventilated type designed for a maximum of 65O C rise. The bus shall have a minimum rating of 3000 amps rms at 14.4 kV nominal in an ungrounded delta configuration. Taps shall have a minimum rating of 1200 amps. Non-segregated phase bus with a similar rating will connect the 13.8 kV switchgear to the Generator Step-up Transformer. Terminal enclosures shall be provided to connect the bus to generators and transformers. Two sets of flexible shunts shall be installed every 100 ft of busbar. Galvanized steel shall be used in the construction of the bus enclosure and other enclosures at the generator transformers and switchgear and all surfaces exposed to the ambient air shall be protected from the corrosive effects of the geothermal atmosphere with protective paint or coating. Bus conductors shall A-40 UNIT 5 EPC CONTRACT - EXHIBIT A be copper bar suitably sized for the duty. Access shall be provided to the interior of the bus enclosure for cleaning and maintenance. 11.6 UNIT AUXILIARY TRANSFORMERS Three unit auxiliary transformers shall be provided to take power from the 13.8 kV bus and lower it to the plant utilization voltages. One transformer shall provide plant power at 4.16 kV and the other two at 480 volts. An additional unit auxiliary transformer shall step power down from 4.16 kV to 480 V for MCC03. The transformers shall be designed, constructed and tested to the applicable standards of ANSI and NEMA. They shall be rated to supply power to the plant loads during any normal mode of operation at the OA rating of the OA/FA rated transformers. The forced cooling rating shall be reserved for temporary overloads. A-41 UNIT 5 EPC CONTRACT - EXHIBIT A In addition to the factory test and inspection requirements defined in the specification, field inspection tests shall be performed after assembly of the transformer. These shall include visual checks, oil and gas analyses, power factor, insulation and bushing tests, CT polarity and ratio checks, fan control system operation checks and others as appropriate. All transformers shall be provided with oil spill containment. Oil tight concrete sumps, gravel filled, and with a free volume sufficient to contain twice the volume of the oil in the transformer shall be provided. PCB free certification shall be provided. 11.7 MEDIUM VOLTAGE DISTRIBUTION SWITCHGEAR AND MOTOR CONTROL Primary distribution for plant equipment shall be at 13.8 kV. This voltage shall supply transformers for lower voltage distribution. The 13.8 kV switchgear lineup shall be housed in the PDC and shall have circuit breakers for connection to the generator, step-up transformer, unit auxiliary transformers, a feed to the zinc process, and for a tie to the 13.8 kV bus at existing Unit 3. Fault interruption capability shall be determined from fault calculations performed by the Contractor during detailed design. Enclosures shall be NEMA 1 gasketed for indoor installation. Switchgear shall be connected to the generator and the step-up transformer via non-segregated phase bus. Shielded 15 kV cable shall connect the switchgear to the other transformers and loads. Switchgear shall contain the necessary instrument transformers, relays, meters and other accessory equipment to protect the equipment and provide synchronization during start-up. The 4.16 kV switchgear and motor control lineup shall be located in the PDC and shall receive its power from the 13.8 - 4.16 kV auxiliary transformer. The lineup shall include one metal-clad breaker unit for incoming power, one metal-clad breaker unit for connection to a 1500 kVA diesel generator unit and a minimum of 12 medium voltage fused contactors for motor control. The exact requirements shall be determined by the Contractor during detailed design. The switchgear in addition shall contain cable entrance and bus transition sections, as well as bus potential transformers, relays and metering equipment as required. 4.16 kV motor starters shall be NEMA Class E-2 with vacuum insulated contactors, overload protection and fuses for fault protection. Where practical, units shall be provided in two-high cubicles. Each starter will be equipped with a Multilin 469 relay. 11.8 LOW VOLTAGE SWITCHGEAR Load centers will not be used, in general, unless the Contractor finds this to be a more practical approach. Load center class circuit breakers will be used to feed motor control centers. The load center air type circuit breakers will be provided with dc control power supplied from batteries of the 125V dc power system. Load center air-magnetic circuit breakers for MCC feeders will be manually operated at the MCC. A-42 UNIT 5 EPC CONTRACT - EXHIBIT A Tripping and closing positions of the main 480V circuit breakers will be indicated at the switchgear, and tripping will be alarmed in the control room through the DCS. 11.9 LOW VOLTAGE MOTOR CONTROL CENTERS The low voltage system shall take power from the 480 V unit auxiliary transformers and distribute it to motor control centers. The motor Control Centers shall be located in the PDC. 480 V motor starters will supply motors up to, and including, 200 hp. Connections shall be as shown on the one-line diagrams. Additional combination motor starters and load feeders may be required as design develops. The Contractor shall allow for these and other load growth requirements. MCC bus shall be copper and insulated with non-aging, non-cracking epoxy insulation. A ground bus shall be provided for the length of the lineup and in each vertical section. Bus bracing and fault ratings are estimated to be 42 kA but the final value shall be determined from fault calculations by the Contractor. The enclosures shall be Type1 - General Purpose-Indoor in accordance with NPDCA ICS 6. All vertical sections shall be mounted on continuous front and back iron channels, and bolted firmly together to form a rigid, freestanding, dead-front, completely enclosed, front line assembly. The motor control center assembly shall be constructed to prevent entry of rodents. A combination motor control unit shall consist of a molded-case circuit breaker and a magnetic starter in accordance with NPDCA ICS 2. They shall be any of the following types: (a) full voltage, non-reversing, (b) full voltage reversing. Types of combination motor starters are indicated on the one-line diagrams. NPDCA Size1 or larger starters shall be used. Feeder tap units shall be used principally for non-motor loads and to feed Variable Speed Drive Units. They will consist of molded-case circuit breakers, shown on the one-line diagrams. Feeder tap units shall have an interrupting or short-circuit rating which equals or exceeds the 42,000 amps (symmetrical) available short-circuit current at the horizontal main bus. Molded-case circuit breakers shall comply with requirements of NPDCA AB-1. Circuit breakers, shall be rated for 480 volts, 60 Hz, 42,000 amps interrupting. Minimum frame size shall be 100 amps. Circuit breakers of the same frame size shall be physically interchangeable. 11.10 DISTRIBUTION TRANSFORMERS Low voltage distribution transformers shall be furnished for 277/480 volt and 120/208 volt power applications. Transformers shall be dry type, two winding, self-cooled, general purpose types with ratings as determined by the Contractor during detailed design. Transformers shall bear the label of Underwriters Laboratory. They shall be designed for continuous operation at rated kVA for 24 hours per day, 365 days a year with normal life expectancy as defined in ANSI C57.96. A-43 UNIT 5 EPC CONTRACT - EXHIBIT A Transformers shall be provided with four (4) no-load taps, two 2.5% above and two 2.5% below nominal voltage ratings. 11.11 PROTECTIVE RELAYING AND METERING Devices shall be provided to protect power systems and equipment from damage due to faults or deviations from normal operating conditions. Electrical parameters shall be monitored to provide information for plant operations and administration purposes. The basic protection system shall include the following as a minimum: 11.11.1 GENERATOR PROTECTION Differential Protection Primary Ground Protection Backup Ground Protection Field and Exciter Protection Loss-of-Excitation Protection Negative Sequence Protection Phase Fault Backup Protection Anti-motoring Protection Blown Fuse Protection Frequency Protection Overexcitation Protection 11.11.2 GENERATOR METERING The Owner will have electrical generation metering separate from Imperial Irrigation District's revenue metering. It will also have its own potential and current sources. These meters will be redundant to the revenue metering and will be used to verify calibration but will not be used for re-calibration. They will be located on the 92KV system. The 92kV meters for the Owner's use will provide the operator with accurate visual indication as to the electrical characteristics of the net output of the plant. This indication shall be located in the PDC. This will include the following: a. Phase Current b. Watts c. Vars d. Voltage A-44 UNIT 5 EPC CONTRACT - EXHIBIT A In addition electrical meters located in the PDC shall be provided to maintain an accurate account of the net electrical output of the plant over extended periods of time as follows: e. Watt hours in f. Watt hours out g. Var hours in h. Var hours out The main generator will be provided with the necessary metering to provide the operator in the control room with accurate visual indication as to the electrical characteristics of the machine. These meters shall be located on the 13.8 kV system. This will include the following: a. Generator Phase Current b. Generator Watts c. Generator Vars d. Generator Voltage e. Generator Frequency f. Generator Power Factor A meter shall be furnished and installed on the 13.8 kV system to measure the power supplied to the Region 1 ZRC System. In addition, electrical meters will be provided to maintain accurate account of the electrical output of the machine over extended periods of time as follows: g. Generator Watt hours h. Generator Var-hours Test switches will be provided to remove portions of the metering circuits from service without rendering all instrumentation inoperative. A Var transducer and a Watt transducer from both the 92kV and 13.8kV meters shall be provided with inputs to the DCS. 11.11.3 GENERATOR STEP-UP TRANSFORMER PROTECTION Differential Protection Overcurrent Protection Sudden Pressure A-45 UNIT 5 EPC CONTRACT - EXHIBIT A All alarms and meters listed above shall be recorded on the DCS. 11.12 VITAL POWER SYSTEM The Vital Power System shall provide power to various process and critical loads upon loss of normal power to these loads. MCC-03 shall serve as the vital power service bus and shall receive its power from Transformer XF-04 which is in turn fed from the station 4.16 kV bus. Vital Loads to be served from this MCC include the following: o Critical Motor Operated Valves (if any) o Selected exterior lights o Lighting transformers supplying lighting in critical areas o PDC lighting and air conditioning o Station Battery Chargers and UPS o Air Compressor o Fire Alarm Systems o Gantry Crane o 480 V Power Outlets o UPS o Station Battery Chargers o Turbine AC oil pumps o Clarifier rakes and turbines o Clarifier seed (underflow) pumps o Silica reactor vessel mixer o Caustic addition system The diesel generator which will supply power for vital services will be furnished by the Owner for installation by the Contractor. This generator is currently in the Owner's inventory and has the following characteristics: Manufacturer Marathon Electric - Wausau, Wisconsin Model No. 743FSM2384AR-000 W Serial No. UN3554737 Type FSM Voltage 4.16kV kVA 1500 A-46 UNIT 5 EPC CONTRACT - EXHIBIT A Regulator PM100 PMG Hz 300 PMG Volts 180 Field Volts 55 The diesel generator shall be designed to start automatically and close to the bus in the event of a power failure. The diesel generator shall have the capability to drop to an energized bus when required. The Contractor shall furnish and install a 5,000 gallon storage tank, pumps, piping, valves, tank level indication, and oil pressure and flow indication for supplying fuel to the unit. The Contractor shall also furnish a starting system, including batteries and chargers, capable of starting the unit and placing it on line within one minute of loss of normal power. Monitoring of all significant operating parameters shall be connected to the DCS system. It is assumed that the unit requires no restoration before being placed in service. The Contractor shall furnish and install foundations and ventilated enclosures for this equipment. 11.13 DC SYSTEM A station battery system shall be provided to supply critical control systems and shutdown loads. DC system cabling shall be separated or divided in the cable tray. The following loads shall be placed on the station battery system: o Turbine emergency lube oil pump o Turbine trip controls o 13.8 kV and 4.16 kV breaker control circuits o Protective relay system o Condenser Vacuum Breaker o DC Lighting o Other critical safety systems or equipment which have no other backup power The system shall consist of a 60 cell, 125 volt, ungrounded battery sized to carry the emergency load for two hours. Batteries shall be lead acid types suitable for the intended service. The charger for the batteries shall be capable of carrying the non-emergency loads while simultaneously recharging the batteries to full capacity from 1.75 volts per cell in 24 hours. Distribution panels shall be supplied as required. Both battery and charger shall be connected to the DC bus by a molded case circuit breaker. 11.14 UPS SYSTEM The UPS shall be located in the PDC and shall supply power to the DCS and other controls that must be active during a short power outage. Power loads and non-essential loads shall not be connected to the UPS system. A-47 UNIT 5 EPC CONTRACT - EXHIBIT A The UPS System shall consist of dual rectifier-inverter units with input isolation transformers, feeds from a dedicated battery, main distribution panels and subpanels as required. The UPS shall be able to provide full load through either rectifier-inverter unit. The two rectifier-inverter units shall be identical. They shall be industrial type suitable for installation and normal operation in the air-conditioned environment of the PDC but also capable of operation without air conditioning with ambient temperatures up to 40 C. Each will be provided with static and maintenance transfer switches, diagnostic systems and status and alarm outputs compatible with the DCS System. The output of the inverters shall be 120volts. The battery shall be connected to the rectifier through a fused disconnect switch. An isolation transformer shall be placed in the normal circuit serving each rectifier-inverter. Bypass circuits shall not require transformers. Normal Circuits shall come from MCC-03. The following loads will be served from the UPS System: o Critical Lighting o Critical Instrumentation Power (including magnetometers) o Distributed Control System o Emergency Power Receptacles o Television Surveillance System 11.15 EMERGENCY POWER SYSTEM See Vital Power System Section 11.12 above 11.16 ELECTRIC MOTORS Motors below 1/3 hp shall be single phase suitable for 115 V service. Motors 1/2 hp through 200 hp shall be three phase induction type suitable for 460 V service. Motors above 200 hp shall be three phase suitable for 4,000 V service. Deviations will be considered on a specific case basis. Motors shall be NEMA rated and, where practical, of the high efficiency type. The ambient atmosphere is that normally found at a geothermal facility with corrosive H2S gas and its byproducts present. In addition the desert site is subject to severe wind conditions and blowing dust. Many of the motors at outdoor locations remote from the main facilities. Motors that will be located in clean dry interior areas that are dust-free shall be standard duty open drip-proof types. Motors located in other than clean dust-free areas shall be severe duty TEFC or TENV types with materials of construction suitable for the dusty geothermal environment. Motors used for mixing and transferring of chemicals shall be of the type guaranteed for use in the application. This will be especially true of the equipment associated with the handling of HCl. A-48 UNIT 5 EPC CONTRACT - EXHIBIT A Medium voltage motors shall be provided with enclosures that prevent ambient air from entering the interior of the motors and guards bearings against the atmospheric dust. Insofar as practical, motors shall have NEMA B low starting current characteristics. Motors for variable speed service shall be constructed specifically for that service. Medium voltage motors will be furnished with the additional following features: Bearing RTDs (3 wire, 100 ohm grounded platinum) one per bearing Winding RTDs (3 wire, 100 ohm grounded platinum) two per winding Space heaters for all outdoor motors Separate termination cabinets for power and auxiliary circuits Power lead boxes large enough for stress cones and bolting lugs Sealed Insulation Systems Sleeve bearings and suitable lubricating systems on all motors 1000 hp and above Routine commercial tests per IEEE. 11.17 LIGHTING AND MISCELLANEOUS POWER Convenience Outlets and devices for illumination shall be provided throughout the Project. Power for these systems shall be obtained from lighting transformers and distribution panels located in the PDC. 11.18 WELDING RECEPTACLES Welding receptacles shall be placed throughout the plant as noted below as power sources for portable and temporary equipment . Each shall be provided with a 3 phase, 60 amp safety switch in the power feeder nippled to the outlet. Welding outlets shall be 480 V, three phase, 4-wire, 60 amp devices with a ground. Receptacles shall be mounted in angle headed boxes and have screw caps or equal. Outlet boxes shall be watertight and dust-proof and shall be enclosed in plastic or ferrous housings. Outlets will be served from circuit breakers in motor control centers in the following locations: One at each end of the turbine building One at the LP Separators One at the VLP Separators One at the IX Feed pumps One at each end of the Cooling Tower One at the PDC One in the Switchyard One at the main injection pumps Two for the silica control system A-49 UNIT 5 EPC CONTRACT - EXHIBIT A 11.19 TELEPHONE SYSTEM No telephone system will be required A-50 UNIT 5 EPC CONTRACT - EXHIBIT A 11.20 PLANT PAGING SYSTEM No plant paging system will be required 11.21 CATHODIC PROTECTION STUDY AND EQUIPMENT The Contractor shall perform a study to determine whether there is a need for cathodic protection to protect underground metallic pipes and structures from corrosion based on his design.. 11.22 GROUNDING AND LIGHTNING PROTECTION The grounding system shall provide protection for personnel and equipment from electrical faults and from lightning. A grounding system composed of bare copper wire and ground rods shall be provided throughout the plant to obtain a resistance to earth of less than one ohm. Conductors shall be sized for the maximum fault currents but shall not be less than No. 4/0 AWG copper. Risers to equipment shall also be sized for maximum fault current and be a minimum of No. 4/0AWG to power transformer neutrals, switchgear and MCC buses. Connections to buildings and other structures, large motors, and other major equipment and tanks shall also be No. 4/0 AWG copper in two places. Conductors to other smaller equipment such as small motors, panels and small transformer neutrals shall be sized to suit the application but shall not be less than No. 6 AWG. Lightning protection shall be provided in accordance with the codes for all elevated structures such as the cooling tower, tanks and others, as required. The plant grounding system shall be connected to the switchyard system in at least four widely separated locations. 11.23 TELEVISION SURVEILLANCE SYSTEM A television surveillance system shall be installed to provide coverage of the entire Project area. The station will be essentially unmanned and operations and maintenance personnel who do enter the area will be observed via television from the main control room located at Unit 3. Cameras are to provide coverage of all areas of the turbine structure, inside the PDC, the switchyard, and all outdoor areas. Camera controls shall include tilt, pan and zoom. The cameras shall be weatherproof and located to provide the coverage specified above. The monitor shall be black and white and mounted in the common control room at Unit 3 so as to be visible to all operator positions. Power for the system will come from the UPS System. 11.24 PANELS AND ENCLOSURES Enclosures shall protect equipment from mechanical and environmental damage and personnel from contact with live electrical parts. Enclosures shall be in accordance with general utility practice. They shall be constructed of materials compatible with the environment. Enclosures in the acid handling areas shall be of non-metallic materials sealed to be dust tight and constructed to prevent the entrance of acid vapors. A-51 UNIT 5 EPC CONTRACT - EXHIBIT A 11.25 RACEWAY Raceways including conduit, tray and ductbank shall be provided to protect and contain conductors. Conduit installed below grade or in ductbank shall be Schedule 40 PVC installed to be watertight. Minimum size will be 4 inch for 4.16 kV and higher and 2 inch for all other circuits except short local runs. Risers to streetlights, floodlight poles and the like may be one inch. If for any reason steel conduit is installed below ground (e.g., to provide a ground return path), it shall be factory coated with PVC to a minimum thickness of 40 mils including fittings. The coated conduit and fittings shall be assembled in accordance with manufacturer's instructions and made watertight. Holidays and nicks shall be repaired to full thickness before covering. Risers from underground runs shall extend a minimum of 12 inches above grade in open areas or sufficiently above floors or slabs (minimum of 2 inches) to prevent surface or floor liquids from flowing into the conduits. PVC conduit will transition to galvanized steel before penetrating the floor or slab. All underground conduit groups of more than two conduits, except for short local runs, shall be installed in concrete encased duct banks. Where ductbanks run through areas of potential heavy traffic loads they shall be reinforced. Spare conduit shall be provided in each ductbank run. A minimum of two 4 inch and four 2 inch spares shall be provided. Concrete for ductbank shall have its top surface coated red with a permanent dye. The ductbank system will be designed without manholes insofar as possible. Where manholes are required, they shall be precast sectional type and be a minimum of 6 ft. x 8 ft. Pulling irons, ladders, sumps and cable supports shall be provided. Manholes shall be keyed to ductbanks for a watertight fit-up. Conduits entering manholes shall be sealed to prevent leakage. Provisions shall be made for pumping out water. Above ground conduit shall be rigid galvanized steel with ferrous fittings except that electrical metallic tubing may be used for above ground lighting and receptacle circuits only in clean dry areas. Flexible watertight PVC coated metal conduit shall be used to connect all motors and instrument connections in exterior areas. Uncoated flexible conduit may be used in clean dry areas. Tray shall be galvanized steel ladder type. A ground wire shall be provided in each tray. Bushings shall be provided for all drop-outs. 11.26 CABLES Cables shall transmit power and signals for electrical circuits. Cable may be either single or multiple conductor with an overall jacket. Cables shall consist of stranded copper conductors, EPR insulation A-52 UNIT 5 EPC CONTRACT - EXHIBIT A rated for the application voltage and Hypalon jacket. Multiple conductor cables shall have a ground wire sized to NEC requirements. Cables shall be suitable for wet or dry locations and for installation in tray, conduit or ductbank. Cable for medium voltage circuits above 600V shall be shielded. Terminations shall be made with appropriate stress cones where required and long barrel swaged on lugs. Cable for power lighting and control circuits operating at voltages below 600 volts shall consist of copper conductors and insulation rated for 600 volts, 90OC rise, in both wet and dry locations. Conductors for power and lighting circuits shall be minimum No. 12 AWG, and No. 14 AWG for control circuits. 11.27 IDENTIFICATION Electrical system equipment and devices will be given a label plate, tag or other means of identification. Label plates shall be laminated plastic with engraved letters. Plates shall be white faced with black core for ordinary functions and red faced with black letters for emergency functions. They shall be secured with stainless steel screws. Minimum letter size shall be 3/16 inch high. 11.27.1 EQUIPMENT IDENTIFICATION Switchgear - Bus phases shall be identified with colored tape. Internal devices such as transformers and transducers shall be identified with name and function. Label plates shall be provided on the face of each cubicle describing its function. Motor Control Centers - Each motor control center shall be identified with a label plate having minimum 3/4 inch high letters. Bus phases shall be identified with colored tape. Label plates shall be provided on the face of each cubicle describing its function. Distribution Transformer - Each distribution transformer shall be identified with a label plate giving the transformer identification number and application. Panel Boards - Panel boards shall be identified with name and voltage. Individual circuits shall be numbered and a panel schedule provided. Schedules shall be typed, placed in a plastic holder and displayed in a carrier inside the door. Welding Outlets - Welding Outlets shall be given a label plate giving voltage, number of phases and current rating. Plates shall be mounted on the receptacle or the disconnect switch. Terminal Boxes - Terminal Boxes shall be given a label plate identifying the system or device it services. Terminals shall be identified by permanently attached numbers or letters. Panels shall be identified with a nameplate. Protective Relays - Protective relays shall be identified with a standard device number and a service A-53 UNIT 5 EPC CONTRACT - EXHIBIT A designation. Meters, Control Switches Synchronizing and Indicating Lights - These devices shall be provided with label plates that identify function, position and system as applicable. Cable, Conductor, Conduit and Tray - The phases of all power conductors shall be identified by colored insulation or tape. Cables for all 480 V and above circuits and for all instrument and control service shall be identified with permanently marked imprinted sleeves or embossed plastic tags at each termination with to and from information on each end. Conduit shall be identified with labels every 75 feet along the conduit. Tray shall be identified with label plates every 75 feet giving tray number and voltage level. 11.28 SUBSTATION A high voltage 92 kV substation shall be provided adjacent to the generating station. It shall receive power from the generator and deliver power to the local utility (IID) and to the Central Zinc Recovery Facility (NOTE: The line to the ZRC is currently permitted as a 13.8 kV line, Owner may require a connection to the 13.8 kV bus under Section 17.2, changes in the Work, if such line is not changed to 92 kV.). It shall include a generator step-up transformer (GSU), a 92 kV circuit breaker, one dead-end structure, two disconnect switches, relaying, metering and other equipment and devices required by the utility. Refer to the One-Line Diagram. A metering building is not desired and all substation meters shall be located within the PDC. Utility measurement of outgoing power shall be furnished and installed by IID. Metering transformers for the Owner's use will be located on the outgoing lines between the Generator Step-up Transformer and the 92 kV circuit breaker. Pulses or other signals will be provided from the metering system for megawatts, megawatt hours and megavars, both in and out, and for volts, power factor and frequency. These signals shall be sent to the DCS System. 11.29 TRANSMISSION LINE TO UTILITY SYSTEM The transmission line installation to IID beyond the high voltage terminals of the generator step-up transformer will be the responsibility of the local utility, IID. Provisions for an additional feed at 92 kV shall be installed by the Contractor in the substation for the Central ZRC Facility. This shall be independent from the normal IID line as discussed in Section 11.28 above. The Project Contractor shall be responsible for furnishing and installing circuit breakers, dead end structures, disconnect switches, insulators, cabling as required, structures, buswork (if required) metering devices and other devices required to provide a reliable feed to the Central ZRC Facility. IID will be responsible for transmission of this power. A-54 UNIT 5 EPC CONTRACT - EXHIBIT A The Contractor shall provide an optional design and pricing for the installation of this feeder line at 13.8 kV and fed from the Project 13.8 kV bus. The Contractor shall be responsible for the 13.8 kV to a structure in the substation where responsibility will transfer to IID. 12. INSTRUMENTS AND CONTROLS 12.1 GENERAL The Plant Instrumentation and Control System shall be designed and furnished so as to create a coordinated system that will provide a safe, reliable, efficient and essentially automatic system for controlling the Project in all modes of operation. The system shall: o Maintain the plant in a safe condition at all times. o Prevent the violation of environmental regulations concerning air, land, and water quality requirements. o Provide for smooth startup and shutdown of the power plant and auxiliary systems o Provide for efficient steady-state control of the power plant and auxiliary systems. o Provide reliable steady power plant operation at rated capacity and reduced capacity o Minimize the effects of abnormal process conditions, load upsets, and equipment malfunctions o Provide operator interfaces o Minimize the number of plant forced outages and spurious trips. o Provide for reliable, economical and optimum operation of the turbine generator and related systems. As a part of this contract, the Contractor shall modify the existing Unit 3&4 control room to incorporate the controls. 12.2 RELIABILITY Electronic equipment offered shall be of a type having proven record of reliability under geothermal power station service conditions. The DCS shall be a microprocessor based system and shall provide highly reliable process plant control. The availability of the Plant Central Control System (DCS) shall be not less than 99.97 percent as defined by the following: A-55 UNIT 5 EPC CONTRACT - EXHIBIT A Availability = MTBF . --------------- MTBF + MTTR where MTBF = mean time between failures MTTR = mean time to repair. 12.3 PLANT DISTRIBUTED CONTROL SYSTEM The plant shall be provided with a commercially available Distributed Control System (DCS). The DCS shall be of modular design, with a fault tolerant, redundant architecture such that the failure of one section will not affect the operation of other sections of the equipment. The reliability of each constituent part of the system, and the system as a whole shall be such as to meet the overall plant reliability criteria. Refer to the Instrument and Controls design criteria for details of the DCS design requirements. There should be no process change resulting from the failure of a controller. 12.4 INDEPENDENT CONTROL SYSTEMS Independent control systems are those systems that can operate equipment autonomously from the Plant Distributed Control System (DCS). These may be provided for systems or equipment that do not require full integration into the process controls (e.g., Fire Protection and HVAC). At a minimum, these systems shall provide alarm signals to the DCS as required to alert operators to system problems. Additional control interconnection to the DCS shall be as required for system operability. Independent control systems shall be provided with local displays, indicators and controls as required for operation and problem diagnostics. 12.5 INTERFACES WITH THE DCS The DCS shall interface with exiting and new control systems. Units 1, 2, 3, and 4 utilize a Rosemount RMW 9000 DCS for control. As a part of this contract, the Project DCS shall fully interface with the existing control system by . converting the existing DCS to a Rosemount Delta 5 based control system. The principle element of this conversion is to replace the old RMW 9000 CCMs with Delta 5 controllers. The balance of the existing hardware would be utilized as much as possible without modification. The additional DCS hardware shall include one (1) operator interface station. Following modifications, any DCS screen shall be capable of accessing any information within the DCS for any unit. The DCS shall interface with a Woodward 509 Governor that will be used for turbine/generator control. The interface shall allow full startup, synchronization and load control via DCS control screens. In addition, the DCS shall interface with the voltage regulator and the Bently-Nevada vibration monitoring system installed on the turbine/generator. 12.6 INSTRUMENTATION The instrumentation and final control elements for the plant shall be designed and furnished to provide the necessary information and control capabilities for efficient plant operations. Field instruments and final control elements shall be furnished individually or with packaged systems. The level of plant instrumentation shall be provided as required to meet the availability, performance and warranty requirements of the Project and, as a minimum, be supplied as shown on the P&ID's. A-56 UNIT 5 EPC CONTRACT - EXHIBIT A 13. SILICA CONTROL SYSTEM 13.1 GENERAL A silica control system (SCS) will be installed downstream of the VLP Separator and upstream of the Region 1 IX interface point. The SCS will be capable of conditioning approximately 18,000 gpm of geothermal brine. The SCS precipitates silica and other scaling compounds by adjusting the pH of the brine with slaked lime, and then removing the precipitates The SCS is intended to increase brine pH from approximately 3.5 to 5.0, reduce brine total suspended solids to less than 20 mg/l and reduce brine soluble silica to less than 230 mg/l. Lime is mixed with brine and the recycled primary clarifier underflow in the Primary Reaction/Crystalizer Tank, and the brine pressure is reduced to atmospheric conditions (2-in. to 10-in. of water column pressure), producing approximately 150,000 lbs/hr of saturated steam. Steam is either sent to ZRF for use in heating water or vented to atmosphere. The brine mixture proceeds through the Secondary Reactor Tank where the silica continues to precipitate. Two Solids Contact Reactor Clarifiers are used to remove precipitate. Clear brine overflow is then pumped to the Region 1 ZRF IX facility. The underflow from the clarifiers is filtered in a pressure filter with the filtrate going to a small thickener for removal of any remaining solids before being pumped back to the injection well. The filter cake is discharged into a bin and then conveyed to a trailer for removal. 13.2 LIME SLURRY SYSTEM One (1) lime slurry system consisting of the following equipment will be provided to unload one truck load (25T) of pebble lime (3/8"x1/8") in approximately two (2) hours: a) Two lime slaking tanks, each 10 ft. by 10 ft, of carbon steel construction and each with, 10 hp, mixers. b) One FRP scrubber, 3 ft. diameter by 8 feet high with spray nozzles and exhausting through a 1000 cfm fan to atmosphere. Scrubber shall have 80% removal efficiency and less than 25#/day particulate emission as dust control from 1/8 - 3/8-in. granulated lime. c) One lime inerts separation system with one 200 gpm pump feeding one hydrocyclone, 8" diameter, with overflow to lime slurry tank and underflow to ballmill d) One 3 foot by 3 foot used ball mill for grinding lime inerts. e) Instrumentation and control valves to be used to dilute lime slurry to a solids concentration of 25% and to control the temperature in the slaking tanks. f) One (1) lime slurry tank 22'-0" dia. x 22'-0" side shell height with 1'-0" freeboard to slurry level. The tank will be of carbon steel (1/4" min. thickness), flat bottom, insulated and complete with cover, nozzles and access ways. The tank will be designed to API 650 and of A-36 steel. g) One (1) center mounted mixer in carbon steel construction complete with 25 HP constant speed reducer drive. h) The inside of the tank and cover will be furnished bare. The outside of the tank, cover will be sandblasted to SSPC-SP5 white metal blast with NACE #2 profile and will receive one (1) A-57 UNIT 5 EPC CONTRACT - EXHIBIT A primer coat Carboline 193 (Gray-3 mils DFT), followed by one (1) guide coat Carboline 193.724 followed by one (1) finish coat Carboline 193 (white 008-3 mils DFT). i) Two (2) lime feed pumps, each rated 0-10 gpm with 2.0 HP gear motors, progressive cavity type with variable frequency controllers). 13.3 1ST AND 2ND STAGE REACTION TANKS The 1st Stage Reactor Mechanism will be suitable for installation in a covered 30'-0" inside diameter x 30'-6" side shell height Steel tank unit with a 5'-0" slurry freeboard (25'-6" L.L.) with a total feed of approximately 20,500 gpm (including 2,500 gpm recycle) at a brine inlet pH of approximately 3.5 and outlet pH of 5.0. The following equipment is included: a) The heavy duty mixer will be complete with draft tube type, axial flow 132"0 impeller for complete tank and lime mixing. Wetted components to be C-276 steel. The motor drive package will be furnished with a constant speed motor. The motor will be 100 HP, 1,200 RPM for 3/60/480V operation. Motor to be TEFC, Mill & Chem. duty. The motor will be controlled by purchasers' AC variable speed controller in a NEMA 1 box located remotely in the PDC. b) The mixer is designed for approximately 10X design flow rate (approximately 200,000 GPM). A bottom steady bearing is supplied in C-276. c) The mixer will include a liquid seal fabricated of C-276. d) The mixer will be supported by a beam type superstructure spanning the tank diameter and complete with tank supports on the tank wall. All structural steel and bolts, nuts, washers, will be HD galvanized. H D galvanized cal osha handrails will be provided over one half of the tank and superstructure and around the center access platform. The walkway will include 1-1/2" FRP (Chemgrate or equal), walkway grating. e) The draft tube with supports, will be 12'-0" dia. x approx. 15'-0" deep complete with straightening vanes and fabricated of 1/4" C-276. f) The tank will be of A-516-70 steel construction with carbon steel" walls and flat floor bottom designed to API 650 with cement lining. Included will be: o Two (2) 24"0 feed pipes with wall nozzles will extend from the tank wall to the draft tube complete with supports. They will be Hastelloy C-276, 0.25" wall minimum. Suitable baffling will be provided to accommodate incoming feed velocities (if needed). o One (1), 2205 SST, 10" dia. 1/4" wall feed recycle line with nozzle from tank wall draft tube. o Two (2), 2205 SST, 2" dia. lime feed lines with nozzles from tank wall to draft tube. o One (1) A-516-70 rolled floor mounted limit ring guide. o One (1) 36" dia. manway, carbon steel with 1/8" C-276 lining. The manway will stick inside the tank shell approximately 3" to accommodate the concrete lining (by others). The blind flange will be 2205 SS. A-58 UNIT 5 EPC CONTRACT - EXHIBIT A o One (1) 30" dia. underflow pipe with nozzle C-276, 1/4" wall (slightly sloped outwards from the center limit ring and mixer shaft guide). o One (1) 24" dia., 3/8" wall emergency overflow nozzle in mild steel. o One (1) 30" dia. steam return nozzle, 3/8" mild steel. o Two (2) 1-1/2" dia. sample nozzles C-276. o Insulation drip and tie rings. o A steel (3/8" plate) steam mist separator and condensate collection trough will be furnished tangentially to the tanks wall. Four (4) 2" dia. drains will be on the bottom extending below the liquid interface. o A steel circular type stair will be provided with landing extending from grade to the superstructure. It will be designed as not to interfere with the tank insulation. The stair treads will be FRP grating per AI-300 with handrails to match the mechanism. o Welder qualifications and welder procedures will be per AWS o All plates and pipes over 3/8" thick will be "V" groove prepared. o The outside of the tank will be furnished bare. The spiral access stair and handrail will be HDG with FRP grating. o The inside of the tank will be covered with 2" Precrete, G-8, using 316SS, 103-B studs placed at 1'0" centers supporting 316 SST mesh. g) The cover will be FRP designed for 12" W.C. and for 225(degree)F steam vapor. h) The first stage reaction vessel will also serve as a flash vessel for the incoming VLP brine. The brine will be introduced in the draft tube where the rising steam vapor will assist in promoting tank circulation. 117,000 lbs/hr of this atmospheric steam (2-in water column pressure) will be used as a heat source for the ZRF. The remaining atmospheric steam may also be used for vessel padding in the silica control system as desired and/or may be vented directly to atmosphere. The 2nd Stage Reactor Mechanism will be suitable for installation in a covered 30'-0" inside diameter x 25'-6" side shell height carbon steel tank unit with a 1'-0" slurry freeboard (24'-6" L.L.) with a total feed of approximately 20,500 gpm brine with pH of approximately 5.0. The following equipment is included: a) The heavy duty mixer will be complete with turbine for complete tank mixing. Wetted components to be type 2205 stainless steel. The motor drive package will be furnished with a constant speed motor. The motor will be 25 HP, 1,200 RPM for 3/60/480V operation. Motor to be TEFC, Mill & Chem. duty. b) The single turbine and mixing assembly will consist of one (1) lower turbine. c) The mixer will include a liquid seal fabricated of 2205 stainless. It will be approximately an 18" dia. x 9" deep leg. (0.144 psi design) d) The mixer will be supported by a beam type superstructure spanning the tank diameter and complete with tank supports on the tank wall. All structural steel and bolts, nuts, washers, will be H.D. galvanized. H.D. galvanized CAL OSHA handrails will be provided over the A-59 UNIT 5 EPC CONTRACT - EXHIBIT A one half the diameter of the tank and superstructure and around the center access platform. The walkway will include 1-1/2" FRP (Chemgrate or equal), walkway grating. e) The tank and cover will be of A-516-70 steel construction with 1/8" corrosion allowance except the flat tank bottom will be 5/8" plate and all designed to API-650. The inside and outside of the tank and cover will be furnished bare. 13.4 PRIMARY CLARIFIER The Primary Clarifier will be designed for the following process design parameters: A-60 UNIT 5 EPC CONTRACT - EXHIBIT A
o Design Flow...............................................................18,155 gpm o Recycle Flow...............................................................2,300 gpm o Maximum Hydraulic Flow (with recycle).....................................20,455 gpm o Tank Diameter................................................................125'-0" o Tank side water depth.........................................................22'-0" o Tank side wall height.........................................................24'-0" o Outer bottom slope........................................................0.75 in 12 o Inner bottom slope..........................................2"in-12" on 40'-0" dia.. o Sump Diameter.................................................................10'-0" o Sump Depth ....................................................................4'-0" o Minimum Reaction Zone detention...........................................18 minutes o Minimum Tank detention time...............................................65 minutes o Tip Speed of turbine........................................................6.0 fps o Minimum Recirculation ...................................................162,000 gpm o Turbine variable speed range.....................................................4:1 o Turbine Nameplate Horsepower...................................................50 Hp o Minimum Power to Reaction Well.................................................30 Hp o Rake Arm Tip Speed.................................................30 fpm (0.09 RPM) o Rake Mechanism Design Torque........................................400,000 ft - lbs o Minimum Cutout Torque...............................................400,000 ft - lbs o Peak Drive Torque (Min)...........................................1,476,000 ft - lbs o Connected Hp for rakes................................................10 Hp (2-5 Hp) o Launder Type..............................................Peripheral and radial type o Influent Size..................................................................36 in o Effluent Size.................................................................36 in. o Underflow Size ........................................(2) 12" dia. with 20" sleeves
Underflow pipe will be 12" Sch 20 Hastelloy C-276 for all buried or below grade piping. One (1) Reactor-Clarifier Mechanism for installation in a 125'-0" dia. tank in accordance with the General Design Criteria and including the following components: a) The rake drive mechanism provided with this clarifier will be an Industrial-Duty design and manufacture suitable for use in heavy duty applications, and proven for geothermal operation. The rake drive mechanism will consist of dual 5 HP (10 HP connected) a motor A-61 UNIT 5 EPC CONTRACT - EXHIBIT A and a primary speed reducers, all direct coupled or otherwise coupled to the main gear reducers which will drive the main gear through pinions, and an overload protection system. The rake drive motors will each be controlled by AC variable speed controller. The 400,000 ft. lbs. duty rated torque of the drive is the 100 percent design torque value of the drive control, and the design torque for structural steel. The main gear yield torque rating is defined as the minimum torque at which a one time initial load will cause a gear tooth to bend to a permanent set. b) All bearings will comply with B-10 ratings of 100,000 hours. Main support bearings will be designed to fully resist overturning moment and for maximum rotating weight with B-10 rating of 400,000 hours. c) A motorized lifting device with a steel driving cylinder mounted on the main rake gear, will provide up to 12" of lift with the mechanism rotating. d) The turbine drive will be of the heavy-duty continuous service type, designed for a minimum 1.5 SF based on the water horsepower required. Design will be based on criteria of AGMA and rating will be based on the thermal or mechanical horsepower, whichever is less. All bearings will comply with B-10 ratings of 100,000 hours. The turbine drive motor will be controlled by AC variable speed controller in a NEMA 1 box located remotely in the PDC. e) Rake driving shaft, two (2) long raking arms with blades, two (2) short raking arms with blades and a sump scraper will be provided. The long arms will rake the tank bottom twice per revolution. The short raking arms will rake the bottom four times per revolution and, will have a 2" / 12" slope at 40' 0" dia.. The sump scraper will scrape the sump walls and bottom and break up large chunks of scale near the sump bottom, and will be of sufficient strength to act as a guide for the mechanism. All rake and drive assembly components will be rugged and designed for services comparable to other metallurgical and geothermal applications as opposed to waste water treatment applications. The structural design will minimize the surface area of submerged steel. f) One (1) large diameter radial flow turbine will be provided. This turbine will provide required recirculation, and mixing. A seal between the concentric rake and turbine shafts will be provided to prevent vapor leakage. g) Reaction Well and internal recirculation drum with baffling designed to provide proper flow patterns within the unit will be furnished. It will have structural supports and stiffeners to provide a stable unit. The well will have a peripheral lower deflector to direct flow towards the tank center to control solid contact action and to reduce sludge bed disturbance. The reaction well will be designed to provide the proper recirculation rate and detention times as dictated by the pilot plant test data. The recirculation drum will have flow-straightening vanes. The reaction well and drum will be fabricated from 3/8-in. plate. A-62 UNIT 5 EPC CONTRACT - EXHIBIT A h) Effluent collection launders will be furnished internal to the tank as part of the tank. Pipe type radial launders will discharge to a peripheral collector launder. The radial launders and peripheral launders will be designed for an overflow rate not to exceed 15 gpm per lineal foot. The sixteen (16) 14" dia. pipe type radial launders will have overflow slots in the tope properly designed to equalize flow from the center to the tank periphery. The radial launder will be fabricated from A-106 carbon steel pipe material with 1/4" total corrosion allowance(1/8" inside and 1/8" outside). The peripheral launder will be fabricated from SA-516 grade 70 material, with 1/8" corrosion allowance on each side of a wetted surface. Adjustable weirs will be 1/4" FRP with suitable fasteners. The bottom of the peripheral launder will be sloped 0.5% from a point opposite the discharge to the discharge outlet. i) The 36" dia. feed pipe will extend from the tank wall to the recirculation drum and will be 2205 stainless steel, 0.25" wall minimum. j) One set of sampling pipes consisting of six (6) 1" dia. and three (3) 2" dia. pipe assemblies will be furnished to within 12 inches of the tank wall, with hose bibs and wall fittings, to be used for sampling and obtain indication of sludge depth. k) A local panel, for mounting at the drive platform, including a start/ remote/stop push-button station will be provided for local on/off control of turbine drive, scraper drive and lifting device. This will be provided in a NEMA 4X enclosure on the drive mechanism. l) A rake arm lift position transmitter will be furnished wired to a separately mounted current transmitter transmitting a 4-20 ma., d.c. signal to Purchaser's recorder. m) A 1/4 Hp Lube oil cooler and 1/3 Hp oil pump will be provided for the turbine drive. High temperature and low level switches are provided for the rake and turbine drives. n) Motors are 460 V 3PH 60 HZ, TEFC, Mill & Chem. o) One (1) steel tank 125'-0" dia. x 24'-0" side wall height with 2'-0" freeboard including the following: o 5/8" plate dual slope bottom of butt welded steel in accordance with the general design criteria and drawings. A 10'-0" dia. x 4'-0" discharge sump will be provided for connection to purchasers underflow pipes. o The tank will be designed per API 650; butt welded; Seismic Zone IV; 70 mph wind with essential facilities factor 1.0, ground acceleration 0.35 g; and an internal pressure of 6" water (0.217 psi). All welding for the tank steel to be per AWS D1.1 latest standards and will be continuous. All nozzles will have machined faces with shell nozzle reinforcement Per API -650 table 3-9, pages 3 - 22. All flanges are to the 150 # raised face weld neck with bolt holes straddling the center line. Two-holed flange arrangement is required. A-63 UNIT 5 EPC CONTRACT - EXHIBIT A o The shell plates will be steel designed to API 650 and will include a 1/8" corrosion allowance per wetted surface. o The tank and sump floor will be 5/8" SA-516 grade 70, butt welded steel including 1/4" corrosion allowance. o The peripheral launders will be fabricated from SA-516 grade 70 material, with 1/8" corrosion allowance on each side of a wetted surface with FRP weirs. o Rim angle and superstructure supports. o Insulation rain shield and tie rings. (See separate section for insulation.) o The inside and outside of the tank and cover will be furnished bare. p) The cone (or umbrella type) cover with external beam supports will be Steel plate will be SA-516 grade 70, with 1/8" corrosion allowance. The cover will be designed per API 650; butt welded; Seismic Zone IV; 70 mph wind with essential facilitates factor 1.0; ground acceleration 0.35 g; and wind exposure "C"; live load of 25 psf plus dead load and internal pressure of 6" water (0.217psi). 13.5 SECONDARY CLARIFIER The Secondary Clarifier will be designed for the following process design parameters:
o Design Flow ..............................................................18,155 gpm o Recycle Flow...............................................................2,300 gpm o Maximum Hydraulic Flow (with recycle).....................................20,455 gpm o Tank Diameter................................................................105'-0" o Tank side water depth.........................................................20'-0" o Tank side wall height.........................................................22'-0" o Tank bottom slope.........................................................0.75 in 12 o Sump Diameter..................................................................8'-0" o Sump Depth ....................................................................3'-0" o Minimum Reaction Zone detention............................................2 minutes o Minimum Tank detention time...............................................60 minutes o Tip Speed of turbine........................................................4.0 fps o Turbine variable speed range.....................................................4:1 o Turbine Nameplate Horsepower...................................................30 Hp o Minimum Power to Reaction Well.................................................19 Hp o Rake Arm Tip Speed.................................................30 fpm (0.08 RPM) o Rake Mechanism Design Torque........................................100,000 ft - lbs o Minimum Cutout Torque...............................................100,000 ft - lbs
A-64 UNIT 5 EPC CONTRACT - EXHIBIT A
o Peak Drive Torque (Min).............................................307,000 ft - lbs o Connected Hp for rakes........................................................5.0 Hp o Launder Type..............................................Peripheral and radial type o Influent Size..................................................................36 in o Effluent Size.................................................................36 in. o Underflow Size .........................................(2) 8" dia. with 16" sleeves
Underflow pipe will be 8" Sch 20 Hastelloy C-276 for all buried or below grade piping. One (1) Secondary Clarifier Mechanism for installation in a 105' dia. tank in accordance with the General Design Criteria and including the following components: a) A rake worm gear driving mechanism mounted on a 4 point precision bearing fully enclosed with all gears and bearings running in an oil bath with adjustable overload control torque load indicator, including alarm and cutout switches driven by a 7.5 HP speed variation for 4:1 range will be by AC variable frequency controller. The mechanism will rotate at .08 RPM approximately 30 FPM. The rake drive will be rated at 100,000 ft-lbs. b) A turbine mechanism with fully enclosed gears and 4-point precision bearing in an enclosed housing, separate from and mounted directly under the sludge rake drive. Turbine drive is driven by a 30 HP motor. Speed variation for 4:1 range will be by AC variable frequency controller. c) A motorized lifting device with a steel driving cylinder mounted on the main rake gear, will provide up to 12" of lift with the mechanism rotating. The driving cylinder will be keyed to the shaft which will be free to move vertically through the main gear. The lifting screws attached to the shaft will be supported and rotated by a gear set mounted above the driving cylinder. The gear will be driven by a hardened steel worm and a right angle 1.5 HP gear motor. A-65 UNIT 5 EPC CONTRACT - EXHIBIT A d) Rake driving shaft, two (2) long raking arms with blades and a sump scraper will be provided. The long arms will rake the tank bottom twice per revolution and will have a slope of 0.75" / 12". The sump scraper will scrape the sump walls and bottom and break up large chunks of scale near the sump bottom, and will be of sufficient strength to act as a guide for the mechanism. All rake and drive assembly components will be rugged and designed for services comparable to other metallurgical and geothermal applications as opposed to waste water treatment applications. The structural design will minimize the surface area of submerged steel. e) One (1) large diameter radial flow turbine will be provided. This turbine will provide required recirculation, and mixing. A seal between the concentric rake and turbine shafts will be provided to prevent vapor leakage. f) Reaction Well with baffling designed to provide proper flow patterns within the well will be furnished. It will have structural supports and stiffeners to provide a stable unit. The well will have a bottom shelf to direct flow towards the tank center to control solid contact action and to reduce sludge bed disturbance. Shelf scraper arms will be provided.The well will be fabricated from 3/8" steel plate. g) Effluent collection launders will be furnished internal to the tank as part of the tank. Pipe type radial launders will discharge to a peripheral collector launder. The sixteen (16) 14" dia. pipe type radial launders will have overflow slots in the top properly designed to equalize flow from the center to the tank periphery. The radial launder will be fabricated from A-106 carbon steel pipe material with 1/4" total corrosion allowance(1/8" inside and 1/8" outside). The peripheral launder will be fabricated from SA-516 grade 70 material, with 1/8" corrosion allowance on each side of a wetted surface. Adjustable weirs will be 1/4" FRP with suitable fasteners. h) The 36" dia. feed pipe will extend from the tank wall to the recirculation drum and will be 2205 stainless steel, 0.25" wall minimum. i) One set of sampling pipes consisting of six (6) 1" dia. and two (2) 2" dia. pipe assemblies will be furnished to within 12 inches of the tank wall, with hose bibs and wall fittings, to be used for sampling and obtain indication of sludge depth. j) A rake drive torque overload device in a NEMA 4 enclosure will be included as an integral part of the clarifier scraper drive. The device will operate two switches; the alarm switch and the motor cutout switch. These two switches will be factory adjusted to accurately calibrate the torque value and the overload position. A visual torque indicator will be provided and oriented so that it may be read from the walkway. k) A torque transmitter assembly will be furnished for the clarifier scraper drive. The torque sensor will be integral with the drive control assembly. A-66 UNIT 5 EPC CONTRACT - EXHIBIT A l) A local panel, for mounting at the drive platform, including a start/ remote/stop push-button station will be provided for local on/off control of turbine drive, scraper drive and lifting device. m) Semi-automatic lifting device controls will be provided to automatically raise the rotating mechanism with changes in torque. Manual lowering by operator is required. n) A rake arm lift position transmitter will be furnished . o) A 1/4 Hp Lube oil cooler and 1/3 Hp oil pump will be provided for the turbine drive. High temperature and low level switches are provided for the rake and turbine drives. Motors are 460 V 3PH 60 HZ, TEFC, Mill & Chem. p) One (1) steel tank 105'-0" dia. x 22'-0" side wall height with 2'-0" freeboard including the following: o The tank will be designed per API 650; butt welded; Seismic Zone IV; 70 mph wind with essential facilities factor 1.0, \ ground acceleration 0.35 g; and an internal pressure of 6" water (0.217 psi). o All welding for the tank steel to be per AWS D1.1 latest standards and will be continuous. o All nozzles will have machined faces with shell nozzle reinforcement Per API -650 table 3-9, pages 3 - 22. o Cover nozzle reinforcement will be provided on all nozzles 3" dia. and greater. Shell reinforcement pads will have a tapered vent hole with plastic plugs (drilled prior to installing). o All flanges are to the 150 # raised face weld neck with bolt holes straddling the center line. Two-holed flange arrangement is required. o All assemble bolting internal to the unit, but non-submerged will be A-193 grade 7 w/2H nuts, galvanized. These studs and nuts will then be epoxy coated for additional corrosion resistance. o Welder qualifications and welder procedures will be per AWS. o 5/8" bottoM of butt welded steel in accordance with the general design criteria and drawings. An 8'-0" dia. x 3'-0" discharge sump will be provided . o The shell plates will be steel designed to API 650 and will include a 1/8" corrosion allowance per wetted surface. o The tank and sump floor will be 5/8" SA-516 grade 70, butt welded steel including 1/4" corrosion allowance. Foundation design will be such that and material A-67 UNIT 5 EPC CONTRACT - EXHIBIT A underneath the floor will not biologically or chemical decompose and produce corrosion or harmful gases under long term heat operation. o The peripheral launders will be fabricated from SA-516 grade 70 material, with 1/8" corrosion allowance on each side of a wetted surface with FRP weirs. o Rim angle and superstructure supports. o Insulation rain shield and tie rings. (See separate section for insulation.) o The inside and outside of the tank and cover will be furnished bare. The access stair will be sandblasted to SSPC-SP5 white metal blast with NACE #2 profile and will receive one (1) primer coat Carboline 193 (Gray - 3 mils DFT), followed by one (1) guide coat Carboline 193.724 followed by one (1) finish coat Carboline 193 (white 008-3 mils DFT). q) The cover will be designed per API 650; butt welded; Seismic Zone IV; 70 mph wind with essential facilitates factor 1.0; ground acceleration 0.35 g; and wind exposure "C"; live load of 25 psf plus dead load and internal pressure of 6" water (0.217psi). 13.6 FILTRATE THICKENER SYSTEM One (1) Thickener mechanism suitable for installation in an 8'-0" dia. x 8'-0" side depth elevated tank with 6" freeboard and including: a) A heavy duty industrial drive unit consisting of a cast bronze worm gear mounted on a four point contact commercial precision ball bearing driven by a hardened steel worm through a reducer and enclosed chain and sprockets by a 3.0 HP motor. The duty rated torque output will be 15,000'#T. b) A lower shaft with cone scrapers fabricated carbon steel including the "male" portion of the liquid seal for the cover. c) Two (2) long raking arms with blades fabricated of carbon steel. d) A central feedwell with supports and dispersion shelf fabricated of carbon steel. e) A 4" dia. feed pipe of carbon steel will be provided from the tank side to the feedwell complete with dispersion tee. f) The tank will be of filament wound fiberglass reinforced vinylester resin erected in place complete with flat bottom and cone top. 13.7 FLOCCULANT FEED SYSTEM A flocculant feed system consisting of the following will be provided: o One (1) polymer solution preparation system with system capacity = 14 lbs/hr polymer (dry basis) as a 0.5% solution with 45 min. mixage time, requires water supply @ 30 gpm + 60 psig. System complete with: Jetwet(R) Head Assembly 2.4 ft3 dry polymer hopper A-68 UNIT 5 EPC CONTRACT - EXHIBIT A 1/2 HP screw feeder Dry polymer blower, 1.0 HP [One (1) 24 hr.] Mix tank with mixer [One (1) 6 hr. day tank] o One (1) flocculant injection skid, including: Two (2) 4.8 gpm metering pumps, 2 HP, with dilution water flowmeter, static mixer, and associated valves for dilution of 12 lb/hr polymer (dry basis) to 0.2 wt % solution. Two (2) 0.3 gpm metering pumps, 120V, with dilution water flowmeter, static mixer and associated valved for dilution of 1.5 lb/hr wt % solution. 13.8 FILTER PRESS One (1) model 30-C276 pressure filter made by the PNEUMAPRESS Filter Corporation. Operating parameters for the proposed filter are as follows:
DESCRIPTION FLOW RATE TEMP PRESS (PSI) CONNECTION ----------- --------- ---- ----------- ---------- Slurry *60-300 gpm 225(degree)F 20-80 3" 150# RFF Wash 50-250 gpm --- 40-120 3" 150# RFF Compressed Air Supply *120 scfm Ambient 95-125 2" 150# RFF Belt Wash Water 15 gpm Ambient 45-125 1" 150# RFF (10 sec/cycle) Filtrate 60-300 gpm 225(degree) F --- 8" 150# RFF
Please consult PFC engineer when selecting slurry supply and compressed air supply equipment. A-69 UNIT 5 EPC CONTRACT - EXHIBIT A Two (2) steel base mounting beams are included for purchasers foundations and the press will be factory mounted per the enclosed drawing SK3D. The proposed filter utilizes heavy duty construction for all major components. Each major component is stress-relieved to eliminate distortion and engineered (by Certified Professional Engineer) to withstand full operating stress at full operating pressure regardless of feed deviations, upsets, or other operation anomalies. The filter has C276 wetted filter components with 316/316L piping and valve components. The filter is completely automatic and utilizes re-cleanable filter belts upon which solids are formed. Filtered solids may be efficiently washed during the filtration cycle. Filtered and washed solids are automatically discharged from the filter chambers onto a conveyor by the advancing filter belt each filtration cycle. The filter belt is effectively washed as the belt advances. The filter is supplied with a control panel including a programmable controller and necessary peripheral equipment required for control of the automated system. The panel will be NEMA 4X and fiberglass. 13.9 PIPING In general, piping materials and design shall be in accordance with Section 10, Mechanical Systems. The following piping materials will be used: o Lime System - ---Carbon Steel o 1st Stage Reactor to 2nd Stage Reactor---2205 o Downstream of 2nd stage Reactor----Carbon Steel o Downstream of IX Feed Pumps----Cement Lined Carbon Steel o Clarifier Underflow to Underflow Pumps----C-276 (underground) and 2205 (aboveground) 13.10 PUMPS Three underflow recycle pumps will be provided. The underflow recycle pumps shall be of low rpm design, with variable speed and manual control from the DCS in the Main Control Room. Centrifugal, rubber lined pumps shall be used. Construction and design shall be suitable for hot brine service (225(Degree) F). There are four pumps associated with the lime slurry system. Two 100% transfer pumps are provided to pump lime slurry from the surge tank into the lime storage tank and two 100% metering pumps are provided to pump lime from the lime storage tank to the injection point at the 1st stage reaction tank. Each of the lime slurry transfer pumps shall be suitable for lime slurry service Four (4) Flocculant Injection Pumps will be provided. Two 100% pumps will be designed to deliver flocculant at a rate of ~5 gpm to the Secondary Clarifier and the other two 100% pumps will supply approximately 0.1 gpm to the thickener vessel associated with the filter press. A-70 UNIT 5 EPC CONTRACT - EXHIBIT A Two filter feed pumps will be provided. Filter feed pumps (P-5308 A/B) shall be two, 100% duty pumps with suction from both the primary and secondary clarifier underflow lines. The existing Unit 3 primary clarifier filter feed pumps P-308 A/B will be modified for this application. Two 100% Thickener Underflow Pumps (P-5508 A/B) shall be used to take suction from the solids thickener tank and recycle back to the filter press inlet to remove remaining solids. The pumps shall be rated for 5 gpm and have automatic capability to cycle on and off interfacing with the filter press PLC. 14. DOCUMENTATION AND DRAWINGS 14.1 GENERAL Contractor shall provide for review by the Owner copies of all documents (including but not limited to drawings, reports, specifications, schedules and calculations) necessary to describe the Project and to provide a detailed and comprehensive record of all aspects of the Project. The extent of the submissions shall be sufficiently comprehensive to establish that all parts and procedures to be used in performing the Project comply with the requirements of the Contract. All documents prepared by Contractor or its sub-contractors shall be in English and shall bear a prominent reference to the Project and a full title block containing a unique identification number, revision number, source and type of document and descriptive title. Contractor shall submit to Owner hard (printed) copies and soft copies of documentation. All printed documentation provided shall be of good quality, clear, legible and able produce further copies by photocopying. All soft copies shall be in a format to be agreed with the Owner. As a minimum, text documents shall be in Microsoft Word Version 6.0, spreadsheets shall be in Microsoft Excel Version 5.0, data bases shall be in Microsoft Access Version 2.0, drawings shall be in AutoCad Release 13 or a compatible computer aided drafting system that will allow conversion to AutoCad Release 13 file format. 14.1.1 SUBMISSION FOR REVIEW Documents submitted for review shall have been processed in accordance with Contractor's QA procedures and shall be certified by Contractor as having been fully examined by him and in compliance with the requirements of the Contract. 14.2 REQUIRED MANUALS Contractor shall compile, index and prepare facilities manuals for the work. Contractor shall submit ten (10) copies of the Facility Manual, and ten (10) copies of the Equipment Maintenance Manual, to the Owner as per the Contract. Manuals shall be hard bound and in loose leaf form. 14.2.1 FACILITY MANUALS The Facility Manuals shall include comprehensive documentation of Contractor's Engineering, Fabrication, and Testing, including the following items: o Equipment data sheets o Engineering Calculations, analyses, studies, reports, etc. o Drawings A-71 UNIT 5 EPC CONTRACT - EXHIBIT A o Vendor manual for Contractor furnished items, and vendor catalogs. o Manufacturing and fabrication test and inspection reports. (This shall also include logs of all destructive and non-destructive examinations). o Manufacturing and fabrication compliance and exception reports. o Selective pre-commissioning records. o Certification manuals for fabrication, installation, mechanical completion and all equipment. o Selective start-up and operating information about each system within the Project. o Instructions covering normal shutdown, emergency shutdown, operating limits, and routing operational and maintenance procedures: (e.g. checklists, inspection schedules, lubrication schedules). 14.2.2 EQUIPMENT MAINTENANCE MANUALS Manual sections shall be divided with laminated index tabs. Equipment maintenance manuals shall contain the vendor-supplied information such as: o Plant Data Sheets. o Special shipping, handling , and storage instructions. o Lubrication requirements. o Maintenance and repair instructions, including procedures, tolerances, special tool or facility needs, etc. o Bill of materials. o Vendor descriptive literature. o Parts Lists (commissioning spares, start up spares, two-year spares, complete parts lists) 14.3 DRAWINGS Drawings shall be produced using AUTOCAD Release 13 or a compatible computer aided drafting system that will allow conversion to AUTOCAD Release 13 file format. A scale bar shall be included to permit use following photo-reduction. Standard sizes shall be used. Drawings shall be prepared in such a way that photo-reduction to B size shall result in a legible and useable drawing. Particular attention shall be paid in this respect to selection of fonts. When drawings larger than B size are submitted, a B size print shall also be submitted. Each drawing submitted shall clearly indicate the applicable status, e.g. Preliminary, for Information, for Review, for Bid, for Construction, As Built. A-72 UNIT 5 EPC CONTRACT - EXHIBIT A 14.4 AS-BUILT DOCUMENTATION During fabrication/construction, Contractor shall update and maintain on file current mark-ups of all drawings and data sheets to agree with actual work undertaken. Contractor shall prepare as-builts of the documentation. As-builts shall be prepared on the original drawings or data sheets. Documents shall be re-drafted as necessary to incorporate final information. Mark-up sketch, referencing, and other field marking techniques are not acceptable. Contractor shall submit the original drawing or data sheet to Owner as the as-built. Sepias or photo-reproductions are not acceptable. As-builts shall be submitted as per Section 15.5 of the Contract.. Contractor shall provide as-builts which are clear and readable in both full size and B size reduction. Contractor shall prepare new drawings if the Owner judges originals to be too damaged, deteriorated, or illegible. As-builts shall be issued as the next sequential revision from previous releases. The revision block shall state "As-Built". All clouds, revision diamonds, and other interim control marking shall be removed from as-builts. Contractor shall provide computer files in AUTOCAD Release 13 file format containing the following as-built drawings: P&ID's, plot plans, one-line diagrams, electrical schematics, piping general arrangements, underground piping/cabling layouts. 14.5 OPERATOR TRAINING Contractor will conduct a two (2) week onsite training program based on the manuals and data contained in Section 14.2 for Owner's operators and maintenance personnel. Instruction will be provided for up to twenty five (25) of the Owner's personnel. Such Owner Personnel will have moderate experience on similar equipment as provided in the Project. 1. 15. CONSTRUCTION SUPPORT ACTIVITIES 15.1 SITE MEETINGS Meetings shall be held in accordance with the Contract, , and minutes shall be kept by Contractor. In addition, Owner may call meetings at any reasonable time with the Contractor at mutually agreed locations to discuss the Work, schedules, safety, reports or any other issues. 15.2 ACQUISITION AND EXPEDITING Contractor will execute the following acquisition and expediting activities: A-73 UNIT 5 EPC CONTRACT - EXHIBIT A o Develop contract documents, invitation to bid, bidder's instructions, general terms and conditions, preparation of purchase order and contract formats, and issue the bids to qualified bidders. o Acquire the necessary equipment and materials. o Maintain periodic contact with suppliers to expedite status of each order, and provide assistance to suppliers in expediting critical materials and equipment as required to maintain overall delivery schedules. o Provide assistance to suppliers of major items of equipment in the arrangements for special transportation, handling and location of critical items of material and equipment required to maintain schedule. o Arrange for all necessary or desirable special transportation, handling and location of critical items of material and equipment required to maintain schedule. o Provide the necessary lead-time information required for the development of construction and the overall project schedule. Continual coordination with project management for changes, delays, strikes and work stoppages, which may affect the scheduled Site delivery requirements. o Provide information (as available) regarding manufacturer labor situations, including negotiation, work stoppage, and resumption of work. o Prepare monthly reports on the status of major items of equipment and material giving updated delivery status, Site delivery requirement dates, and any other pertinent information that may affect the construction schedule. 15.3 QUALITY CONTROL AND INSPECTIONS 15.3.1 GENERAL Contractor shall develop and implement a general QA program covering the Work and field quality control program and field procedures in order to ensure that the Work is performed in accordance with the Contract, the Drawings, and Specifications and all other applicable code requirements as specified in the Contract. Such program shall be submitted to Owner for review and approval pursuant to the Contract. Contractor will verify that the in-progress and final inspections and tests are performed and documented as required. Contractor will maintain accurate and legible records of the quality related activities readily available for review by Owner. Contractor shall arrange and facilitate Owner's inspections in Contractor's and Vendor's facilities and in the field in accordance with the Contract. 15.3.2 SHOP INSPECTION Contractor shall inspect and test purchased equipment during fabrication at the vendor's shop based on the quality control procedures and requirements. Owner shall have the right to inspect equipment at the Vendor's shop at any time at Owner's expense. Contractor will prepare reports for deviations from specification, including equipment repairs or necessary rework. Equipment or material that does not comply with the applicable drawings, codes, or A-74 UNIT 5 EPC CONTRACT - EXHIBIT A engineering specifications will not be released for shipment from Vendor's shop until reviewed and approved by Contractor. 15.3.3 FIELD QUALITY CONTROL Contractor will perform on the Site the following field quality control activities: o Receive, inspect, and prepare reports for major equipment and materials arriving at the Site. o Provide for independent inspection services in the areas required by Contractor's quality assurance documents and ensure that the Work is performed in accordance with the quality control procedures. o Perform field testing as defined in Contractor's quality assurance documents and as would be deemed prudent and consistent with modern engineering and construction practice. o Perform the inspection and tests required by the Contract. o Prepare reports of all tests and submit for review by Owner. o Ensure that all construction supervisory personnel are in possession of all current, applicable drawings related to the work in progress. o Ensure that a file of "as-built" or field marked up drawings representing the current status of the work is maintained current by the Contractor's site organization, and that the Owner has access to the file. 15.4 SAFETY AND SECURITY 15.4.1 SAFETY o Contractor shall establish a safety program in conformance with the Occupational Safety and Health Standards. 15.4.2 FIRST AID Contractor shall provide First Aid facilities, of no less than that required by Applicable Law, in easily accessible and highly visible areas throughout the Site. Contractor shall at all times retain sufficient personnel trained in First Aid procedures. Contractor shall arrange for access to ground and air ambulance services. 15.4.3 SITE SECURITY Contractor shall provide for security of the Site and the Work. The services required are site perimeter security, gate access and traffic control. Contractor will consult and cooperate with Owner in the development and implementation of security practices and programs for the Project. Contractor shall prepare and maintain accurate reports of incidents of loss, theft or vandalism and shall furnish these reports to Owner in a timely manner. 15.5 TRANSPORTATION Contractor shall provide the required arrangements for transportation of all Site personnel, equipment and materials from point to point on the Site. A-75 UNIT 5 EPC CONTRACT - EXHIBIT A 15.6 COMMUNICATION Contractor shall install, operate, and maintain an effective voice and fax communications system between its main Site office and its home office. 15.7 TEMPORARY CONSTRUCTION FACILITIES AND SYSTEMS Contractor shall provide all temporary facilities and systems required to perform the scope as defined elsewhere in this document. These facilities include, but are not limited to, the following: o Office and meeting facilities o Subcontractor locations o Messing facilities o First Aid o Fire fighting facilities o Any access roads, fencing and gates o Parking o All communication lines and facilities o Bulk material and warehousing control system and facilities o Equipment maintenance and storage facilities o Fuel storage facilities o Potable and non-potable water o Sanitary facilities and removal of all waste o Electric power for construction activities and facilities o Workforce transportation from central parking (if required) o Security services/shops o Construction and Contractor facility site maintenance services o Construction equipment and tools Contractor shall be responsible for remediating areas which have been damaged or disturbed through construction activities. This remediation shall include, but not be limited to, the removal of debris, trash, chemical and fuel/oil spills, and site grading to final design or pre-construction condition. A-76 UNIT 5 EPC CONTRACT - EXHIBIT A ATTACHMENTS 1 Design Criteria 2 Intertie Document 3 Major Equipment List 4 Pre-Approved Suppliers 5 Guarantee Point Conditions 6 Listing of Reference Technical Documents 7 Valve Engineering Listing A-77 Table of Contents
1. INTRODUCTION..........................................................................................1 1.1 General...........................................................................................1 1.2 Scope Overview....................................................................................1 2. SITE DESCRIPTION......................................................................................2 2.1 Location..........................................................................................2 2.2 Access............................................................................................2 2.3 Topography........................................................................................2 2.4 Climatology.......................................................................................2 3. INTERCONNECTIONS......................................................................................3 3.1 General...........................................................................................3 3.2 Piping, Electrical and Instrumentation Interfaces.................................................3 3.3 Brine By-pass.....................................................................................3 4. GEOTECHNICAL INFORMATION............................................................................4-3 5. BRINE AND STEAM SPECIFICATIONS........................................................................4 6. WATER SOURCES.........................................................................................8 6.1 Fire Water........................................................................................8 6.2 Potable Water.....................................................................................8 6.3 Service Water.....................................................................................8 7. EMISSIONS.............................................................................................8 7.1 Air Emissions.....................................................................................8 7.2 Liquid Emissions..................................................................................9 7.3 Noise Emissions...................................................................................9 7.4 Solids Emissions..................................................................................9 8. DESIGN CRITERIA....................................................................................8-10 9. CIVIL/STRUCTURAL/ARCHITECTURAL.......................................................................10 9.1 General..........................................................................................10 9.2 Civil Work Criteria..............................................................................10 9.3 Structural Work Criteria.........................................................................12 9.4 Enclosures.......................................................................................12 9.5 Architectural Work Criteria......................................................................12 10.MECHANICAL SYSTEMS...................................................................................12 10.1 General.........................................................................................12 10.2 Turbine Generator...............................................................................12 10.3 Piping..........................................................................................12 10.4 Steam Supply Systems............................................................................13 10.5 Auxiliary Steam Systems.........................................................................14 10.6 Gas Removal System..............................................................................15 10.7 Condensate System...............................................................................16 10.8 Condenser and Auxiliaries.......................................................................18 10.9 Cooling Tower...................................................................................19 10.10 Main Cooling Water System......................................................................23 10.11 Auxiliary Cooling Water System.................................................................25 10.12 Brine Handling and Injection Systems...........................................................26 10.13 Fire Protection Systems........................................................................30 10.14 Potable and Service Water Systems..............................................................31 10.15 Compressed Air System..........................................................................32 10.16 Cooling Tower Blowdown.........................................................................32 10.17 Heating, Ventilation, and Air Conditioning.....................................................33
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10.18 Equipment and Floor Drains.....................................................................33 10.19 Water Treatment Systems and Water Makeup.......................................................34 10.20 Chemical Feed Systems..........................................................................34 10.21 Hydrochloric Acid Injection System.............................................................35 10.22 Insulation.....................................................................................36 11.ELECTRICAL SYSTEMS...................................................................................37 11.1 General.........................................................................................37 11.2 Generator System................................................................................40 11.3 Generator Breaker and GSU Supply Breaker........................................................40 11.4 Generator Step-Up Transformer...................................................................40 11.5 Generator Bus...................................................................................41 11.6 Unit Auxiliary Transformers.....................................................................41 11.7 Medium Voltage Distribution Switchgear and Motor Control........................................42 11.8 Low Voltage Switchgear..........................................................................42 11.9 Low Voltage Motor Control Centers...............................................................43 11.10 Distribution Transformers......................................................................43 11.11 Protective Relaying and Metering...............................................................44 11.12 Vital Power System.............................................................................46 11.13 DC System......................................................................................47 11.14 UPS System.....................................................................................47 11.15 Emergency Power System.........................................................................48 11.16 Electric Motors................................................................................48 11.17 Lighting and Miscellaneous Power...............................................................49 11.18 Welding Receptacles............................................................................49 11.19 Telephone System...............................................................................50 11.20 Plant Paging System............................................................................50 11.21 Cathodic Protection Study and Equipment........................................................51 11.22 Grounding and Lightning Protection.............................................................51 11.23 Television Surveillance System.................................................................51 11.24 Panels and Enclosures..........................................................................51 11.25 Raceway........................................................................................51 11.26 Cables.........................................................................................52 11.27 Identification.................................................................................53 11.28 Substation.....................................................................................54 11.29 Transmission Line to Utility System............................................................54 12.INSTRUMENTS AND CONTROLS.............................................................................55 12.1 General.........................................................................................55 12.2 Reliability.....................................................................................55 12.3 Plant Distributed Control System................................................................56 12.4 Independent Control Systems.....................................................................56 12.5 Interfaces With the DCS.........................................................................56 12.6 Instrumentation.................................................................................56 13.SILICA CONTROL SYSTEM................................................................................57 13.1 General.........................................................................................57 13.2 Lime Slurry System..............................................................................57 13.3 1stand 2ndStage Reaction Tanks..................................................................58 13.4 Primary Clarifier...............................................................................60 13.5 Secondary Clarifier.............................................................................64 13.6 Filtrate Thickener System.......................................................................68 13.7 Flocculant Feed System..........................................................................68
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13.8 Filter Press....................................................................................69 13.9 Piping..........................................................................................70 13.10 Pumps..........................................................................................70 14. DOCUMENTATION AND DRAWINGS..........................................................................71 14.1 General.........................................................................................71 14.2 Required Manuals................................................................................71 14.3 Drawings........................................................................................72 14.4 As-Built Documentation..........................................................................73 14.5 Operator Training...............................................................................73 15. CONSTRUCTION SUPPORT ACTIVITIES.....................................................................73 15.1 Site Meetings...................................................................................73 15.2 Acquisition and Expediting......................................................................73 15.3 Quality Control and Inspections.................................................................74 15.4 Safety and Security.............................................................................75 15.5 Transportation..................................................................................76 15.6 Communication...................................................................................76 15.7 Temporary Construction Facilities and Systems...................................................76
ATTACHMENTS 1 Design Criteria 2 Intertie Document 3 Major Equipment List 4 Pre-Approved Suppliers 5 Guarantee Point Conditions 6 Listing of Reference Technical Documents 7 Value Engineering Listing iii EXHIBIT A STATEMENT OF WORK for SALTON SEA UNIT NO 5 ENGINEERING, PROCUREMENT, AND CONSTRUCTION CONTRACT Exhibit "A" Attachment 1 - Design Criteria EXHIBIT "A" ATTACHMENT 1 - DESIGN CRITERIA 1. GENERAL Purpose This document identifies the basic design criteria which govern the engineering and design development of all systems, structures, and characteristics of the Salton Sea Unit 5 (the Project). The fundamental purpose of this document is to ensure the uniform application of the stated criteria by all design personnel, contractors and suppliers so that the design, operational, and maintenance characteristics of the facility will conform to the philosophy and specific requirements of the Owner, while complying with all applicable laws, contracts, permits, and licensing requirements. 1.1 SCOPE Salton Sea Unit 5 is a single unit geothermal steam power generating station supplied with flash steam at three pressure levels from cascading steam separators. The process uses "pH Mod" technology to prevent silica scale formation at the higher concentrations and lower temperatures that occur through the heat extraction process. The plant is located in the Salton Sea KGRA, Imperial County, California, north of Westmoreland, California. Maximum net plant output for Unit 5 will be 49 MW at design conditions. These criteria represent the minimum design requirements for the engineering, procurement, and construction of Salton Sea Unit 5. The Contractor shall incorporate these requirements into its design. The Contractor shall employ a Quality Assurance (QA) program to ensure that the requirements of the specifications are incorporated in the Work. 1.2 PLANT CRITERIA AND PHILOSOPHY The Owner has developed preliminary design drawings for the Project. These drawings shall form the basis for the Contractor's design. The Owner's preliminary design drawings are included as Attachment 6, document 8.1-1. A list of approved suppliers is included as Attachment 4. This list is not all inclusive. The Contractor may propose equal or better equipment. The supplier list contains some required suppliers. The Contractor shall not deviate from the required suppliers without prior approval from the Owner. The power plant shall be designed to operate reliably at Valves Wide Open (VWO) and an annual capacity factor of 96%. The plant shall be designed to provide maximum reliability commensurate with economic design. Brine handling system will employ two parallel trains of equipment, each train being sized to process 60% of design brine flow with the second train out of service. Equipment, structures, valves, pipe lines, instruments, and controls shall be numbered in accordance with the Owner's numbering system. The Owner's numbering system is defined in Attachment 6, document 8.1-3 The design of all systems shall be based upon, and use, proven design concepts and fully demonstrated systems and components, to the maximum extent feasible. 1 Exhibit "A" Attachment 1 - Design Criteria 1.3 QUALITY ASSURANCE 1.3.1 GENERAL The quality assurance system shall include all aspects of the Project, including design, fabrication and testing, site construction activities, pre-commissioning, start up and performance testing. In general the Contractor shall perform factory quality assurance inspections at major equipment suppliers' facilities during fabrication to ensure equipment is being built to the specifications. As a part of, or prior to, that inspection, Contractor shall review supplier's quality assurance and quality control program and manuals to assure their adequacy for equipment being supplied. During the inspection, Contractor shall verify that the supplier's quality program is being adhered to. 1.3.2 QUALITY ASSURANCE PROGRAM Contractor shall submit for approval its proposed quality assurance program to the Owner within 30 days of Notice to Proceed. This program shall include procedures for quality assurance of all design, manufacturing and construction activities. As a minimum, it shall address the following:- o responsibilities and authorities o document control o design verifications o Subcontractor assessment and control o calibration requirements o traceability o non-conformance control o inspection and test plans o internal audits o records The Owner reserves the right to examine any procedures referred to in the Quality Program and to audit the Contractor against the requirements of the Quality Program at any time. The Contractor shall submit for approval by the Owner the measures to be taken for storage and maintenance of Plant and Materials prior to installation, during installation, as well as for the period between the completion of the installation and the time that the Works are placed in service. The Contractor shall provide a Site Quality Control program including requirements for Site Quality Control inspections. 1.4 DESIGN REVIEW The Contractor shall ensure that all designs calculations and drawings undergo a comprehensive independent in-house review and approval process before submission to the Owner. The Owner reserves the right to carry out independent review and verification in accordance with Article 12.0 of the Contract. 2 Exhibit "A" Attachment 1 - Design Criteria The following drawings shall be considered as Deliverables subject to the review requirements of Section 12.5 of the Contract: o P&IDs o Heat and Material Balances o One Line Diagrams o Site Arrangement o General Arrangements Other Deliverables or documentation as per Contract Section 12.4 to the Owner. 1.5 HAZOP REVIEW Following in-house review of P&IDs the Contractor shall commission a hazards and operability study (HAZOP) in accordance with CCPS guidelines. The Contractor shall provide technical and support services, a meeting place, and schedule allowance for the HAZOP study and shall incorporate recommendations from the study as approved by the Owner. The Contractor shall provide a third party facilitator and qualified participants from the project engineering team. The Owner will participate in the HAZOP study. The facilitator shall document the HAZOP study. The Contractor shall submit the study with recommendations and resolutions to the Owner for approval. The Contractor shall maintain a tracking of all recommendations and resolutions from the HAZOP study. Objectives of the HAZOP study include identification of: o potential violations of laws, regulations, or codes o how fires, spills, or process malfunctions may occur o ways to reduce hazardous material inventories o hazards associated with new equipment o safety-critical equipment that must be regularly inspected, tested or maintained o hazards adjacent units may create for construction and maintenance workers o employee hazards associated with operating procedures The Contractor shall develop the following information for use in the HAZOP study: o process limits stated in terms of flow, pressure, temperature, level, and concentration - along with consequences of operating beyond the limits. o process flow diagrams (with design heat and material balances) o piping and instrumentation diagrams o major material inventories o health, safety and environmental data for raw materials, intermediates, products, by products, and wastes. 1.6 ECONOMIC FACTORS The following economic factors will be used where necessary.: Unit Life 30 years Base Year 2000 Maximum Saleable Power 49,000 kW Capacity Factor 96% Capitalized Value of Salable Power $1,800/kW 3 Exhibit "A" Attachment 1 - Design Criteria 1.7 INSPECTION AND TEST PLAN Within 90 days after Notice to Proceed or 120 days prior to the start of fabrication, whichever is the earlier, the Contractor shall submit to the Owner for review an inspection and test plan which shall include pertinent manufacture and inspection operations. The Owner may, within 60 days of receipt of the inspection and test plan, and in consultation with the Contractor, select a range of points as a mandatory hold point for inspection before the item concerned can be released for further manufacture or shipment. Contractor shall conduct inspections and works testing of the equipment listed below: o Steam Turbine o Generator o Main Condenser o Metal Clad Switchgear o Fabricated Bus o Control Panel o DCS o DCS Configuration and Software o Generator Step-Up and Unit Transformers o Steam Separators o Steam Scrubbers o Inter/After Condensers o Ejectors o Pumps over 150 hp o Heat Exchangers o Major Control and Isolation Valves o Major Turbine Auxiliary Equipment o Major Generator Auxiliary Equipment o Lubrication Oil Systems o Compressed Air Package o Shop Fabricated Pipe o Alloy Pipe and Fitting Fabrication o Electrical Power Distribution Equipment The Contractor shall give the Owner at least ten (10) working days prior notice in writing of the date on and the place at which any equipment shall reach a mandatory hold point or shall be ready for independent inspection and testing. Unless the Owner shall advise the Contractor not to proceed with the inspection and testing prior to five days before the date which the Contractor has stated in its notice, the Contractor may proceed and any inspection and tests shall be deemed to have been made in the Owner's presence, and the Contractor shall forthwith forward to the Owner duly certified copies of the inspection and test results. Contractor shall give (and cause third parties to give) any representative, designated by the Owner, full cooperation and assistance in any factory inspection at the premises of Contractor or any other place of manufacture of items supplied hereunder (or components thereof). 4 Exhibit "A" Attachment 1 - Design Criteria 1.8 FACTORY TESTS Major items supplied by Contractor shall be given standard applicable tests at the factory during or at the completion of manufacture, whether manufacture is by Contractor or a third party. A test procedure shall be prepared for each such test which shall describe the test to be performed, the applicable item of equipment being tested, the standards and method of testing, and the testing facility's capabilities and shall state a proposed test date. All test procedures shall be available for review by the Owner. Successful completion of such test shall be a precondition to shipment of the tested item. The Owner shall be notified in writing at least 14 days prior to any final factory test of any major components to be supplied. 1.9 NON-DESTRUCTIVE EXAMINATIONS 1.9.1 GENERAL REQUIREMENTS NDE methods, acceptance criteria, and additional general requirements shall be in accordance with the applicable fabrication code and this specification. Visual examination shall be by personnel certified to AWS QC1 requirements. All other NDE shall be by personnel qualified to Level II or Level III requirements of SNT-TC-1A of the American Society for Non Destructive Testing. Visual examination shall be performed before other NDE. Radiographic examinations required shall be done in accordance with the requirements of the appropriate fabrication code or this specification and shall comply with the acceptance criteria of ANSI B31.1 or as specified herein. 1 in 10 circumfrential butt welds on pressure piping shall be subject to radiography examinations. For pipe size NPS 18 inch and smaller, the whole circumfrential butt weld shall be examined. For pipe size NPS 20 inch and larger, a minimum of 15 inch of circumfrential butt weld shall be examined for each quadrant. One of these quadrants shall be at the bottom of the pipe. In addition the first two welds by each welder shall be 100% radiographed. When radiographic examination shows a defective weld requiring repair, two additional welds performed by the same person shall be examined. If either of these shows a defective weld requiring repair, a further two welds shall be examined and if defects continue to show up then all the welds performed by that person shall either be replaced or examined and repaired as necessary. The welder or welding operator shall be retrained and requalified before being allowed to perform further work. The Owner reserves the right to prohibit further work by that person. Radiographic examination not required by the fabrication code but required by this specification shall be in accordance with the requirements of ASME Section V. The results shall comply with the referenced acceptance criteria. The Contractor shall be responsible and accountable for the safe handling, security and storage of all radioactive sources used for non destructive examinations. The Contractor shall submit for the approval of the Owner his plan for storage and handling which shall comply with governmental requirements and best trade practice. An accounting of all radioactive sources shall be performed daily. 5 Exhibit "A" Attachment 1 - Design Criteria 1.9.2 VISUAL EXAMINATION The examination procedures shall be in accordance with the requirements and methods specified in ASME Code, Section V, and this specification. Surfaces of all finished welds shall be visually inspected. 1.9.3 MAGNETIC PARTICLE EXAMINATION The examination procedures shall be in accordance with the requirements and methods specified in ASME Code, Section V, Article 7 and this specification. Base material 1 inch on each side of the weld shall also be included in the examination of welds. The evaluation of results and the acceptance criteria shall be in accordance with ASME Code, Section VIII, Division 1 or 2, whichever is applicable. Arc burns that occur during magnetic particle examination shall be removed and the area re-examined by the magnetic yoke method. 1.9.4 LIQUID PENETRANT EXAMINATION The examination procedures shall be in accordance with the requirements and methods specified in ASME Code, Section V and this specification. At least 5 percent of the first pass and 5 percent of the final pass of welds on austenitic stainless steels and non-ferrous materials shall be examined by liquid penetrant techniques. Sulfur and chloride content of penetrant materials shall meet the requirements of Paragraph T-644 of Article 6, Section V of ASME Code, regardless of the type of material to be examined. Base material 1 inch on each side of the weld shall also be included in the examination of welds. The evaluation of results and the acceptance criteria shall be in accordance with ASME Code, Section VIII, Division 1 or 2, whichever is applicable. 1.9.5 ULTRASONIC EXAMINATION The examination procedures shall be in accordance with the requirements and methods specified in ASME Code, Section V and this specification. Base material 1 inch on each side of the weld shall also be included in the examination of welds. The evaluation of results and the acceptance criteria shall be in accordance with ASME Code, Section VIII, Division 1 or 2, whichever is applicable. 1.9.6 RADIOGRAPHIC EXAMINATION The examination procedures shall be in accordance with the requirements and methods specified in ASME Code, Section V and this specification. Where spot radiography is required, as specified in ASME Code, Section VIII, Division 1, paragraph UW 52, the welds selected for examination shall represent each WPS on the piece of equipment inspected. 6 Exhibit "A" Attachment 1 - Design Criteria The evaluation of ASME Section VIII spot radiography results and the acceptance criteria shall be in accordance with ASME Code, Section VIII, Division 1 or 2, whichever is applicable. 1.10 SPECIAL TOOLS AND TEST EQUIPMENT Contractor shall provide all special tools, inspection and test equipment required for the operation, maintenance and overhaul of the Project. This shall include also all lifting appliances, slings, spreader bars, supports and stands; all specials gauges and measuring devices; and all special viewing and inspection devices (including a boroscope set for internal inspection of the turbine). Where special tools and test equipment are purchased and deemed available by the Owner, the Contractor may use the tools in the construction of the Project and the tools and test equipment shall then be turned over to the Owner in undamaged condition. 1.11 PAINTING Painting systems for equipment, vessels and pipe shall be designed to provide optimum performance (chemical resistance, appearance and minimum maintenance). Such a system shall consist of near-white blast cleaning, inorganic zinc primer, epoxy intermediate coat and polyurethane finish. Insulated surfaces shall not be primed. 1.12 CLEARANCES Vehicle access and major passageways shall be provided as necessary for maintenance of equipment and shall be maintained clear of all piping and equipment. Platform clearances shall meet Cal-OSHA standards. Where 8'-0" of clearance is not practical, measures will be taken to warn of the low clearance to platform users. Minimum clearance of 18" is required between insulation jacketing and pipe flanges to allow room for air equipment used for tightening studs. Lines on sleepers on the ground shall be spaced for convenient external cleaning, painting, and inspection. Sleepers shall be a minimum of 24 inches high above paving or finished grade. In general, minimum clearances shall be as follows:
Item Description Headroom for primary access roads 22'-0" (from the crown) Width of primary access roads ex- 20'-0" or ** cluding 5'-0" shoulders ROADS Headroom for secondary roads (from 16'-0" the crown)
7 Exhibit "A" Attachment 1 - Design Criteria Width of secondary roads excluding 10'-0" or ** 3'-0" shoulders Clearance from edge of road shoulders 5'-0" to platforms, equipment, pipe associated with equipment, etc. **Road width shall match existing roads Horizontal and vertical clearance for 12'-0" Vert equipment maintenance by hydraulic 10'-0" Hor crane (12 T capacity) MAINTENANCE Horizontal clearance for fork lift 6'-0" (5000 lbs. cap.) and similar equipment AISLEWAYS Vertical clearance for fork lift 8'-0" AT GRADE (5000 lbs. cap.) and similar equipment Horizontal clearance for equipment 3'-0" maintenance by portable manual equip- ment (hand trucks, dollies and similar equipment) Vertical clearance for equipment 8'-0" maintenance by portable manual equipment (hand trucks, etc.) WALKWAYS Horizontal clearance, not necessarily 3'-0" in a straight line Headroom (except for hand wheels) 7'-0" Minimum width 2'-6" PLATFORMS Minimum clearance around any 1'-6" obstruction on the platform Headroom 8'-0" Minimum maintenance space required 1'-6" between flanges of exchangers or other equipment arranged in pairs EQUIPMENT Minimum maintenance space required 1'-0" for structural member or pipe
8 Exhibit "A" Attachment 1 - Design Criteria Clearance from edge of road shoulder 5'-0" (the extreme projection) Clearance between the outside 0'-1"* diameter of flange and the outside PIPE diameter of pipe or insulation) (above- ground) Clearance between the outside 0'-2"* diameter of pipe, flange insulation and structural member
*With full consideration of thermal movements 9 Exhibit "A" Attachment 1 - Design Criteria 2. CIVIL DESIGN CRITERIA 2.1 SCOPE This document is designed to provide basic Civil, Structural, and Architectural design criteria and design guides necessary to properly design the Brine handling facilities and the power plant structures for the Salton Sea Unit 5 geothermal power plant (the Project). 2.2 CIVIL SITE WORK Civil site work will consist of preparing the site area for construction activities and final grading. The Contractor shall prepare the site for construction of the Unit 5 power plant and the Region 1 Zinc Recovery Facility (ZRF). The ZRF will be constructed by Others concurrently with the power plant. 2.2.1 CLEARING AND GRUBBING The Project site is currently agricultural land. The Contractor shall clear and grade the site in preparation for construction of the Project and the ZRF. 2.2.2 ABANDONMENT OF EXISTING DRAINS Existing agricultural drains, buried approximately 6 ft deep and spaced at approximately 60 ft apart (running north-south), shall be exposed and capped at the south end of the site. A buried perimeter drain will be installed around the Site to intercept any future subsurface irrigation water. 2.2.3 SITE PREPARATION Site preparation shall consist of the excavation and replacement of soils beneath structures and the building-up of the Site grades around structures to aid drainage. Precast concrete piles will be installed beneath settlement sensitive structures. 2.2.4 DRAINAGE Site storm drainage will be designed for a 100-year 24-hr event. Design rainfall shall be 3 inches in 1 hour and 3 inches in 24 hours. Storm runoff on the Site will surface drain to a catch basin located at the northwest corner of the Site. Storm water shall be pumped from the catch basin to the existing Unit 3 brine pond. The cooling tower basin will have a perimeter slab with a sump to contain spills and runoff. Flood protection for the plant will be provided by building a levee on the east, west and south Site boundaries to elevation - 220.0 ft MSL. Levee construction shall be in accordance with Imperial County requirements. Road construction shall also meet Imperial County and Caltrans requirements. 2.2.5 ROADS Project roadways will be designed for H-20 highway loading and paved during final grading operations. The Contractor shall maintain all Site access roads during construction including dust suppression. 2.2.6 PAVING The cooling tower perimeter slab shall be designed for H-10 truck loading (16,000 lb. axle load). The turbine crane lift and laydown slab areas shall be designed for 600 psf. Site roads and parking areas will be bituminous asphalt concrete. The steam turbine area will be concrete. All other areas will be covered with a minimum of 3 in. of gravel underlain by geotextile fabric to prevent surface erosion and eliminate muddy Site conditions. 10 Exhibit "A" Attachment 1 - Design Criteria 2.2.7 FENCES AND GATES The plant Site shall be enclosed by an eight (8) ft. high perimeter fence for security purposes. The fence will be a chain link fence with a V-bar-type extension carrying three strands of barbed wire on each bar. Access gates will be supplied as required for main entry and supply access. The main entry gate shall be made of a 15 ft. swing gate and a 15 ft. cantilever sliding gate with a motor operator on the sliding section. Other access gates shall be 30 ft. double swing type. Personnel access gates shall be provided as required, but shall be limited in number for security purposes. All fence fabric, posts, barbed wire, hardware, and gates will be galvanized steel, aluminum-coated steel, or aluminum to reduce deterioration from atmospheric corrosion. The substation and transformer area will be separately fenced and provided with one 30 ft double swing equipment access gate and one personnel access gate. 2.3 STRUCTURAL AND ARCHITECTURAL MATERIALS 2.3.1 CONCRETE Lean concrete shall have a 28-day strength of 3000 psi. Structural concrete shall have a 28-day strength of 4000 psi. Concrete mix will be designed to be chloride resistant, sulfide resistant, and tolerate hot fluids for brief period of time. Concrete is to be placed over a compacted class II base, and isolated with geotextile fabric when design dictates. Concrete poured directed on top of native soil has often failed due to salt migration into the concrete. Concrete in acid handling areas shall have an acid and traffic resistant coating. 2.3.2 REINFORCING STEEL Reinforcing steel bars shall be Grade 60. All bars shall conform to the specifications for Deformed Billet Bars for Concrete Reinforcement (ASTM-A615). The number of different sizes of reinforcing bars used shall be kept to a minimum. The maximum length of bars shall be 40 ft. Reinforcing steel bars No. 11 and larger shall be spliced using Cadweld reinforcing steel splices, "Type T full tension splices", or mechanical splicers as Lenton Rebar splicing or Denton Grip Plain couplers. All other size bars shall be lap spliced. Minimum cover for all reinforcing steel is 3". Highly corrosive areas will be addressed with appropriate wear and chemical resistant coatings, as opposed to epoxy coated rebar. o Standard galvanizing of all structural steel is adequate for Unit 5. o Load indicating washers are required of load bearing structural steel joints. o All structural steel fasteners will be galvanized. 2.3.3 STRUCTURAL STEEL All structural steel shall be ASTM-A36 unless otherwise specified. All structural and miscellaneous steel shall be hot-dipped galvanized Field welding shall be kept to an absolute minimum. Where field welding is required, damaged galvanizing shall be repaired by the hot-stick method. 11 Exhibit "A" Attachment 1 - Design Criteria Structural members and connections (welded) shall be designed to minimize warping during galvanizing. Double angle members shall not be used. 2.3.4 STRUCTURAL CONNECTIONS All field connections of structural members shall be field-bolted with ASTM-A325 high-strength bolts unless otherwise specified. For stairways, girt, and purlins framing, ASTM-A307 bolts shall be used. Two grades of bolts shall not be used for the same diameter size. All ASTM - A325 and A307 bolts and associated nuts and washers will be hot-dipped or mechanically galvanized. Bolting for standard shop connections shall be used where practical. Field connections with high-strength steel bolts shall be bearing-type connections, except for members having reversible wind or seismic stresses, which shall require slip critical type connections (friction). All bolted connections shall be properly tensioned. Load indicating washers shall be used on galvanized bolts. Unless supported by calculations, all bolted end connections shall be not less than the following:
Beam Depth Bolts in off side Leg of inches Connection Angles ---------- ------------------------ 36 18 = 9 rows 33 16 = 8 rows 30 14 = 7 rows 27 12 = 6 rows 24 10 = 5 rows 21 8 = 4 rows 18 & 16 8 = 4 rows Beam Depth Bolts in off side Leg of inches Connection Angles ---------- ------------------------ 14 & 12 6 = 3 rows 10 & 8 4 = 2 rows 7 & under 2 = 1 row
2.3.5 ANCHOR BOLTS Anchor bolts cast in concrete shall be ASTM-A307 bolts and shall be hot-dipped or mechanically galvanized for all permanent anchorage such as columns and base plates. Anchor bolts for removable machinery, the cooling tower basin and sump, and other areas subject to corrosive conditions shall be stainless steel ASTM - A193 grade B8 bolts, ASTM - A194 grade 8 nuts and AISI type 304 washers. Plastic anchor bolt sleeves up to and including 3 in diameter shall be used in place of steel pipe sleeves for anchor bolts. All sleeves shall be back-filled with grout. 12 Exhibit "A" Attachment 1 - Design Criteria 2.3.6 STUD ANCHORS Anchor studs shall be Nelson Shear Connectors S3L or concrete anchors H4L as manufactured by Nelson Stud Welding Company, or concrete anchor studs headed 2X type as manufactured by KSM Division, Omark Industries, Inc., or equal. 2.3.7 DRILLED CONCRETE ANCHORS Drilled concrete anchor bolts shall be redhead wedge type stainless steel, catalog number WW as manufactured by ITT Phillips Drill Division, or an equal. In areas subject to damp corrosive conditions or where reversible loads are anticipated, epoxy capsule anchors (Hilti HVA or Molly Parabond) with stainless steel threaded rod and nuts shall be used. Drilled and grouted anchor bolts shall be the same as required under Anchor Bolts. 2.3.8 STEEL FLOOR DECK (TURBINE SUPPORT STRUCTURE) Steel floor deck (or steel floor forms) shall be used to form the underside of concrete floors. Decking will not be selected on the basis of composite design. Decking will be treated only as a floor form and credit shall not be given for features compatible with composite design. The deck shall be designed for the weight of wet concrete to be placed on the deck plus 25 psf to allow for the men and equipment used to place the concrete. Steel floor deck shall be at least 18 gauge. Steel floor deck design shall be a minimum of 1 1/2-in deep and shall utilize interlocking panels as produced by H. H. Robertson Co., Pittsburgh, PA. Steel deck shall be galvanized steel. Steel floor decking shall be attached to support framing by tack welding with minimum 3/4 in diameter fusion welds (puddle) at 12 in on center at all bearing points, or by other suitable means. The welded deck shall be considered sufficient to provide full lateral support to the upper flange of framing members. 2.3.9 DOORS All standard doors shall be full flush-type, insulated (fire resistant insulation), hollow metal doors. All hollow metal doors shall be 1 3/4 in thick. Fire rated metal doors shall be used where required for fire protection. Pressed metal frames shall be used for hollow metal doors in concrete block walls (minimum 16 gauge for interior frames and 14 gauge for exterior frames). Steel channel door frames or pressed metal frames shall be used for hollow metal doors in concrete and metal siding walls. Doors and frames shall be coated with a coating system approved by the Owner. 13 Exhibit "A" Attachment 1 - Design Criteria Weatherstripping shall be specified for all exterior doors and for all interior doors where a controlled atmosphere is required. Entrance doors shall be wide stile, aluminum framed, full glass swing doors. Hardware for doors shall be of materials resistant to the corrosive environment. Locks shall be stainless steel; lock cylinders may be of brass. All leaf doors shall be supplied with a lock mechanism keyed to the existing ASSA Twin key system. All leaf doors shall be supplied with heavy duty industrial door closers. 2.3.10 GRATING AND STAIR TREADS Grating and stair treads shall be serrated steel or non-skid fiberglass. Steel grating and stair treads shall be hot-dipped galvanized. Grating for floor areas and walkways shall be minimum 1 1/4 in thick x 3/16 in x 1 3/16 in bar spacing. Grating deflection shall be limited to 1/300 of the span. Substitutes for the standard type of grating shall require the Owner's approval. Fiberglass grating and stair treads shall be slip resistant configuration using silica particles integrally embedded in laminate. FRP grating will be Chemgrate, as supplied by Process Equipment Company, or Great-Grate as supplied by Fiberglass Reps (510-778-2200) Other FRP use must be approved by owner. Steel grating shall be placed so that the bearing bars span the short distance between supports. Where steel grating is placed around equipment or pipe penetrations, it shall be cut and banded with banding bars equal to the bearing bars in depth and thickness. Where openings are required in the steel grating, the designer shall provide for banded cut-outs or shall provide logical breaks in the grating for easy removal. Banded openings shall have the bandings extended 4 in above the top grating to act as a kick plate. Banding kick plates shall be provided at column cut-outs. Grating shall be supported by appropriate structural steel framing or on concrete in such a manner as to limit bounce and deflection. Steel grating sections shall be split and banded when placed around large size equipment requiring future removal. Grating shall be fastened with stainless steel hold-down clips. No allowance shall be made for grating acting to laterally support beams. Main access stair treads in turbine support structure shall be 11 in minimum tread depth (including 1" nosing), and riser height 7 in. minimum in accordance with the Uniform Building Code (UBC). A minimum stair tread of 3 ft wide, with diamond plate or abrasive-type nosing shall be provided. Stair treads less than 3 ft wide and ship's ladders shall not be used. Stair treads for equipment access shall be 10 in. minimum tread depth. Headroom for stairs and landing shall be 7'-0" minimum. 2.3.11 HANDRAILS AND GUARDRAILS Handrails and guardrails shall be nominal 1 1/4 in diameter railing with nominal 1 1/4 in diameter posts. Handrails and guardrails shall have three horizontal rails in accordance with Section 1711 (4) of the Uniform Building Code. Railing and posts shall be Schedule 40, ASTM-A53 Grade B pipe with welded connections. Where field connections of handrail are required, single-lock splice locks (R&B Wagner, Inc. Milwaukee, WI, or equal) shall be used to avoid disturbance of galvanizing. Bends shall be uniform. All pipe shall be smooth and free of burrs or sharp edges. Posts shall be spaced not more than 8 ft on centers. Removable handrails with kick plates shall be provided around floor openings with removable grating or removable concrete slabs. 14 Exhibit "A" Attachment 1 - Design Criteria Handrails and guardrails shall meet the requirements of the California Administrative Code, Title 8, Chapter 4, Subchapter 7, General Industry Safety Orders. Handrails and guardrails shall be hot-dipped galvanized. Internal vent holes shall be provided to facilitate galvanizing. Vent or drip holes shall be provided where closed end pipe is subject to water intrusion. 2.3.12 TOE PLATE A 4 in high toe plate (kick plate) fabricated from 6 X 4 angle steel shall be provided around all openings and stairs and along all handrails. Toe plates shall be provided in accordance with the requirements of the California Administrative Code, Title 8, Chapter 4, Subchapter 7, General Industry Safety Orders. Toe plate shall be hot-dipped galvanized and fabricated to preclude field welding. Platform grating shall be contained by the angle toe plate. 2.3.13 LADDERS Ladders shall meet the requirements of the California Administrative Code, Title 8, Chapter 4, Subchapter 7, General Industry Safety Orders and shall be 10ft high maximum without cage and 30 ft high with cage. A self-closing gate or swing bar shall be provided at the top landings. Self closing swing gates will be FRP of the same type used at Unit 4. Where cages are required by regulation or prudence, a Norton "Safety Climb" device or approved equal may be substituted for the safety cage or may be used to supplement the safety cage. Rungs shall be non-skid and a minimum of 7/8 in. diameter. Ladders shall face equipment or equipment support columns where feasible. When ladders are used to ascend to heights exceeding 20 ft, landing platforms shall be provided for each 30 ft of height or fraction thereof, except where no cage or ladder safety device is provided, landing platforms shall be provided for each 10 ft of height or fraction thereof. Each ladder section shall be offset from adjacent sections. Steel ladders, safety cages, and gates shall be hot-dipped galvanized and shall minimize field welding. 2.3.14 STAIRWAYS AND SAFETY EXITS Stairways shall be provided as required in buildings to meet accessibility and fire safety requirements of the California Administrative Codes, Title 8, Chapter 4, Subchapter 7, General Industry Safety Orders and the NFPA. Main stairways shall be provided to give access from ground floor levels to upper floor levels. These main stairways shall be either exterior stairs or interior. No point in an un-sprinklered building shall be more than 150 ft from an exterior exit door, horizontal exit, exit passageway, or enclosed stairway, measured along the line of travel. A minimum of two exits must be provided from any enclosed room of major proportions. In addition to the main access stairways, stairways shall be provided to access working platforms wherever practical. 2.3.15 CONCRETE BLOCK WALLS Concrete block walls shall consist of grout-filled hollow concrete masonry units meeting the requirements of the Uniform Building Code. Block walls shall be anchored to their bases and reinforced using standard reinforcing bars. All reinforcing and anchorages shall be designed to meet the wind and seismic load requirements as set forth in this criteria. Wall units shall be nominally 8 in x 8 in x 16 in size, hollow celled. 15 Exhibit "A" Attachment 1 - Design Criteria 2.3.16 INTERIOR PARTITIONS Interior, fixed partitions shall consist of metal stud walls covered with gypsum board. Thickness of gypsum board shall meet minimum Uniform Building Code (UBC) requirements. Partition walls shall use minimum 5/8 in fire rated gypsum board where a fire rating is necessary. Where gypsum board is to be provided in moist areas, special consideration shall be made for protective membranes. Partitions shall be protected by means of coverings or coatings. All partitions shall meet the requirements of these design criteria for seismic design as exposure dictates and the UBC requirements for deflection limitations. 2.3.17 CHECKERED PLATE Checkered plate shall be used only where absolutely necessary. When used, for trench covers, hatches, or flooring, material shall be a minimum of 5/16 in thick steel and shall have a diamond tread pattern on its upper surface. Care shall be taken to limit deflections and stiffen the plates as required for adequate design. Steel checkered plate shall be hot-dipped galvanized. Field welding of checkered plate is not allowed. 2.4 PLATFORMS Platforms with ladders or stairs shall be provided as required to permit service and maintenance of valves and other equipment not readily accessible from the main floors. Platforms shall be designed to provide a minimum of 7'-0" head room underneath the platform framing. Platforms shall be normally covered with grating and shall have handrail and kickplate on all exposed sides. Portable platforms shall not be used unless approved by the Owner. Where platforms are designed to service valves or other pieces of equipment, the stairways or access ladders to the platform shall be designed to meet California Administration Code, Title 8, Chapter 4, Subchapter 7, General Industry Safety Orders requirements for safety and accessibility. Wherever practical, all platform layouts shall allow for at least 3'-0" clear access and working space around all equipment. Particular attention shall be given to the design of platform posts or hangers and platform stability by using sufficient bracing to prevent sway, bounce, or racking of the platform. 2.5 STRUCTURAL METHODS FOR FIRE PROTECTION Concrete block walls or fire rated siding shall be provided where needed, to prevent the propagation of fire. Structural steel, where required, shall be two-hour fire rated and fireproof coated with Mandoseal P-50, Therm-Shield 40, or equal. In the final configuration, the columns shall have UL Design X-719 and beams UL Design N-724. All cable tray and pipe chase penetrations and miscellaneous penetrations of a similar nature through walls shall be sealed with Dow Corning 3-6548 silicone RTV foam, or equal. 2.6 EQUIPMENT REMOVAL Provisions shall be made for removal of equipment through floored areas. 2.6.1 HATCHES Openings with removable concrete plugs, gratings, or checkered plate shall be provided in elevated floors in areas where temporary access is needed for the removal of heavy pieces of equipment. A removable handrail shall be provided for placement around these temporary openings. 2.6.2 MONORAILS Subsequently, the Contractor shall design the steel framing above a prospective area requiring the monorail-hoist system for the estimated loading of that system in addition to other loads. Monorails shall 16 Exhibit "A" Attachment 1 - Design Criteria be "S" hot rolled steel shapes sized to specific hoist load ranges unless otherwise directed by a particular trolley manufacturer. 2.7 DESIGN LOADS FOR BUILDINGS, STRUCTURES AND EQUIPMENT This section describes the design loads that shall be considered in the structural design of building systems, equipment, and structural elements within the plant. These loads shall include but may not be limited to the following load types: Dead loads Live loads Equipment loads Wind loads Earthquake loads Special load allowances 2.7.1 DEAD LOADS Dead loads acting on a structure or a portion thereof shall consist of the weight of all permanent construction, including that for foundations, framing, walls, floors, roofs, partitions, stairways, and all fixed service equipment. 2.7.2 LIVE LOADS For the purpose of this design criteria, "live loads" shall be considered to be those loads applied as non-fixed floor or roof loads. The live loads listed in Table 8.2-1 shall be the minimum used for structural design. Live loads include all loads other than dead loads, load allowances, equipment loads, and special loads. Live loads are considered to consist of loadings not permanently fixed to the structures and occurring over areas not occupied by equipment. Actual equipment loads shall be used wherever they exceed the live load specified for that particular area, and the live loading may be omitted from design consideration where actual equipment is placed. 2.7.3 EQUIPMENT LOADS Where specific equipment is to be placed on a floor system or within an area to be loaded, for structural design purposes, that equipment load shall be applied to the structure in lieu of floor loads as defined above. Should specific loading information not be available for equipment, a conservative estimate of that equipment's loads shall be made and applied using available vendor information and literature, wherever possible and practical. Estimated loads shall be verified upon receipt of Vendor Data. Where no equipment loads are available from specific vendor information or available literature, the designer shall consider appropriate Table 8.2-1 floor loads to be used; if necessary, these live loads shall be increased to accommodate the anticipated loading conditions. 2.7.4 WIND LOADS Buildings and elevated structures shall be designed for wind load considerations in addition to other loading conditions identified herein. Wind loads shall be in accordance with the Uniform Building Code using a basic wind velocity of 75 mph at the standard height of 33 feet above ground and with exposure C conditions. The Normal Force Method (Method 1) of the Uniform Building Code has been used to determine wind forces. An importance factor of I=1.15 has been used for all structures and equipment. 17 Exhibit "A" Attachment 1 - Design Criteria 2.7.5 SEISMIC LOADING The project is located in an area of frequent and intense seismic activity and is classified as Zone 4 by the Uniform Building Code risk map. Zone 4 is associated with close proximity to major fault systems. Plant structures and equipment shall be designed by the Equivalent Lateral Force method. Forces shall be developed from the criteria contained herein. 2.7.6 STRUCTURES All structures shall be designed for the Equivalent Lateral Force developed by the UBC for Seismic zone 4. The distribution of lateral forces to structures shall be in accordance with the requirements set forth in the UBC. 2.7.7 EQUIPMENT The turbine and generator equipment shall be designed for an Equivalent Lateral Force of 0.45W and a Simultaneous Vertical Force of 0.30W. All other equipment shall be designed for the Equivalent Lateral Force developed by the Equipment anchorages (anchors, supports, bases, skirts, etc) shall be designed for the forces developed for the equipment except that equipment anchorages shall be designed for I = 1.5 (Importance Factor). LP and VLP Separators Atmospheric Flash Tanks Turbine Generator Main Condenser Air Removal Equipment Vacuum Pumps Condensate Pumps . Circ-Water Pumps/Auxiliary Cooling Water Pumps Heat Exchangers Transformers and Switchyard Structures Switchgear, Motor Control Centers, Power Distribution Centers, Load Centers, Distributed Control System, and Main Control Panel. Gantry Crane Air Compressors Turbine Lube Oil Components Fire Protection Pumps & Diesel Drive Emergency Power Generator Demisters and scrubbers Brine Pumps The Equivalent Lateral Force shall be applied to the center of gravity of the equipment. 2.8 FOUNDATIONS Structures and equipment foundations shall be designed to the parameters described in Geotechnical Design Criteria. Foundations shall bear on either soil structural replacement fill or on piles. Piles will be precast concrete. 18 Exhibit "A" Attachment 1 - Design Criteria TABLE 8.2-1
MINIMUM LIVE LOADS* Live Load, Live Load, Psf Floors** Columns and Location Psf Footings Remarks --- -------- ------- a. General ------- Stairs 100 50 See Note 1 Corridors and Lobbies 100 50 Storage, Heavy 250 250 Roofs 30 30 Platforms 100 100 See Note 7 b. Turbine Area ------------ Ground Floor General Areas 250 100 See Note 6 Turbine Structure Operating Level Rotor Removal Area Concrete 600 600 See Notes 3 and 6 Concrete Laydown Area 300 220 See Notes 5 and 6 Remainder of Concrete Areas 250 200 See Note 5 Grating or Checkered Plate 200 125 c. PDC Building (Elec. Equip.) Ground Floor 250 150
* These loads are minimum loads. Where actual loading information is available, it shall be used with due consideration for contingency loading. ** Girders carrying live loads of 100 psf or less, may be reduced as allowed by UBC Sec. 2306. 19 Exhibit "A" Attachment 1 - Design Criteria NOTES: ----- 1. Members shall be designed to support safely the uniformly distributed live load or a concentrated load of 300 lb on an area of 4 sq in at the center of the tread. 2. Floor members shall be designed to support the uniform live load or a concentrated load of 3,000 lb, whichever produces the greater stresses. The concentrated load shall be applied on an area 2 1/2 ft sq located so as to produce a maximum stress. This loading shall not be carried to girders, columns, or footings. 3. All slabs at the generator end of the unit shall be designed for an anticipated live load of 600 psf. The beams and girders shall be designed for a live load of 300 psf, or a concentrated load of one-half the weight of the rotor, plus 100 psf, whichever is higher. The remainder of the operating floor (grating areas) is not to be used for turbine laydown purposes. 4. The accumulation of live load for all grating floors, walkways, and miscellaneous platforms to any column shall not exceed 50 kips. 5. When automotive or lift trucks are to be used on floors, the members, grating, and floor slabs shall be designed for wheel loading. Vehicle paths shall be shown on drawings. 6. Girder design shall consider the condition with both ends of the rotor cribbed on the floor simultaneously. Actual loading in the lay-down area for turbine-generator parts and the movement of large equipment to final locations shall be accommodated. 7. Platforms where heavy maintenance may occur shall be designed for a live load of 150 psf. 20 Exhibit "A" Attachment 1 - Design Criteria 3. GEOTECHNICAL DESIGN CRITERIA 3.1 PURPOSE This chapter describes preliminary basic criteria to be used for the geotechnical design of the station. This criteria will be revised and updated, as required, after the on-site geotechnical reports become available. The goal of the preliminary criteria is to provide a basis for the initial design for foundations, roads and buried structures. The design should mitigate, as much as possible, the effects of the Zone 4 UBC earthquake as well as minimize static settlements, both total and differential. The effects of the Zone 4 earthquake include liquefaction of the upper soil strata, dynamic shakedown, regional tilting, and ground rupture. The first two effects, liquefaction and shakedown, are the only effects that can be reasonably dealt with. To mitigate these effects, the structure induced stress increase to the unsuitable soil layers should be minimized. The best way to minimize the stress increases is to found the structures below the inadequate soil layers. This would be the preferred solution for all structures, and it is the only solution for settlement sensitive structures such as the turbine structure. It is not economical to use deep foundations for all structures, so for non-settlement sensitive structures, the removal of a reasonable amount of unsuitable material will be considered and replacement with reinforced structural fill to help minimize the stress increases. For very light structural loads, structural fill without reinforcement will be considered to be adequate. A design based on minimizing the earthquake effects will also minimize the static settlements. 3.2 EXCAVATION AND REINFORCED STRUCTURAL BACKFILL Excavations will be backfilled with structural fill compacted to a dry density of 95 percent of the maximum dry density as determined by ASTM D1557. The structural fill will be placed at a moisture content between optimum and 3 percent less than optimum. The structural fill shall be similar to Caltrans Class 2 Aggregate Base with an increase of fines to reduce permeability. The gradation is shown in the following table. Where drainage is required, an aggregate subbase material will be used in conjunction with a geotextile filler fabric. The subbase material gradation is shown in the following table. Common fill, consisting of excavated on-site soils, may be used as appropriate. It shall be compacted to a dry density of 90 percent of the maximum dry density as determined by ASTM D1557 and at a water content of + or - 3 percent of optimum moisture content. A geotextile filter fabric will be specified on the drawings which shall have an equivalent sieve size to prevent piping or flow of fine sands and silts into the subbase material. The structural fill reinforcement will be used as required to: 1) enhance vertical stress distribution to reduce settlement and stress concentrations within the weak layers susceptible to liquefaction, and 2) create a reinforced soil structure to resist potential seismic effects. The geogrid should have high strengths in both principal directions at low strains and be heat resistant to accommodate the temperatures of the brine. Possible recommendation for structural fill subbase materials are: 21 Exhibit "A" Attachment 1 - Design Criteria
Fill Type Sieve Size Percentage Passing by Weight --------- ---------- ---------------------------- Structural Fill 2 inch 100 1 1/2 inch 87-100 3/4 inch 45-90 No. 4 20-50 No. 30 6-29 No. 200 5-12 Subbase Material 3 inch 100 2 1/2 inch 80-100 1 inch 45-80 1/2 inch 25-50 No. 4 0-5
3.3 BASIC DATA FOR FOUNDATIONS ON SOIL 3.3.1 BEARING CAPACITY The allowable bearing stress for footings and mats founded on structural fill is expected to be 4.5 ksf. The allowable increase for wind or seismic loading combinations is 1/3. Settlements for shallow footing and small mats are expected to be on the order of 1 1/2 inches or less, with 3/4 inch or less differential settlement. If differential settlement between footings needs to be minimized, an allowable bearing stress of approximately 2 ksf with an allowable increase for wind or seismic loading combinations of 1/3 will be used. Static settlements will be limited to 1 inch or less, with differential settlement less than 1/2 inch. The settlement resulting from earthquake loadings will be controlled by seismic shakedown of the upper 60 feet of loose material and can be on the order of 6 inches or more. 3.3.2 DEEP FOUNDATIONS Piles and stone columns will be considered of ruse as deep foundations. The following table is provided listing pile size and vertical and lateral capacity. Typical spacing will be approximately 7 to 8 ft. center to center. In isolated areas, a minimum spacing of 4 ft., center to center, would be allowable for clusters or for pile adjustments necessary for foundation interferences. Pile load capacities anticipated are based on previous load tests in the vicinity and are provided below.
Pile Size Vertical Capacity Lateral Capacity --------- ----------------- ---------------- (in) (kips) (kips) 12 130 10 14 130 14 16 130 20
Lateral capacity is for seismic loading, which includes the vertical and lateral loads with the 1/3 increase in the vertical load. Lateral movement will be on the order of 1/2 inch or less. 22 Exhibit "A" Attachment 1 - Design Criteria Spring constants for pile reaction will be determined from the pile load tests. The lateral spring constant (Kh) for the pile/soil reaction is anticipated to be 23 K/in. The dynamic vertical spring constant (Kv) will be approximately 1600 K/in., and the static vertical spring constant (Kv) will be approximately 730 K/in. 3.3.3 UNIT WEIGHT The following table is provided listing of preliminary material types and corresponding unit weights.
Wet Unit Weight Buoyant Unit Weight Soil Type (pcf) (pcf) --------- --------- ------------ Insitu Soil 125 62 Common Fill 130 68 Structural and Subbase Fill 135 73
3.3.4 POISSON'S RATIO The Poisson's ratio for the insitu material is approximately 0.3. 3.3.5 MINIMUM DEPTH OF FOUNDATIONS The ring walls used in the large tanks should be founded at least 3 ft. below the lowest adjacent soil surface to minimize settlement. 3.3.6 GROUND WATER The existing ground water elevation will be provided after receiving the geotechnical report. 3.3.7 ROADS Pavement thickness design can be based on the following table listing soil type and the corresponding CBR value. The road will be designed for a H-20 loading. Soil Type CBR -------------------------------------- --- Compacted Structural Fill 70 Insitu Soils at Existing Grade 2 Site Soils (Sands and Silts) Compacted 15 to 90% ASTM D1557 Soil Cement (10% Mix Ratio Cement to Dry Soil) 70 3.3.8 MODULUS OF SUBGRADE REACTION The modulus of subgrade reaction for insitu material will be approximately 14+/ft(3). The modulus of subgrade reaction for structural fill and soil cement is approximately 50+/ft(2). 3.4 LATERAL EARTH PRESSURE Preliminary lateral earth pressures will be determined based on the following table. 23 Exhibit "A" Attachment 1 - Design Criteria
Coefficient of Soil Lateral Earth Soil Type Condition Pressure (K) ------------------ --------- -------------- Insitu Soils 0'-6' Active .59 At Rest .74 Passive 1.70 Insitu Soils 6'-14' Active .31 At Rest .47 Passive 3.26 Compacted Fill On Site to 90% Mod. Active .49 Sand, Silt & Clay Mix At Rest .66 Passive 2.04 Compacted Structural Fill Active .20 At Rest .33 Passive 5.05
3.5 COEFFICIENTS OF FRICTION The friction angle to be used for concrete against structural and subbase fill should be 35(degree) (=0.70). The friction angle to be used for concrete against common fill (silts & sands) should be 20(degree) (=0.36). Other information may be obtained from the Geotechnical Report, Attachment 6, document 4.0-1. 24 Exhibit "A" Attachment 1 - Design Criteria 4. ELECTRICAL DESIGN CRITERIA 4.1 GENERAL INFORMATION AND PURPOSE This document is designed to provide basic Electrical design criteria and design guides necessary to properly design the Salton Sea Unit 5 geothermal power plant (the Project). As applicable, the design shall meet the requirements of the current revision of the National Electric Code (NEC), the National Electrical Safety Code (NESC) and the California Codes. The requirements of Underwriters Laboratories (UL) and Factory Mutual (FM) shall also be met. The electrical system will operate at a power factor of 0.95 or better. The oil filled Generator Step-Up Transformer and station service transformers will each have two 2 1/2% taps above and below the center tap. The tap changers on the generator step-up transformer shall be on the high side and shall be of the automatic load type. Transformer ratings should not exceed their normal operation loads by more than 25%, except where required by motor starting limitations. 25 Exhibit "A" Attachment 1 - Design Criteria Service voltages are: 13.8 KV volts, three-phase, 60 cycle, 4 wire wye, resistance grounded neutral; 4160 volts, three-phase, 60 cycle, 4 wire wye, low resistance grounded neutral; 480 volts, three-phase, 60 cycle, 4 wire wye, high resistance grounded neutral; 120/208 volt, three-phase, 60 cycle, 4 wire wye, solid grounded neutral; 277/480 volt, three-phase, 60 cycle, 4 wire wye, solid grounded neutral; The Step-Up transformer will supply power to the IID System at 92 kV. The plant will be designed to be controlled from the existing Region 1 control room located at Unit 3. The switchgear, motor controls, batteries, UPS system, I/O cabinets and logic cabinets for the Unit 5 DCS system, the generator excitation switchgear, turbine governor system, vibration monitoring and other control cabinets for Unit 5 will be located in a new Unit 5 modular electrical building called the Power Distribution Center (PDC) furnished and installed by the Contractor. A redundant data highway will be installed from this PDC to the common control room. Control insert panels for the voltage regulator and governor control will be mounted in the combined control room at Unit 3. All control will be through the DCS System. All modular electrical equipment buildings shall have redundant HVAC systems equipped with filtration suitable for a geothermal atmosphere, and these buildings shall be pressurized. Modules will be interconnected and main access doors shall have air locks. 4.2 RACEWAY SYSTEMS Properly designed raceway systems will provide for the safety and accessibility of electrical circuits. They will also provide spare circuit and feeder capacity for initial and future needs, as well as flexibility to accommodate future changes and rearrangements of cable runs. Raceway systems will consist primarily of conduits, cable trays, and underground ducts. Cable trenches will not be used. 4.2.1 SYSTEM REQUIREMENTS The functions of a raceway system are to provide a means of supporting cable runs between electrical equipment and physical protection to the cables, and, for a metallic raceway system, to provide a path to ground for the noncurrent-carrying part of an electrical system. Electrical raceways will carry power, control, lighting, instrumentation, and CCTV cables. Adequate spare capacity in raceways will be provided whenever feasible or practicable. Since every raceway system is unique, there is no strict rule to determine the percent of spare capacity; however, a minimum of 30percent spare ducts will be provided in duct banks at time of installation. The Contractor will employ good engineering judgment in providing spare capacity in raceway systems but the minimum acceptable in any raceway shall be fifteen percent. The metallic portion of all raceway systems will be electrically continuous and grounded. 26 Exhibit "A" Attachment 1 - Design Criteria Special attention will be paid to the adequacy of the raceway system. The National Electrical Code (NEC) regulations provide information for the installation of lighting systems and electrical systems in offices, warehouses, shops, computer room, elevators, switchboards and panelboards, and temporary construction power. In addition to safety and ample capacity, the raceway system will provide flexibility to accommodate future changes in the electrical system or will be routed along pipe support systems. The routing of conduit runs and cable trays will be laid out to avoid conflict with passageways or blocking access to equipment for operation, removal, or maintenance. Exposed raceway systems shall be routed to run either parallel or perpendicular to building structures. Conduit approaches to equipment shall be embedded whenever possible to avoid conflict with equipment access for removal or maintenance. All trays and exposed conduit near piping will be located to provide at least 6 in. clearance, after the maximum expected deflection of pipe, between the raceway and the pipe to permit space for the application of insulation on the pipe. Where pipe insulation surfaces are allowed to exceed 150 F, Clearance shall be increased to 12 inches. All raceways shall be designed to provide safe clearance from all process vents and heat sources. Independent raceway systems will be utilized to separate primary and backup protective relaying systems and redundant electrical circuits. Raceway fill will be monitored by the Owner during the design and construction phases. The raceway system is expected to remain in service for the life of the plant with little or no maintenance. The raceway system will have sufficient flexibility to be adaptable to changes. The latest issue of the following codes and standards will be used where applicable to the design, manufacture, and installation of raceway systems: NEC National Electrical Code UL1 Flexible Metal Conduit UL6 Rigid Metallic Conduit UL543 Fiber Conduit UL651 Rigid Nonmetallic Conduit NEMA TC6 Underground Duct NEMA BC1 Bituminized-Fibre Conduits and Fittings for Electrical Use NEMA VE1 Cable Tray Systems API RP-500A American Petroleum 27 Exhibit "A" Attachment 1 - Design Criteria Institute Recommended Practice for Classification of Area for Electrical Installation in Petroleum Refineries NFPA No. 497 National Fire Protection Association Raceway systems will be designed to allow for early partial installation of some sections so that they may be used during construction. This is particularly true in lighting and power outlet systems, fire protection, and water supply systems. 4.2.2 SYSTEM DESIGN Electrical materials shall be as follows: Area Equipment Material ---- --------- -------- All Areas Tray Hot dipped Galvanized Steel Except Cooling Conduit Hot dipped Galvanized Steel Tower Cable Tray Cable Strut. Hot dipped Galvanized Steel Cooling Tower Tray Fiberglass UV Resistant Conduit P.V.C. UV Resistant Cable Tray Cable with Ground Conductor Strut. Fiberglass UV Resistant 4.2.2.1 CONDUIT Conduit will be as follows: a. UV resistant fiberglass tray and hot dipped galvanized steel conduit shall be employed between the PDC and the cooling towers, and in the cooling tower area. Hot-dipped galvanized steel conduit and tray shall be employed in all other areas. b. Only Schedule 80 PVC shall be used underground. c. Conduit concealed in floor slabs or otherwise embedded in concrete structural members shall be rigid galvanized steel. d. EMT may be used inside buildings for lighting circuits where adequately protected as required by the NEC. Metallic conduit and fittings will be of the threaded type. Conduit sizes shall be based on percent fill as required by NEC. Sizes are limited to 3/4, 1, 1 1/2, 2, 3 and 4in. to minimize stock inventories. 28 Exhibit "A" Attachment 1 - Design Criteria Where embedded conduit crosses a vibration joint in a slab, either an 18 in. length of flexible steel conduit, wrapped with 1/2 in. of oakum and three thicknesses of burlap, will be installed and thoroughly painted with asphaltum, or a Crouse-Hinds XD coupling may be used. Unused conduit will be capped to prevent entrance of foreign material. Conduit bend radii will conform to NEC articles 300-34 and 346-10. Conduit will not be supported by process piping but may be supported on pipe racks. Conduit systems will be designed to minimize the pulling tension of cables. Maximum length of runs, number of bends, and spacing of pull boxes and condulets will be predetermined by the Contractor to allow cable to be installed and removed without exceeding permissible pull tension or side wall pressure which ever is the lesser value, with minimum difficulty, and without damage to cable. General rules to be followed are that no exposed conduit will be designed with more than four equivalent 90 deg bends and no concealed conduit will be designed with more than two equivalent 90 deg bends between pull boxes or terminal devices. Classification of hazardous, semi-hazardous and non-hazardous shall be based on the latest edition of the American Petroleum Institute Classification of Area for Electrical Installations in Petroleum Refineries". In general, conduit will be shown diagrammatic on drawings. Where required to facilitate installation or to minimize interference, the runs will be dimensioned. Pull boxes and junction boxes will provide access points for pulling and feeding conductors in the raceway. In straight pulls, the length of the box will be at least twelve times the diameter of the largest conduit. In angle pulls, the distance between the conduit entry side and opposite wall side of the box will be at least six times the diameter of the largest conduit, plus the sum of the diameters of parallel conduits entering the box; the distance between conduit entries for the same conductor will not be less than ten times the diameter of the largest conduit. Boxes involving both straight and angle pulls will be sized by combining the above rules. Pull sleeves as manufactured by OZ may be provided in straight runs. Fittings of the "Condulet" type will not be used as splicing points. To the extent practical, conduits will enter junction boxes from below. Outdoors, the conduit will terminate at the box with a "T" fitting and plug to allow for draining the conduit. Conduit fittings will preferably be of the same basic material as the conduit. Where necessary at connections to small devices such as push-button stations, solenoid operated valves, etc, a suitable box or condulet will be used to provide proper space for cable terminations. They shall be Crouse-Hinds Form 8 with cast cover or approved equivalent. 4.2.2.2 LIQUID TIGHT FLEXIBLE METALLIC CONDUIT Liquid tight flexible hot dipped galvanized conduit will be used between rigid metal conduit and equipment conduit boxes on all motors, connections to thermocouples, or in any situation where vibration is anticipated. Flexible conduit length should be as short as practicable, but not less than 1.6 times the minimum bending radii recommended for the cable which is to be installed. Flexible conduit will permit free movement of vibratory equipment. 29 Exhibit "A" Attachment 1 - Design Criteria Electrical continuity between conduit and equipment will be provided by suitable connectors or jumpers. Refer to Section 4.4.3.3, Grounding, for methods of installing jumpers. 4.2.2.3 CABLE TRAYS The design and installation of the tray system will conform to Article 318 of the NEC. The cable tray system will consist of units of suitable strength and rigidity, forming a continuous rigid assembly for providing support for all contained cables. It will not present sharp edges, burrs, or projections which would be injurious to the insulation or jackets of the cable, will have side rails or equivalent structural members, and will include fittings for changes in direction and elevation of runs. Hot-dipped galvanized steel will be utilized for all areas within the Power Generation Facility, Brine Processing Equipment, Turbine Building and Control Building. Width will be 12-36 in., with minimum inside depth of 4 in. and rung spacing of 9 in. All bend sections will have a 1 or 2 ft radius. In special situations other sizes may be used and noted on the drawings. Cable tray run between the PDC and the cooling towers and cable tray in the cooling tower area shall be UV resistant fiberglass tray. Tray covers, will be ventilated, requiring no derating of cable. Trays will not be located close to heat sources or process vents unless cables are derated for the expected temperature. Horizontal cable trays exposed to falling debris and water, will be covered on the top tray only. All outdoor trays will be covered. The longitudinal distance between tray supports will not exceed 8 ft. Vertical distance between stacked trays (i.e., bottom to bottom of tray or bottom to ceiling) will be 16 in., unless otherwise noted on the drawings. Trays will not be supported by process piping, but may be supported from the structural members of the pipe racks. Straight runs in excess of 200 ft. and areas where trays cross building joints will be provided with expansion joints. For calculating tray support requirements, the following weight of cable per linear foot of tray will be used: Tray Width Loading (In.) (lb/ft) ---------- ------- 12 20 18 to 36 50 30 Exhibit "A" Attachment 1 - Design Criteria Supports will be designed to perform, without damage or permanent deformation, loads as specified above multiplied by safety factor of 3.3. In addition the trays must withstand a point load of 250 lbs applied at mid-span without damage or permanent deformation. Supports will be designed for seismic zone 4. Cable trays will be given letter designations according to service as follows: "H" trays for 5kVand above power cable. "P" trays for 600Vpower and control cable. "I" trays for low-level signal shielded and non-shielded instrumentation cables. All cable tray systems will be designed so that the higher voltage cable tray is above the lower voltage cable. Most cables will leave trays from below. A standard drop-out fitting will be used to ensure that the cable minimum bending radius is maintained. All cable trays will be dimensioned on the Contractor's tray layout drawings and checked for interference with other plant equipment by the Contractor. 4.2.2.4 UNDERGROUND DUCT SYSTEMS Ducts to be encased in concrete, as in a bank, will be 4 in. PVC. Where long runs to isolated loads are required, and where conduit is to be used as a ground return, rigid galvanized steel conduit will be used. Layout of the underground system will be designed so that a minimum of handholds or manholes are required. Ducts for direct burial, as in single runs, will be rigid galvanized steel, utilized for isolated nonprocess loads, such as substation lighting. Duct sizes are based on 50 percent fill for one cable, 31 percent for two cables, and 40 percent for three or more cables and are limited to 4 in. When ducts turn up for termination near building walls, equipment foundations, or elsewhere, a female threaded bushing will be installed flush with the concrete, and a flush plug installed. Ducts will be spaced to provide adequate heat transfer, and cables in ducts will be derated according to duct configurations. Concrete for conduit encasement and duct banks shall be 3,000 psi with aggregate 3/4-inch or smaller. Concrete shall be colored red by the addition of 10 pounds of red oxide powder to each cubic yard of mix. The coloring shall be thoroughly mixed into the concrete before pouring. Concrete shall be thoroughly vibrated during placement to eliminate voids. Such vibration shall be carefully performed, so that conduit spacing will not be disturbed. Non-metallic spacers, tie-downs, and bracing shall be provided to maintain conduits in place during the pouring of the concrete. Where ductbank passes under roads, other areas where heavy traffic may be expected, or where ductbank bridges over pipe runs, reinforcing bar shall be used. 31 Exhibit "A" Attachment 1 - Design Criteria Spacers shall be located at 10 ft. intervals. The minimum depth from grade to top of the concrete envelope shall be 18 inches. Maximum depth shall be 6 feet 0 inches. All RGS conduit underground joints shall be made wrench tight with proper lubricant, taped with two layers of plastic electricians tape, one layer of friction tape and painted with Glyptol. Duct runs will be as straight as practicable, avoiding major interference with foundations, pipes, etc. The straight line route between pulling points will be selected without regard for paralleling or being perpendicular to building steel or underground piping. Anticipated use of excavations common to other underground work will, however, influence the routing, particularly on long runs. When bends are required to avoid obstructions, they will be located as close as possible to an end rather than in the middle of the run. This applies to both horizontal and vertical bends. Duct lengths will be such that the maximum pulling tension and side wall pressure, recommended by cable manufacturers are not exceeded. The length of duct between pulling points will not exceed: Straight run (with up to 30 deg in bends) - 550 ft Up to 90 deg in bends - Length to be based on not exceeding maximum allowable side wall pressure Up to 180 deg in bends - Length to be based on not exceeding maximum allowable side wall pressure Runs requiring more bending (max 270 deg.) may be used in extreme cases, but will not exceed 50 ft in total length. A curve using the above points can be made to select maximum duct run lengths for intermediate bend angles. The above lengths are based on the assumption that the most fragile cable will have a maximum pulling tension of 30 lb. Cables with less than 30 lb max tension require either shorter ducts or a messenger cable for installation. Each bend will have the largest possible radius consistent with duct configuration and material being used. Horizontal bends are more adaptable to large radii than vertical bends which are quite often restricted when turning up to equipment. The cable side wall pressures to be observed during installation usually dictate the minimum radius that can be used. Side wall pressures will be satisfactory if the maximum pulling tension in pounds is not more than 200 times the minimum bend radius in feet. 32 Exhibit "A" Attachment 1 - Design Criteria The minimum bending radius can be determined as follows: 1. For bends up to 90 deg. 200 R = 1.095 WL - 1.75 WR or R = 1.095 WL ------------ 200 + 1.75 W 2. For two bends up to 90 deg. each 200 R = 1.75 WL - 5.5 WR or R = 1.75 WL ----------- 200 + 5.5 W R = Duct radius, ft W = Combined unit weight of all cables to be pulled into duct, lb/ft L = Total length of duct, ft (The coefficient of friction is assumed to be 0.5) All cable pulling points will have covers large enough to permit exit and reentry of cable without compromising the minimum bending radius of the largest cable to be pulled through. Duct bank standard design for power cables will not exceed 12 normally operating circuits in each bank. Larger banks which contain both power and control cables will have the power cables in the top row and/or in the extreme outer vertical rows. Power cables shall be spaced in accordance with API 550, Section 7, Table8.4-3, except for single motor feeds where the power cables are lightly loaded and RGS conduit is used. In these instances, power cables and instrumentation wire shall be spaced much closer than recommended in API550. This is considered acceptable due to the shielding affect of both rigid galvanized steel conduit and twisted pair instrumentation wire. Spacing of ducts within the group will conform to dimensions of commercially available spacers. The design will permit reasonable (15 percent) deviations, in the spacing dimensions, to allow for the use of spacer material which may be unknown when the design is developed, and, also, for installation tolerances. 33 Exhibit "A" Attachment 1 - Design Criteria 4.2.3 INSULATED WIRE AND CABLE The Contractor will specify, procure, schedule and install the following types of wire and cable: 15 kV, 5 kV and 600 V Power Cables 600 V Control Cable 300 V or 600V Instrument Cable 300 V Thermocouple Extension Wire Coaxial and Triaxial Cable Lighting Wire Fibre Optic Cable The turbine vendor will provide wire and cable within their scope of supply specifications. This wire and cable, shall be in accordance with these specifications or will be subject to the Owner's approval.
DEFINITIONS Power Cable - Low voltage (600 Vor less) cable and medium voltage (601 - 15,000v) cable used to supply power to utilization equipment of the plant auxiliary system. Control Cable - Multi-conductor cable used at relatively low current levels or used for intermittent operation to change the operating status of utilization equipment of the plant auxiliary system. Low current levels include single phase a-c and d-c currents up to 10amps continuous. Instrument Cable - Low level signal cable operating at 50Vand less, generally transmitting low level, under 1amp, information. Thermocouple - Low level signal cable operating at 50Vand less, used for Extension Wire temperature transmission from thermocouples. Coaxial Cable - Shielded, single-conductor cable with special electrical characteristics used for accurate transmission of low level signal information. Triaxial Cable - Single-conductor cable with two concentric shields having special electrical characteristics used for the accurate transmission of small signal information. Lighting Wire - Low voltage power cable used to feed the plant's lighting system. Triplex Cable - A cable consisting of three insulated and jacketed conductors twisted together, without a common overall jacket.
34 Exhibit "A" Attachment 1 - Design Criteria Three Conductor - A cable consisting of three insulated or insu- Cable (3/C) lated and jacketed conductors twisted together with common overall jacket. Thermoplastic - A plastic insulation material which softens when Insulation heated above a certain temperature. Thermosetting - An insulation material that when cured by the Insulation application of heat, chemical crosslinking or radiation crosslinking, changes into a substantially infusable and insoluble material. Ampacity - The current-carrying capability of a wire or cable, expressed in amperes. AWG - American Wire Gage - Standard numerical identification method for cable sizes. Intermittent - Operation for not more than 40 percent of the time or for not longer than 30 min. for any one operation.
4.2.4 SYSTEM REQUIREMENTS The electrical wire and cable outlined in this criteria provides reliable transmission of energy and information to utilization equipment. The conductors, insulation and jacketing materials are selected to be suitable for the electrical load and environmental conditions encountered during the expected 30-year life of the plant. In general, wire and cable will be specified and procured in the following categories: 5 and 15 kV Power Cable 600 V Power Cable 600 V Control Cable 300 V or 600 V Instrument Cable 300 V Thermocouple Extension Wire Coaxial and Triaxial Cable Lighting Wire Fibre Optic Cable Miscellaneous Wire & Cable All power and control cable conductors will be copper. 35 Exhibit "A" Attachment 1 - Design Criteria The cables are installed in raceway systems (including conduits and trays) in accordance with specific raceway fill requirements. Where applicable, the cables are firmly attached to the raceway or otherwise firmly supported. 4.2.4.1 CABLE TESTING Prior to their connection to equipment, all cables are to be tested in accordance with the following table and procedures. Cable Size 5,000 volt 15,000 volt AWG 600volt (Unshielded) (Shielded) --- ------- ------------ ---------- 8 & smaller 1.5 5.0 6 1.0 4.0 1/0 to 4 inc. 0.4 2.5 2/0 - 250 MCM 0.3 2.0 4.0 300 MCM and larger 0.2 1.5 3.0 High-pot testing of all power cable is to be witnessed by the Owner or his representative. 4.2.4.2 INSTRUMENT, THERMOCOUPLE, COMMUNICATION, COAXIAL AND TRIAXIAL CABLE 1. Perform continuity and ground check before connecting to equipment. 2. Perform cable shield (if applicable) continuity check before connecting to equipment. 3. Meggering is only required for cable in ducts 50 ft and longer, and buried conduit. When meggering is required, megger as follows: Bundle all conductors together and megger to ground using a 500Vmegger for 10-15 seconds. Meggering shall be performed anytime after pulling and before terminating. The cable is considered acceptable if the reading is at least R megohms where R is (rated kv+ 1 megohm) x 1000/length in feet. 4.2.4.3 CONTROL CABLE 1. Perform continuity and ground check before connecting to equipment. 2. Perform cable shield (if applicable) continuity check before connecting to equipment. 3. Meggering is only required for cable in long (50ft and over) ducts, buried conduit, and as direct burial. When meggering is required, megger as follows: Bundle all conductors together and megger to ground, using 500Vor 1,000Vmegger for 10-15seconds. Meggering shall be performed anytime after pulling and before terminating. The cable is considered acceptable if the reading is at least R megohms where R is (rated kv+ 1megohm)x 1000/length in feet. 36 Exhibit "A" Attachment 1 - Design Criteria 4.2.4.4 600V POWER CABLE 1. Perform continuity and ground check before connecting to equipment. 2. Megger all cables with conductors terminated but disconnected from the equipment prior to energizing. Megger as follows: a Take megger reading from each conductor to all other conductors tied together and grounded using a 1,000Vmegger for 60seconds. b Meggering shall be performed anytime after pulling and before terminating. c Minimum megger readings to be obtained for conductor test, megohms per 1,000feet of circuit length at 60(degree)F. Record all megger readings. 4.2.4.5 POWER CABLE ABOVE 600V 1. Perform continuity and ground check before connecting equipment. 2. Cables shall be meggered after terminating and before connecting to equipment. Take megger reading from each conductor to all others and shield (where applicable) tied together and grounded, using a 2,500Vmegger for 60seconds. 3. Where cables are installed in ducts or buried conduit they shall also be meggered immediately after pulling. 4. Designated cable shall be hi-potted, after terminating and meggering. A d-c field acceptance test voltage as specified by the cable manufacturer, applied for the recommended time shall be used. The cable is acceptable if there is no discharge or excessive leakage as specified by the cable manufacturer. Minimal acceptable readings are listed above. 4.2.5 CODES AND STANDARDS Cable shall comply with the requirements of the latest versions of industry codes and standards: Short Name Complete Identification ---------- ----------------------- ASTM B8 American Society for Testing and Materials; Concentric Lay Stranded Copper Conductors Hard, Medium, or Soft ASTM D 2843 American Society for Testing and Materials; Standard Method for Measuring the Density of Smoke from the Burning or Decomposition of Plastics ASTM D 2863 American Society for Testing and Materials; Standard Method of Test for Flammability of Plastics using the Oxygen Index Method IEEE-S-135 Power Cable Ampacities-Aluminum & Copper Conductors
37 Exhibit "A" Attachment 1 - Design Criteria NEMA WC51 Ampacities, Cables in Open-top Cable Trays NEMA WC3 Rubber Insulated Wire and Cable for the Transmission and Distribution of Electrical Energy NEMA WC7 Standard for Cross-Linked Thermo-setting Polyethylene Insulated Wire and Cable for the Transmission and Distribution of Electrical Energy NEMA WC8 R1983 Standard for Ethylene-propylene-rubber-insulated Wire and Cable for the Transmission and Distribution of Electrical Energy NEC 1987 National Electrical Code
All cable is specified to maintain its critical electrical and physical quality during the plant life expectancy, 30 years. Aging data for the performance of cable insulation materials in long-term physical aging tests shall be obtained from the cable supplier. 4.2.6 SYSTEM DESIGN The wire and cable shall be installed in conduit, cable trays, and underground duct lines. Direct burial of wire and cable is unacceptable. When installing any specialized cable (e.g., Coaxial Cable, Fibre Optic Cable), specific installation precautions provided by the cable manufacturer should be followed. In general, the design of wire and cable shall be based on a maximum ambient air temperature of 50(degree) C, and additionally for power and control cable the continuous conductor temperature for normal operation will be 90(degree) C. The individual conductor insulation material for these types of cable shall be a 90(degree) C thermosetting type. The cable jackets shall be of a thermosetting material. Non-hygroscopic flame-retardant fillers and binders may be used, as necessary, to round the cable. All cables will be soft annealed copper wire conductors. 5kV and 15kV cables shall be bare copper, 600V cables shall be bare copper, and instrumentation cable shall be tinned copper. Cable splices are not allowed. Cable smaller than AWG No. 16 shall be tinned copper. Design of wire and cable which will be installed in underground duct lines shall be based on an ambient earth temperature of 35(degree) C. All wire and cable shall be capable of meeting its performance requirements throughout its installed life. Cable manufacturers must provide positive evidence that their cable passes the Cable Tray Fire Propagation Tests as specified by IEEE 383. The normal current rating (ampacity) of an insulated conductor is limited to that continuous value which will not cause excessive insulation deterioration from heating. This current rating for a given size of insulated conductor varies with the type of insulation, operating voltage, frequency, type of installation (ducts, conduit, aerial or open air), and ambient temperature. Power and control cable will be 600 volt NEC 90(degree) C cable will be utilized but will be loaded only to its 75(degree) C rating. The outer jacket will be ultraviolet resistant. 15kV, 5kV, and 600V cables shall be EPR. 38 Exhibit "A" Attachment 1 - Design Criteria Current carrying capacity (ampacity) tables are based on stated ambient temperatures with multipliers given for other than stated ambient temperature. 50(degree)C will be used except for areas where the ambient differs greatly. 4.2.6.1 CABLE TRAY SYSTEMS This section outlines cable-raceway interfaces which affect the sizing and selection of wire and cable. Raceway service designations are defined below: 4.2.6.2 TRAYS The "H" trays will be used for 5 and 15kV power cable. NEC de-ratings shall be applied. Ampacity of cables shall be in accordance with NEC. Cables shall be installed one layer deep with maintained spacing. Minimum tray size should be equal to 1 1/2 times the sum of the diameters of the cable installed therein. Ampacities for cables spaced 1/4 to 1 diameter apart shall be used. When installed, the cables shall be spaced 1/4 cable diameter from each side rail with a spacing between cables of .25 times the sum of the diameters of the two cables. 4.2.6.3 TRAYS The "P" trays will be used for 600Vpower and control cables. Ampacity of cables in "P" trays for intermittent service shall be in accordance with NEC for cables in air without de-rating for spacing. Cables for continuous operation shall be in accordance with NEC. "P" tray fill is determined by the sum of the installed cable cross-sectional area and shall not exceed 40percent of the tray cross-sectional usable area. 4.2.6.4 TRAYS The "C" trays would be used for communication cables. They will not be used on the Project. 4.2.6.5 TRAYS The "I" trays will be used for 300Vinstrument cable, 300Vthermocouple extension wire and 600Vcontrol cables operating at less than 50v. The "I" tray fill, determined by the sum of the installed cable cross-sectional area, should not exceed 50 percent of the tray cross-sectional area. Cables which are run in a combination of duct, conduit, and tray should be analyzed for ampacity limiting factor. As a general rule if that part of the raceway which would be the limiting factor on current carrying capacity is more than 10ft long then it should govern the cable rating for the entire run. The use of cable tray barriers may be permitted where necessary to eliminate, for example, a separate tray on an isolated run. This separation may be maintained by a barrier. Each side of the barrier should be assigned a different raceway number for identification. 39 Exhibit "A" Attachment 1 - Design Criteria In order to assure that power cables will operate within their design temperature limits, the cables shall be sized as follows: a. Determine the maximum continuous current of the load. b. Multiply this current by appropriate factor such as service factor, overload factor, etc. c. Apply proper de-rating factors. d. Determine cable size from NEC tables. e. Check voltage drop considerations. f. Check short time rating. g. Check short circuit currents. Single conductor triplexed power cables smaller than No.6 AWG shall not be used in trays since these cables will propagate flame. A 3/C cable shall be specified for these sizes. Insulation and jacket thicknesses for all power cable shall be in accordance with NEMA standards for the voltage rating of the insulated conductor. Insulation materials shall be ethylene propylene rubber (EPR). Jacket materials shall be chlorosulfonated polyethylene (Hypalon). For 5kVand above, insulation thickness shall be based on 133% insulation level. 4.2.6.6 CONTROL CABLE Some important considerations in selecting control cable include ampacity, voltage drop, reliability, special circuit requirements and mechanical strength. Insulation and jacket thickness for all control cable shall be in accordance with ICEA standards for the voltage rating of the insulated conductor. Insulation materials shall be EPR. Jacket materials shall be Hypalon. Individual conductors shall be color coded per ICEA S-68-516 TableK-2. 4.2.6.7 INSTRUMENT CABLE Instrumentation cable will be twisted/shielded with a tinned copper drain wire. Insulation materials shall be cross-linked polyethylene. 4.2.6.8 THERMOCOUPLE EXTENSION WIRE Thermocouple extension wire shall be Chromel-Constantan, Type E selected to be compatible with the instruments to which it is connected. Insulation and jacket materials shall be cross-linked polyethylene. (Important parameters include wire type eg/"KX", conductor material, temperature range and limits of error.) 40 Exhibit "A" Attachment 1 - Design Criteria 4.2.6.9 COAXIAL AND TRIAXIAL CABLE Coaxial and Triaxial Cable shall be selected to be compatible with the systems to which it is connected. Insulation materials shall be thermosetting, if possible. Jacket materials shall be thermosetting or neoprene. 4.2.6.10 COMMUNICATIONS CABLE No communication cable is required. 4.2.6.11 LIGHTING WIRE & CABLE For Lighting Wire refer to Section 8.4.3, Electrical Design Criteria for Lighting. 4.2.7 SAFETY CONSIDERATIONS Insulation and jacket materials for all wire and cable used shall be of flame-retardant, thermosetting materials. Cable manufacturers must provide positive evidence that the cable they are supplying passes the IPCEA Vertical Flame Test and IEEE-383 Cable Tray Fire Test (both oily-rag and gas-burner parts). The test data must be certified by an independent agent. All cable runs shall be splice free except for terminations in junction boxes as specifically shown on the drawings. Installation instructions shall require removing as little jacket as possible within panels, boards, terminal boxes, etc. Cables passing through floor and wall sleeves, and entering equipment will be sealed in accordance with the requirements of Section 8.4.10. Cables will be sized to carry the expected overcurrent experienced during a fault, for a sufficient amount of time to allow the protective devices to clear the fault. The Contractor will specify all cable insulation taking into account protection from anticipated or possible overvoltages and sheath voltages. 4.3 LIGHTING SYSTEM 4.3.1 DEFINITIONS Illumination-Density of light upon a surface, expressed in foot-candles or lux. HID-High Intensity Discharge Lamps. These include Mercury, Metal Halide and High Pressure Sodium. Means of Egress-A continuous and unobstructed way of exit travel from any point in a building or structure to a public way. Exit-Defined as those doorways and protected ways of travel to a doorway at ground level which open into plant roads or walkways. 41 Exhibit "A" Attachment 1 - Design Criteria Emergency Lighting-A lighting system designed to supply illumination essential to safety of life and property, in the event of failure of the normal supply. General Lighting-Lighting Units installed above the ordinary head level to secure a general illumination over a considerable area. Receptacle-A contact device installed at an outlet for the connection of an attachment plug and flexible cord to supply portable equipment. 4.3.2 SYSTEM REQUIREMENTS The lighting systems installed by the Contractor shall provide adequate illumination at all times with power supplied from normal a-c sources, and d-c batteries in emergency lighting units. The systems will provide adequate emergency lighting during all operating conditions, including transients, upset conditions and the effect of the loss of normal power, by use of batteries for emergency d-c lights. The systems provide, as a minimum, lighting intensities at levels recommended by the Illuminating Engineering Society. State and local regulatory agencies requirements may modify the criteria. Outdoor lighting levels and coverage shall equal or exceed those at the Owner's Unit 4. The a-c lighting system is supplied from 3 phase, 4W, 480/277Va-c distribution transformers and panels, and 120/208Va-c distribution panels. Fluorescent lamps shall be used for indoor lighting. High Pressure Sodium (HPS) shall be used for general outdoor plant lighting. HPS lighting shall be used for cooling tower area, high-bay areas and roadways. The plant's perimeter shall not be provided with light. Lighting fixtures shall be selected with due consideration for environmental conditions and ease of maintenance. Access to lighting fixtures will be available to maintenance personnel. Fixtures in high bay areas such as the turbine hall will be serviceable from area cranes. Maintenance factors for both lamp life and accumulated dirt will be factored into the lighting systems design. Auxiliary lighting shall be provided in approximately 10% of the indoor HID fixtures and on the turbine deck. Illumination shall be provided in accordance with current OSHA requirements for all exit facilities and means of egress. Exit signs shall be illuminated by a-c and d-c systems. The d-c system for these signs may consist of local battery packs. Lighting circuits should be loaded with care to avoid overloading and the subsequent tripping of breakers which would effect lighting reliability. To prevent faults in one system from rendering another system inoperative, separate conduits should be used to feed lighting systems derived from different sources. Therefore, emergency lighting circuits should not be run in the same raceways with normal lighting. By putting all fixtures in an area on one circuit, reliability is reduced to the extent that when the circuit fails all lighting in the area fails. In large and critical locations the area shall be fed from two different power sources and gain the reliability of having alternative sources. 42 Exhibit "A" Attachment 1 - Design Criteria Illumination shall be provided outside of doorways. These fixtures shall be separately controlled and fed from normal a-c lighting circuits. Fixtures used in hazardous areas shall be approved for the classification of the area. The plant lighting system will be designed so that portions of the system can be selectively energized during normal plant operation and the remainder can be energized in selected areas for maintenance operations. All lighting layouts shall be approved by the Owner. 4.3.2.1 STATION EMERGENCY LIGHTING The station lighting is composed of three separate systems: 1. Normal a-c lighting system supplied from the normal power buses with load distributed between buses. 2. Emergency d-c lighting system supplied from local self-contained wall packs. 3. Emergency a-c lighting system supplied from the emergency/critical buses. Normal a-c lighting is supplied throughout the plant while emergency a-c lighting is confined to the following areas: 1. Outdoor lighting, approximately 10%. 2. PDC - Switchgear and relay rooms, approximately 10% - Battery Room, approximately 10% These fixtures will be equipped with rapid re-strike. Normal a-c and emergency a-c systems shall be physically and electrically separated to prevent a common mode failure. In order to comply with the rules and regulations of OSHA concerning exit signs and egress lighting, the following egress lighting is required: a. Internally illuminated exit signs shall be provided at all exits. b. Adequate and reliable illumination for all exit facilities and clearly visible routes, both vertical and horizontal, shall be provided. Internally illuminated "Exit" signs and egress lighting shall have self contained battery packs. Means of Egress (access routes) shall have an illumination level of average 0.5fc measured at floor. Emergency lights shall be provided with a power source which can sustain the specific level for a period of at least 11/2hr. A-c emergency lighting shall be fed from MCC-03 located in the PDC. This MCC will in turn be connected back to Emergency Bus MCC-306 in the Unit 3 PDC-303. 43 Exhibit "A" Attachment 1 - Design Criteria 4.3.2.2 CODES AND STANDARDS The latest versions of the following codes and standards shall be used where applicable to the manufacture, testing, installation, inspection and operation of the specified lighting systems:
OSHA Occupational Safety and Health Act Federal Register, Vol. 37, No. 202 Means of Egress lighting, Exit lighting Subpart E, Par. 1910.35 Illumination Subpart C, Par. 1926. 56 ANSI American National Standards Institute Industrial Lighting IES RP7 Protective Lighting IES RP10 Street & Highway Lighting IES RP8 Fixtures, Electrical UL57 Panel Boards, Safety Standards UL67 IES - Illuminating Engineering Society 5th Edition Levels of Illumination Lighting Guidelines NFPA - National Fire Protection Association 70 NEC-National Electrical Code Wiring, Protection, Grounding, Materials, Methods Life Safety Code 101 Egress and Exit Lighting
4.3.3 SYSTEM DESIGN Receptacles will be supplied from 120/208Vor 277/480Vdistribution panel circuits. The drawings will show the type of fixture to be used in a specific area, in lighting tables. Fixtures will be assigned dimmer controls, located on walls, by control console and equipment arrangement. 4.3.3.1 MISCELLANEOUS POWER LOADS In general, miscellaneous power loads, such as space heaters, unit heaters, heat tracing, and fractional hp motors rated 120Vshall be supplied from a separate power system. These loads shall be supplied from the lighting panel only in isolated cases where the installation of a separate panel is impractical. Panelboards shall be in safe and accessible locations. They shall be located in the PDC buildings. Branch circuit breakers for lighting and receptacles shall not have a continuous connected load exceeding 80 percent of the branch circuit rating. Twenty percent spare installed breakers shall be provided at initial design stage with the remaining panel-board space provided with connections for future breakers. No more than six receptacles shall be connected to any branch circuit. The color code for lighting branch circuits shall be black, red and blue for phase conductors, white or natural gray for the neutral (grounded) conductor and green for equipment ground. 44 Exhibit "A" Attachment 1 - Design Criteria Throughout the installation, there will be 120VAC receptacles protected by ground fault interrupters (GFI's). They will be used where required by code. There will also be 3phase 480Vreceptacles for use with welders or heavy power equipment. Outdoor installations of these receptacles will be appropriately housed. D-c circuits shall be coded white or natural gray for the negative and black for the positive conductor. GFCI circuits shall have a separate neutral wire for each circuit brought back to the panel-board. 4.3.3.2 LIGHTING MAINTENANCE There are two major maintenance factors to be taken into consideration in the design of a lighting system; one is the Lamp Depreciation Factor (LDF) that converts initial lumens to average or mean lumens. These rates are determined from published data for the specific lamp used. The other is the luminaire Dirt Depreciation Factor (LDD) which varies with the type of luminaire and the atmosphere in which it is operated. For a 12month luminaire maintenance program the following combined maintenance factor (MF) will be used: .70 for general plant .75 for control, computer room, etc .80 for offices 4.3.3.3 GROUNDING The a-c lighting system shall be solidly grounded with a grounded neutral wire and an equipment ground, in accordance with Article 250 of the NEC. A metallic cable sheath, raceway, and/or conduit system, where used, may take the place of the equipment ground. Poles will be roadway lighting type, non-metallic or fiberglass, with anchor base, hand hole and tapered elliptical arm. Poles will be grounded. Each of the outdoor lighting panels will have an associated photoelectric eye, contactor and hand-off-automatic control switch. 4.3.3.4 LIGHTING FIXTURE REQUIREMENTS Lighting fixtures will be selected to meet the quantity and quality requirements specified in this document, as well as the mechanical performance that will meet installation, operation, and maintenance conditions. Specific requirements for fluorescent fixtures: a. Lampholders must be of the spring loaded, tombstone type and have positive backing to preclude longitudinal disposition. b. Ballasts shall meet UL "Class P" requirements. c. Fuses in the fixtures should be slow-blow type and rated sufficiently high to accommodate the inrush current. d. Louvers, lenses, and other normally removable fixture parts should be positively latched and have captive hinging to prevent them from falling should they become unlatched. 45 Exhibit "A" Attachment 1 - Design Criteria Specific requirements for incandescent and HPS fixtures: a. Fixture components such as reflectors, globes, guards, and louvers should be securely fastened. b. Industrial or vibration service lamps should be specified. c. Lampholders should be of the shock absorbing and vibration-proof type. d. Pendant hung fixtures shall have hook attachments and shall be hard wired. e. Rapid restrike ballasts will be used. 4.3.3.5 TRANSFORMERS General purpose, dry-type, 480v-120/208Va-c or 480 - 277/480Va-c, three phase) transformers will be used to supply lighting, receptacle and miscellaneous load distribution panels. Transformers shall preferably be in 30, and 45KVA sizes. The transformers will usually have two 2 1/2 percent full capacity taps above and below rated primary voltage. All transformers shall conform to NEMA-ST20. Transformers shall have a 220O C insulation system and be designed not to exceed 150OC rise. Normal life is based on 40OC average ambient. The transformers shall be arranged for wall or floor mounting, as required, and near the load served. 4.3.3.6 WIRING, CONDUIT AND MISCELLANEOUS EQUIPMENT Lighting and receptacle wire shall be No.12 or larger stranded copper type THWN, 90(degree)C insulation, moisture and heat resistant, 600Vrating. All fixture stems and fixtures shall be wired with stranded copper cable fixture wire type SFF-2, moisture and heat resistant, with suitable nonmetallic covering. Portable rubber cord type SJO will be used to supply fluorescent fixtures, if required. Splices and taps in the lighting wire shall be made by insulated wire nuts (Scotchlok Spring Connectors). Lighting branch circuit wire size shall be in accordance with NEC Table310-16 for rated conductor temperature corrected to proper ambient of 40(degree)C except as noted. All lighting conduit shall be a minimum of 3/4 in. hot-dipped galvanized steel. Commercial EMT conduit may be used indoors, where allowed by NEC. Lighting fixture stems shall be 3/4 in. hot-dipped galvanized steel conduit unless otherwise noted. All exposed receptacle outlet boxes shall be FS series, and switch outlet boxes shall be FD series, unless otherwise noted. Outlet boxes exposed to the weather shall have suitable weatherproof covers. All exposed lighting and junction outlet boxes shall be Crouse-Hinds Krylon, fiberglass or equal 2-1/8 in. deep, unless otherwise noted. All recessed light and junction boxes in concrete shall be hot-dipped galvanized pressed steel 3 in. deep, unless otherwise noted. All recessed light outlet boxes shall be provided with 3/8 in. fixture studs. Receptacles and local switches in offices, laboratories, control room, and partitioned rooms with hollow walls shall be flush mounted in outlet boxes, with coverplates to match other hardware. Local switches shall be specification grade for lighting circuits in offices, laboratories, control room, and partitioned rooms. 46 Exhibit "A" Attachment 1 - Design Criteria Receptacles shall be specification grade, duplex, two-pole, three-wire, grounding type for 125v, 20A Service. Photoelectric cells shall be designed for automatic quick response switching of outdoor lighting loads or contactor coils. Operating level will be preset for turn-on at 1.5 +/-0.6fc and turn-off at 6 to 10 fc when the control voltage is 120v. The enclosure shall be fitted with locking type plug and shall be of non-corroding, nonconductive material. 4.3.3.7 INSTALLATION Installation of the lighting system shall be in accordance with the installation specification and the latest edition of the National Electrical Code, unless otherwise noted. The lighting shall be designed for early installation to facilitate the use of portions of the permanent system during construction. Fluorescent fixtures may be hung on chains attached to each end of the fixture. The cord from the fixture shall be hard wired. Fixtures shall be placed away from critical equipment. Recessed fluorescent fixtures shall be double-suspended, i.e., from suspended ceiling and from structure. Sufficient interleaving and inter-spacing of both parallel a-c lighting and parallel emergency a-c lighting shall be provided to prevent the total loss of lighting in critical areas. 4.3.3.8 SYSTEM VOLTAGE RANGE The a-c lighting system will be designed to operate with a +/-10 percent voltage variation. 4.3.3.9 SYSTEM OPERATION The normal and emergency a-c lighting system is normally operating during all modes of plant operation including the relay, switchgear rooms and adjacent related areas. On loss of normal a-c power, a-c emergency lighting remains energized, and is transferred to the emergency source. 4.3.3.10 SAFETY CONSIDERATIONS Emergency lighting shall meet the requirements of NEC article 700-D. The levels of illumination listed in the lighting tables (Appendix8.4-3) provide greater than the minimum levels required where safety is related to seeing conditions. 4.3.4 MAINTENANCE The Contractor shall maintain the system until turnover to the Owner. 47 Exhibit "A" Attachment 1 - Design Criteria Preventive maintenance should include group re-lamping of areas before the end of the average rated life of the lamps, instead of spot re-lamping only as individual lighting elements burn out. Also periodic cleaning of lens, fixtures, lamps and tubes can maintain the average light intensity at the design level. All maintenance and cleaning of lighting system components will be done in accordance with manufacturers' recommendations. Design of the lighting systems shall permit routine testing without disrupting normal service. The self-contained units shall be provided with local test switches to simulate loss of normal a-c power. Lighting Tables --------------- The following tables show the illumination level* and type of fixture by building and area: Switchgear and Related Areas I Turbine Building II Misc. Buildings and Areas III Outdoor Areas IV * Illumination level is shown as the minimum foot-candles required for a task and as average foot-candles for an area. TABLE I Control Building ---------------- Foot- Area Candles Fixtures ---- ------- -------- Levels and Landings 5 Fluorescent Switchgear Room 35 Fluorescent Relay Room 80 Fluorescent HVAC Area 20 Fluorescent Battery Room 20 Fluorescent 48 Exhibit "A" Attachment 1 - Design Criteria TABLE II Turbine Building ---------------- Foot- Area Candles Fixtures ---- ------- -------- Levels, Landings, 5 (Enclosed & Gasketed) HPS and Corridors Ground Floor 20 (Enclosed & Gasketed) HPS Turbine Oil Room 20 (Enclosed & Gasketed) HPS Operating 35 (Enclosed & Gasketed) HPS Level TABLE III Miscellaneous Buildings ----------------------- and Areas --------- Foot- Location Candles Fixture -------- ------- -------- Circulating 30 (Enclosed & Gasketed) HPS Water Pump Area TABLE IV Outdoor Areas ------------- Foot- Location Candles Fixture -------- ------- -------- Main Entrance 5 (Enclosed & Gasketed) HPS Roadways 1 (Enclosed & Gasketed) HPS Parking Areas 2 (Enclosed & Gasketed) HPS Switchyard (General) 0.2 (Enclosed & Gasketed) HPS (Disconnects) 2.0 Tanks 1 (Enclosed & Gasketed) HPS 49 Exhibit "A" Attachment 1 - Design Criteria Cooling Tower 5 (Enclosed & Gasketed) HPS Brine Processing Areas 5 (Enclosed & Gasketed) HPS 4.4 GROUNDING SYSTEM The grounding system will consist of the interconnected grounding conductors and ground electrodes necessary to provide an adequate electrical connection to earth. The grounding system will minimize shock hazards to personnel and will provide a ground path for a-c system faults and direct stroke lightning currents. The plant and switchyard will have a ground grid designed to IEEE standards. The turbine structure and PDC will have a ground system installed which will be tied by two ground conductors to the substation grid. The metal enclosure or frame of all electrical equipment, the air terminals of lightning protection systems, building steel and other metallic objects which could become energized will be connected to the grounding system. This section also includes methods to be used for the grounding of instruments. The grounding system layout shall be approved by the Owner.
DEFINITIONS Ground - A conducting connection, whether intentional or accidental, by which an electrical circuit or equipment is connected to the earth or to some conducting body of relatively large extent that serves in place of the earth. Grounded - Connected to earth or to some extended conducting body which serves in place of the earth, whether the connection is intentional or accidental. Ground connection - A connection used in establishing a ground and consisting of a grounding conductor, a grounding electrode, and the earth (soil) which surrounds the electrode. Ground conductor - A conductor providing an electric connection between part of a system, or the frame of a machine or piece of apparatus, and a ground electrode or a ground bar. Ground electrode - A conductor or group of conductors in intimate contact with the earth for the purpose of providing a connection with the ground. Ufer Ground - A system used in establishing a ground by utilizing steel reinforcing bars in concrete foundations.
50 Exhibit "A" Attachment 1 - Design Criteria Ground grid - A system of grounding electrodes consisting of interconnected bare cables buried in the earth to provide a common ground for electric devices and metallic structures.
4.4.1 SYSTEM REQUIREMENTS 4.4.1.1 CODES AND STANDARDS The grounding and lightning protection systems will be designed and installed in conformance with the latest versions of the following codes and standards: National Electrical Code Article 250 Grounding NFPA No. 78 Lightning Protection Code IEEE 80 Safety in a-c Substation Grounding IEEE 142 Grounding of Industrial and Commercial Power Systems NESC National Electric Safety Code 4.4.1.2 SYSTEM GROUNDING System grounding consists of the connection of the neutral or one of the normal current-carrying conductors of the power system to ground, for the purpose of enhancing overvoltage and short circuit protection. Such connections will be effected at various points and they may be connections of no intentional impedance such as solid grounding, resistance such as low or high resistance grounding, or inductance such as reactance grounding. The 13.8 kV generator will be resistance grounded through a distribution transformer. 4.4.1.3 MEDIUM VOLTAGE SYSTEM-4.16KV The medium voltage system grounding will consist of low resistance grounding of the system neutral. Each of the medium voltage source neutrals, such as transformers, will be connected to ground through a resistor. The low-resistance method will have the advantage of immediate and selective clearing of the grounded circuit but also will require that the minimum ground-fault current be large enough (400A) to positively actuate the applied ground-fault relay. 4.4.1.4 480V SYSTEM The 480V3-phase, 3-wire system will be wye connected and low or high resistance grounded. Bus MCC 03 will be designed to be connected back to the 4.16 kV bus which is in turn connected to the reconditioned 12kW diesel generator bus and will be low resistance grounded. 51 Exhibit "A" Attachment 1 - Design Criteria The individual motors will be grounded through the raceway system. Where this is impractical, or fault current could exceed raceway current rating, a separate ground conductor will be installed. Where motors are remote from the station grounding system, a ground rod will be installed. 4.4.1.5 120/208V SYSTEM AND 277/480V SYSTEM Both the 120/208Vthree-phase system and the 277/480Vthree-phase system neutral will be solidly grounded at the various sources of supply. 4.4.1.6 D-C SYSTEM The d-c system will be ungrounded. Ground tracing features will be used to detect and alarm unintentional connections to ground. 4.4.1.7 MAIN GENERATOR NEUTRAL The unit-connected main generator neutral will be grounded through a high-resistance arrangement. This method consists of connecting the generator neutral to the primary winding of a sealed, dry type, two-winding, single-phase distribution transformer, with a primary rating equal to the generator line-to-neutral voltage nearest standard voltage rating, and a low voltage, high-current (200amp) resistor connected to the transformer 190Vsecondary winding. 4.4.1.8 STRUCTURAL STEEL Structural steel will be grounded in accordance with NEC. Steel structural members which will be isolated from ground because of the building design will be connected to the nearest grounded structural steel member or directly to the grounding system by cable. Where overhead high voltage conductors and ground wires are secured to a building, ground cable will be installed from the station grounding system to each point of cable attachment on the building. 4.4.1.9 MOTORS All local motors 25 hp or smaller will use the conduit system for ground fault current return. When conduit is not used, a ground conductor equal in ampacity to the phase leads will be provided for motor frame grounding. In addition, 4160volt motors and remotely located motors will have a driven ground rod. In addition, they will be grounded to the raceway, where feasible. Where non-metallic raceway is used, the cable feeder to the motor shall have a fourth grounding conductor (half size) to which the motor frame shall be grounded. 4.4.1.10 SWITCHGEAR The ground bus in metal-clad switchgear, load centers, and motor control centers will be connected to the station grounding system at each end by ground cables. Switchgear, load centers, and motor control centers will be provided with a fault current return path grounding conductor; rigid conduit or the ground cable in the cable tray will be used. 4.4.1.11 RACEWAYS A ground cable (No. 4/0 AWG copper) will be laid in all nonmetallic trays containing power cables. The ground cable will be fastened to tray rungs in the same manner and at the same intervals as the power conductors. The ground cables will be routed through wall and floor sleeves, as required, to make a continuous run. Where a metallic sleeve is used to enclose a grounding conductor, each end of the sleeve will be connected to the ground conductor. 52 Exhibit "A" Attachment 1 - Design Criteria In the non-remote areas, hot dipped galvanized tray will provide a ground fault current return path. Sections of the tray shall be jumpered with a green insulated wire to provide continuity of the return path. The connection of the jumper wire to the tray shall be given special consideration as a point of possible corrosion. In the non-remote areas, hot dipped galvanized conduit between equipment or between cable tray and equipment will provide a ground fault current return path when properly connected. Conduit ground connections to equipment will be made with a threaded hub, boss, or two locknuts, one on either side of the box or cabinet. Conduit ground connections to cable tray will be made with a non-insulating type grounding bushing on the conduit and a bonding jumper to the ground conductor within the tray. The size of the bonding jumper will be the largest the bushing can accommodate. All flexible conduit will be jumpered with a bare conductor, using a green insulated wire. Conduits shall be bonded to metallic tray, or to the copper ground conductor in nonmetallic tray. Each duct bank containing power cables will have a bare tinned copper grounding conductor encased in the duct enclosure. 4.4.1.12 PIPING AND TANKS Metallic underground piping and fixed piping of the fire extinguishing systems will not be connected to the station grounding system, unless cathodic protection is required. Metal tanks shall use a ground rod with PVC protected copper, 4/0 cable attached to above ground steel. 4.4.1.13 FENCE AND RAIL 4.4.1.13.1.1 Fences for the substation will be connected to the grounding system. Fence posts will be connected at intervals of approximately 50ft to a parallel tinned copper ground conductor buried 3ft outside the fence. Posts on each side of a gate or removable fence section will be bonded together below grade. For each permanent gate, a potential grid will be installed. Crane rails will be connected to ground and rail joints will be jumpered. 4.4.1.14 BUILDING LIGHTNING PROTECTION AND GROUNDING The following lightning protection and grounding requirements shall apply: 1) Turbine Structure - Shall be protected from lightning by Air Terminals located on light poles and tied directly to the ground system. - Grounding shall be by redundant conductors to the switchyard mat. - Stator housing and neutral grounding transformer downcomers on turbine pedestal shall be grounded to the substation grid via cable in PVC conduit. 53 Exhibit "A" Attachment 1 - Design Criteria 2) Cooling Tower - Lightning protection shall be provided by wood poles, static lines, and ground rods. - All motors shall be provided with adequate ground connections. Each motor will carry a ground conductor routed through tray. 3) Modular Equipment Buildings - No lightning protection is required. - The PDC will be surrounded by a ground loop which will in turn be grounded with two ground rods and grounded to the switchyard grid. 4) Vessels - No lightning protection is required. - Vessels shall use a ground rod with a 4/0 copper cable (insulated) tied to above ground steel. 3/4" PVC shall be used to protect the cable. (This alternative is necessary because of epoxy coated rebar.) 5) Pipe Racks - Ufer grounded, every other column. Rebar may be tied directly to anchor bolts. 6) Switchyard - Lightning protection shall be by static wires. - An underground ground-grid shall provide ground protection, the ground grid shall consist of 316 stainless steel, one inch diameter ground rods, 10feet in length tied together with tinned copper ground conductors. All connecting points shall be coated. 4.4.1.15 DISCONNECT SWITCHES The operating position for the 92kV hand-operated disconnect switch will be protected from voltage potentials arising between the switch handle and ground by a copperweld wire mesh grounding mat buried 4in. below grade, or a metal grating located at or above finished grade where a person stands to operate the switch. No point within the protected area will be more than 3ft from the mat. The mat will be connected to the grounding grid at the same point as the switch supporting structure. 4.4.1.16 ELECTRONIC CONTROL SYSTEMS The following procedure will be implemented unless manufacturer's instructions are to the contrary. 54 Exhibit "A" Attachment 1 - Design Criteria Terminal cabinets, control panels and consoles involved with electronic signals will require two grounding systems as follows: 1. Safety Ground: Grounding bus is attached to cabinet and panel structures. 2. Signal Ground: Instrument cable shielding and instrument signal reference ground attached to this bus. In loops containing multiple instruments, the shields of all cables used in the loop should be connected together and connected at only one point to the shield ground bus, at the signal source cabinet. Intermediate terminal boxes for signal wiring is unacceptable. The signal ground shall be isolated from the safety ground with the exception of a single point of connection. The design shall prevent ground loops in the signal ground system. Grounding of the equipment ground bus will be made by directly connecting to the station grounding system. System specifications should advise the manufacturers of the intent to ground shields and cabinets in this manner. 4.4.1.17 LIGHTING All lighting circuits will be grounded in accordance with the National Electrical Code. 4.4.1.18 MISCELLANEOUS All miscellaneous items not included in this criteria will be grounded in accordance with the National Electric Code. 4.4.1.19 COMPONENT DESIGN The size of each medium voltage (4160V) system neutral grounding resistor will be such as to limit the fault current through the source neutrals to a minimum of 400A. The station grounding system cable shall be tinned copper for underground and bare copper for indoor applications. For outdoor applications above ground, the grounding system cable shall be stranded, insulated copper. Where a grounding cable is used for both indoor and outdoor applications, the entire cable shall be as dictated by the outdoor application. Ground rods shall be 10 feet in length and 1 inch in diameter, 316 stainless steel. Ground wells shall consist of 316 stainless steel, 2 inch, schedule 160 pipe. For convenient access the pipe shall be installed in a 10 inch concrete pipe or plastic box with removable cover, standard water meter box is acceptable. No coke breeze fill shall be utilized. Where ground cable in concrete crosses expansion joints, the cable shall be wrapped with burlap and painted with asphaltum or wrapped with polyethylene. The ground cable shall be wrapped a distance of 18in. either side of the expansion joint. All grounding connections shall be by the compression type, or of a clamping or crimping type approved by the Owner. 55 Exhibit "A" Attachment 1 - Design Criteria 4.4.1.20 ARRANGEMENT The station grounding system's general arrangement shall be shown on the Contractor's drawings. 4.4.1.21 CONSTRUCTION NOTES Continuity of the station grounding system shall be verified during construction. After construction, ground resistance to remote earth will be measured and compared with computed value, and proper corrective action shall be taken by the Contractor, should the measured value be substantially higher than one ohm. 4.4.1.22 SYSTEM RELIABILITY The reliability of the system shall be ensured over the life of the plant, as long as the conductors are of adequate size, all joints are made up tightly, and scheduled testing is performed. 4.4.2 SYSTEM LIMITATIONS, SET POINTS AND PRECAUTIONS Resistance of the station grounding system to remote earth shall be a maximum of one ohm. 4.4.3 OPERATION The station grounding system is passive. No human, mechanical, or electrical control or operation will be required. Its functions are protective, preventing harm to personnel and damage to equipment or structures. 4.4.4 SAFETY CONSIDERATIONS Electric shock accidents are caused by the coincidence of the following unfavorable factors: 1. High ground fault current in relation to ground resistivity. 2. Distribution of ground fault current such that high potential differences are possible. 3. Presence of an individual at such a place and time and in such a position that his body bridges two points of high potential difference. 4. Absence of sufficient contact resistance or other series resistance to limit current to a safe value. 5. Duration of the fault and body contact for a sufficient time to cause harm at the given current intensity. Accidents of this nature are infrequent because of the low probability of coincidence of all five conditions. The probability of coincidence will be lowered in the following manner. The ground grid shall have a low enough resistance such that the maximum short circuit current results in a ground grid potential below safe values. All metallic structures or equipment which might accidentally become energized shall be connected to the grid in order to prevent the possibility of high potential differences. Clearing of faults shall be provided in a reasonably fast time to limit the duration of current flow. Where it is impractical to eliminate the possibility of excessive potential differences during faults, personnel access shall be barred or limited. 4.4.4.1 GROUND FAULT RISKS The following situations are considered potentially dangerous in terms of personal ground fault risks, and receptacle circuits in these areas should be protected by GFCIs: 56 Exhibit "A" Attachment 1 - Design Criteria o All outdoor locations accessible from grade level o Brine Processing Area o At outside transformers and switchyard area o Cooling tower o Rooms with metal floors EQUIPMENT GROUNDING Number Service Required Wire Type ------- -------- --------- Medium Voltage A-c Motors 1 No. 4/0 copper Load Centers and MCCs 2 No. 4/0 Medium Voltage Switchgear 2 No. 4/0 Power and Control Cable Tray 1 No. 4/0 copper Instrument Cable Tray 1 No. 4/0 Main Step-up Transformer 2 No. 4/0 copper Station Service Transformer 1 No. 4/0 copper Auxiliary Transformers 1 No. 4/0 Lighting Transformers 1 No. 2/0 Structural Steel Column 1 No. 4/0 Main Generator 4 No. 4/0 Non-Segregated Phase Bus (Following 1 No. 4/0 copper mfr's instructions) Control and Relay Boards 2 No. 4/0 Lighting Panels 1 No. 2/0 Crane Rails, Fences 1 No. 4/0 Tank and Pressure Vessels 1 No. 4/0 Computer and Other Electronic Control 1 No. 2/0 Signal Systems 1 No. 4/0 Stairways, Handrails, Gratings (If isolated) 1 No. 4/0 Lightning Arresters (per pole) 1 No. 336.4 KMC Lightning Rods and Air Terminals 2 No. 336.4 KMC Inverters 1 No. 2/0 Chargers 1 No. 2/0 Small Low Voltage Loads 1 No. 6 57 Exhibit "A" Attachment 1 - Design Criteria COMMUNICATIONS SYSTEM There will be no additions to the existing communications system. 4.6 METERING AND RELAYING 4.6.1 SYSTEM REQUIREMENTS The station electrical protection consists of protective devices or relay systems which monitor the electrical characteristics of the station equipment and/or power system to assure operation consistent with designed parameters, as follows: 1. Initiate the removal from service of any piece of equipment which has sustained a short circuit. 2. Provide automatic supervision of manual and/or automatic operations which could jeopardize the safe operation of the station. 3. Initiate automatic operations and/or switching which may be required for the continued safe operation or shutdown of the station. The station electrical protection described in this criteria applies to the main generator, transformers, and auxiliary station service system for a geothermal, steam-turbine generating plant and shall be shown on the one-line diagrams by the Contractor. The station electrical protection shall be designed to accept a single assumed failure so that the failure does not result in the loss of the capability of the protection to perform its desired functions. The station electrical protection shall be designed to provide minimal clearing times in order to limit short circuit damage and minimize the effects of abnormal operating conditions on the station and/or the power system. The structural and mechanical requirements for all relay panels and switchgear equipment on which station protection is mounted shall be outlined in detailed specifications by the Contractor. The station electrical protection equipment shall be mounted such that the mounting structure will not amplify or attenuate the input signal or relay action. The station electrical protection shall be designed with overlapping and redundant zones of protection. This may be in the form of a duplicate protection scheme or in the form of time coordinated steps of protection. The electrical protection shall be designed so as to remove a minimum of equipment from service and readily identify the faulted equipment or system. The station electrical protection provides a high-speed scheme of protection for major equipment in the station. This would include, shall but not necessarily be limited to, the main generator, and the generator step-up transformer. Where possible, the station electrical protection shall maintain sufficient separation so as to eliminate the common failure mode. The common failure mode is defined as a mechanism by which a single event can cause redundant equipment to be inoperable. 58 Exhibit "A" Attachment 1 - Design Criteria The station electrical protection shall be designed and assembled to provide access to the individual components of the various protective schemes for maintenance purposes. This requirement shall not be limited to the protective relays but would also include the input current and/or voltage devices, output devices and their associated wiring. The station electrical protection shall make use of terminal blocks on the entry of all protection current and/or voltage circuits entering the relay panels or switchgear to ease maintenance of these circuits. The station electrical protection shall be designed to permit in-service testing of the individual protective schemes. The in-service testing of one particular protective scheme shall not jeopardize the remaining system protection in any manner. All protective relays shall preferably be mounted in drawout type cases equipped with current-shorting switches on all active current circuits or shall be equipped with independent current-shorting test switches to facilitate testing. The trip contacts of all protective schemes shall be wired in series with a single-pole test switch to open trip circuits during in-service testing. The test switches shall be front-of-panel mounted with covers which cannot be replaced with switches open. The station electrical protection shall be sufficiently independent from metering and voltage regulating equipment so as not to affect protection during testing of the metering and voltage regulating equipment. The d-c voltage to all protective schemes will be monitored and an alarm provided for low voltage. Control wiring and all auxiliary control devices shall be of such quality as to assure high reliability with due consideration given for published codes and standards, fire hazards, current-carrying capacity, voltage drop, insulation level, mechanical strength, shielding, grounding, and environment. Sufficient instrumentation and metering shall be provided to allow safe and reliable operation of the station for such functions as synchronizing and live bus transfer. Reliable operation of the station electrical protection is enhanced by the redundancy in design. Short circuits in the generating station shall be detected by at least two different schemes of protection. 4.6.2 GENERATOR PROTECTION 4.6.2.1 DIFFERENTIAL PROTECTION Differential protection of the generator stator shall be provided by a high-speed generator differential relay. This relay has adequate frequency response down to 20Hz and will detect three-phase and phase-to-phase faults in the stator winding. Since the current transformers for the differential relay have very high ratios, the differential relay will be insensitive to phase-to-ground faults. The relay has a variable percentage characteristic to provide high sensitivity at light loads and avoid incorrect relay operation during heavy external faults. Turn-to-turn protection of the stator winding is not required since modern synchronous generators employ single turn construction. The relay shall trip and lock out the main generator breaker, trip and lock out the generator field, trip the turbine, and annunciate through a generator lock out relay. A similar differential relay shall protect the generator step up transformer. 59 Exhibit "A" Attachment 1 - Design Criteria 4.6.2.2 PRIMARY GROUND PROTECTION Phase-to-ground primary protection of the generator stator shall be provided by a generator neutral ground relay. The generator is essentially high-resistance grounded through a distribution transformer, thereby limiting ground fault current to approximately 10 amperes. This relay consists of a time-overvoltage element which is frequency-tuned to operate on the 60 Hz voltage drop across the secondary resistor, resulting from the flow of ground fault current in the distribution transformer primary winding. The ground relay protects approximately 95percent of the stator winding and must coordinate in pickup and time with the generator voltage transformer fuses. This relay shall trip and lock out the generator breaker, trip and lock out the generator field, trip the turbine, and annunciate through the generator lock out relay. 4.6.2.3 BACKUP GROUND PROTECTION Backup protection against ground faults in the generator stator, the generator bus and the delta windings of connected generator step-up and normal station service transformers shall be provided by a second time-overvoltage relay. The backup ground relay shall detect the presence of voltage across the broken-delta secondary of a set of wye-delta connected auxiliary voltage transformers. During un-faulted operation no voltage will be developed across the relay; however, during a single phase-to-ground fault, the voltage will be 3V, or approximately 200 volts with 69 volt secondary windings. The relay shall have a 16 volt pickup and a 199 volt continuous rating, which shall detect fairly high resistance faults. This relay shall trip and lock out the 13.8kV GSU XFMR Loadside Breaker, trip and lock out the generator field, trip and lock out the main generator breaker, trip the turbine, trip the 92KV line breaker, and annunciate through the unit lock out relay. This relay shall be supervised by a voltage balance relay to prevent undesired tripping due to blown potential transformers. 4.6.2.4 FIELD AND EXCITER PROTECTION The generator field circuit shall be ungrounded to provide reliability; therefore, a single ground in this circuit would not require taking the generator out of service immediately. The continued operation of the generator must be weighed against the possibility of a second ground which could result in unbalanced torques on the rotor and possible shaft damage. The following discussion covers the protection schemes for the brushless excitation system. 4.6.2.5 BRUSHLESS EXCITATION SYSTEM The generator field circuit with the brushless excitation system consists of the generator field, the field diodes, the exciter armature mounted on the generator rotor shaft, and a permanent magnet generator mounted to the generator rotor shaft. Since the brushless exciter possesses no external field leads from the generator, conventional ground detector relays cannot be applied. Instead, an Automatic Ground Detector (AGD) will be provided to initiate a ground test every 24 hr, or upon manual initiation. If a ground exists, an alarm is given and the operator will initiate a normal shutdown of the generator. The automatic ground detector accomplishes this test by lowering brushes onto slip rings. The field and exciter protection are provided by the generator manufacturer as part of the exciter package. 4.6.2.6 LOSS-OF-EXCITATION PROTECTION Decrease or loss-of-excitation on a synchronous generator can result in thermal damage to the generator, or can cause system instability due to low-voltage conditions. Absence of field current in the rotor reduces the magnetic coupling between the rotor and stator. With a constant mechanical input, the rotor 60 Exhibit "A" Attachment 1 - Design Criteria accelerates, runs above synchronous speed, and the machine operates as an induction generator. The machine will draw inductive power from the system through the stator windings. These stator currents induce heavy currents in the rotor teeth and wedges which may damage the machine. A two-zone scheme shall be used to provide loss-of-excitation protection with the following advantages: 1. Reduced sensitivity to stable system swings due to the time-delay associated with the zone 2 element. 2. High-speed clearing is retained for valid loss-of-excitation conditions with the zone 1 element. 3. The zone 2 element provides backup protection for a valid loss-of-excitation condition. The setting of the two-zone protection provides for a zone1 characteristic with a negative offset setting equal to one-half of the direct-axis transient reactance (1/2X'dv). The diameter of the mho circle is equal to 1.0 per unit reactance and operates with no intentional time-delay. The zone2 setting has the same negative offset and a mho circle diameter equal to the synchronous reactance (Xd), however, a time-delay of 1second or more is used to prevent operation on stable swings. The loss-of-excitation relay shall trip and lock out the generator breaker, the generator field, trip the turbine, and annunciate through the generator back-up lock out relay. Since loss of relaying potential may permit undesired operation of the loss-of-excitation relay, it will be supervised by a voltage balance relay. 4.6.2.7 NEGATIVE SEQUENCE PROTECTION Unbalanced three-phase stator currents cause double-system-frequency (120Hz) currents to be induced in the rotor iron, which tend to flow in the surface of the rotor's solid forging, and in the nonmagnetic wedges and retaining rings. The IR losses will quickly cause rotor overheating and serious damage if the generator is allowed to continue operating in this unbalanced condition. Negative sequence protection shall be provided by a negative phase sequence current relay applied to detect the presence of negative phase sequence current in the stator windings. The relay alarms at low values of negative phase sequence current. The relay shall initiate trip and lock out of the generator breaker, trip and lock out of the generator field, trip the turbine, and annunciate through the generator backup lock out relay if the current increases to a higher value. 4.6.2.8 PHASE FAULT BACKUP PROTECTION Phase fault backup protection shall be provided to prevent exceeding the thermal limit of the stator winding as specified in ANSI C50.13 for faults remote from the generator zone. This protection is primarily for three-phase fault protection but may provide phase-to-phase protection as well. The relays shall be induction disc overcurrent relays with voltage restraint. Each relay shall provide a trip output when the current exceeds the current setting and the voltage is less than the voltage setting. Since the loss of a single potential transformer will cause the relays to trip for loss of potential, the trip outputs shall be supervised by the voltage balance relay, described in 8.4.6.2.12. The time dial settings for these relays shall be coordinated with the time delay and line distance settings of the distance relays discussed in more detail in Section 8.4.6.11.1. 61 Exhibit "A" Attachment 1 - Design Criteria These relays with the generator step-up transformer overcurrent relays shall constitute the primary 3 phase fault protection for the 13.8kV bus. There shall be no 3 phase fault backup protection for this bus. These relays shall trip and lock out the generator breaker, trip and lock out the exciter breaker, trip the turbine, and annunciate through the unit primary lock out relay. Since the relay is dependent on voltage sensing, a loss of relaying potential may appear as a fault to the relay and cause undesired operation. For this reason, a voltage-balance relay shall be used to supervise the distance relay. A more detailed description of the voltage-balance relay is given in Section 8.4.6.2.12. The relay shall trip and lock out the generator breaker, trip and lock out the generator field, trip the turbine, and annunciate through generator backup lock out relay. 4.6.2.9 ANTI-MOTORING PROTECTION Loss of steam, with the main generator breaker closed and with the generator field applied, will result in the generator running as a motor connected to the high-voltage system. From the electrical point of view, this usually presents no problem. However, when the steam supply to the prime mover is removed and the generator begins motoring, the absence of steam passing through the turbine to carry away the heat that will be produced by windage loss results in overheating and quite possibly damage to the low pressure turbine blades. The length of time that a turbine can withstand this condition varies with the type of turbine, steam conditions, and turbine back-pressure. Antimotoring protection shall be provided by a reverse power relay to electrically sense the real power (kW) flow into the machine which may be as low as 1/2 of 1 percent of generator rating. The reverse power relay is insensitive to var flow so that the generator is capable of accepting reactive power from the system without relay operation. The power directional unit of this relay shall be supervised with the main generator circuit breaker "a" contacts to prevent intermittent closing of the power sensing unit of the relay prior to synchronizing. The timing circuit shall be provided to override transient power flow into the generator that might occur during synchronizing. This relay shall trip and lock out the generator breaker, trip and lock out the generator field, trip the turbine, and annunciate through the generator backup lock out relay. Backup anti-motoring protection shall be provided by a turbine valve limit switch circuit. This circuit shall produce a trip when all four turbine inlet ports are closed. This circuit shall trip and lock out the generator breaker, trip and lock out the exciter breaker, trip the turbine and annunciate through the generator primary lock out. 4.6.2.10 OUT-OF-STEP PROTECTION Out-of-step protection is not required. 4.6.2.11 STANDSTILL OR TURNING GEAR PROTECTION Not required. 4.6.2.12 BLOWN FUSE PROTECTION The failure of the generator voltage transformers could result in undesired operation of some of the generator control and protection circuits. If the voltage to the regulator sensing circuit is lowered by a blown voltage transformer fuse or a transformer failure, the automatic voltage regulator will sense this 62 Exhibit "A" Attachment 1 - Design Criteria lowered voltage and attempt to raise the terminal voltage of the generator. If voltage is lost to certain relays, such as the backup ground and the loss of excitation relays, undesired tripping could occur. Blown fuse protection shall be provided by two voltage-balance relays applied to monitor the two sets of generator voltage transformers. Both relays shall annunciate blown fuses in either set of fuses. One of the relays shall trip the generator automatic regulator to manual. Both relays shall be used to supervise protective type relays. 4.6.2.13 SYNCHRONIZING SUPERVISION The closing of the generator circuit breaker when the generator voltage is out-of-phase with the system voltage could have adverse consequences. With the generator voltage 180 degrees out-of-phase with respect to the system voltage, the winding stresses could approach twice those of a three-phase short circuit. Supervision of manual synchronizing of the generator shall be provided to prevent the operator from closing the generator circuit breaker with the generator more than 10 degrees out-of-phase with the system. A synchronizing check relay to limit the angle at which the operator may close the generator breaker. A zero degree cutoff shall be provided in this scheme to block closing after the in-phase position has been exceeded until the next approaching in-phase condition. In order for breaker closing to be initiated, the synchronizing check relay must operate, then the operator must close the control switch before the machine reaches the in-phase position with the system, and the machine must be running faster than the system. 4.6.2.14 START-UP PROTECTION Not required. Generator manufacturers do not recommend applying field to the generator until the turbine is near rated speed. This being the case, start-up (reduced frequency) protection is not required. 4.6.2.15 FREQUENCY PROTECTION At other than the designed frequency limits, the turbine generator is limited to the degree of over- or under- frequency operation. As the departure from rated frequency increases, the withstand time of the turbine generator decreases. Frequency relays shall be applied to the generator voltage transformer to detect operation at increased or reduced frequencies. These relays will trip and lock out the 92 KV breaker, and trip and lock out the 13.8 kV XFMR load side breaker, initiate run back to station service load and annunciate through the line lockout relay. 4.6.2.16 GENERATOR METERING CalEnergy will have electrical generation metering separate from Imperial Irrigation District's revenue metering. It will also have its own potential and current sources. These meters shall be redundant to the revenue metering and will be used to verify calibration but will not be used for re-calibration. They shall be located on the 92KV system. 63 Exhibit "A" Attachment 1 - Design Criteria The 92kV meters for CalEnergy shall provide the operator with accurate visual indication as to the electrical characteristics of the net output of the plant. This indication shall be located in the control room. This shall include the following: a. Phase Current b. Watts c. Vars d. Voltage In addition electrical meters shall be provided to maintain an accurate account of the net electrical output of the plant over extended periods of time as follows: e. Watt hours in f. Watt hours out g. Var hours in h. Var hours out The main generator shall be provided with the necessary metering to provide the operator in the control room with accurate visual indication as to the electrical characteristics of the machine. These meters shall be located on the 13.8 kV system. This shall include the following: a. Generator Phase Current (3 phase) b. Generator Watts (3 phase) c. Generator Vars (3 phase) d. Generator Voltage (3 phase) e. Generator Frequency f. Generator Power Factor In addition, electrical meters will be provided to maintain accurate account of the electrical output of the machine over extended periods of time as follows: g. Generator Watt hours (3 phase) h. Generator Var hours (3 phase) Test switches shall be provided to remove portions of the metering circuits from service without rendering all instrumentation inoperative. A Var transducer and a Watt transducer from both the 92kV and 13.8kV meters shall be provided with inputs to the DCS. 4.6.2.17 OVEREXCITATION PROTECTION Overexcitation (excessive volts/Hertz) describes a condition where excess flux saturates the core of a wound device and flows into the adjacent structure, causing high eddy current losses in the core and adjacent conducting materials. The heat from these losses may quickly damage the insulating materials if the overexcitation condition is severe. The overexcitation withstand capability of the generator and the connected transformers has an inverse characteristic. Dual-level overexcitation protection shall be provided for protection of the generator and its connected transformers. In some instances, this equipment may be provided as part of the excitation equipment 64 Exhibit "A" Attachment 1 - Design Criteria furnished by turbine-generator manufacturer. In any case, it is suggested that one relay be set at 110 percent volts/Hertz with a time delay of 45 seconds. The second relay would be set at 118 percent volts/Hertz with a time delay of 2 seconds. Both relays would trip and lock out the 92KV breaker, trip and lock out the main generator breaker, trip and lock out the generator field, trip the turbine, and annunciate through the generator backup lock out relay. 4.6.3 GENERATOR STEP-UP TRANSFORMER Differential protection of the generator step-up transformer shall be provided by three high-speed, harmonic-restrained, percentage-differential relays applied to provide sensitive protection against internal three-phase and phase-to-phase faults. This protection shall also detect phase-to-ground faults in the high-voltage winding of the transformer. The relays shall trip and lock out the 92kV line breaker, trip and lock out the transformer loadside breaker, initiate runback to station service load and shall annunciate through the transformer lock out relay. Sudden pressure protection for internal faults of the generator step-up transformer shall be provided by a sudden pressure relay. The sudden pressure relay responds to the increase in internal pressure generated by the arcing of turn-to-turn or phase-to-ground faults inside the transformer. This relay shall trip and lock out the 92 kV line breaker, trip and lock out the transformer loadside breaker, initiate runback to station service load and shall annunciate through the transformer lock out relay. The high-voltage winding of the generator step-up transformer shall be solidly grounded thereby providing a source of ground current during line-to-ground fault conditions on the high-voltage system. Line-to-ground faults on the high-voltage system which are external to the unit zone of protection would normally be cleared by the switchyard or transmission line protection. In the event that system protection fails, a ground backup overcurrent relay shall be applied to a current transformer in the neutral bushing of the generator step-up transformer. This relay must coordinate with the system protection and initiate trip and lock out of the 92kV line breaker, the GSU XFMR Loadside breaker, and annunciates through the transformer lock out relay. Three time and instantaneous relay functions provide overcurrent protection for the generator step-up transformer. These same three relay functions, with the generator voltage restrained overcurrent relays, also constitute the primary 3 phase fault protection for the 13.8kV bus. There is no backup three phase fault protection for this bus. These relays shall trip and lock out the 92kV line breaker, trip and lock out the GSU transformer loadside breaker, initiate runback, and annunciate through the GSU transformer lock out relay. 4.6.4 NORMAL STATION SERVICE TRANSFORMERS PROTECTION 4.6.4.1 DIFFERENTIAL PROTECTION Differential protection of the normal station service transformer is not required. 4.6.4.2 SUDDEN PRESSURE PROTECTION Sudden pressure protection for internal faults of the transformer shall be provided by a sudden pressure relay. The sudden pressure relay responds to the increase in internal pressure generated by the arcing of turn-to-turn or phase-to-ground faults inside the transformer. 4.6.4.3 PHASE OVERCURRENT PROTECTION Phase overcurrent protection for the normal station service transformers shall be provided by three time and instantaneous overcurrent relays. 65 Exhibit "A" Attachment 1 - Design Criteria 4.6.4.4 GROUND PROTECTION A phase-to-ground fault on the 4.16kVvoltage system shall be limited to 400 amperes and a phase-to-ground fault on the 480V system shall be limited to 3.5 amperes. 4.6.5 METERING The station service power shall be monitored at the 1200A, 13.8kV feeder breakers in the PDC, by watt-hour meters and ammeters connected to the current transformers on the 13.8kV feeder buses. The potential circuit shall be supplied from the 13.8kV feeder bus. 4.6.6 4.16KV AND 480V SWITCHGEAR 4.6.6.1 4.16KV AND 480V BUS SUPPLY PROTECTION Protection for the bus supply feeders from the transformers shall be provided by time-overcurrent relays applied in the bus feeder breakers. Phase overcurrent protection shall be provided for the 4.16kVbus by three time-overcurrent relays applied to each of the bus supply breakers. These relays shall provide three-phase and phase-to-phase fault protection for the bus by tripping and lock out of the bus supply breaker. 4.6.6.2 KV MOTOR FEEDER PROTECTION All 4kV motors shall be fed by medium voltage starters. Each starter will be equipped with motor protection relaying Multilin. All 4 kV motors shall be equipped with six 100ohm RTD's embedded in the stator windings. These RTD's will provide high temperature alarm to the DCS system. Motors 1500hp and larger shall have differential protection across the windings and surge protection at the motor terminals. 4.6.6.3 KV AND 480V SWITCHGEAR METERING A voltmeter and a voltmeter selector switch shall be provided on the 4.16kVbus and at each incoming breaker to allow local inspection of the three line-to-line voltages at the bus and at the breakers. The switchgear for the power plant and the Minerals Recovery Facility shall have individual watt hour metering for accounting purposes. Phase overcurrent protection shall be provided for MCC feeders consisting of low-voltage air circuit breakers containing overcurrent direct-trip devices with adjustable long-time and short-time trip elements. The long-time delay unit shall be set to pickup at a value higher than the expected full load current and less than the rated current carrying capacity of the cable, with sufficient time delay to coordinate with the maximum overload device setting in the motor control center. The short-time delay unit shall be coordinated with the maximum instantaneous setting in the motor control center. The MCC feeder breakers shall also be provided with negative sequence voltage relaying protection. 66 Exhibit "A" Attachment 1 - Design Criteria 4.6.7 MOTOR CONTROL CENTERS (MCC) 4.6.7.1 MOTOR LOADS The 480Vmotor control centers shall be supplied from the 480Vstation service transformers. The loads fed from the MCC shall be limited to motors up to and including 200 hp as well as other small miscellaneous loads. Phase overcurrent protection shall be provided for motor feeders consisting of motor circuit protectors (MCP and contactor overload relays. The molded-case breakers with instantaneous magnetic elements shall provide short-circuit protection, while the contactor overload relays shall provide thermal protection. The magnetic elements of the MCPs shall be set to provide short-circuit protection for both continuous and intermittent duty motors. The contactor overload relays for continuous duty motors will be selected 115-125 percent of rated full load current. The contactor overload heaters for the intermittent duty motors shall be selected between 80 to 150 percent of rated full load current. 4.6.7.2 NON-MOTOR LOADS Phase and ground overcurrent protection shall be provided for non-motor feeders consisting of molded-case breakers with long-time thermal trip elements to provide overload or low current fault protection, and instantaneous magnetic trip elements to provide short-circuit protection. The rating of the thermal element shall be approximately 150 percent of rated full load current and the pickup of this element is nonadjustable. The magnetic element may or may not be adjustable; however, in either case the pickup of this element shall vary between 500 and 1,500 percent of the thermal rating. All current transformers used in the station protection shall have relaying accuracy ratings in accordance with ANSI C58.4.13, and their performance at high current levels shall be compatible with the protection requirements. All voltage transformers used in the station protection shall have accuracy ratings in accordance with ANSI C58.4.13 and shall have sufficient thermal capabilities for the associated protection. Current and voltage circuit lengths shall be designed to minimize burden requirements. The routing of these circuits will provide adequate separation of redundant zones of protection. The station electrical protection shall be applied with the intent of providing overlapping zones of protection for high-speed clearing of the major items. This principle shall also apply to the control circuitry for the station. Similar high-speed zones of protection shall initiate clearing of the fault by means of separate auxiliary lock out relays. Station protection, which shall provide time-delayed clearing of faults, shall initiate clearing by means of a third auxiliary lock out relay. The d-c control power for the 4.16kVswitchgear as well as the 480V MCC supply breakers shall be provided by the 125Vd-c power system. Motor starters shall be self-powered a-c controlled. The control power for all motor controllers or contactors at the 480Vmotor control center (MCC) level shall be provided by 480-120Vcontrol transformers. Each control transformer shall be connected to its 67 Exhibit "A" Attachment 1 - Design Criteria associated 480VMCC branch circuit. Therefore, the a-c control power for 480VMCC shall be provided by the a-c power system. The secondaries of all 480-120Vcontrol transformers shall be fused and grounded. 4.6.8 SYSTEM OPERATION The station electrical protection shall be in service at all times and shall automatically initiate corrective action upon inception of a fault or abnormal condition which may be detrimental to the safe operation of the station and/or the system. In some instances, the station protection shall lock out the affected equipment to prevent re-energizing. In these cases, it shall be necessary to manually reset the auxiliary lock out relay before re-energizing. It shall be necessary to indicate to the station operator the occurrence of certain undesired conditions. These conditions shall include, but not necessarily be limited to, a blown fuse on the generator voltage transformers, grounds on the d-c battery system, loss of dc control power to the station protection schemes, loss of d-c control power to circuit breakers, and overexcitation of the unit. 4.6.9 SAFETY FEATURES FOR POTENTIAL EMERGENCIES Because of its requirements, the station protection physically encompasses a large area. The a-c current and voltage sensing circuits, as well as the d-c control circuits are exposed to the natural elements such as heat, moisture, dust, etc., which could cause insulation failure. The possibility exists whereby relays with cup-type or balance beam construction may be made to operate falsely due to a sudden shock to the relay case or panel. During certain conditions, significant voltages could exist on the a-c current and voltage circuits due to differences in ground potential. Current, voltage, and control circuits which extend to the high-voltage switchyard may be subjected to induced high-voltage as a result of mutual coupling to the high-voltage conductors. The inadvertent opening of a current transformer secondary circuit could result in extremely high-voltages at the current transformer secondary. Because of the reliability in past current transformer design and the criticality of current circuits, no fuses or interrupting devices shall be applied. The insulation shall be resistant to the natural elements. The reliability of the current and voltage circuits, as well as the d-c control circuitry, shall be stressed in the design of duct runs and cable trays. Since the a-c voltage and the d-c control circuitry are much more complicated and are not as critical as the current circuits, fusing will be permitted, and the circuits shall be monitored to detect the blown fuse. The location of the station protection shall be in a designated area where only qualified personnel shall be permitted. The location of relays on control panels and switchgear shall be such as to minimize vibration. The grounding of each a-c current and voltage circuit shall be at the relay panels or the switchgear and shall be grounded in one location only. 68 Exhibit "A" Attachment 1 - Design Criteria The current transformer secondary circuits shall be wired to current-shorting type terminal blocks or test switches in cases where metering and relaying circuits are combined. Power supplied to the Mineral Recovery Facility on the Unit 5 site will be separately metered for accounting purposes. 4.6.10 SYSTEM MAINTENANCE The station electrical protection shall be designed to permit easy access for the removal or replacement of the individual relays which make up the protective systems The station electrical protection shall be designed with the majority of relays having glass covers to permit visual in-service inspection. All fault-detecting relays shall have mechanical or electrical targets to readily identify the relay responsible for interruption. These targets shall be visible without dismantling any of the protection. Drawout-type construction of the fault-detecting relays shall provide easy removal of the relay for bench maintenance and also provide for injection of current and/or voltage for in-place testing. 4.6.11 KV LINE PROTECTION 4.6.11.1 PRIMARY LINE PROTECTION The first zone distance relay provides 3 phase and phase to phase fault protection for 90% of the line length to the utility substation. The second zone distance relay provides time delayed 3 phase and phase to phase fault protection for 125% of the line length to the utility substation. The directional/ground overcurrent relay provides time and instantaneous ground overcurrent for the line. These relays trip and lock out the 92 kV line breaker, trip and lock out the GSU load side breaker, initiate runback to station service load, and annunciate through the 92 kV line lock out. 4.6.11.2 BACKUP LINE PROTECTION The directional phase overcurrent relays provide time overcurrent protection for the 92 kV line. These relays trip and lock out the 92 kV breaker, trip and lock out the 92 kV breaker, trip and lock out the GSU transformer, initiate runback to station service load and annunciate through the 92 kV line lockout relay. The backup ground protection for the 92 kV line is the neutral overcurrent relay on GSU transformer. It is described in Section 8.4.5. The Contractor shall coordinate the 92 kV protection scheme with IID. 4.7 MEDIUM AND LOW VOLTAGE POWER SYSTEMS The medium and low voltage power systems shall consist of 13.8 and 4.16 kV metal-clad switch gear, 4,160 V motor controllers and 480Vmotor control centers. The station service transformers shall step the voltage down from the 13.8 kV generator voltage to the 4160Vor 480Vbus voltage. 480 volt loads and motors up to and including 200 HP shall be powered from motor control centers (MCCs) located in controlled air environments within the PDC. Motors larger than 200 hp shall be powered from 4,160 V motor controllers. 69 Exhibit "A" Attachment 1 - Design Criteria The 4.16 kV switchgear and motor controllers, as well as the 480 volt MCCs shall be designed with adequate space capacity to anticipate future load growth. 4.7.1 SYSTEM REQUIREMENTS The function of the ac power system shall be to supply reliable ac power to all electrical equipment. The ac power system shall include transformers, switchgear, motor control centers, motors, conductors, and associated instrumentation and controls. A nominal system voltage of 4.16 kV, 3 phase, 60 Hz shall be provided to supply large motors (over 200 HP). A nominal system voltage of 480 V, 3 phase, 60 Hz shall be provided to supply small motors (1/2 hp through 200 hp) and loads less than, or equal to, 300 kW. A nominal system voltage of 120/208 V, three phase, 60 Hz shall be provided to supply fractional horsepower motors (1/2 hp and smaller) and small single phase loads. The voltage at the terminals of motor leads during start shall not be allowed to dip below 80 percent. The horsepower ranges stated above, that will be assigned to each voltage level, are intended as a guide. There may be instances of overlap, where the Contractor may assign a motor to a bus not in accordance with the above. Assignment of motors to a bus shall take into consideration availability of power source and increases or decreases in motor horsepower after switchgear is purchased. The 4.16 kV system shall be grounded at the wye-connected secondary windings of each unit and reserve station service transformer through a resistor to limit the maximum line-to-ground fault current to approximately 400 amperes. The 480 V system will be high and low resistance grounded. The 208/120 V system will have its neutral solidly grounded at the various sources of supply. Lighting and outlet circuits requiring a solidly grounded neutral will be supplied from a 480V-277/480V transformer with its secondary solidly grounded. 70 Exhibit "A" Attachment 1 - Design Criteria Oil-filled transformers shall be located outdoors. All non-segregated phase bus duct shall be located outdoors. Motors shall be located both outdoors and indoors as required . All other equipment such as switchgear, air-cooled dry-type transformers, silicon filled transformers, MCCs, and distribution cabinets shall be located indoors, in the controlled environment of the PDC. The equipment shall be arranged to facilitate repair and removal for maintenance. Metal-clad switchgear and transformers shall be arranged to facilitate uniform phasing. Standard transformer connections shall be used (wherever possible). Incoming and outgoing feeder conductors for switchgear, and MCCs shall be identified (as viewed from the front), as phase A, B, and C, left to right and top to bottom, or front to back, as applicable. Periodic maintenance shall be performed on components of the ac power system. This maintenance shall be consistent with the manufacturer's recommendations. In addition, adequate floor space shall be provided around the equipment for proper maintenance. Testing and inspection shall be provided for all normal ac systems. The particular tests and inspections and their frequency will depend upon the specific components installed, their function, and their environment. These tests and inspections shall be directed at detecting the deterioration of the system toward an unacceptable condition and to demonstrate that standby power equipment and other components that are not running during normal operation are operable. The normal ac power system instrumentation and control shall consist of the following: 1. 13.8 kV station service power supply breaker control 2. 4.16 kV feeder breaker control 3. 480 V feeder control The 92, 13.8, 4.16 kV and 480 V breaker control shall: 1. Be powered from a dc source (when not prohibited by distance). 2. Provide control from the control room and switchgear for the 92 kV breaker and generator breaker. All other breakers will be controlled locally at the switchgear. 3. Provide protective interlocks. The DCS inputs shall record that a breaker is tripped. 4.7.2 SYSTEM DESIGN Connections of the power supply feeders and busing arrangements of the ac power system are shown on the main one-line diagram. During normal operation, while the plant is generating, the main power source shall be from the unit turbine-generator. A 13.8 kV non-segregated phase bus shall connect the generator to the 13.8 kV bus. Voltage at the motor terminals at any voltage level shall not be less than 80 percent of rated motor voltage during starting. The voltage at the terminals of any power transformer shall not exceed 110 71 Exhibit "A" Attachment 1 - Design Criteria percent of rated voltage under no-load conditions when the high voltage supply from the 92 kV line is 102.5 percent of rated nominal voltage. The system frequency shall not exceed 60 Hz, +5 percent. The maximum system frequency decay rate shall not exceed 5 Hz per sec. The generator step-up transformer shall consist of a two winding three phase transformer. The transformer shall be fed from the non-segregated phase bus leads connected to the generator step-up transformer primary side breaker. The station service transformers shall be located outdoors, near the power distribution centers (PDC). The station service transformers shall be 2 winding transformers. The 4.16 kV and 480 V switchgear equipment shall be located in a fire protected area in the power distribution centers which will also be a controlled environment area. The 120/208 V buses and their respective 480-120/208 V transformers will be located in environmentally controlled areas of the PDC. No automatic fire suppression system will be furnished for the PDC. Smoke detectors and temperature sensors provided by the Contractor will alarm in the control room. There will be a fire extinguisher located at each end of each P.D.C. 4.7.3 COMPONENT DESIGN 4.7.3.1 MAIN TURBINE GENERATOR The main generator shall be rated * (by Contractor) MVA, three-phase, 3600 rpm, 13.8 kV, 60 Hz, 0.90 leading power factor to 0.85 lagging power factor. The generator will be wye-connected and will be capable of operating with a neutral grounding device having a high impedance which will limit the maximum phase current. The neutral terminal enclosure shall be furnished with the generator, with provisions for the Contractor's conduit for the grounding lead. The Generator Step Up Transformer shall have an automatic LTC providing +/-10% voltage control. Each of the stator terminals shall be equipped with bushing type current transformers of suitable rating. All current transformers shall have 5 amp secondaries. The main terminals shall be arranged for non-segregated phase bus duct connections. The generator excitation system shall be capable of regulating the generator voltage from 95 to 105 percent of the rated voltage at any load level up to the generator nameplate rating. Suitable excitation switchgear shall be furnished for control of the generator exciter. The generator shall be supplied complete with all the auxiliary equipment required for the successful operation of the generator. 4.7.3.2 NON-SEGREGATED PHASE BUS The non-segregated phase bus shall connect the main generator to the main generator breaker located in the PDC and from the main generator breaker to the generator step up transformer. It shall be self-cooled and rated to carry the maximum generator output. It will be fully insulated. The bus shall be designed for outdoor operation at maximum ambient temperature. 72 Exhibit "A" Attachment 1 - Design Criteria The non-segregated phase bus shall include the following: 1. The main bus leads including metal enclosure 2. Supporting structures The bus duct shall be of the totally enclosed type with galvanized steel comprising the formed duct and bolted, gasketed covers. 4.7.3.3 GENERATOR STEP-UP TRANSFORMER The three phase transformer for the generator step-up transformer shall have full capacity no-load taps on the high voltage winding and shall be rated to deliver the MVA output of the turbine generator at rated frequency. The transformer winding insulation shall be operated at no higher temperatures than it would be subjected to if operated in a standard ambient. The transformer shall be connected delta-wye, and shall; be solidly grounded on the high voltage wye connected side. The high side of the transformer shall be equipped with an automatic load tap changer. 4.7.3.4 STATION SERVICE TRANSFORMERS The station service transformers impedance values shall be selected to satisfy the following criteria: 1. Be small enough to provide good plant voltage regulation down to the 120 V ac level. 2. Be small enough to successfully start large ac motors. (In general, the voltage, upon starting large motors, will be limited to not less than 80 percent of nominal.) 3. Be large enough that the interrupting rating of connected switchgear is not exceeded. The station service transformers shall be three phase with full capacity no-load taps on the primary winding. All transformers shall be rated to carry the connected normal bus load at maximum ambient. Transformers shall be connected delta-wye resistance grounded and provided with ground resistors on the secondary neutral. The transformers shall be oil filled, rated to supply the normal load on the bus, three-phase, with class H (220 C) insulation with full capacity no-load taps on the primary windings. Transformers shall be connected delta-wye. 4.7.3.5 SWITCHGEAR The switchgear shall be rated for interrupting capacity based on maximum short-circuit availability at its location. The switchgear bus full-load ampere rating shall be sized to have the standard available bus ratings above the maximum coincidental load. The buses shall be braced to withstand the maximum momentary short-circuit current, taking into consideration the fault contribution of all connected rotating machines and source transformers and making proper allowance for system X/R ratio at the point of fault. The vacuum breakers, if used, shall be selected with a maximum symmetrical interrupting rating (kA) which will exceed that available from the power system at the point of application. This shall take into consideration all the contribution of connected induction motors. 4.7.3.6 MOTOR CONTROL CENTERS Motor control centers shall be rated 480 V, 3 phase, 60 Hz, utilizing combination motor starters and molded case circuit breakers for motor branch circuit protection. The motor branch circuit breakers, as well as those for feeders, shall have a minimum symmetrical interrupting rating of 42,000 A. 73 Exhibit "A" Attachment 1 - Design Criteria 4.7.3.7 MOTORS All motors shall be sized to develop sufficient horsepower to drive the connected load under runout or maximum expected flow or pressure, whichever is larger, and permit the driven equipment to develop its specified capacity without exceeding the temperature limits of the motor. Motors shall be specified with the following special features: a. All motors not located in a clean dry area protected from the atmosphere, shall be totally enclosed and will be specified with a 1.15 service factor. Motors located indoors may be furnished with drip-proof enclosures and have a 1.15 service factor. b. During normal operation, no encroachment on the service factor will be permitted. c. During infrequent and short periods in an emergency, such as runout operation, exceeding of the service factor rating will not be permitted. d. Motor insulation shall be specified as Class F with a 90(degree)C rise at service factor load for a 34(degree)C average ambient, and with an 80(degree)C rise at service factor load for site maximum ambient. Although motors are to be specified with a Class F insulation system, they shall be sized on the basis of Class B temperature rises. e. A minimum torque margin of 15 percent of rated full load torque from standstill to speed at which breakdown torque occurs at specified minimum starting voltage shall be specified to assure rapid acceleration. f. A minimum locked rotor thermal limit time equal to the minimum voltage acceleration time shall be specified for the rated voltage condition. g. For all low voltage motors non-hygroscopic type insulation shall be specified. Motors to be run from variable frequency drives shall be designed and specified for the application. For all medium voltage motors, VPI Insulation systems shall be specified. Medium voltage motors shall be furnished with six duplex 100 ohm Platinum stator RTDs. h. Coil ends of open motors shall be provided with abrasion protective coats to resist wear, such as a resilient silicone rubber spray coat. i. All anti-friction bearings shall be specified with a minimum L-10 life of 50,000 hr. Motors with anti-friction bearings shall be furnished with duplex thermocouples on each bearing. Sleeve bearings shall be furnished with duplex 100 ohm Platinum RTDs j. Motors 1/2 hp and smaller shall be TEFC. k. Motor larger than 200 hp shall be form wound. 4.7.3.8 KV AND 4.16 KV METAL-CLAD SWITCHGEAR The 13.8 kV and 4.16 kV switchgear vacuum circuit breakers shall be of the electrically operated drawout type with stored energy mechanisms. Switchgear breaker control dc power shall be supplied from batteries of the 125 Vdc power system. 74 Exhibit "A" Attachment 1 - Design Criteria 13.8 kV circuit breakers shall have the capability of being manually operated at the switchgear and remotely from the new mimic panel in the combined control room. The 4.16 kV fused vacuum contactors shall feed 4 kV motors. They shall be both manually operated locally or remotely from the DCS. Open and closed positions of all 13.8 kV and 4.16 kV circuit breakers and the contactors shall be indicated at the switchgear, and in the control room. 13.8 kV positions shall be indicated by lights on the mimic panel. 4.16 kV breaker and contactor positions shall be indicated in the DCS. All trip functions shall be alarmed through the DCS. An Ammeter and Ammeter Switch shall provide local indication of 4.16 kV loads and an amp transducer will be provided for remote monitoring at the DCS. 4.7.3.9 V LOAD CENTER TYPE BREAKERS The load center type air circuit breakers shall be provided with dc control power supplied from batteries of the 125V dc power system. Load center type air-magnetic circuit breakers applied as MCC feeders shall be manually operated at the MCC lineup. Tripping and closing positions of the main 480 V circuit breakers shall be indicated at the switchgear, tripping will be alarmed in the control room through the DCS. 4.7.3.10 V MOTOR CONTROL CENTERS (MCC) For motor starters, heater feeders, or other load feeders, 480-120 V control power transformers shall be connected to the load side of the circuit breakers to supply control power to the starter or contactor. Loss of ac supply power to a starter or contactor shall cause it to fail open, disconnecting the load. However, the 480 V system shall be designed such that the voltage at the MCCs will be within the starter pickup voltage rating. The MCC distribution and miscellaneous feeders shall be provided with manual control at the circuit breakers. Motor and heater feeder breakers shall be provided with automatic and/or remote control, as required. 4.7.3.11 V BUSES Each circuit originating from a 120 V ac distribution cabinet shall be protected with a manually operated single-pole circuit breaker. Where a circuit shall be used with automatic or remote control, a separately mounted motor starter or a single-pole relay connected to the load side of the circuit breaker shall be employed. 4.7.4 SYSTEM LIMITATIONS AND SET POINTS The components of the ac power systems shall be loaded only within their nameplate ratings. Loads in excess of this will cause reduced life expectancy and may cause automatic disconnection of the loaded circuit. Electrical equipment shall be sized and load groupings shall be assigned such that the maximum coincidental load falls within the rating of each ac power system component. 75 Exhibit "A" Attachment 1 - Design Criteria 4.7.4.1 SET POINTS Various components of the ac power system shall have set points which are discussed in the following paragraphs: 4.7.5 SWITCHGEAR AND RELAY PANELS 4.7.5.1 PROTECTIVE RELAYS Protective relay settings shall represent the most desirable compromise between equipment protection and continuity of station service. Examples of the parameters which must be set are current pickup, current tap settings, and time dial positions. 4.7.5.1.1 TIME DELAY RELAYS Time delay relays shall be set to delay actuation of a device in order to accomplish a particular function. Relays of the fixed timer type shall be set to agree with the time settings given on elementary diagrams to be developed by the Contractor. 4.7.6 MOTOR CONTROL CENTERS 4.7.6.1.1 OVERLOAD RELAY SELECTION Overload relays shall be selected and installed by the Contractor to protect motors or connected equipment from overload for excessive periods of time. They shall be selected to protect the specific load in question, taking into consideration the ambient temperature in which the relay operates. 4.7.6.1.2 ADJUSTABLE TRIP SETTINGS If required, in order to more closely match the heater characteristics with the protected equipment or to prevent false tripping, the relay pickup point may be changed through the range of 90 to 110 percent of the stamped rating on the bimetallic heater element. 4.7.7 POWER TRANSFORMERS Oil-filled transformers shall be equipped with liquid temperature devices (top oil) and/or winding temperature devices (top oil temperature augmented by a heat generating current proportional to load). These devices shall function to alarm, start radiator fans, or start oil circulating pumps, where applicable. Air-cooled transformers, if supplied, shall be equipped with thermostatic devices which automatically turn on cooling fans at a particular temperature setting and alarm at a higher temperature setting. The setting of the temperature devices shall be the responsibility of the respective transformer manufacturer and shall be a function of the transformer design. 4.7.8 SYSTEM OPERATION 4.7.8.1 START-UP AND SHUTDOWN The Project shall be designed so that power required for start-up will be provided from Unit 3 or from IID at the Owner's option. A 13.8 kV feed shall be installed to connect Unit 5 to Unit 3. Once the Unit 5 turbine is operational, the load will be transferred to the Unit 5 generator and the tie breaker to Unit 3 will be opened. At this point, Unit 5 can be synchronized to the system. 76 Exhibit "A" Attachment 1 - Design Criteria 4.7.8.2 NORMAL OPERATION Adequate power will be supplied to the ac system during normal operation to energize all required loads for this mode of operation. The power source during normal operation will be the main turbine-generator. 4.7.9 SYSTEM MAINTENANCE 4.7.9.1 MAINTENANCE APPROACH The maintenance program for the ac power system will consist of periodic testing following the pre-operational and initial system tests and inspections. A complete schedule of manufacturer's recommendations concerning components of the system will be maintained as well as an outline of various problems, their causes, diagnostic indications, and recommended corrective action. All instruments and equipment required to inspect, test, and maintain the system components will be part of the plant stock supply. 4.7.9.2 PREVENTIVE MAINTENANCE Routine preventive maintenance will be performed on components of the system in accordance with manufacturer's recommended procedures. The station maintenance program will include testing requirements for all ac systems following the pre-operational and initial system tests and inspections. The particular tests and the frequency of these tests will depend upon the specific components installed, their function, their environment, and the fact that they are on the station maintenance program. These tests will be directed at detecting the deterioration of the system toward an unacceptable condition and will demonstrate that standby power equipment and other components that are not running during normal operation are operable. 4.7.9.3 TESTING During the pre-operational stage with all components of the ac power system installed, tests shall demonstrate that all components are correct and are properly mounted, all connections are verified as being correct and continuous, all components are operational, and all metering and protective devices are properly calibrated and adjusted. Following satisfactory checkout of all components of a system, the initial system test will be performed with all components installed. The initial system test will be operational tests conducted to demonstrate that the equipment operates within design limits and that the system is operational and meets its performance specifications. The 4.16 kV and 480 V circuit breakers and associated devices will be tested while individual equipment is shut down or not in service. Protective relays will be tested under a simulated overload or fault condition, and their calibration will be verified. The breaker opening and closing capabilities can also be demonstrated. Availability of breaker control power will be indicated by breaker indicating lights. The in-service periodic testing requirements of the loads will be met in part by actual operation of the active normal components of the system. The capability of the distribution circuits of the normal system to transmit sufficient energy to start and operate all required loads will be confirmed during these periodic tests of the loads themselves. These tests will also confirm the capability of the supply breakers to operate and transmit the required energy upon receipt of a control input. 77 Exhibit "A" Attachment 1 - Design Criteria 4.7.9.4 INSPECTION Typical inspections will include visual inspection of switchgear, metering, and surveillance equipment. Availability of breaker control power will be shown by breaker indicating lights at the main control room DCS console and at the switchgear. 4.7.9.5 CORRECTIVE MAINTENANCE Corrective maintenance will be performed on components of the ac power system, as required. The specific maintenance action will depend on the type of equipment, type of correction to be made, and manufacturer's recommendations on the subject. CODES AND STANDARDS ------------------- The normal ac power system will be designed and constructed in accordance with the latest versions of the following codes and standards: American National Standards Institute ANSI C37 Power Switchgear ANSI C50 Rotating Electrical Machinery ANSI C57 Transformer, Regulators, and Reactors Institute of Electrical and Electronics Engineers ------------------------------------------------- ANSI C38.4.96 Guide for Induction Motor Protection National Electrical Manufacturer's Association ---------------------------------------------- NEMA AB-1 Molded Case Circuit Breakers NEMA E12 Instrument Transformers NEMA FU1 Low-Voltage Cartridge Fuses NEMA ICS Industrial Controls and Systems NEMA PB-1 Panelboards NEMA PB-2 Dead-Front Distribution Switch- boards 78 Exhibit "A" Attachment 1 - Design Criteria NEMA SG3 Low Voltage Power Circuit Breakers NEMA SG4 AC High Voltage Power Circuit Breaker NEMA SG5 Power Switchgear Assemblies NEMA SG6-1974 Power Switching Equipment NEMA TR-1 Transformers, Regulators, and Reactors NEMA MG1 Motors and Generators Miscellaneous ------------- NFPA No. 78 Lightning Protection Code UL 96A Installation Requirements - Master Labeled Lightning Protection System Title 24, CAC California Administrative Code Title 24California Building Code 4.8 D.C. SYSTEMS The dc power system shall consist of one 125 V dc battery, distribution panels and associated equipment. The dc power system will supply dc power for the operation and control of equipment and dc loads. The dc power system nominal voltage shall be 125 V dc, ungrounded. 4.8.1 SYSTEM REQUIREMENTS The 125 V dc power system will supply dc power for the operation and control of equipment, dc motors, and other loads. The UPS System shall be supplied at 125VVdc from a separate battery. The dc power system will include power supplies and distribution systems arranged to provide dc electric power to all dc loads. The power supply will consist of one 125 V dc battery, and one battery charger. The distribution system will consist of all equipment in the distribution circuits from the supply devices to their loads. Components of each system will be marked for easy identification. A nominal voltage of 125 V dc will be provided from a 60-cell station battery to supply power and control loads for two hours following a loss of normal power. The voltage at 79 Exhibit "A" Attachment 1 - Design Criteria the terminals of the dc electrical equipment fed from this battery may vary between 140 and 105 V dc. System equipment will be housed in the PDC Building. The batteries will be enclosed in a separate ventilated room. Under normal conditions, the dc buses will be supplied from battery chargers. On loss of ac power, the batteries will supply power to the dc buses for a minimum of two hours. Periodic maintenance will be performed on components of the dc power system. This maintenance will be consistent with manufacturer's recommendations. In addition, adequate floor space will be provided around the equipment including the station batteries for proper maintenance. Testing will be provided for the dc power system. The particular tests and inspections and their frequency will depend upon the specific components installed, their function, and their environment. These tests will be directed at detecting the deterioration of the system toward an unacceptable condition and to demonstrate that backup power equipment and other components that are not running during normal operation are operable. In general, the testing requirements will be met in part by actual operation of the active components of the system. The capability of the distribution circuits of the dc power system to transmit sufficient energy to start and operate all required loads will be confirmed during these periodic tests and inspections of the loads themselves. These tests will also confirm the capability of the supply breakers to operate and transmit the required energy upon receipt of a control input. The normal dc power system instrumentation will consist of battery, battery charger, and dc bus monitoring, as well as annunciation in the control room so that corrective action may be initiated to restore the system to normal operation. The following functions will be monitored or controlled: Battery Monitoring output/input current Charger Monitoring and Control Output current and voltage High output voltage AC power failure to battery charger Control for float and equalize charge 80 Exhibit "A" Attachment 1 - Design Criteria DC Bus Monitoring Voltage Ground detection Local indication will be provided. The DCS will monitor sufficient parameters to alert the control room operators that corrective action is required to restore the system to normal operation. The dc system will be operated at a normal float charge voltage level to maintain the batteries in a fully charged condition. The battery charger associated with each battery will be rated to supply the largest combined demands of the various steady state loads and the charging capacity to restore the battery from the design minimum charge state to the fully charged state. The dc power system shall be designed and constructed in accordance with the codes and standards listed in Appendix 8.4.7. 4.8.2 SYSTEM DESIGN Under normal conditions, 480V motor control centers shall supply power to the dc bus through a battery charger. In the event of loss of ac power the battery shall directly feed the dc bus. The dc power system shall be operated at a normal float charge voltage level to maintain the battery in a fully charged state. All auxiliary electrical equipment connected to the 125 V dc power system shall be capable of operating on a voltage range of 140 to 101 V dc. The batteries shall be housed in a separate room from the battery chargers and main distribution panels. 81 Exhibit "A" Attachment 1 - Design Criteria The principal components of the dc power system shall consist of one 60-cell battery, one 125 V static battery charger, and distribution panels as required for D.C. loads. 4.8.2.1 BATTERY ROOM A separate battery room shall be provided as part of the PDC for the batteries of the dc power system. The room will provide a well ventilated, clean, cool, and dry place so that the cells will not be affected by sources of radiant heat such as sunshine, steam pipes, or heating units. The battery room shall have a designed ambient temperature of 77 (plus or minus) 5(degree)F (25 (plus or minus) 2.8(degree)C) year round to provide optimum battery life, ease of maintenance, and low cost of operation. Since variations in electrolyte temperature between cells of more than 5(degree)F (2.8(degree)C) may cause the warmer cells to become unequal, proper battery location, ventilation and cell arrangement shall be provided to keep this variation within the above limits, and prevent deterioration of the positive plates thus prolonging battery life. The battery temperature shall not exceed 90(degree)F for more than 1% of the year, nor exceed the range of 60 to 120(degree)F at any time. The battery room shall be ventilated to maintain the design temperature and prevent accumulation of hydrogen. The room air shall be changed a minimum of 5 times an hour, which is more than sufficient to keep hydrogen liberated from battery cells from exceeding the maximum allowable concentration of less than 2 percent by volume. A separate exhaust fan shall be provided for the battery room. The battery room shall not be provided with permanent flush or wash facilities. However, in compliance with OSHA 1910.132, neoprene or rubber gauntlet gloves, chemical eye protection goggles, and eye wash units such as plastic squeeze bottles containing clean water, readily available to flush the eyes shall be provided close-by outside the battery room. The requirement for rubber aprons, safety shoes, etc., will depend on the operator's tasks. The battery room shall be provided with adequate aisle space for inspection, maintenance, testing, and cell replacement. Space shall also be provided above the cells to allow for operation of lifting equipment, addition of water, and taking measurements (e.g., temperature, specific gravity, etc.). The battery room floor shall have an acid resistant coating. 4.8.2.2 BATTERIES The battery shall be lead-calcium, power-station type. The battery shall be sized per IEEE 485 for ampere-hour capacity suitable for supplying all connected for a minimum period of two-hours, in the event of loss of all ac power and without the use of battery chargers. At no time during the two hour period will the battery terminal voltage drop below 1.75 V per cell. The characteristics of each load, the time duration each load is required and the basis used to establish the power required for each load will be used to establish the combined load demand to be connected to the dc power supply during the "worst" operating conditions. Intercell and terminal connectors shall consist of lead-plated copper connectors. The battery shall be provided with a battery disconnect switch for maintenance and safety. Annunciation shall be provided in the control room when disconnect switch and/or breaker are "open" to indicate the battery is disconnected from the dc bus. The battery shall be mounted on battery racks constructed of steel rails, frames, and braces. The racks shall be provided with acid resistant insulated channels on which the battery cells will rest, and 82 Exhibit "A" Attachment 1 - Design Criteria noncombustible, moisture and acid-resistant spacers between the cells to keep them aligned. The metal surfaces of all racks shall be coated with acid-resistant enamel paint and shall be solidly connected to the station grounding system. The Contractor shall design the rack to ensure that it will withstand the seismic forces encountered at the plant site. 4.8.2.3 BATTERY CHARGER The static type battery charger shall have ample capacity to supply the steady state loads under any plant condition, while recharging the battery to a fully charged condition from the design minimum charged state within 24 hours. The static battery chargers connected to the 125 V dc buses shall have a nominal output float voltage of 130 to 135 V dc, with an input of 480 V ac, 3-phase, and shall limit the output ripple voltage under full load without the battery attached, to 1 percent rms or less. 4.8.2.4 DC DISTRIBUTION The battery shall be connected to a dc distribution panel which will supply the appropriate dc loads. The battery distribution panel shall be equipped with a battery main air circuit breaker with only long-time and short-time trip attachments. In addition, ground detection equipment shall be provided consisting of a zero-center voltmeter and a center tapped resistor connected across the bus. The negative meter terminal shall be connected to the resistor tap and the positive meter terminal to the ground. With a ground the meter shall indicate positive or negative voltage depending on which side of the bus is grounded, with no ground the meter shall indicate zero. Meters shall be provided with alarm contacts that will be used to annunciate a ground in the control room. 4.8.2.5 OTHER CONSIDERATIONS FOR SYSTEM DESIGN All branch circuits shall have overcurrent protection on both wires. The average ambient temperature of the area in which the battery distribution panel will be located, shall be maintained at less than 90(degree) F (32.2(degree) C) year round. All dc motors shall be capable of delivering adequate power so that the driven equipment will perform its intended function properly when the voltage at the motor terminals varies between 140 V and 105 V dc. All equipment specifications shall state these requirements. Auxiliary electrical equipment such as motor starters, breakers, and relays used in the 125 V dc power system shall be capable of operating between 140 V and 105 V dc. Motor starters shall be single-pole of the reduced-inrush type, using step starting resistors and timers to limit the current to safe values during acceleration. Motor starters shall be located close to the battery rather than near the motor and separate leads will be run to the motor shunt fields. This will minimize the voltage drop problem due to high inrush currents which may result in unsatisfactory starting performance because of low field excitation levels. The dc power system instrumentation shall consist of measuring the battery output current to the dc distribution system, and displaying the battery voltage at the distribution panel. Battery voltage shall also be continuously monitored in the control room through voltage-to-current transducers. Undervoltage relays shall alarm for low voltage and critical low voltage conditions. 83 Exhibit "A" Attachment 1 - Design Criteria Main circuit breakers shall be provided for each battery and with only long-time and short-time trip attachments. Ground detection shall be provided for the dc bus consisting of a voltmeter containing auxiliary contacts to alarm for a ground on the bus. The alarms shall be annunciated in the control room. The battery charger shall be provided with an output voltmeter and ammeter, as well as pilot lights to indicate that input voltage is available. In addition, relays shall be provided to alarm on low power ac input voltage on any phase, and high dc output voltage. The charger input ac and the output dc shall also be provided with circuit breakers sized not to trip with the output short circuited. A manually adjustable timer shall also be included to automatically control the duration of equalizing charge cycles. An interruption of timer supply during a charging cycle shall not result in return of output voltage to float level on restoration of power supply. 4.8.3 SYSTEM LIMITATIONS, SET POINTS, AND PRECAUTIONS The dc power system shall be operable with or without ac power. It shall supply all normal dc loads for a minimum of two hours without ac power, and continuously with ac power. Low, critical low and high battery bus voltage, high battery current, ac failure, and ground detection shall be annunciated in the control room. The low, critical low, and high voltages that shall be annunciated for the 125 V dc bus will be 125 V, 108 V, and 140 V, respectively. 4.8.4 SYSTEM OPERATION During unit start-up, the dc power system will receive dc power through the battery charger. The battery charger will be supplied from the 480 V motor control centers. During normal plant operations and shutdown, the dc power system will receive dc power through the battery charger to supply all required loads for these mode of operation. During an abnormal condition, when ac power is lost to the battery charger, the dc system will receive dc power directly from the batteries. When ac power is restored, the dc system will again receive dc power through the battery charger. 4.8.5 SYSTEM MAINTENANCE The station maintenance program will include preventive maintenance, periodic testing and inspections and corrective maintenance. A complete schedule of manufacturer's recommendations concerning components of the system will be maintained as well as an outline of various problems, their causes, diagnostic indications, and recommended corrective action. All instruments and equipment required to inspect, test, and maintain the system components will be part of the plant stock supply. Routine preventive maintenance, including routine replacement of components which may be susceptible to common mode failure near the end of their expected life, will be performed on the system in accordance with manufacturer's recommended procedures. During preventive maintenance circuit breakers will afford the opportunity of component isolation from an energized condition to a de-energized state. 84 Exhibit "A" Attachment 1 - Design Criteria Maintenance performed on the dc equipment will be done only by qualified personnel who are familiar with the component maintenance manuals and plant operational testing procedures. 4.8.6 TESTING The station maintenance program will include periodic testing for the dc system following the pre-operational and initial system tests and inspections. The particular tests and the frequency of these tests will depend upon the specific components installed, their function, their environment, and the fact that they are on the station maintenance program. During the pre-operational stage with all components of the dc power system installed, tests shall demonstrate that all components are correct and properly mounted, all connections are verified as being correct and continuous, all components are operational, and all metering and protective devices are properly calibrated and adjusted. 4.8.6.1 INITIAL START-UP SYSTEM TESTS Following satisfactory checkout of all system components as described above, the initial system start-up tests shall be performed with all components installed. The initial start-up system tests will consist of operational tests conducted to demonstrate that the equipment operates within design limits and that the system is operational and meets its performance specifications. These operational tests will demonstrate: 1. That the normal dc loads can be operated from the ac power source through the battery charger supplied from the load center, and 2. That upon the loss of the normal ac power source, the battery can supply the design load. Pre-operational testing of the dc power system will include the following: 1. The backup features of the battery and battery charger system will be checked out. 2. The capacity of the battery and the voltage profile will be verified by acceptance test per IEEE Standard 450, Section 5.5.1. 3. The recharging of a discharged battery within a specified period will also be verified. (This is a maximum time of 24 hr.) 4. Instruments will be calibrated; also, relays, breakers, and interlocks will be checked. 4.8.6.2 ACCEPTANCE TESTS Acceptance tests shall be made in accordance with IEEE 450, Sections 4.1, 5.4.1, and 5.5.1, at the factory. Onsite performance tests will be made in accordance with IEEE 450, Sections 4.2, 5.4.1, and 5.5.1. A battery service test, described in Sections 4.3 and 5.6 of IEEE 450, will be performed during a scheduled plant outage, with intervals between tests not to exceed 18 months. 85 Exhibit "A" Attachment 1 - Design Criteria Corrective maintenance will be performed on components of the dc power system in accordance with IEEE Standard 450, Section 3.4. CODES AND STANDARDS The dc power system will be designed and constructed in accordance with the latest versions of the following codes and standards: American National Standards Institute ------------------------------------- ANSI C37 Power Switchgear Institute of Electrical and Electronics Engineers ------------------------------------------------- IEEE Std 484 Recommended Practice for Installation of Large Lead Storage Batteries for Genera- ting Stations and Substations IEEE Std 450 Recommended Practice for Maintenance, Testing, and Replacement of Large Lead Storage Batteries for Genera- ting Stations and Substations IEEE Std 485 IEEE Recommended Practice for Sizing Large Lead Storage Batteries for Generating Stations and Substations. National Electrical Manufacturer's Association ---------------------------------------------- NEMA AB-1 Molded Case Circuit Breakers NEMA FU1 Low-Voltage Cartridge Fuses NEMA ICS Industrial Controls and Systems NEMA PB-1 Panelboards NEMA PB-2 Dead-Front Distribution Switch- boards 86 Exhibit "A" Attachment 1 - Design Criteria 4.9 FIRE STOPS AND SEALS Fire stops and seals shall be provided where raceways penetrate walls, floors and equipment, and require a barrier against smoke, dust, water and airborne contaminants. A fire stop has a fire rating and a seal does not. Penetration Fire Stop - A sealed cable penetration through a fire barrier wall or floor. The rating of the fire stop is equal to the required fire rating of the barrier. Penetration Seal - A sealed cable penetration through non-fire rated wall or floor. The "Penetration Seal" is not required to have a fire rating. It may, however, provide a dust, moisture, or pressure seal. 4.9.1 SYSTEM REQUIREMENTS Normal design practice dictates that the openings around cables passing through floor and walls be sealed. The seals are required to perform two distinct functions: 1. Act as a fire stop 2. Act as a seal When cables penetrate a fire barrier, the seal is a penetration fire stop and must fulfill the following requirements: a. Must have a fire rating equal to or greater than the required fire rating of the fire barrier it penetrates. Performance must be proven by test. b. Satisfy insurance company requirements. c. Be compatible with cable insulation and jacket material. d. Consider derating, if any, of power cables. e. Prevent passage of flame and smoke for a time interval equal to or greater than the fire rating of the wall it penetrates. f. Allow future addition or removal of cables. When cables penetrate a nonfire rated wall, the following requirements must be met: a. Be compatible with cable jacket material. b. Consider derating, if any, of power cables. c. Allow future addition or removal of cables. 87 Exhibit "A" Attachment 1 - Design Criteria Fire stops and penetration seals shall be suitable for use in environmental conditions encountered. These requirements are: 1. Temperature, ambient, 93(degree) F Temperature, max, 120(degree) F 2. Pressure, 15 psia 3. Humidity, 90 % 4. Chemical compatibility The seals around cables penetrating walls and floors shall provide adequate mechanical strength to provide necessary pressure barrier and seal against 15 psi. The seal shall facilitate the removal or addition of cables and be capable of being resealed so as to retain the original integrity of the seal. The following materials shall be used as fire stops and seals for raceway penetrations: Dow Corning Silicone Foam Q3-6548 Thomas & Betts flame safe No normal maintenance is anticipated during the useful life of a fire stop/seal. After installation, periodic inspections should be made to determine any obvious deterioration, such as holes not originally noted or discoloration. 4.9.2 DESIGN The cable penetrations shall be designed as a system, taking into consideration the size of the opening, depth of the opening, type of cable insulation, and jacket, etc. The cable shall penetrate the floors and walls through round metallic sleeves or rectangular slots. Cable trays shall not be carried through fire barrier walls, to minimize the transfer of heat. 4.9.3 MAINTENANCE Fire stops which have been breached (to add or remove cables) shall be restored to their original design integrity shortly after the work is complete. 4.10 UNINTERRUPTIBLE POWER SYSTEM The Contractor shall design, specify, furnish and install the uninterruptible a-c system. The uninterruptible power system shall provide control and instrument power to critical systems in the plant. The uninterruptible power system shall supply reliable, stable, and regulated 120 V a-c, three phase, 60 Hz control and instrument power. It will be ungrounded. 4.10.1 SYSTEM REQUIREMENTS The function of the uninterruptible power system will be to supply continuous, regulated, and reliable single phase ac control and instrument power to the DCS System, critical instrumentation and protection circuits during all modes of plant operation. 88 Exhibit "A" Attachment 1 - Design Criteria A voltage of 120 V (plus or minus) 2 percent will be maintained at the 120 V ac bus. The frequency of the inverter output will be maintained at 60 Hz (plus or minus) 0.3Hz. The frequency of the regulating transformer output will vary with that of its input power. In general, the testing and inspection requirements may be met in part by actual operation of the active components of the system. The capability of the distribution circuits of the uninterruptible power system to transmit sufficient control and instrument power to operate all required loads will be confirmed during these periodic tests and inspections of the loads themselves. These tests and inspections will ensure the capability of the uninterruptible power system to furnish control and instrument power, and will be performed at scheduled intervals to demonstrate the operability of the uninterruptible power system. The uninterruptible power system instrumentation and controls will consist of battery charger, battery, inverter and ac panel local monitoring as well as monitoring in the control room so that corrective action may be initiated. The static inverter will be provided with indicators to monitor voltage, current, and frequency, with input and output protection with alarm relays. The essential 120 V ac distribution panels will be provided with incoming and feeder protection. The annunciators will monitor sufficient parameters to alert the control room operator that corrective action is required to restore normal system operation. Local instrumentation will be furnished to monitor sufficient parameters to: 1. Assist in determining system operation for any annunciated malfunction. 2. Monitor system equipment performance so that long term deterioration of performance can be detected. The system is normally connected to a battery and rectifier/charger through the static inverter, and to the ac power system through a regulating transformer used during inverter maintenance. 4.10.2 SYSTEM DESIGN The uninterruptible power system shall supply 120 V ac control and instrument power to critical systems and certain control building emergency lighting loads. The uninterruptible power system shall consist of a power system with adequate capacity to supply its own essential loads. The 120 V ac vital bus shall provide power for critical instrumentation and protection circuits. The bus shall be fed from a 125 V battery and battery charger through a static inverter, or from a 480 V bus through a regulating transformer when the inverter is out of service. The 120 V ac and 125 V dc systems shall be shown on the 125 V dc and 120 V ac vital bus one-line diagrams prepared by the Contractor. The output of the static inverter shall be connected to a vital bus distribution cabinet through a normally closed circuit breaker. The regulating transformer shall supply an ac input to the 120 V ac vital bus when the associated inverter is down for maintenance. 89 A manual by-pass switch will be provided to connect the regulating transformer to the vital bus distribution cabinet. When this switch is in this "alternate", or bypass position, this condition shall be alarmed. The distribution cabinets for the 120 V ac vital bus system shall have 15 and 20 ampere branch fused disconnects to feed protection and other instrument loads. The 120 V ac vital bus system shall constitute a very reliable electrical system with independent conversion equipment. This system shall provide a stable instrument power supply to critical equipment and shall guarantee supply to this equipment. Spurious shutdowns shall be minimized as a result of the reliability and stability of the 120 V ac system. The 120 V ac vital bus voltage shall be maintained at 120 (plus or minus) 2.0 V. When the vital bus is fed from the inverter source the system frequency variation shall not exceed 60 Hz, (plus or minus) 0.3 Hz. The 120 V ac vital bus regulating transformer shall be located in the electrical equipment and control building near the static inverter. The 120 V ac vital bus shall be located in the same area of the plant as the inverter and regulating transformer. The static inverter shall be suitable for input voltage range of 105 V to 140 V dc, and output voltage maintained at 120 V (plus or minus) 2 percent from no load to full load. Harmonic distortion of output voltage shall not exceed 5 percent, and its frequency shall be maintained to within (plus or minus) 0.3 Hz over the full range of load and input voltage. The inverter shall be current limiting at 150 percent of full load and shall permit indefinite operation at that level. Upon sudden application or removal of full load, output voltage undershoot or overshoot shall be corrected to a level that will not cause damage or improper operation of the inverter. In addition, voltage shall recover to within 2 percent of steady state within 0.1 sec after the occurrence of this event. The inverter shall operate in continuous synchronism with a 60 Hz, 480 V ac sine wave reference power system. The yearly average ambient temperature of the area where the static inverter is located shall be maintained at less than 82(degree) F. The voltage regulating transformer shall be suitable for input voltage range of 417 to 528 V, ac, three phase, 60 Hz, (plus or minus) .3 Hz and output voltage maintained at 120 V (plus or minus) 2 percent from no load to full load with output adjustability of (plus or minus) 10 percent. Harmonic distortion of output voltage shall not exceed 5 percent. The regulating transformer shall have current capability to withstand high in-rush load currents and momentary overloads. Specifications for the transformers shall include the above requirements. The yearly average ambient temperature of the area where the regulating transformers are located shall be maintained at less than 82(degree) F. Instrumentation and control for the uninterruptible power system shall consist of inverter control and instrumentation, as well as control and instrumentation of the critical 120 V ac bus and loads. The static inverter ac output shall be provided with a voltmeter, an ammeter, and a frequency meter. Abnormal conditions existing for at least 0.05 sec will be alarmed. These shall include output low 90 Exhibit "A" Attachment 1 - Design Criteria voltage, overload, opening of any fuse, and reduced air flow when forced air cooling is used. Local indicators shall be provided for the abnormal signals, with signals for alarm in the control room. The distribution panel shall be provided with three-pole disconnecting type fuses suitable for 120 V service. The uninterruptible power system shall normally interface with the static inverter and with the ac power system through the voltage regulating transformer during inverter maintenance. 4.10.3 SYSTEM LIMITATIONS, SET POINTS, AND PRECAUTIONS The components of the uninterruptible power system can be loaded only within their nameplate ratings. Loads in excess of this will cause reduced life expectancy and may cause automatic disconnection of the loaded circuit. Electrical equipment shall be sized and load groupings shall be assigned such that the maximum coincidental load falls within the rating of each uninterruptible power system component. To prevent unnecessary unit tripping, all testing of vital bus loads must be withheld, whenever the system inverter fails or is being taken out of service, until the 120 V a-c vital bus is fed through the regulating transformer. 4.10.4 SYSTEM OPERATION The 120 V vital bus shall be normally energized through a static inverter. An alternate source of power will be from the ac power system through a regulating transformer. The transformer will be used during periods of maintenance on the inverter. The 120 V vital bus will be energized to supply adequate power to the uninterruptible power system during start-up by energizing all required loads for this mode of operation. Adequate power will be supplied to the uninterruptible power system during normal operation to energize all required loads for this mode of operation. For a normal plant shutdown, adequate power shall be supplied to the uninterruptible power system for this mode of operation. In the event of an inverter failure, the corresponding voltage regulating transformer can be temporarily connected to provide power to the bus. 4.10.5 SYSTEM MAINTENANCE The maintenance program for the uninterruptible power system will include preventive maintenance, periodic testing, inspection, and corrective maintenance. Complete schedule of manufacturer's recommendations concerning components of the system will be maintained as well as an outline of various problems, their causes, diagnostic indications, and recommended corrective action. All instruments and equipment required to inspect, test, and maintain the system components will be part of the plant stock supply. Routine preventive maintenance will be performed on components of the system in accordance with manufacturer's recommended procedures. These procedures will be directed at detecting the deterioration of the system toward an unacceptable condition and demonstrating that standby equipment and other components that are not exercised during normal operation are operable. 91 Exhibit "A" Attachment 1 - Design Criteria During preventive maintenance circuit breakers afford the opportunity of component isolation from an energized condition to a de-energized state. Any maintenance performed on the system equipment will be done only by qualified personnel who are familiar with the component maintenance manuals and plant operational testing procedures. The station maintenance program will include periodic testing for the uninterruptible power system following the pre-operational and initial system tests and inspections. The particular tests and the frequency of these tests will depend upon the specific components installed, their function, their environment, and the fact that they are on the station maintenance program. These tests will be directed at detecting the deterioration of the system toward an unacceptable condition and will demonstrate that standby power equipment and other components that are not running during normal operation are operable. During the pre-operational stage with all components of the uninterruptible system installed, tests will demonstrate that all components are correct and properly mounted, all connections are verified as being correct and continuous, all components are operational, and all metering and protective devices are properly calibrated and adjusted. Following satisfactory checkout of all system components as described above, the initial system start-up tests will be performed with all components installed. The initial start-up system tests will consist of operational tests conducted to demonstrate that the equipment operates within design limits and that the system is operational and meets its performance specifications. Typical inspections will include visual inspection of inverter, metering, and surveillance equipment. Each static inverter will be given a thorough periodic inspection following the manufacturer's recommendations. Corrective maintenance will be performed on components of the uninterruptible power system as required. The specific maintenance action will depend on the type of equipment, type of correction to be made, and manufacturer's recommendations on the subject. 92 Exhibit "A" Attachment 1 - Design Criteria CODES AND STANDARDS ------------------- The uninterruptible power system will be designed and constructed in accordance with the latest versions of the following codes and standards: American National Standards Institute ------------------------------------- ANSI C57 Transformer, Regulators, and Reactors National Electrical Manufacturer's Association ---------------------------------------------- NEMA AB-1 Molded Case Circuit Breakers NEMA FU1 Low-Voltage Cartridge Fuses NEMA ICS Industrial Controls and Systems NEMA PB-1 Panelboards NEMA TR-1 Transformers, Regulators, and Reactors NEMA WC5-1973 Thermoplastic - Insulated Wire and Cable Miscellaneous ------------- NFPA No. 70 National Electrical Code NFPA No. 78 Lightning Protection Code UL 96A Installation Requirements - Master Labeled Lightning Protection System 5. INSTRUMENTATION AND CONTROLS DESIGN CRITERIA 5.1 GENERAL 5.1.1 GUIDELINES The Instrumentation and Control (I&C) Design Criteria are prepared to present guidelines that will be followed in the design and installation of the I&C systems for Salton Sea Unit 5 (the Project). It is intended that this document shall be used by the EPC Contractor as input to equipment specifications, 93 Exhibit "A" Attachment 1 - Design Criteria installation drawings and instructions. The design criteria are based upon the following design objectives: 1. Maintain the plant in a safe condition at all times. Automatic protection and plant trips shall be provided so that if a potentially dangerous situation should occur, the plant will be maintained in a safe and undamaged condition without the need for any operator action. 2. Prevent the violation of environmental regulations concerning air, land, and water quality requirements. 3. Provide for smooth startup and shutdown of the power plant and auxiliary systems in accordance with pre-planned operating procedures with a minimum of operator intervention. 4. Provide for efficient steady-state control of the power plant and auxiliary systems. 5. Provide reliable steady power plant operation at the full range of possible operating capacity levels. 6. Minimize the effects of abnormal process conditions, load upsets, and equipment malfunctions on power plant operations. 7. Provide operator interfaces that minimize the potential for operator error. 8. Minimize the number of plant forced outages and spurious trips. 9. Provide for reliable, economical/optimum operation of the turbine generator and related systems. 10. Provide for ease of construction. 11. Provide a control system that allows for maximum flexibility to expand the system and/or modify control functions that affect the performance of the unit during initial startup, testing and operation. 12. Minimize the effects of corrosion and scaling through proper equipment and material selection, equipment location, environmental control, and on-line maintenance capability. 5.1.1.1 CONTROL SYSTEM In general, during normal operation of the plant all control and monitoring functions will be performed from the control room, however, startup and shutdown of equipment for maintenance will be performed locally at the equipment using a hand/off/auto select switch along with start/stop push buttons. These controls shall be wired directly into the MCC, eliminating the need for the DCS, should it be down. DCS control shall only be enabled if the H-O-A select switch is in the auto position. The circuits within the hardwired controls shall incorporate all necessary interlocks for safe operation of the equipment utilizing process mounted switches. The DCS shall not be used for these interlocks. 94 Exhibit "A" Attachment 1 - Design Criteria 5.2 MAIN CONTROL ROOM AND POWER DISTRIBUTION CENTER 5.2.1 CONTROL ROOM AREA The existing main control room for Units 1, 2, 3 and 4 will be used for control of Unit 5. New Unit 5 related control equipment will be added in space currently available or, if necessary, by expanding the existing room or converting rooms currently used as offices to control room purposes. The control room will be designed in accordance with human factors engineering principles to the maximum extent possible for the comfort and efficiency of operations personnel. Control items not requiring operator attention such as protective relays, computer hardware, EHC and excitation control cabinets, will be located in the modular Power Distribution Center (PDC) adjacent to the Unit 5 turbine building. The main control panel serves as the operator/plant interface, and it is essential that information be presented to the operator in a clear and simple form and in order of priority. The following design guidelines will be observed: 1. The control room area will be designed to permit three control room operators to control and monitor plant operation and identify plant abnormalities for the brine flashing operation and power generation facilities for Units 3, 4 and 5. This will be accomplished by minimizing the length of the control panel and by minimizing the number of display devices which must be continuously monitored during plant operation. 2. Although the panel is designed to permit three operators to monitor plant operation, the size and arrangement of the new panels will accommodate additional operators, if necessary, during test operations or other periods of unusual operating conditions. 3. Testing and maintenance procedures involving control panel-mounted equipment will be possible with minimal interference with the plant operation. 4. All alarm functions will be handled by the DCS. No separate annunciator system will be provided. 5. One (1) additional color CRT's with keyboards will provide the operator interface with the plant distributed control system (DCS). All primary control and monitoring functions for the process will be done through the DCS. All of the CRT's will have access to the same data base. 6. The main control panel will be a bench type panel which will house the CRT stations alarm and operations keyboards. 7. A Contractor furnished fire protection monitoring panel for Unit 5 shall be located in the control room area. 95 Exhibit "A" Attachment 1 - Design Criteria 8. Two graphic capable, laser jet type printers will be provided as part of the distributed control system. One printer shall be dedicated to alarm printing; one dedicated to event logging. In general, cables shall enter equipment from the bottom of the panels. There shall be no exposed conduits or cable tray in the control room. Ambient temperature will be controlled at 75(degree) (plus or minus) 2(degree)F. Relative humidity will be controlled to 50% (plus or minus) 10(DEgree)%. The contractor shall increase the capacity of the existing air conditioning units, if necessary, to ensure ambient conditions are maintained with the additional equipment. Non-electric signals of plant instrumentation and control shall not be connected direct to control room equipment. 5.2.2 POWER DISTRIBUTION CENTER (PDC) The PDC shall be placed on concrete pillars with 6'-0" clearance between ground elevation and floor of the PDC. The Owner has found this to provide superior access for installation, maintenance and additions to existing PDC's with this clearance. In order to minimize the effects of corrosion on sensitive control equipment, the PDC environmental conditions will be controlled using redundant air conditioning units. These rooms will also be designed to minimize the amount of unnecessary traffic and maintain the highest practical level of cleanliness. Ambient temperature will be controlled at 75(degree) (plus or minus) 2(degree)F. Relative humidity will be controlled to 50% (plus or minus) 10(degree)%. Non-electric signals of plant instrumentation and control shall not be connected direct to the PDC equipment. In general, cables shall enter the cabinets from the top. The following equipment shall be located in this room: o DCS process control units and other equipment not otherwise required in the control room o Vibration monitoring racks o Turbine Generator governor controls 5.3 DISTRIBUTED CONTROL SYSTEM 5.3.1 GENERAL The plant will generally be operated via a distributed control system (DCS). The DCS shall be complete with all necessary hardware and software. 96 Exhibit "A" Attachment 1 - Design Criteria Units 1, 2, 3, and 4 utilize a Rosemount RMW 9000 DCS for control. The contractor shall provide the following for DCS expansion to accommodate Unit 5. 1. Convert the existing DCS to a Rosemount Delta 5 based control system. The principle element of this conversion is to replace the old RMW 9000 CCMs with Delta 5 controllers. The balance of the existing hardware would be utilized as much as possible without modification. The additional DCS hardware shall include one (1) operator interface station. The contractor shall review the need for a second operator interface station, and, if required, shall supply a second station. Following modifications, any DCS screen shall be capable of accessing any information within the DCS for any unit. The DCS for Unit 5 shall be provided with the following hardware and software accessories. 1. Sequential and discrete digital logic for motor control and interlocking as well as analog control for modulating control loops. 2. Sequence of events capability shall be provided within the DCS with time resolution of 1 msec. 3. All unit devices capable of communicating with one another on a redundant data highway. 4. CRT interactive graphics with dynamic data updating. 5. Efficiency calculation, custom report generation, and long term data archiving. This may be done in the DCS or in an auxiliary computer system dedicated to any or all of these function. Data archiving shall be done on optical disks. Any I/O points or internal alarms shall be capable of being logged. 6. spare rack space containing approximately 20% spare I/O hardware for each type of I/O will be provided. 7. The system should have the capability for future expansion. 8. The system should have the capability to interface through a modem with a personal computer for transfer of report data. The alarm reporting system shall have the capability to group and prioritize incoming alarms as well as to disable individual or groups of alarms. The system will have the capability to interface with the major brands of programmable logic controllers. Following summarizes the PLCs that could be expected on site: o Modicon o Chesel o IPAC 97 Exhibit "A" Attachment 1 - Design Criteria o Bentley o Woodward 509 5.3.2 TURBINE GENERATOR GOVERNOR / DCS INTERFACE The DCS will make provisions for the necessary I/O and displays to interface with the Turbine Generator control system. The turbine generator will utilize a Woodward Governor 509 System. All T/G controls and monitoring necessary for operation of the T/G shall be incorporated into the DCS. The DCS operator shall interface with the governor system through graphic displays on the DCS. A separate T/G control interface shall be provided in the control room. The primary purpose of this panel is to monitor the Woodward 509 system. This panel shall not contain the actual governor controls, but will only be a monitoring window to the Woodward 509. The T/G controls shall allow: o Isochronous Control Mode o Speed Control Mode o Load Control Mode o Pressure Control Mode o Have provisions for Droop control. The DCS shall indicate and alarm all T/G alarms. 5.3.3 DCS REQUIREMENTS 5.3.3.1 GENERAL The DCS will be separate from the hard wired Station Electrical Protection, Metering System and the Turbine Generator control system, but will have access to select variables within these systems. (Refer to Electrical Design Criteria and the Turbine Governor Specification). The DCS shall be capable of handling any normal logic complexity associated with plant interlocks and shall also be capable of being programmed in the field with minimum effect on plant operations. The application software (firmware) shall be non-volatile. The DCS shall be designed and constructed so that it will not be affected by transient or continuous electro-magnetic interferences. This will include the capability to continue normal operations with RF emission from a hand held FM transceiver keyed adjacent to DCS equipment, including the process control units and the operator interface stations. Credit may be taken requiring DCS enclosure doors to be closed. The engineering work station is exempt from this requirement. All trips shall be alarmed on the operator interface and printed at the operations printer DCS control nodes shall be equipped with dual power supplies and redundant control processors. 98 Exhibit "A" Attachment 1 - Design Criteria The DCS shall be of modular design, with a fault tolerant, redundant architecture such that the failure of one section will not affect the operation of other sections of the equipment. The reliability of each constituent part of the system, and the system as a whole shall be such as to meet the overall plant performance criteria. This shall be achieved by suitable levels of redundancy on the equipment. Critical I/O shall be duplicated implemented with redundant inputs. Digital inputs shall utilize a "1 out of 2" voting system to propagate the condition. Analog signals shall utilize a select feature, and the ability to switch primary controlling signal. An alarm shall be generated if redundant analog signals deviate by more than 10% of span. There should be no process change resulting from the failure of a controller. The final fully configured system shall have a total round-trip time for a command to be processed, including display of the feedback signal from the local processor, of less than 2 seconds. 5.3.3.2 I/O REQUIREMENTS 5.3.3.2.1 ANALOG INPUT The DCS shall be capable of accepting the following analog signals: o Current inputs 4 to 20 mA with individual A/D conversion. The system shall be capable of supplying the 24 V dc loop power for 4 to 20 mA 2-wire or 3-wire transmitters. o Current inputs of -1.2 - 0 - +1.2 mA (nominal) from standard SCADA compatible metering and relaying devices, o Voltage inputs within the range of -10 Vdc to +10 V dc. The choice of field or system power shall be user selectable for each point. Inputs shall be via a low-pass filter to reject high frequency interference. Common mode noise rejection shall be a minimum of 110 dB at 60 Hz. Normal mode rejection shall be a minimum 60 dB at 60 Hz. Accuracy shall be (plus or minus) 0.2% of full span or better. As an option, the Contractor may utilize SMART field communications between field transmitters and the DCS. The contractor may daisy-chain multiple transmitters one a single field bus type loop. Use of SMART communications must be done in such a way as to be fault tolerant (e.g.; ring topology). 5.3.3.2.2 ANALOG OUTPUT The DCS shall be capable of driving 600 ohm standard or up to 750 ohms total loop resistance at 4 - 20 mA. The system shall be capable of supplying the 24 V DC loop power. The choice of field or system power shall be user selectable for each point. The system shall also be capable of providing a user selectable default output state for each individual point in the event of an error. Accuracy shall be (plus or minus) 0.2 % of full span or better. As an option, the Contractor may utilize SMART field communications between field devices and the DCS. The contractor may daisy-chain multiple transmitters and/or final control elements on a single field bus type loop. Use of SMART communications must be done in such a way as to be fault tolerant (e.g.; ring topology). 5.3.3.2.3 DIGITAL INPUT 99 Exhibit "A" Attachment 1 - Design Criteria The DCS shall be capable of receiving the following signals: o 24 Vdc, o 48 Vdc, o 120 Vac or o 110 Vdc All digital inputs shall be available with selectable filtering from 2 to 20 millisecond. Inputs shall be high impedance type. 5.3.3.2.4 DIGITAL OUTPUT The DCS shall provide isolated contact rated at 125 V dc, 3A and 220 Vac and user selectable as normally open or normally closed, momentary or maintained. The system shall be capable of providing a user selectable default output state for each point in the event of an error. 5.3.3.2.5 TEMPERATURE INPUTS The DCS shall be capable of receiving the following temperature detector inputs: o RTD Input: Capable of receiving 100 ohm platinum resistance temperature detectors (RTDs) inputs directly. Lead length compensation for 3-wire RTDs shall be provided. Other types of RTDs such as 10 ohm copper RTDs shall not be used due to the presence of hydrogen sulphide. o T/C Input Capable of receiving all types of thermocouple inputs directly. Cold junction reference compensation and open circuit detection shall be provided. Millivolt input ranges of -100 to +100 mV and 0 to +100 mV shall also be provided. Thermocouple reference junction temperature compensation shall be provided. The thermocouple reference junction temperature compensation value shall be available for display to the operator and shall have alarm limits. 5.3.3.2.6 PULSE INPUT The DCS shall be capable of receiving square wave or contact input of 1-10 volts and a pulse rate of up to 25 kHz. 5.3.3.3 GENERAL GUIDELINES In general, the following signal standards shall be used: o Analog input signals shall be 4 to 20 mA. o Analog output signals shall be 4 to 20 mA. o Digital inputs interrogated by the DCS shall be 24 Vdc. o MCC monitoring and interrogation shall utilize MCC control power and shall be 120 Vac or 125 Vdc as appropriate. 100 Exhibit "A" Attachment 1 - Design Criteria o Turbine trip circuitry shall be 125 Vdc. o Field cables shall not terminate directly onto electronic circuit boards. o For each analog input and output, two terminals plus isolated ground connection shall be provided. o For digital inputs, a minimum of one common terminal for each four digital inputs shall be provided. Common terminals supplying outgoing field power shall be individually fused. 5.3.3.4 SPARE CAPACITY The DCS shall have spare capacity after the Unit is fully commissioned as follows : o Multi-loop controller - 50% of total processing capacity per module. o I/O - 20% of I/O per process control unit. o Cabinet space for expansion - 25%. o All spare I/Os shall be active and wired to terminations and clearly shown on the termination drawings. o The DCS shall allow for system expansion through the addition of controllers, operator work stations and I/O modules while system is on line. 5.3.3.5 DISTRIBUTED CONTROL SYSTEM CABINETS A 19 inch rack mounting shall be provided for all DCS modules, modular power systems and terminations. The cabinets shall be able to accommodate either top or bottom cable entry. The cabinets shall provide front and rear doors to provide easy access for installation and maintenance of power systems and mounting assemblies. 5.3.3.6 POWER SUPPLIES AND SYSTEM POWER FEEDS The DCS components within the power plant shall be supplied from two secure 120 Vac sources: one from an uninterruptible power supply (UPS) and the second from a reliable 120 Vac bus. The DCS shall monitor alarms from the internal power supplies. Redundant power supplies shall be provided to power process control modules and field termination devices. The power supply output voltages shall be well regulated and not fluctuate more than (plus or minus) 1% with input voltages of 120 V ac (plus or minus) 10%. 5.3.3.7 OPERATOR WORK STATIONS One (1) Operator work stations (OWS) and an engineering work station (EWS) shall be supplied and installed in a control desk to be located in the power plant control room. The engineering work station shall be used primarily for system maintenance, engineering and configuration functions. 101 Exhibit "A" Attachment 1 - Design Criteria 5.3.3.8 CONTROL DESK All operator work stations shall be installed in the control room in a suitably designed control desk. The desk shall be an extension of and be designed similar to the existing control desk for Units 3 and 4. The control desk design shall incorporate at least 2 work surfaces, each equal in floor space to the area allowed for an OWS, to provide workspace for plant operators. 5.3.3.9 DATA STORAGE At least two high density optical disk drives shall be supplied for redundant storage and retrieval of historical and trend data, system software, and system configuration files. Software shall be provided to allow easy transfer of archived data into MicroSoft compatible database or spreadsheet format. Tape Drives are not acceptable as backup devices. 5.3.3.10 PRINTERS Two industry standard non-impact, laser jet type printers shall be provided. This printer shall be a high resolution laser jet single color suitable for printing 8-1/2x11 and 11x17 paper. These shall be desktop mounted in the Control Room on suitable furniture with space for paper, toner cartridges and other supplies. The printers shall include paper trays and feeders. The 2 printers shall be utilized as follows: o One dedicated to alarm printing o One dedicated to event logging. The minimum print speed acceptable is 300 characters/second. Printers shall operate without sound hoods in a quiet control room environment and printer noise level shall not exceed 47 dBA at distance of 3 feet from printer. Sufficient toner cartridge set(s) for each printer suitable for one year's operation of the power plant shall be supplied with the equipment. Printers shall use commercially available printer paper which is readily available. Printouts shall be spooled, and printouts intended for a printer which has failed shall be able to be re-routed to the other printer. Each printer shall be able to be accessed via any operator work station. Printers shall be network interfaced. Printer "Failover Switches" shall not be used. 5.3.3.11 OPERATOR WORKSTATION SOFTWARE/DISPLAY SUBSYSTEM The system software shall be designed by the DCS provider. It shall be design in such a way as to provide a seamless, transparent connection to the existing plant. Graphics shall be designed with similar symbology, colors and styles. It shall be the responsibility of the contractor to provide any software conversion upgrades to the control systems for Units 1, 2, 3 and 4 necessary to make them completely compatible with the new system. 102 Exhibit "A" Attachment 1 - Design Criteria As a part of this contract, the Contractor must convert the existing faceplate displays on the Unit 1, 2, 3 and 4 control systems into integrated graphic displays. 5.3.3.12 HISTORICAL DATA STORAGE AND RETRIEVAL SYSTEM The system shall include a comprehensive historical storage and retrieval system for long term archiving of predefined digital and analog process data in a series of disk files. The number and the size of the disk files shall be user configurable. This data shall be stored on a large capacity optical disk for long term storage. Disk capacity shall include at least two years storage of historical data collected from the system. It shall be possible to view the data logged to disk search for any desired portion of the file. Software shall be provided to allow easy transfer of archived data into MicroSoft compatible database or spreadsheet format. Facilities shall be provided to both archive and restore log files to and from floppy or other backup media without taking the system off-line. The data recorded by the historian shall be selected through the "event log" database. 5.3.3.13 REPORTS The DCS shall generate reports similar in information and style for Unit 5 as is provided on Units 3 and 4. 5.4 INSTRUMENT APPLICATION 5.4.1 GENERAL TECHNICAL REQUIREMENTS No process or instrument air lines associated with any instrumentation shall be brought into the control room area or adjacent electrical/electronic equipment rooms. No electrical voltages in excess of 125V nominal associated with any instrumentation shall be brought into the main control room area. Instruments or other devices containing mercury shall not be used in any system. Prime consideration will be given to the effects of corrosion and scaling on instrument selection and installation. Materials selection will be based on conditions of service and will be indicated on individual instrument data sheets. Bronze and other copper bearing alloys shall be avoided. Diaphragm seals shall be utilized on acid lines. Engraved phenolic tags engraved with the instrument tag number shall be permanently attached to all instruments. Outdoor electrical enclosures shall have a NEMA 4X rating and shall generally be of nonmetallic construction. All instruments and control equipment will be readily available from U.S. suppliers and shall be approved by a national testing agency such as FM or UL. 103 Exhibit "A" Attachment 1 - Design Criteria All control and instrumentation items and associated valves shall be located for easy access by operating and maintenance personnel from a floor, permanent platform or walkway. Portions of the process will contain fluids that are highly susceptible to precipitation of silica. The Contractor is responsible for the design and installation of heat tracing for instrument sensing lines as required to prevent precipitation. Implementation of the heat tracing shall be coordinated with the Owner. 5.4.2 INSTRUMENT ELECTRIC SUPPLY SYSTEMS Electric power for all instruments shall be supplied from an Uninterruptible Power Supply (UPS) system. Dual redundant instrument power supplies shall be provided and have the capability of being replaced on-line without affecting the operation of the instruments. The output of the instrument power supplies shall be 24 Vdc. Field instrumentation shall be standardized as much as practical. Redundancy for sensors as controls shall be provided to meet the design availability requirements for the Plant. Multiple sensors shall be used in instances where a single sensor cannot be expected to provide an average true value because of conditions or where a single instrument cannot cover the expected range. Generally, individual transmitters and controllers will be installed to permit isolation without upsetting the process. Separate test taps or thermowells shall be provided as required for performance or acceptance testing. Instruments dials and scales shall be white with black markings. The number of markings on all instruments dials shall be kept to a minimum consistent with easy reading to the required accuracy. All instrument dials shall be at least 4 inch diameter. Instrument ranges shall be selected so that the dial pointer is at the 2 o'clock position under normal operating conditions. Measuring devices shall be complete with all necessary condensation chambers, isolating valves and seal pots. One pair of tapping points with isolating valves only shall be made in the pipeline and any multiplication of signal output shall be carried out elsewhere. Bellows-type meters shall be capable of taking full line pressure on one side only, without damage or loss of calibration. Snubbers will be added only after their installation is shown to be required. 104 Exhibit "A" Attachment 1 - Design Criteria 5.4.3 INSTRUMENTATION DESIGN IMPLEMENTATION 5.4.3.1 GENERAL In general, alarm contacts from field devices should be open during normal operation and close to alarm. The exception to this is in the case of fail safe items such as turbine tripping schemes. Alarms shall generally be generated within the DCS off of the analog signal measuring the process variable. In cases where additional reliability or redundancy of signals are required, the trip signals should be generated off of process switches. Process switches monitoring critical process variables (such as liquid levels protecting against turbine water induction), redundant switches will be used in a 1 out of 2 switching scheme. Analog signals shall utilize a select feature, and the ability to switch primary controlling signal. An alarm shall be generated if redundant analog signals deviate by more than 10% of span. 5.4.3.2 VALVE LIMIT SWITCHES Limit switches from on/off control valves shall be wired such that both contact are closed in mid-travel. The closed limit switch is that limit switch that changes state at the valve closed position. Similarly, the open limit switch is that limit switch that changes state at the valve open position 5.4.3.3 INITIATING DEVICES Trip signals shall be derived as directly as possible from the initiating device. Wherever possible, pending trip conditions shall be alarmed at the operator interface. Critical process trip signal systems shall operate on a 2 out of 3 voting system basis. When one signal is locked out of service, the trip signal system shall operate on a 1 out of 2 voting system basis. Analog signals shall utilize a select feature, and the ability to switch primary controlling signal. An alarm shall be generated if redundant analog signals deviate by more than 10% of span. 5.4.3.4 SYSTEM SAFETY The control and plant protection systems shall be designed to ensure that the plant reverts to a safe state upon failure of any individual plant item or power supply, and that the operator is notified of the failure. The following means may be used to ensure a "safe" state: o Automatic switching to a standby device or power supply o Shutdown of the affected plant o Locking of the control system at the settings prevailing immediately prior to the failure 5.4.3.5 SUBSYSTEMS Individual systems comprising this power generation plant may have equipment which requires some form of proprietary control or monitoring system. The distributed control system shall provide as much of this control and monitoring as possible. Separate specialized electronic controls dedicated to a 105 Exhibit "A" Attachment 1 - Design Criteria particular control task or sub-system shall be utilized only when the specialized nature of the task or subsystem requires it (eg AVR, governor controls, vibration and temperature monitoring subsystems). Where such specialized electronic controls are utilized, they shall be fully interfaced with the DCS, using compatible communication hardware and by the provision of communication software as necessary. The interface to the DCS shall be made at the node allocated for the control of that local plant / subsystem. On/Off and start-up of back-up equipment shall generally be determined via discharge flow or pressure monitoring. Motor control circuit energized status shall be used where redundant motor/pumps combinations or other electrically driven redundant or standby equipment exists, or where discharge condition monitoring is inappropriate. 5.4.3.6 ELECTRICAL NOISE The field instrumentaion performance shall not be affected by electro-magnetic or radio frequency interference up to 3 V/m and according to IEC 255-22. In order to minimize the effects of generated or radiated electrical noise: The dc power and signal cables shall not run parallel or in close proximity to ac power cables. The dc and ac control and instrumentation cables of differing voltages shall be segregated. Proper grounding techniques shall be utilized Shields shall be terminated on the monitoring system end only, and only to an isolated ground. The primary ac power source shall be noise free 5.4.4 INSTRUMENTS CABLES AND WIRING Power wiring to and from the instruments and power supply units shall be such that power supply units can be removed without total system shutdown. Wire and cables of electronic instrument installation shall be single pair not less than 16AWG tinned copper conductors with PVC insulation, twisted, with aluminum shielded mylar tape separators with drain wire, extruded PVC inner sheath, wire braid or armor, and overall PVC jacket. Single pair wires shall be run in separate trays from the various transmitting and control devices to centrally located field terminal junction boxes in the process area. From the centrally located junction boxes, 20 pair cable shall be run to the DCS termination cabinets. If all pairs within a particular cable is not utilized, they shall be identified as spare. Cable sizes of less than 20 pair connecting field junction boxes and the DCS shall not be utilized. The ac power and signal wiring shall be separated by a minimum spacing of 4 inches in all cases, and shall not under any circumstance be run in the same wire way. Wiring between terminals shall be point-to-point and free from wire splicing and T connections. 106 Exhibit "A" Attachment 1 - Design Criteria When shielded cables or wires are necessary, an insulating sheath shall be included. Provision for termination of shields, or means to maintain the continuity of isolated shields shall be provided as required. In general, the plant electrical system will be designed, built, and tested in accordance with the most recent NEC Standards. The basic design philosophy shall provide the most effective measures to ensure high reliability and low maintenance. 5.4.5 ISOLATED GROUND Grounding of control systems and instrumentation equipment shall follow good industry practice and be such as to ensure that equipment operates reliably, safely and without damage in the presence of large electrical disturbances such as occur in power generation plant. A separate grounding system for control and instrumentation systems shall be established: o The plant shall incorporate an isolated ground system for use by the instrumentation and control system o The isolated ground system shall tie into the plant equipment ground system at only one point. o The system shall be isolated from the power system o The isolated ground system shall not have any ground loops. o In general, shields shall be terminated in the rack or cabinet where the measurement is monitored. The shield at opposite end of the cable shall be cut and taped. 5.4.6 INSTRUMENT REQUIREMENTS 5.4.6.1 ELECTRONIC INSTRUMENTS Electronic equipment offered shall be of a type having proven record of reliability under geothermal power station service conditions. All remote control loops shall be solid state electronic and control signal transmission shall be current type, 4-20 milliamps d.c., and utilize a 2-wire circuit (ISA Type 2). Dual-auctioneered, regulated power supplies shall be used in the distributed control system I/O cabinets and shall operate on 120V a.c., 60 HZ house power (with isolation transformer) and from the plant UPS. Field mounted transmitters shall have a minimum load resistance capability of 300-800 ohms at a corresponding power supply voltage of 23-32.7V d.c. (ISA Class U). Accuracy shall be 0.25% of calibrated span or better, including repeatability, linearity, and hysteresis. Signal reference and cable shielding ground connections shall be made at one point only and that point shall be the isolated grounding bus in the appropriate electronic cabinet in the relay room unless otherwise specified. The field end of the shielded cable shall have the shielding clipped off close to the outer layer of insulation and an insulating tape applied to assure that the shielding does not touch the local instrument or appurtenances at any point. (Refer to Electrical Design Criteria for additional details). 107 Exhibit "A" Attachment 1 - Design Criteria 5.4.6.2 TRANSMITTERS AND TRANSDUCERS All transmitters shall be as much as possible of the SMART variety and shall conform to the HART protocol requirements. In general, the range for an analog input shall be sized such that the maximum process value is approximately 85% of the range. The range shall always be rounded to a convenient number such as 50, 100, 800, 1000, etc. Accuracy shall be 0.10% of calibrated span or better, including repeatability, linearity, and hysteresis. All wetted parts of the transmitter shall be at least 316 stainless steel construction. Transmitter fill fluid, if used, shall be silicone. Transmitters shall be provided with flange adapter kits and mounting brackets. Transmitters shall be housed in a NEMA 4X rated enclosure. A hand-held SMART transmitter calibrator shall be provided with the transmitters. Diaphragm seals shall be used where acidic liquids are in the process and require process isolation from the transmitter element. Seals shall be standardized as much as possible for interchangability. Analog measurements from process plant and electrical power supply systems for remote indication and control purposes shall be transmitted as 4-20 mA dc output signal. Alternately, the Contractor may utilize SMART field bus type communications. Transmitters and transducers shall be solid state electronic devices suitably designed for the location and services required. Appropriate measures shall be taken to prevent any impurities in the fluid being measured from affecting transmitter and transducer operations. This shall generally be achieved by providing double diaphragm seals. 5.4.6.3 PNEUMATIC INSTRUMENTS All modulating control valves and dampers, unless otherwise specified, shall be air operated. The conversion from an electronic control signal to a pneumatic control signal will be made at the final control element with a current to pneumatic (I/P) transducer with pneumatic valve positioner where necessary. Critical final control elements will have a local pneumatic loading station for testing or emergency operation. Pneumatic valve positioners shall have the following design features as required on a case by case basis: o Characterizeable (feedback cams). o Useable for double or single acting service. o Direct or Inverse action. 108 Exhibit "A" Attachment 1 - Design Criteria o High capacity pilot valves. o Suitable for linear or rotary movement. All pneumatic instruments shall be fitted with inlet filters. All vents off of pneumatic instruments shall be fitted with bug screens. All pneumatic instruments shall be mounted in separate, non-metallic enclosures with an air purge from the instrument air supply. Instrument air will be supplied In accordance with section 10.16. Instruments shall be designed to operate over an air supply pressure range of 80-125 PSIG. Pressure reduction to the level required by the instrument or valve will be done locally at the instrument. Where appropriate for multiple runs of tubing, trays and/or tube bundles will be utilized. 5.4.6.4 PROCESS SWITCHES Process switches, e.g. pressure, temperature, flow, limit, shall contain a minimum of two isolated Form C contacts, unless otherwise specified. Switches shall be snap-acting type. The switch element shall be located in a hermetically sealed enclosure which prevents exposure of contacts to atmosphere. Switch contact ratings for specific applications will be shown on the respective technical data sheets. 5.4.6.5 TEMPERATURE 5.4.6.5.1 RESISTANCE TEMPERATURE DETECTORS (RTD) For general process applications, three lead, 100 ohm @ 32(degree)F platinum RTD shall be used. These devices shall not be used for temperatures in excess of 650(degree)F. They shall be duplex, sheathed, ungrounded, and ceramic insulated. The sheath O.D. shall be 0.250". They shall be furnished with terminal blocks and grounding lug. Manufacturer supplied copper RTD's, (10 ohm @ 77(degree)F), are not acceptable. RTDs monitoring process fluids shall be mounted in suitable thermowells. 5.4.6.5.2 THERMOCOUPLES For applications not suitable for RTD's, chromel-constantan (Type E) thermocouples shall be used. These shall be duplex, sheathed, grounded, and ceramic or magnesium oxide insulated. They shall be furnished with terminal blocks and grounding lug. The sheath O.D. shall be 0.250". Thermocouple extension wire, of the same material as the attached thermocouple, shall always be used to interconnect the thermocouple to its transducer. Thermocouples monitoring process fluids shall be mounted in suitable thermowells. 109 Exhibit "A" Attachment 1 - Design Criteria 5.4.6.5.3 BIMETALLIC THERMOMETERS For local temperature indication, not requiring high accuracy, bimetallic type thermometers with a universal angled, 5" nominal diameter dial and 0.250" O.D. stem shall be used. These shall be inserted in a thermowell. 5.4.6.5.4 FILLED THERMAL SYSTEMS In general, filled thermal systems shall not be used. In those applications where no other technology is practical, filled instruments may be used. Instruments using filled systems include the sensor bulb and the readout device or switch as a complete system. The class of the system and bulb diameter are generally determined by temperature range, length of capillary required and whether a uniform scale is required if there is a readout device. Thermowells compatible with a specific type of bulb will be specified with the thermal system. 5.4.6.5.5 THERMOWELLS Thermowells for use with filled thermal systems are not included in the scope of this section. (See previous Subsection on filled thermal systems.) There shall be two means of attachment: o Socketweld - 1" socketweld shall be preferentially utilized for clean, low pressure and temperature service. o Flanged - The flanged means of attachment shall be used on all vessels and for all services where socketweld wells are not appropriate. In general, 1 1/2" RF flanged wells will be used. Thermowells shall be constructed of the following materials: o Water and other benign fluids: 316SS o Steam and Brine service: Alloy 625/Hastelloy C, or 2205 flange welded to Alloy 625/Hastelloy C probe. 5.4.6.5.6 TEST WELLS Test wells, where required, shall meet all the criteria for material, design, construction and certification specified for thermowells. Each test well shall be furnished with a stainless steel extension nipple and screwed cap. Extension nipple length shall be as determined by the manufacturer, unless otherwise specified by the A/E. 5.4.6.6 PRESSURE Local pressure indicators shall be bourdon tube type with an accuracy of +/-0.5% of span. Dials shall be white with black markings and shall be 4 1/2" diameter with a dial arc of 270(degree) unless otherwise specified. Units of measurement shall be indicated on the dial face and the pointer shall be externally adjustable from the front of the gauge. The gauges shall be a solid front, blow-out back, hermetically sealed type. Gauge movements shall be stainless steel, geared type and the bourdon tubes and sockets ANSI 316 SS (Refer to ANSI B40.1-1974 for application guidelines). 110 Exhibit "A" Attachment 1 - Design Criteria Pressure gauges shall be Ashcroft or 3D gauges. 3D gauges shall be used on vibrating platforms such as near pumps and level control valves. 5.4.6.7 FLOW 5.4.6.7.1 GENERAL For general flow measurement applications, head type flowmeters shall be used. Where higher, wide range accuracies are required, or special operating conditions exist that preclude the use of head type meters, other types of metering systems will be specified. All steam flow measurements shall have associated pressure and temperature measurements to be used for mass flow calculation in the DCS. Differential pressure primary elements in hot liquid services shall be under sufficient hydrostatic head to prevent flashing at the lowest pressure point in the element outlet. Differential pressure type flowmeters shall be fitted, as a minimum, with 5-valve manifolds including an equalizing valve for zero check. Primary flow elements shall be readily accessible for maintenance or calibration. 5.4.6.7.2 ORIFICE PLATES Orifice plates shall be of the sharp, square-edged, thin plate, concentric bore, paddle type with flange taps. The differential pressure at design flow shall generally be 100" wc. Diameter ratio (Beta Ratio) shall not exceed 0.70. Sizing and installation practice will be in accordance with the American Gas Association (ANSI/API 2530). Plates shall be of alloy 625 or C-276 for SA, LA services. Plates shall be 316L for all other applications except steam service. All steam service plates will be the same as for SA and LA services. Vent and drain holes shall be provided in orifice plates to prevent the build-up of vapor pockets in liquid service pipes and condensate in vapor service pipes. 5.4.6.7.3 WEDGE FLOW METERS Wedge flow meter may be used where low loss and pluggage concerns exist. Wedge flow meter shall be used in brine service. Wedge flow meters shall have a H/D ratio between 0.2 and 0.5 with a nominal differential pressure at the taps at rated flow between 50 and 200 in H2O. Flow meters shall be calibrated prior to installation. Wedge flow meters shall have an accuracy of 0.75% or better when operated within the calibrated range. 5.4.6.7.4 MAGNETIC FLOW METERS Magnetic flow meters may be used for slurry flows or other difficult flow measurements. Magnetic flow meters will be installed with a minimum of 10 diameters of straight pipe upstream and 2 diameters downstream. Lining and electrode materials shall be compatible with the requirements of the fluid. The electronics shall be separately mounted in a non-corrosive NEMA 4X enclosure. Meters shall be fed from the UPS should the meter require external power. 111 Exhibit "A" Attachment 1 - Design Criteria Magnetic flow meters shall be used for measurement of hotwell condensate, acid delivery individual injection points, NORMS injection rates, scrubber drain rates, purge water flow rates, and heat exchanger hot water flow to Region I IX and Region II IX, and heat exchanger cold water supply rate. Mag meters will be Krohne unless approved by the Owner. 5.4.6.7.5 MASS FLOW METERS For applications where measurement of mass flow is required, the use of direct mass flow (Coriolis Effect) meters or thermal dispersion type will be considered. Mass flow meters shall be used for the primary acid delivery feed pumps to compensate for differences in HCL metering and control due to variability in the HCL concentration from the Mineral plant R.O. system. Two meters are required, and must be available for use in all operating modes. 5.4.6.7.6 VELOCITY AVERAGING PITOT TUBES / ANNUBAR (DIETERICH STANDARD CORP.) These type meters may be used only with prior approval of the Owner. In general, the rangeability and accuracy of this element is comparable to an orifice plate. The permanent pressure loss is significantly less than orifice plates in most applications and the installation cost is less than an orifice plate. In particular, these devices may be used where permanent pressure loss is an important factor, where removal of the element for inspection and/or maintenance is required without interrupting flow in a process line, or where line size may make orifice plates uneconomical. Flow elements shall be calibrated prior to installation. Annubars shall be of Hast. C material construction for all steam and NC gas applications. They shall be either retractable or have a purge style head with purge water hooked up via 316L instrument tubing to periodically flush the Annubar. Due to the unique service and history, the only approved supplier of Annubars at the Salton Sea is Dieterich Std. Annubars. 5.4.6.7.7 FLOW TEST PORTS The flow test port (where required) consists of a single (1") pipe branch, (4") long with a (1") full port ball valve ((1 1/2") pipe and (1 1/2") ball valve with (1") minimum bore on lined pipe). The pipe branch shall be located just upstream of the flow element or meter. It shall be perpendicular to the main pipe axis and shall be positioned on the circumference such that nothing obstructs the insertion of the pitot tube. The ball valve materials shall be compatible with the fluid in the main line. On unlined pipe the full port ball valve shall be threaded. On lined pipe the ball valve shall be flanged. 5.4.6.7.8 VENTURI FLOW ELEMENTS A steam flow measuring device, which shall be a venturi flow meter shall be installed after the interface point isolation valve. This device shall be connected to the Power Plant monitoring system and shall be used for measurement of steam flow during normal operation of the Power Plant and during performance testing. Performance testing of the plant shall be carried out using the calibrated venturi meter installed in the main steam line. The venturi meter and its installation shall comply with relevant ISA standards sufficient to give flow measurement with at least +/-0.5% accuracy. Refer to Section 10.24.2.2 for additional requirements concerning venturi flow elements. 112 Exhibit "A" Attachment 1 - Design Criteria 5.4.6.8 LEVEL MEASUREMENT Suitable bosses, stub pipes and isolating valves shall be provided on all tanks, and vessels where level measurements are required. Wherever practical an external level bridle shall be provided wherever turbulence or other undesirable conditions are present to enable representative and stable level measurements to be made. Where a level bridle cannot be incorporated, a stilling well shall be provided for this service. Wherever possible, liquid level measurements will have a gage glass for direct visual observation as well as transmitters or switches. Gages shall normally be of the armored reflex type, except that armored transparent type will be used for brine service. In general, level measurements shall be made using electronic differential pressure transmitters. In applications where the differential pressure transmitter is undesirable, displacers, bubbler, capacitance or ultrasonic beam based devices may be used. Flange ratings shall be in accordance with vessel specifications. For multiple instruments connected to a vessel an external stand pipe will be utilized. Flange ratings shall be in accordance with vessel specifications. Differential pressure type level transmitters shall be fitted, as a minimum, with 5-valve manifolds including an equalizing valve for zero check. For fluids with high solids content, high temperature, or other service conditions where float mechanisms are not appropriate, hydrostatic head, electric probes, or sonic type level measurements may be utilized. Where feasible, purging of level taps will be considered to prevent pluggage. In general, sonic or RF probes shall be used for solids level detection. 5.4.6.9 LEVEL SWITCHES Locally mounted liquid level gauges shall be used for sight monitoring and measurement purposes. Locally mounted magnetic coupling glandless level switches shall be used for alarm and control purposes. 5.4.6.10 CHEMICAL ANALYSIS EQUIPMENT Where specified for conductivity or pH measurement, the instruments shall be of the immersed electrode type, in-line for pipe measurement and dip type for measurement in open vessels. The measurement electrode, reference electrode and temperature compensation shall all be contained in the same probe. 5.4.7 FINAL CONTROL ELEMENTS 5.4.7.1 AIR OPERATED CONTROL VALVES - RPF SERVICE Control valves and all required accessories shall be provided as a complete assembly by the valve manufacturer. This shall include all solenoid valves, limit switches, valve actuators, valve position transmitters and other accessories as required by the installation. Where air actuation is not feasible and economically justifiable electric, hydraulic or electro-hydraulic actuators shall be used for modulating service. The control valves shall be installed to the manufacturer's recommendations for minimum length of straight pipe upstream and downstream of the valve as well as the location of pipe reducers. 113 Exhibit "A" Attachment 1 - Design Criteria Except where specified or approved by the Owner, all control valves shall have upstream and downstream isolation valves. A bypass valve of a capacity equal to or greater than the control valve shall also be provided, where required by the mechanical design (refer to Section 8.6.10.3). The upstream and downstream connections of the bypass valves shall be made outside the isolation valves provided for the control valve. This would enable the bypass line to be placed in service while the control valve is isolated and serviced. In addition, a 3/4-inch drain line and valve (ball or gate) shall be installed upstream and downstream of all control valves mid-way between the control and isolation valve in an accessible area. Hydraulic and Motor operated valves shall have the same block, bypass and drain features. Control Valves shall be designed to fail in the position that is safest for the process as defined by the P&IDs. Unless the process requires otherwise, control actuators shall be pneumatic. Electric, hydraulic or electro-hydraulic may be used where necessary and where life-cycle costs show them to be competitive. All drain valves in the RPF must be 1-1/2" min. size for both steam and brine service. Control valves or control valve accessories requiring air pressure tanks must meet all state requirements for pressure tanks (e.g.; safety valve, pressure indication).Eccentric disk type valves (Masoneilan Camflex II or equivalent) will be utilized for brine and steam services. Masoneilan Camflex II control valves must be used in flashing and cavitating services for brine and condensate. Refer to the pipe class specification sheets for additional valve specifications. 5.4.7.2 AIR OPERATED CONTROL VALVES - PGF SERVICE Unless otherwise specified on the data sheets, all control valves shall have flanged ends or be lugged wafer type for insertion between line flanges. Minimum flange rating shall be 300 lb class for sizes 4" and under. During the normal range of operating conditions the sound level at any point 3 ft. radially from the surface of the downstream pipe at a distance of 3 ft. downstream of the valve outlet should not exceed 85 dBA. Body outlet velocity should not exceed MACH 0.3. Should sound levels exceed 90 dBA, the valve vendor shall provide recommendations for mitigation of the problem. The maximum allowable seat leakage must be determined from process design considerations and for a particular valve is dependent on body and trim construction. The permissible leakage rates shall be in accordance with ANSI FCI 70-2 1976, Classes 1-6 and will be specified on the valve data sheet. Instrument air supplied to the air operated control valves will be at 100 PSIG nominal and a minimum of 75 psig. Air pressure reduction, as required for operation, will be accomplished at the valve location. Control valves shall normally be sized with normal flow at approximately 70% of valve capacity. Pressure drop across the valve should be at least 25% of total system frictional losses or 10% of total system pressure whichever is greater. All sizing calculations will be verified by the valve manufacturer. Minimum size shall be 1". Safe failure modes will be determined at the time of system design and indicated on the valve data sheets. 5.4.7.3 VALVE ACCESSORIES 114 Exhibit "A" Attachment 1 - Design Criteria Local control valve accessories shall be mounted on the valve unless otherwise specified. Accessory items include the following: o I/P transducer /Positioner Unit with gauges o Air Pressure Regulator and Filter o Solenoid Valve(s) o Limit Switch(es) (on on/off service DCS controlled valves only) o Volume Booster (as required) o Position Transmitter (on DCS controlled modulating valves only) Double acting cylinder actuators shall be provided with air accumulators when required to achieve required failure positions. Solenoid enclosures shall be corrosion resistant IP 66 (NEMA 4X) unless otherwise specified. Solenoid coils shall be Class H high temperature construction, at (120 Vac) and shall be suitable for continuous duty. Three-way direct acting solenoid valves shall normally be used to actuate control valves when interlocked with fail safe or shutdown circuits, or when used for on/off service type control valves. Universal (reversible ports) are preferred. The valve bodies for two-way solenoid valves shall follow the piping specification in the Mechanical Design Criteria when used in process lines. I/P and hand stations shall be mounted in a Nema 4X enclosure. The coil shall be molded design with waterproof housing and shall be furnished to meet area electrical code classifications. Outdoor installations shall be weatherproof. Solenoid vents shall have bug screens. Those solenoids that have top mounted vents shall be piped so that moisture does not enter the valve. Solenoid Valves shall be manufactured by Berkert. If an application such as high pressure hydraulic systems, cannot be serviced by Berkert, another valve may be substituted. 5.4.7.4 LIMIT SWITCHES Limit switches shall be supplied as an integral part of the valve-actuator assembly. All limit switches shall be snap acting type limit switches and shall be provided and installed at the factory with mounting brackets and associated hardware. Switches shall have two normally open and two normally closed contacts and a corrosion resistant IP66 (NEMA 4X) enclosure. 5.4.7.5 PRESSURE GAUGES 115 Exhibit "A" Attachment 1 - Design Criteria Gauges for control air supply and signal pressures integral to the instrument shall be in accordance with the control manufacturer's standards. All other gauges shall be as specified herein. 5.4.7.6 MOTOR OPERATED VALVES All motor operated valves shall be equipped with a non-relaxing gear train and non-rotating handwheel during electric operation. A minimum of eight independently set limit switches shall be provided. Torque seating and/or torque back seating requirements shall be determined by the type of valve and application. In general all valves, except rotary valves, will be torque seated. If position indication is required, it shall be by resistance to current or angle to current (4-20 mA) 2 wire. MOVs s shall be as manufactured by Limitorque for electro-mechanical applications and as manufactured by REXA for electro-hydraulic applications. 5.4.7.7 SAFETY RELIEF VALVES In general, line and vessel protection shall be accomplished by the use of rupture disks. However, for applications protecting against thermal expansion and low flows, safety relief valves may be used. Safety relief valves shall: 1. Conform to the requirements of ASME VIII, Division 1, Pressure Vessel Code. 2. Be top guided. 3. Be supplied with lifting levers for steam and air service. 4. Be suitable for use on ANSI B31.1 piping. 5. The seat leakage test for all valves will be as follows: 6. Air and vapor service as per API-Std-RP-527. 7. Liquid service - 10 cc/hr per inch of valve size at 90 percent set pressure. 8. Bodies shall be constructed of 316 Stainless Steel with Stellite seats. 9. Relief valves shall be supplied with gags. 10. Bellows shall be specified where back pressures could affect proper operation. For location and piping criteria see Mechanical Design Criteria. 5.5 EQUIPMENT INSTALLATION AND SERVICE CONNECTION 5.5.1 INSTRUMENT TUBING AND ACCESSORIES 5.5.1.1 GENERAL 116 Exhibit "A" Attachment 1 - Design Criteria This criteria applies to all piping, tubing, fittings, and valves required for primary instrument, sampling, air supply, and pneumatic control systems in ANSI B31.1 installations. Class, size, routing and valving shall be as shown on Stone & Webster Engineering Corporation Drawings, Standards, Technical Data Sheets, and Specifications. Instrument process connections will generally be 3/4" with 3" connections for level bridles. Compression fittings and connections shall be used for all stainless steel primary sensing, air supply, and control tubing. Transition from welded to compression fittings will be made at the instrument root valve. Instrument locations and connections shall be designed for maximum accessibility and for ease of operations and servicing. Instruments shall be close coupled in scaling or corrosive service. When several instruments are located in close proximity they will be grouped together on an instrument rack. In the resource production facility area these racks shall be nonmetallic closed cabinets with gasketed doors. Instrument process connections shall be designed to be roddable and root and isolation valves shall have removable seats and straight through flow paths for ease of maintenance. Nonmetallic tubing may be considered for services with severe vibration or corrosion problems. 5.5.1.2 INSTRUMENT VALVES Blowdown and drain valves are required in the connecting lines to all transmitters and instruments used on water, steam and condensable vapor services. The method of attaching isolating valves to instruments shall be such that it is possible to disconnect the instrument from the connecting pipe without having to drain the pipe. Manifold Valves - Differential pressure type flowmeters shall be fitted, as a minimum, with 3-valve manifolds including an equalizing valve for zero check. 5.5.1.3 INSTRUMENT PIPEWORK AND FITTINGS Instrument root connections at the process piping or process vessel shall generally be (3/4"). The Mechanical Design Criteria will detail the requirements for both the connections at the process piping and process vessel and the vessel instrument isolation valve associated with these connections. Monel tubing, fittings, valves, and manifolds shall be used for all brine piping. Stainless steel tubing, fittings, valves, and manifolds shall be used for all other primary piping. The Instrument Installation Diagrams will show the physical requirements for mounting and routing of the instrument tubing. 5.5.1.4 INSTRUMENT FITTINGS AND TUBING SUPPORT All tubing shall be (.25"), (.375"), or (.500") stainless steel; other sizes of tubing shall not be provided. All tubing and capillaries shall be supported and protected from external damage using TubeTrack or similar product. Tubing support components shall be manufactured from materials which are suitable for the harsh chemical environments likely to be encountered. Tubing support systems shall be routed so as 117 Exhibit "A" Attachment 1 - Design Criteria not to impede removal of adjacent equipment. Tubing support systems shall be mounted to structure only, not to equipment. Flexible hoses or conduit shall be used to ensure that movement between actuator devices and stationary devices are absorbed in the flexible hose and not in the rigid tubing or conduit. Ports for flushing instrument sensing lines shall be provided as required. 5.5.1.5 PRIMARY INSTRUMENT TUBING REQUIREMENTS Compression fittings shall be used for all primary instrument sensing tubing. Tubing runs greater than 50 feet should be avoided. All tubing for this service shall have a minimum outside diameter of 1/2-inch and shall conform to the following requirements: o ASTM A-213 Grade TP316 (S31600) o Seamless Stainless Steel o Cold Drawn Fully Annealed o 10 ft. Lengths or Longer Dimensions: Actual O.D. Wall Thickness I.D. MWP Inches Inches Inches @1,000F 3/8* 0.049 0.291 4,261 1/2 0.049 0.402 3,070 5/8 0.072 0.481 2,690 3/4 0.083 0.584 2,575 *3/8-inch tubing may be used only for those parts of sampling systems that are located within a panel or a rack. Weld repairs shall not be allowed on the tubing. The supplier of the tubing shall verify that all requirements of the material specifications have been complied with and that the tubing meets these requirements. 5.5.1.6 INSTRUMENT AIR SUPPLY AND PNEUMATIC CONTROL TUBING DESIGN 316 Stainless steel tubing, fittings, and valves shall be used for all instrument air and control pneumatic tubing. 118 Exhibit "A" Attachment 1 - Design Criteria Instrument and pneumatic pipe routing shall maintain adequate distances from outside walls, doorways, and areas of extreme heat to minimize ambient effects on control lines. Lines in the instrument air supply distribution system shall be sized such that the maximum pressure drop from the air dryer to the most remote air user does not exceed 5 psid with a 100 psig supply when all users are taking air at approximately 2 to 5 scfm. Instruments requiring air shall generally be supplied from a branch instrument air header. The maximum number of instrument air users that shall be taken off a (1/2") branch shall be four. The maximum number of instrument air users that shall be taken off a (1") header shall be twenty. Separate connections shall be taken off the main instrument air header for instruments requiring large amounts of air for operation with a (1/2") minimum line being used. Shutoff valves at the instruments shall be swing-out ball valves with compression fittings. A separate reducing filter regulator shall be furnished for each instrument requiring a source of instrument air. All tubing for this service shall have a minimum outside diameter of 1/2-inch (except as noted in the table below) and shall conform to the following requirements: o ASTM A-213 Grade TP316 (S31600) o Seamless Stainless Steel o Cold Drawn Fully Annealed o 10 ft. Lengths or Longer The supplier of the tubing shall verify that all requirements of the material specification have been complied with and that the tubing meets these requirements. The requirements for all instrument air piping above 1/2" is covered in the Mechanical Design Criteria. 5.5.2 MATERIAL 5.5.2.1 STAINLESS STEEL FITTINGS 5.5.2.1.1 COMPRESSION TYPE FITTINGS This type of fitting shall be used for all of the following connections: o Connection of a primary sensing line or sampling line from the root valve transition fitting to an instrument. o Connection of an individual instrument air supply line between the air supply header shut-off valve and the instrument. o Connection of instrument air supply headers assembled from stainless steel tubing ( Not pipe). o Connection of a pneumatic control line to an instrument, control valve, control drive or accessory device. 119 Exhibit "A" Attachment 1 - Design Criteria Compression fitting shall be furnished with the following specifications: o Tube Size, O.D. inches: 1/4, 3/8, 1/2, 5/8, 3/4 o Type: Compression o Material: 316 Stainless Steel o Manufacturer: Crawford "Swagelok" 3/8-inch tube fittings may be used only for those parts of sampling systems that are located within a panel and/or a rack. Manufacturers recommended tools and installation procedures shall be strictly followed. 5.5.2.1.2 SOCKET WELD FITTINGS (PRIMARY SENSING & SAMPLE LINES) Socket weld fittings shall have full annular stops, a straight bore and shall be furnished in accordance with the following specifications: o Tube size, O.D. inches: 3/8, 1/2 o Manufacturer: Cajon Company* or equal *Swagelok to weld fittings are also available from Cajon which provide easy transition from welded to non-welded tubing systems. 5.5.2.2 STAINLESS STEEL VALVES The valves applicable to this section are the instrument valve, blowdown valve, test valve, backup root valve (when specified) and sample regulating valves. The valves for these applications shall be furnished in accordance with the following specifications: o Style: Ball, full port o Rating: 6,000 psi @ 100F o Body Design: Replaceable seat roddable o Body Material: 316 Stainless Steel, except for brine service which shall be Alloy 20. o Construction: Union Bonnet, 316 Stainless Steel o Stem: Stainless Steel o Seat: Reinforced TFE o Packing: Reinforced TFE o End Connections: NPT or Compression Tube Fittings 120 Exhibit "A" Attachment 1 - Design Criteria o Manufacturer: TBV Exception: Low pH root valves shall be C276 or Inconel 625. In general, 3/4" valves shall be used. 3/8-inch valves may be used only for those parts of sampling systems that are located within a panel and/or a rack. Weld repair of defects on the pressure boundaries of a valve body shall not be allowed. 5.5.2.3 INSTRUMENT AIR SUPPLY VALVES The valves applicable to this section are the individual instrument air supply shut-off valves. They shall be furnished in accordance with the following specifications: o Style: Ball, full port o Working Pressure: 3000 psi @ 100F o Body Material: 316 Stainless Steel o Body Construction: Ball o Construction: Screwed Bonnet o Stem: Stainless Steel o Sizes: 1/4, 3/8, 1/2 inch o End Connections: Pipe to pipe, pipe to tube, tube to tube o Manufacturer: Whitey Co., "43" Series, or equal 5.5.2.4 MANIFOLDS Three valve manifolds shall be supplied as follows: o Body Design: Removable Seat, Roddable o Body and Bonnet Material: 316 Stainless Steel o Stem Material: 316 Stainless Steel o Seat: Reinforced TFE o Packing: Reinforced TFE o Process and Instrument o Port Connections: 1/2 Inch NPT o Manufacturer: HEX VALVE HM452 Series, or equal 121 Exhibit "A" Attachment 1 - Design Criteria 5.6 RACKS AND PANELS 5.6.1 FIELD ENCLOSURES Unless otherwise specified, all indicating instruments shall have dust and moisture proof cases to NEMA 4X. All enclosures shall be specified to be corrosion resistant. Enclosures will protect the field instrumentation from solids, hazardous conditions and washdowns with high pressure hoses. The enclosures will be designed to permit in-place calibration of instrumentation and instrumentation removal from the enclosure front. In all cases corrosion-resistant housings (NEMA 4X) are required with stainless steel or non-corroding hinge material. In addition to the above requirements, panels will be provided with replaceable corrosions resistance ion emitters An instrument air purge shall be provided on electrical or control enclosures with an interior volume greater than 1 cubic foot (1728 cubic inches). Design of panel purge and purge flow rates shall be sufficient to provide positive pressure within the enclosure under all conditions 5.6.2 LOCAL CONTROL PANELS Local control panels shall meet the same requirements as for field instrument enclosures. The construction and finish of all local control panels shall conform to the requirements of the ambient conditions. In all cases corrosion-resistant housings (NEMA 4X) are required with stainless steel or non-corroding hinge material. 5.6.3 TERMINAL BLOCKS Terminal blocks shall be rated at 600 volts and shall be provided for all external connections to cabinets and consoles. Terminations to compression type terminal blocks shall include a metal ferrule, compressed over all conductor strands. Termination of bare wires in compression terminal blocks is not acceptable. Alternately, terminations may be made to terminal blocks accepting locking ring tongue compression type lugs. Thermocouple terminal blocks shall be of the same material as the thermocouple extension wire. 5.6.4 CONTROL PANELS AND RELAY PANELS In addition to the requirements set forth above, all control panels and relay panels shall have lights and receptacles installed within the cabinet. The lights and receptacles shall be wire to separate power entry terminal blocks such that a separate feed may be used to power these loads. Cabinets which are installed as a unit, such as the DCS, should have a single feed connection point for all the cabinets in the set. 5.6.5 LOCAL PUSH BUTTON STATIONS All motors and loads controlled via the DCS will have an auxiliary local push button control station located adjacent to the equipment for local control of the equipment. The bush button station will have controls for start and stop of the equipment, as well as a local/remote select switch that enables DCS control of the load. The local start/stop control shall be wired directly into the associated MCC, along with the appropriate field instrumentation interlocks, to allow complete pump operation apart for the DCS. Modulating valves shall have local manual loading stations. 122 Exhibit "A" Attachment 1 - Design Criteria Design implementation of the local controls will provide for bumpless transfer from DCS to field control and from field control to the DCS. This includes motor on/off control stations as well as valve manual loading stations. Local panels shall be NEMA 4X rated and constructed of stainless steel. 123 Exhibit "A" Attachment 1 - Design Criteria 6. MECHANICAL DESIGN CRITERIA 6.1 GENERAL The Project, Unit 5, is a bottoming cycle geothermal power plant that receives geothermal steam and brine from the existing Salton Sea Units 3 and 4. After energy is extracted from the brine in Unit 5 , the brine is routed through a Silica Control System where the silica in solution is reduced from approximately 850 mg/l to 200 mg/l. The brine is then delivered to the Region 1 Minerals Recovery Facility (MRF). The brine must exit Unit 5 at a specified temperature. 6.2 OPERATING MODES The Project will operate as a base load merchant plant. The project also supplies geothermal brine feedstock to the Region 1 MRF where zinc is extracted from the brine in a continuous process. The Project supplies utilities to the MRF including: o Electric power o Steam at atmospheric pressure o Auxiliary steam o Makeup water (excess condensate) o Fire water 6.3 RELIABILITY The Project shall de designed with installed spare capacity, redundancy, and other features to achieve a 96% Reliability during normal operation. The design of systems and equipment shall provide maximum reliability. All rotating equipment shall be provided with installed spare capacity unless otherwise specified. 6.4 POWER CYCLE The power cycle is shown on the General Process Flow diagram included in Attachment 8.1-1. The power cycle uses geothermal steam at three different pressures. Standard Pressure (SP) steam is delivered to the Project from an intertie with Units 3 and 4. Low Pressure (LP) steam and Very Low Pressure (VLP) steam is flashed from geothermal brine that is delivered to the Project from Units 3 and 4. Steam at all three pressures is delivered to a condensing steam turbine generator. The turbine exhausts to a surface condenser located below the turbine. Steam condensate from the condenser is pumped to the main cooling water system as makeup. Additional makeup is available from the Region 1 MRF. The cooling water system uses a wet, mechanical draft cooling tower to reject waste heat to the environment. Circulating water pumps deliver water from the cooling tower basin to the condenser and back to the cooling tower. Geothermal steam contains non-condensable gas that must be removed from the condenser. The Gas Removal System extracts the gas from the condenser, compresses it to slightly above atmospheric pressure, and delivers the gas to the cooling tower for release to the environment with the cooling tower plume. The gas contains Carbon Dioxide and Hydrogen Sulfide. Hydrogen Sulfide abatement is not required. Plant auxiliary equipment is cooled with water from the cooling tower basin. The auxiliary cooling water system also delivers make up water to the MRF. Geothermal brine from Units 3 and 4 is pumped to, and through, two levels of cascading steam separators to generate LP and VLP steam. From the steam separators the brine is delivered to a silica control system. 124 Exhibit "A" Attachment 1 - Design Criteria The temperature of the brine is reduced in the first reactor of the silica control system by flashing at atmospheric pressure to meet the requirements of the minerals extraction process. Brine exiting the silica control system is pumped to the Region 1 MRF. 6.5 CYCLE HEAT BALANCE The Contractor has developed a Guaranteed Heat and Material Balance diagram for the Project. This diagram is included in Attachment 6, document 8.1-1, to this specification. 6.6 MATERIALS OF CONSTRUCTION The geothermal fluids are extremely corrosive to standard materials of construction. The Contractor's material selections are represented on the Station Materials Diagram included in Attachment 6, document 8.1-1. Products which contain asbestos are prohibited. This prohibition includes items such as packings or gaskets even though the item is encapsulated or the asbestos fibers are impregnated with binder material. 6.7 SEISMIC DESIGN Equipment and anchorages shall be designed to withstand a seismic event as specified in Section 8.2. All process equipment shall remain operative after being subjected to the design seismic event without loss of performance or structural integrity. Analysis shall be made using the equivalent lateral force (ELF) method. A value of 2/3 of the ELF shall be simultaneously imposed as a vertical force on the equipment. No credit for friction shall be taken in designing the anchorage system to resist lateral loads. The seismic load shall be included with the normal operating loads of the equipment. 6.8 VIBRATION Vibration shall be minimized by good design and by the adoption of high standards of balancing of both components and rotating assemblies during manufacture. Except where otherwise specified the vibration amplitude of rotating equipment when measured on the bearing housings under steady state conditions shall not exceed the middle values of the bands designated "brauchbar" (satisfactory) in VDI 2056 for the class of machine concerned. Steam turbines and generators shall be installed with proximity transducers on all bearing housings. The transducers shall measure x & z direction vibration on all housings and y direction (axial) vibration on thrust bearings. Vibration limits for turbines and generators shall comply with the relevant sections of API 612 and API 546 respectively. Design and installation of vibration monitoring equipment shall comply with the requirements of API 670. Continuous vibration monitoring equipment shall be provided for turbines, generators and circulating water pumps. Equipment shall be Bentley-Nevada 3300 series or approved equal. All vibration signals shall be brought to a monitoring panel. The panel shall provide relay access for hook up of spectrum analyzing equipment. Summary indication and alarm signals shall be connected to the DCS. Should vibration levels exceed the above limits, the Contractor shall reduce the vibration to within the defined limits. 125 Exhibit "A" Attachment 1 - Design Criteria 6.9 FLUID VELOCITIES The Contractor's design is based on the following fluid velocities at design flow conditions. Deviation from these fluid velocities may be permitted for intermittent operation or transient conditions. Any deviation above the maximum specified fluid velocities requires approval by the Owner. Non-condensable gas piping is sized based on pressure drop, not velocity. FLUID RECOMMENDED VELOCITY SP Steam 100 to 140 ft/sec LP Steam 120 to 160 ft/sec VLP Steam 150 to 190 ft/sec Brine, single phase 5 to 9 ft/sec SP Brine, two phase 100 ft/sec LP Brine, two phase 120 ft/sec VLP Brine, two phase 140 ft/sec Water and oil 10 ft/sec Pump suction and drain 6 ft/sec lines General service 15 ft/sec Condensate pump suction 3 ft/sec 6.10 PUMPS 6.10.1 CENTRIFUGAL PUMPS Particular attention shall be paid to the selection of pumps and their materials of construction for the specific application. Horizontal shaft pumps shall be either horizontal split casing or back pull out Pumps shall be capable of operating continuously over their full operating range without overheating, cavitating, excessive noise or vibration, surging or instability when operating in single or in parallel with other pumps. Pumps shall be selected for maximum efficiency at the design condition and shall have a head/flow curve that rises steadily from rated flow to shut off. Pumps shall either be installed with a flooded suction or shall be self priming. Mechanical seals shall be used on all power generation cycle pumps. Pumps shall be self flushing with process fluid wherever possible. Where flushing with the process fluid is not possible, a seal flushing system including pumps where necessary shall be provided to supply suitable quality seal flushing water to the mechanical seals. All seal flushes shall be fitted with flow indication. Seal water flush will be routed to the local drain system by way of stainless steel tubing on discharge side of the seal. Pumps and motors above 15kW shall be coupled and assembled on a common base. Integral pump motor units are preferred for smaller pumps. 126 Exhibit "A" Attachment 1 - Design Criteria All pumps, with the exception of the circulating water pumps, shall be specified with a 10% flow margin above the design flow as set out on the heat and material balance diagram. Circulating water pumps shall be specified with a margin of at least 5% flow margin above the design flow as set out on the heat and material balance diagram. Pumps shall be installed with an adequate margin to ensure that the pump operates without cavitating over the full range of flows and suction level conditions. Motors shall have power ratings, including service factor at least equal to the power required at runout flow. For continuous duty, pumps driven at no more than 4-pole speed (1800 rpm) are preferred. All pumps shall be close coupled without gearboxes. All pump bearing housings, shall be fitted with surfaces suitable for the fitting of portable vibration sensing transducers. 6.10.2 DIAPHRAGM PUMPS Diaphragm pumps for chemical transfer service shall be double diaphragm pumps. Diaphragm pumps shall be powered from the Service Air system. The materials of construction shall be compatible with the system fluid. 6.10.3 METERING PUMPS Metering pumps for chemical injection service shall be positive displacement type pumps. The pumps shall be capable of supplying an infinitely variable feed rate from zero to the maximum capability of the pump. Metering pump installation shall include calibration pipes. The pump, or system shall include a pulsation damper to eliminate pulsing of the flow at the injection nozzle. The pumps shall have an internal relief valve for overpressure protection. The materials of construction shall be compatible with the system fluid. 6.11 6.12 VALVES Valve selection guide lines are included in Attachment 6, document 8.6-1 All valves in brine service shall have the capability of applying grease to the stem. 6.12.1 MANUAL ISOLATION VALVES Valves shall be located to minimize the dead leg areas of brine piping. For valves 8" and under, secondary isolation valves at easily accessible spots shall be considered in lieu of the addition of valve access platforms, as long as the primary valve is not a frequent service or maintenance item. Primary valves of this nature must have access by way of a man basket. Butterfly valves may be considered for primary isolation in steam service for line sizes greater than 24". Valves shall be triple offset high performance design. The valves shall be type 316L stainless steel or better construction, metal seated, with replaceable seats on the body. Seats should be Stellite, Inconel 625, or Hastelloy C. Stem shall Inconel 625. Accommodation in design must be made to allow for a drop out spool and/or a slip blind downstream of all butterfly valves in steam service upstream of the turbine. 127 Exhibit "A" Attachment 1 - Design Criteria For 6" and under size line (and some 8") Type 316L stainless steel ball valves are the preferred means of isolation for steam, condensate, and some brine services. Valves shall be a two piece flanged design, and use PEEK seats. 6.12.2 MOTOR OPERATED VALVES Motor operators shall be Limitorque or Owner approved equal. 6.12.3 CONTROL VALVES Refer to Section 8.5.4.7 for specific requirements for control valves. Not all control valves will require full bypasses. The function of the bypass can be designed into the valve sizing criteria where parallel valve systems will exist such as on brine vessel level control and dump systems, steam scrubber and demister level control systems. Bypasses shall be installed on systems where a malfunction of the control valve would result in a critical system shutdown in order to perform maintenance on the item. 6.12.4 VENT AND DRAIN VALVES Manual high point vent valves and low point drain valves shall be provided as required for system fill and drain purposes. Valves shall be sized to permit efficient venting and draining. Vent and drain valves shall be full port ball valves. 6.13 STRAINERS Permanent strainers shall be installed where necessary to protect equipment or pumps from damage. Differential pressure instrumentation shall be provided to monitor strainer operation. Provisions are to be made to blow down the strainer of accumulated debris and condensate. Local pressure gauges are required upstream and downstream of the strainer, and all strainers in steam, and water services in critical systems. Where permanent pump suction strainers are not installed, pump suction piping shall include startup strainers that can be easily installed and removed. A strainer shall be installed in the steam inlet line to steam jet ejectors. Strainer basket shall be of C-276 or Alloy 625. The strainer body shall be carbon steel. 6.14 EXPANSION JOINTS Elastomer expansion joints shall follow the construction details outlined in the Rubber Expansion Joint Technical Handbook. The overall design including the selection of materials, shall be as recommended by the Contractor for the intended service. The expansion joints shall not crack, peel, or show any evidence of deterioration from exposure to the system fluids or the ambient conditions. The expansion joints shall provide for a maximum of 1/2 inch of lateral and 1 inch of axial displacement and a maximum of one degree of torsional or angular displacement to accommodate erection misalignment. The outside surface of all expansion joints shall be resistant to ozone, aging, and sunlight. Cover protection, if painted, shall be completely bonded to the cover and shall not crack or peel. 128 Exhibit "A" Attachment 1 - Design Criteria The expansion joints shall be full face flange type, with integral flanges, and shall be furnished complete with split retaining rings backing the flanges. Flanges and retaining rings shall have the same pressure rating as the piping system it is installed in. The tube and cover shall be full thickness throughout and the bolt holes sealed to completely cover the carcass fabric. Flange thickness shall be even over all parts of the flange. Arch fillers, when specified, shall be permanently attached to prevent dislodgement from the arch. Sufficient clearance shall be provided between the arches and the retaining rings to allow for use of nuts to standard heavy hexagon dimensions, ANSI B18.2.2. Control units, when specified, shall conform to the dimensions of Appendix C of the Rubber Expansion Joint Technical Handbook. All expansion joints shall be visually inspected by the Seller for damage and defects. The surfaces finish on all parts of the joint shall be smooth and free from cuts, gouges or other detrimental defects. Repairs shall not be made without the Purchaser's approval. 6.15 VESSELS Vessel nozzles in brine service shall be no less than 4". Vessel nozzles in steam service shall be no less than 3". Vessel nozzles in clean services shall not be less than 2". All vessels shall be equipped with at least one manhole. Manholes shall be at least 24 inches in diameter. Vessels in the SP steam system shall have a design pressure of 180 psig. Vessels in the LP and VLP steam systems shall have a design pressure of 100 psig. Drain nozzles for steam scrubbers, demisters, and turbine casing drains shall be made of Alloy 625 or Hast. C material. Carbon steel to alloy weld of the nozzle to the vessel shall be of the same material as of the alloy. Valves for level taps, drains, and other nozzles for these vessels may be type 316L stainless steel ball valve with PEEK seats. 6.16 CRANES AND HOISTS A gantry crane shall be installed over the turbine generator. The gantry crane shall have one main hook and one auxiliary hook. Crane lift capability shall not be less than 110% of the heaviest component plus rigging to be lifted during maintenance. The gantry crane shall be designed, fabricated, and tested in accordance with CMAA 70. Both hooks on the gantry crane shall be capable of lifting any turbine or generator component from grade level up to any required assembly or disassembly height. The Contractor shall provide maintenance hoists for the following: o Cooling water pump intake structure screen and stop logs o Cooling tower mechanical equipment removal o Maintenance hoists for other equipment that is not accessible to a mobile crane 129 Exhibit "A" Attachment 1 - Design Criteria 7. PIPING DESIGN CRITERIA 7.1 GENERAL Brine handling and steam production piping shall be designed, fabricated, installed, and tested in accordance with ANSI B31.3 Process Piping. All other piping shall be designed, fabricated, installed, and tested in accordance with ANSI B31.1, Power Piping. Materials for piping systems shall be as shown on the Station Materials Diagram. All piping shall be in accordance with the Piping Material Specifications included in Attachment 6, document 8.7-1. In general, yard water mains, circulating water pipe, water fire lines connecting hydrants, and sewers shall be underground. All other lines shall be aboveground except for special conditions where underground piping may be desirable. Buried metallic piping shall be coated and wrapped to resist corrosion. 1-1/2" drains shall be considered standard size for equipment, vessels, and piping over 4 inch diameter unless otherwise noted. 1 1/2" drain valves shall be provided on both sides of tubular heat exchangers, coolers, and condensers unless otherwise indicated on the drawings. Process vents and drains shall be identified during design development and shown on P&ID's as required on high and low points of piping systems. Unless otherwise specified piping shall have 3/4" minimum vents and drains. Piping around equipment and heat exchangers shall be arranged and supported to permit ready access for maintenance and inspection. Radiographic examination (RT) of welds shall be performed as specified in the individual pipe classes. All Alloy 625/Hast. C piping larger than 2" will be 100% radiographed and interpreted as per B31.1. All fillet welds of these alloys will be inspected with LP. Weld maps are required for pressure vessels. All steam and brine process vessels shall be designed with short drop-out spools on the upstream and downstream ends of the vessels to facilitate isolation and inspection for maintenance. Alloy 625/Hast. C piping (SA pipe class) shall be designed such that the pipe spools are easily removable for inspection and cleaning. One 90 deg. elbow fitting or one tee fitting is permitted per removable spool piece. This design will facilitate shop fabrication of alloy spool pieces. Field fabrication of alloy components shall be kept to a minimum. 7.2 PIPE Minimum pipe size shall be 3/4". The following nominal pipe sizes shall not be used except where required to connect the equipment. 1 1/4 in 4 1/2 in 2 1/2 in 5 in 3 1/2 in 7 in Unless otherwise specified in the individual Piping Material Specifications, all pressures specified are positive pressures. 130 Exhibit "A" Attachment 1 - Design Criteria The design of G-cement lined steel piping systems shall take into account the specific requirements necessary for this type of piping, including the following features: Flanges will have 1/8" 2205 rings welded to the surface of the flange, protruding 0.500" into the ID of fitting. Welds are seal welded to ID and the OD of the flange, and finished with a 125 to 250 RMS finish suitable for gasketing. This added dimension must be accounted for in the piping design. All elbows are flanged on each end. All tees are flanged on each end. All reducers are flanged on end. One drop out spool (a 40 ft flanged spool) is required per every straight run and/or every 320 ft. for inspection and repair purposes. Owner uses a video camera system with a 180 ft. line to inspect cement lined pipe spools. Clamp on galvanized pipe shoes are required. Refer to standard Owner design. Gussets on the pipe shoes are not permitted. Pipeline guide clips are to be similar to standard Owner design. Drains, sample ports, TI's, PI's are made using Alloy 625/Hast C nipples. These protrude 0.500" into the pipe and are seal welded on both ends. These must be located at the end of a flanged run or on flanged elbow/tee/reducer such that hand patching of the area can be accommodated. Additional detail design and fabrication requirements for Inconel Alloy 625 and Hastelloy C piping and fittings and cement lined piping are included in Attachment 8.7-2 7.3 STEAM PIPING All branch lines shall be from the top or side of horizontal headers. Branches from the main steam line to the other services shall be taken off at the top of the pipe. All branch lines off of a primary steam line shall be isolated as close to the branch connection as possible. Should access to the isolation valve be difficult, consideration shall be given to placing a second isolation valve at a readily accessible area, as opposed to the construction of a permanent access platform at the branch connection isolation point. All low spots shall be equipped with systems to remove condensate as it collects. Galvanized clamp-on pipe shoes shall be used on all alloy steam piping where pipe shoes are required. Shoe and guides shall be similar to the Owner's standard design included in Attachment 8.7-3. Gussets on pipe shoes are not permitted. Pipe shoes will be either 4" or 6" in height, the 6" shoes are used where 3" or 4" of insulation thickness is required. Galvanized clamp-on pipe shoes shall be used on all primary steam process lines. Welded on shoes have been a source of preferential corrosion. The Owner has found that use of clamp-on shoes has more than paid for themselves through reduced construction time and less rework.. 131 Exhibit "A" Attachment 1 - Design Criteria Where weld seam pipe is used, the pipe system shall be designed to place the seam at 10:00 or 2:00 position when the line is overhead, or otherwise direct the seam away from work areas. Steam wash water nozzle design and installation shall be similar to The Owner's standard design included as Attachment 8.7-4. There shall be no steam traps used in corrosive service. In non-corrosive service the following shall apply. Steam traps shall be installed at low points and dead ends of saturated steam systems. Traps should be installed on long runs of steam piping for sufficient condensate removal to ensure dry quality steam at its destination. Drip lines from steam headers or equipment, operating at different pressures, should be independently trapped. An isolation valve shall be installed upstream of the trap. All valves at steam traps shall be trap size, but not less than 3/4 in. A union shall be provided on each side of steam traps to permit their removal. Where several traps discharge into a single header which is, or may be under pressure, a stop valve and a check valve shall be provided in the discharge line from each trap. (B31.1 Par 102.2.5, B). A Y-type strainer with blowoff valve shall be installed ahead of each steam trap. Before-seat and after-seat turbine stop valve drains shall be piped to the main condenser. It is preferred that steam piping be run overhead because access for cleaning is not usually required. Dead legs shall be avoided by proper location of valves. Condensate and gas buildup which may occur in such dead legs can produce water hammer and accelerated corrosion. 7.4 PIPING AT CONDENSER AUXILIARIES Condenser water box drains shall be 3 in. minimum and equipped with adequate hose connections 7.5 COOLING WATER PIPING Where bearings are provided with water jackets in the top and bottom halves, cooling water shall be piped in series through the bottom half and top half in that order, unless manufacturer specifies that parallel circuits are needed. Exit piping shall be higher than the highest point of the bearing cooler to ensure a complete fill. 132 Exhibit "A" Attachment 1 - Design Criteria Valves in cooling water lines to oil coolers, cylinder jackets, and compressor aftercoolers, shall not be less than 3/4 in. ball type. Individual connections to small pump bearings may be smaller. Where solenoid valves are provided in cooling water lines, suitable bypasses shall be provided. Open cooling water outlets shall be visible from a point within reach of regulating valves. When discharging into a funnel, the end of the cooling water outlet line shall be no more than 1/2 in. below the top of the funnel. When a number of drain lines discharge into a funnel, they shall be arranged so the flow from each is clearly visible. Ball valves (3" and under) or butterfly valves (4" and up) shall be used at the inlet and outlet connections to air, oil, seal oil, etc., coolers. All flanged rubber expansion joints shall be provided with limit rods and shall be capable of withstanding system hydrostatic test pressure. Minimum face to face dimensions for flanged rubber expansion joints for any service shall be as follows: Minimum Face to Face Size, In. Dimension, In --------- --------------- 2 to 12 6 14 to 16 8 18 to 36 10 48 to 60 11 66 12 Cooling water piping shall be 316L or FRP for above ground pipe. Below ground pipe may be 316L, FRP. Valves may be 316L, Teflon lined, rubber lined, FRP. 7.6 LUBRICATING OIL PIPING Where a common suction line is provided for two or more hydraulic coupling oil pumps, a separate strainer shall be provided inside the suction gate valve at each pump. 7.7 PIPING AT PUMPS Condensate pump suction lines shall be as direct as possible and shall be arranged to permit removal of the pump impeller without removing the suction valve. When a reducer is required between the pump suction nozzle and the line, an eccentric reducer shall be used if the pump has a horizontal suction. The reducer shall be installed so that air pockets do not exist. Reducing flanges shall not be used. When a check valve is installed in the centrifugal pump discharge it shall be installed upstream of the pump discharge shutoff valve. No check valves will be used in corrosive service. The condensate pump discharge check valves shall be submerged below the normal hotwell level so a standby pump can be maintained completely filled by gravity from the hotwell when the pump suction and discharge vents are open. 133 Exhibit "A" Attachment 1 - Design Criteria Vertical condensate pumps shall be fitted with suction and discharge vents unless such vents are known to be integral with the pump casing and the pump manufacturer approves such omission. Each vent from each pump shall be run to the condenser separately. Brine pump suction piping from the separator vessel outlet nozzles to the brine pump suction shall be as direct as possible. The use of inline expansion joints may be required. The brine suction header manifold for the brine booster and main injection pumps shall be similar to that currently used in Region I for the P-3210 A/B/C and P-3211 A/B/C system. Any significant exception to this design must be approved by the Owner. A drawing of the existing arrangement of the Region I brine pumps is included as Attachment 8.7-5. When eccentric reducers are used on pump suctions, the flat side should be on top. Strainers are not be required for brine pumps. When more than one level is required in yard pipe racks, a minimum of 18 in vertical clearance shall be maintained between pipe banks. Preferred minimum clearance from walls, floors, columns, etc. are listed below: Pipe Diameter Clearance ------------- --------- Up to 12 in 9 in 12 in to 16 in 12 in 18 in and larger 15 in Piping run in horizontal layers shall have a minimum of 18 in between layers. 7.8 MAINTENANCE Equipment, structures and piping shall be arranged to permit maintenance and service by means of mobile equipment. Permanent facilities shall be provided where maintenance by mobile equipment is impractical. Exchangers with removable tube bundles shall have maintenance clearance equal to the bundle length plus 5' measured from the tube sheet. Piping at all equipment flanges shall have provisions for drop out isolation spools as the primary means of providing for maintenance isolation. If this can not be reasonably achieved, then provisions will be made for maintenance blinds. The blind thickness will be per ANSI B31.1. Maintenance blinding may be provided either by sufficient flexibility in the piping to allow installation of maintenance blind or installed spectacle blind. 7.9 PERSONNEL PROTECTION Eye wash and emergency showers shall be provided in areas where operating personnel are subject to hazardous sprays or spills, such as acid, caustic, etc. The system design shall account for solar heating and the high ambient temperatures. Personnel protection shall be provided at uninsulated lines and equipment operating above 150(degree)F, when they constitute a hazard to the operators during normal operation. Lines which are infrequently used such as relief valve discharges do not require insulation. Valve and flange shields, if required, shall be noted in the piping material specifications. 134 Exhibit "A" Attachment 1 - Design Criteria 7.10 BRANCH CONNECTIONS Where reinforcement of pipe to pipe branch connections, is required for external forces. The reinforcing pad shall have a thickness not less than 1 1/2 times the pipe run thickness and a diameter twice the branch pipe diameter. The Contractor shall determine the need for, and provide, pipe to pipe branch reinforcement for internal pressure in accordance with Code rules. Duplication of reinforcement for both internal pressure and external forces is not required. Forged tees are recommended and fabricated stub-in type branch connections are to be minimized. Use of weldolets is acceptable. Branch reinforcement of alloy piping (Alloy 625/Hast C) may be Type 316L stainless steel. Design of the reinforcement pad must take into account differences in strength of the material. Full size reinforcing pads are required on all Alloy branch connections for the following services: o Steam service pipe. o Two-phase brine service. o Branches on the single phase brine side of the LCV's of the two-phase brineservice. Pulled tees are acceptable for Alloy piping. Pulled tees may be designed with integral reinforcing pads as part of the pull process. This work can be performed by Northwest Copperworks, in Portland Oregon. 7.11 FLANGES In pipe classes which specify 150 lb flanges, any required orifice flanges shall be 300 lb. One and one-half inch and smaller orifice flanges shall be socket weld. Raised face weldneck flanges to be used on 2" pipe or larger except for alloy pipe, or where space requirements dictate otherwise. Welding-neck pipe flanges shall be specified with bore to match mating butt-welding fittings, or pipe. Lap joint flanges shall be used in alloy applications. Spiral wound gaskets shall be used in all brine and steam service. Welding-neck orifice flanges shall be specified with bore to match mating pipe. Orifice flanges in brine service shall have 3/4" NPT threaded taps. Overlaid RFSO flanges may be used in lieu of lap joint flanges provided they have a square ID with no notch or internal crevice or bevel on the ID of the alloy pipe. The overlay shall be an 1/8" minimum, and be of the same material type of the pipe. Owner must review any proposed use and design of the overlaid flanges prior to fabrication. This technique has also been used to create flange tapped orifice flanges out of carbon steel RFSO for alloy 625 systems. This type of work has been done to Owner's satisfaction by Northwest Copperworks, in Portland Oregon. 7.12 FITTINGS AND BENDS Weld-o-lets shall be used for alloy piping. Thread-o-lets and sock-o-lets shall not be used for alloy piping. 135 Exhibit "A" Attachment 1 - Design Criteria Welding elbows shall be long radius elbows. Use of short radius elbows must be approved by the Owner. Piping shall not be bent without approval of the Owner. Weldolets and threadolets are commonly used for connecting small diameter piping to larger diameter piping as opposed to collars, sockolets, or saddles. 7.13 THREADED CONNECTIONS Piping 2" and smaller may be threaded or welded depending on the service. Seal welding of threaded connections is not allowed. Small diameter piping in high temperature, pressure, or corrosive service shall be welded. 7.14 BRINE HANDLING AND STEAM PRODUCTION PIPING The following additional criteria shall apply to the brine handling and steam production piping. 7.14.1 BRINE Pressurized brine piping on the outlet of separators is at its bubble point pressure plus the head supplied due to the liquid level in the vessel. Vertical loops shall not be used and the number of fittings minimized to keep bubbles from forming in the brine upstream of meters and control valves which are adversely affected by upstream flashing. Only one elbow shall exist between flanged connections. Atmospheric brine is at its bubble point pressure plus any available head. The piping design shall prevent flashing due to local pressure drops in pump suctions and at meters. Brine piping ID shall be designed to accommodate 1 inch thickness of rough, hard scale adhering to the pipe walls with an absolute roughness factor of 0.03 to 0.125 inch. Two phase flow will exist between the upstream vessel LCV and the inlet of the downstream vessel.. This pipe is very sensitive to design. A design very similar to the inlet of V-4210 as shown in Attachment 6 document 8.7-6 shall be used for the inlet of the LP and VLP separator vessels. Any significant deviation to this design may result in high vibration, unstable flow regimes, fatigue failure of piping and structural components, and unreliable operation. Piping calculations shall be based on 1/8" scale inside the alloy two phase pipe, and 1/8" of scale for brine dump piping to the AFT. For alloy brine and steam pipe in single phase flow conditions, alloy expansion joints shall be considered. Expansion joints shall be of Alloy 625/Hast. C pipe, sleeve, and bellows. Provisions shall be made such that the space between the sleeve and the bellows can be filled with an inert material to prevent accumulation of brine in a static area. Drains line terminations on brine pipe shall be placed at an non-perpendicular angle to the ground such that when drains are used under pressure, or when they require rod out, that brine does not splash up to the operator. An angle of 60 to 75 deg. Shall be used. Brine line meter runs and acid mixing spools shall be Owner standard dimensions for diameter, length, and flange rating. This will allow use of existing spare elements. This meter run is shown on the drawings included as Attachment 6 document 8.7-7. These spool pieces have been fabricated successfully be Northwest Copperworks, of Portland Oregon. The 16" acid mixing spools are a proprietary design and will be supplied by Owner. 136 Exhibit "A" Attachment 1 - Design Criteria Drain valves in brine service shall be 1-1/2" Hast C ball valves. Sample valves in brine service shall be 1" Hast C ball valves. Instrument taps, level bridle isolation valves, level taps, and other valves that are in a normally open position during operation may be Type 316L stainless steel ball valves with PEEK seats. This is also true for steam service. 7.14.2 STEAM PIPING Steam piping shall be sized for normal flow rates, unless otherwise indicated. Dead legs should be avoided. Piping shall be designed to avoid water hammer. 7.15 PIPE STRESS ANALYSIS This section provides basic pipe stress design criteria and design guidelines for analysis of 2 1/2 inch and larger piping for Unit 5 and the Brine Handling and Steam Production equipment. Brine piping shall be analyzed for the operating design density of the brine, with the line full. Two phase piping will be for the operating density of flashed brine, but pipe and supports must be capable of a full hydrostatic condition. Springs and hangers must be designed per operating conditions, not the full hydrostatic condition. Steam pipe 24" in diameter and under should be designed such that a hydrotest of the system can be accomplished. Springs and hangers must also be designed for the operating conditions. Steam pipe above 30" diameter is not required to be hydrotested if in design the hydrotest loads become the dominant loads for the pipe support system, support spacing, and the wall thickness of the pipe. Alloy pipe will be 100% radiographed. All bolt torquing will documented if a hydrotest is not required. An inspection for leaks during initial operation will then be required. 7.15.1 DESIGN, OPERATING, AND TEST CONDITIONS The Contractor shall specify the design conditions for the systems in accordance with ANSI B31.1 or ANSI B31.3. Where systems have multiple operating modes, sufficient thermal cases (in addition to the normal operating case) shall be analyzed to insure that the maximum range of thermal movements is obtained. Any fluid transient loadings shall be included in the design of the systems. 7.15.2 RESTRAINT AND ANCHOR STIFFNESS Equipment anchor stiffness shall be provided by the manufacturer. For cylindrical vessels and similar equipment such as heat exchangers, nozzle stiffness shall be approximated using Welding Research Council Bulletin #297 or using Fourier Series Formulas developed and published by P.P. Bijlaard. 137 Exhibit "A" Attachment 1 - Design Criteria 7.15.3 THERMAL ANALYSIS All piping systems 300(degree)F or greater shall be computer analyzed. For piping systems less than 300(degree)F, judgment shall be used as to when a computer analysis, hand analysis, or no analysis should be performed. This judgment shall be based on piping configuration, temperature, allowable reactions on equipment, etc. 7.15.4 ALLOWABLE NOZZLE LOADINGS Allowable nozzle loads for major equipment shall be provided by the equipment vendor. Where the Vendor is not able to provide allowable loads, the actual loads shall be transmitted for approval. 7.15.5 CONSIDERATIONS FOR PROCESS PIPING Physical properties for polymer concrete-lined pipe or alloy pipe shall be considered. Where two-phase flow is expected and pipe fittings require overlay, the change in flexibility and weight of the fittings shall be taken into consideration. When the process fluid is brine or slurry, actual brine or slurry densities shall be used in the analysis. 7.16 PIPE SUPPORTS This section provides basic pipe support design criteria and design guidelines for the design of pipe supports. All pipe supports shall be verified for adequate capacity under the design loading conditions. Guide clips and limit stops should be similar to the Owner's standard as shown in Attachment 6 document 8.7-8. Anchoring on pipe supports with pipe shoes shall be accomplished by using 1/8" gaps on the guides and limit stops on all four sides of the shoe, as opposed to a rigidly welded out anchor system. Stress analysis shall take advantage of this gap for these anchor types, as lower support load often will result, and the pipe rack loads will be reduced. Clips and guides shall be hot dipped galvanized and shall be cold galvanized after installation. The use of structural tube steel on pile driven column pipe supports is acceptable for the single level brine line pipeways. The Owner has found this system (10" tube steel on 8" to 10" pilings, driven 15ft to 30 ft deep) to be the most cost effective support system for 24" brine lines, either multiple or single line on the pipe rack. This type of support is finished with paint as opposed to galvanizing. Clamp on pipe shoes should be similar in design to the Owner's standard pipe shoes as shown in Attachment 6 document 8.7-8. Gussets along the run of the shoe are not permitted, so that the guides will not be torn up by the shoe during line movement. Guides and stops shall be similar to the Owner's standard designs shown in Attachment 6. 138 Exhibit "A" Attachment 1 - Design Criteria 7.16.1 PIPE SUPPORT ANALYTICAL METHODS Load Combinations and Allowable Stresses The following load combinations shall be considered in the design of pipe support supplemental steel, welds, and bolts: Case Loads Allowable ---- ----- --------- Normal DL + Therm + P AISC Part 5 Occasional DL + P + Therm (Max) + |OCC| Sect. 1.5 & 1.6 DL + P + Therm (Min) + |OCC| Test DL + P Sect. 1.5 & 1.6 Where: DL = Dead Load Therm = Thermal Load (zero thermal load shall also be considered when all thermal loads are of the same sign) P = Unbalanced pressure load due to expansion joints OCC = Occasional Load = SRSS (Wind or Earth with Ft) Wind = wind load Earth = earthquake load (X or Z) FT = Fluid transient load For pipe support standard components, the manufacturer's catalog allowable loads shall be used. Loads from Computer Analyzed Piping Pipe support loads from computer analyzed piping shall be combined as shown in the previous section. Pipe support locations shall be per pipe stress ISO. Hand Calculated Pipe Support Loads Non-computer analyzed piping shall be supported using the following methodology or other good engineering practice: 1. Place supports near each horizontal change in direction. 2. Support long risers (preferably at the top). No more than one rigid support shall be used in a riser. 139 Exhibit "A" Attachment 1 - Design Criteria 3. Place supports near valves and other concentrated weights or reduce the maximum pipe span. 4. Place supports to maintain maximum suggested spans shown in ANSI B31.1 Table 121.5. 5. Locate supports at existing steel wherever possible. 6. Locate lateral supports for seismic piping by the following criteria: a. In general, every 3rd support should be a guide. b. Long straight runs of pipe should have one axial restraint or a restraint immediately after a change in direction. c. Place guides near valves or valve stations where possible, especially MOV's. 7. Operating temperatures of the piping should be considered when locating guides to avoid restricting thermal expansion. Support loads shall be determined by standard engineering methods using appropriate piping fluid, component weights, and seismic accelerations. For seismically qualified piping, the horizontal acceleration is shown in the Structural Design Criteria. Standard support loads will be developed based on pipe size and should be used to the greatest extent. Piping near equipment shall be supported so as to meet the manufacturer's specified maximum nozzle loads. Where piping is connected to rotating machinery such as pumps or compressors, the use of a spring hanger at the first support shall be used where practical. Calculation Requirements for Supports A pipe support calculation shall be produced for each high energy piping system. The calculation shall serve as documentation for support loads. In addition, the calculation shall include the analysis for all computer analyzed pipe supports and other complex supports. No calculation is necessary for relatively simple supports where the support component loads are easily obtainable. Where integral attachments are welded to piping, determination of local piping stresses shall be included in the calculation. In addition to piping loads, the following items shall be considered in the design and analysis of supports. 1. Self-weight load for large structures. 2. Friction loads for hot systems. 3. All supplemental steel spanning existing floor beams shall be considered pinned irrespective of welding. 140 Exhibit "A" Attachment 1 - Design Criteria Support Configuration Sketches ------------------------------ Support configuration sketches shall be produced for all large bore piping. The sketches should provide the following information: 1. General configuration with existing steel and elevations. 2. Interference check/clearances. 3. Pipe data and support location plan. 4. Piping loads and movements. 5. A detailed design for complex supports. The sketches should also show standard hanger components and supplemental steel including end connections for rod and spring hangers. All sketches shall include the initials and date of preparer and reviewer, and associated node point number for computer analyzed piping. Sketches shall utilize standard forms wherever feasible. The sketches shall be numbered as follows: 5-XXX-YYYY-### Where: 5 is for Unit 5 XXX is the system designation (MSS, CCW) YYYY is the support type PSRH for rod hanger PSSH for spring hanger PSST for sway strut PSSP for snubber/shock suppressor PSR for other restraints PSG for guides (two-way lateral restraint) PSA for anchor PSS for sliding support ### is a unique number associated with the support. This shall serve as the support mark number. Copies of support sketches shall be included with the piping stress analysis calculations. Special Considerations for Support Design ----------------------------------------- 1. Local attachments and integral welds shall be designed and shown on the support sketches. The design shall insure that piping stresses remain within allowable limits. 141 Exhibit "A" Attachment 1 - Design Criteria 2. Removable supports requiring supplemental steel shall be bolted with ASTM A193 Gr. B8 bolts and A194 Gr. 8 nuts. This information shall be included on the sketches. 3. Sliding supports shall include the effect of friction from deadweight and thermal loads only. The coefficient of friction shall be 0.30 for steel on steel and 0.15 for dry lubricant bonded surfaces such as Teflon or Lubrite. 4. U-bolts may be used as guides for 4" and under piping when the applied side load is below allowable limits. 5. Preferential corrosion has occurred on weld on type pipe shoes and other components. This has not been observed with clamp on shoes. 7.17 VALVES Butterfly valves shall not be used for isolation in brine service. They may be used for isolation in steam service only as outlined in the pipe specification sheets. All valves (except wafer type butterfly valves) adjacent to towers, exchangers or vessels or expansion joints shall be attached directly to the nozzles where possible. Position of stems of all valves 3 in and larger shall be indicated on the design drawings. All operating valves shall be accessible for operation and maintenance. Chain operators shall not be used unless approved by Owner as individual exceptions. Valves shall not be located in the interior of piping bundles. All safety valves, control valves, check valves, rupture discs, and equipment, which may require servicing shall be located so they are readily accessible from permanent platforms or ground level. Generally, globe valves shall be installed with pressure under the seat, except for globe valves in lines under vacuum, in which case the valves shall have vacuum under the seat. Infrequently used isolation valves shall be accessible but may be located more than 7 ft above the operating level with a permanent access platform. Portable access platforms must be approved by the Owner Operating valves shall be oriented to optimize the manual operation of the valve. Overhead valves shall be oriented so that the handwheels are approximately 5 ft above the operating level or access platform. This orientation may be increased to 7 ft maximum provided that the valve can be opened or closed in this position. Where valves are to be locked in an open or closed position, they shall be provided with a suitable locking device, and shall be so noted on the P&IDs. 142 Exhibit "A" Attachment 1 - Design Criteria Operating valves located underground or in trenches or below platforms shall be provided with extension stems or otherwise arranged so the handwheels will be above the surface of the ground or grating, and in such position as to be readily reached and operated. Bonnet, yoke, and stem of rising stem gate valves, when below grade and not in trenches, shall be protected with valve boxes or other suitable means. Above grade valve extensions shall be protected from damage by vehicular traffic. Wafer type butterfly valves shall not be installed directly on equipment nozzles. The gate valve adjacent to a power control valve shall have flanged inlet and outlet connections to permit removal of and repairs in the shop to both the gate valve and the power control valve. 7.18 INSTRUMENTS AND CONTROLS Control valves, block valves, and bypass valves around control valves shall be individually sized by the Contractor and sizes noted on the flow diagrams or drawings. In general, block and bypass valves will be line size for lines 2 in. and smaller, and where line size is 2 1/2 in. and larger, bypass and block valves may be one size smaller than line size, but in no case smaller than the control valve. Bypass valves shall be ball valves in sizes up to and including 3 in. Above this size, use type of valve as specified in the piping class of the line. Control valves shall be installed with block valves and bypass valves. Block and bypass valves shall not be installed where redundant control valves are installed. Control valves shall be installed with the valve stem vertical where possible. Butterfly control valves in brine service shall be oriented with the shaft horizontal. Manifold shall be arranged to permit easy removal of the control valve while line is in operation and should also provide clearance for removing inner valve from above or below, while valve body remains in place, if possible. Block and bypass valves may be omitted if the control valves are equipped with manual operators (handjacks)and if approved by the Owner. Bypass valves may be omitted where manual control of the process is not possible. Carbon steel flanged control valves shall have the same rating as the piping class in which they are installed. 4" control valve flanges and below shall be rated 300# minimum. A drain and bleeder valve shall be provided between the upstream block valve and control valve for draining and pressure blowdown. Unless otherwise specified by the Owner, where flashing occurs through control valves located in control valve stations, the control valve shall be located as close as possible to the downstream end of the line, in order to minimize erosion. First shutoff valves for all instrument connections shall be shown on P&IDs. Main turbine vacuum trip feeler line shall be taken from a separate connection in the main condenser neck and shall not be valved. Each level control standpipe shall be provided with a 3/4 in. valved vent and 3/4 in. valved drain. 143 Exhibit "A" Attachment 1 - Design Criteria Each level controller and level switch shall be provided with a 1/2 in. valved vent and a 1/2 in. valved drain. Orifice flanges shall be a minimum size and rating of 1 1/2 in., 300 lb ANSI standard. Thermometers in overhead lines shall be installed on the lower quadrant of the pipe (but not on the bottom) for improved visibility. Gage glass drains shall not be smaller than the size of the tapped connection on the gage glass (usually 1/2 in.). Pressure gage connections on pump discharge piping shall be located on pump side of check and block valves. Instrument connections shall be arranged so the line and valve are roddable. For instrument branch connections, the first fitting and valve, if required, shall be as follows:
Instrument Connection Size, (in.) ---------- ---------------------- Conductivity (cell inserted in line) 1 1/4 Flanged tap orifice 1/2 Flowmeter line taps 3/4 Level External chamber controller 2 Switches 1 Differential pressure transmitters 3/4 Standpipes or multiple gage glass columns 2 (with 4 in. stand- pipes) Pressure 3/4 Sample 1 1/2 Temperature well 1 1/2
Liquid level controllers and level glasses shall be located to be accessible from grade, platform or permanent ladder. The level glass shall be readable from grade wherever practical. 144 Exhibit "A" Attachment 1 - Design Criteria 7.19 RELIEF DEVICES Relief line layout should avoid low spots where brine, condensate, or slurry can accumulate. All relief lines shall have a 1/4" sentry hole downstream of the relief device. Drains are to be installed when low spots cannot be avoided. The minimum drain size is 1-1/2". For piping normally in service, roddable vents (1-1/2") shall be supplied on the side or top of the pipe in conjunction with the drain. Clearance, on the order of 36" for pressurized lines and 18" for atmospheric lines, in the direction the valve points, is recommended to enable rod-out (hot-tap) of a plugged valve. Steam safety device vent lines shall not be manifolded, but shall be run independently to atmosphere. Relief devices shall be accessible. Wherever feasible, they should be located at platforms which are functional for other purposes. Relief devices with a centerline elevation over 15' above high point of finish surface shall be accessible from platform or permanent ladder. a. 1" and smaller thermal relief devices may be installed in a horizontal position when it is impractical to install in the vertical. 1-1/2" and larger relief devices shall be installed in a vertical position. b. Relief devices discharging to a closed system shall normally be installed higher than the collection header. There should be no pockets in the discharge line. Where economics dictate and with the approval of the Owner, relief devices may be lower than the collection header. c. Relief devices discharging to atmosphere shall have tail pipes extended to a minimum of 8'-0" above the nearest operating platform within a radius of 25'unless otherwise approved by the Owner. 7.19.1 ORIFICE RUNS Orifice runs should be located in the horizontal. Vertical orifice runs may be used with the approval from the Owner. Orifice flanges with a centerline elevation over 15' above the high point of finish surface, except in pipeways, shall be accessible from a platform or permanent ladder. a. Orifice taps shall be located as follows: 1. Air and Gas - Top vertical centerline (preferred) - 45(degree) above horizontal centerline (alternate) 2. Liquid and Steam - Horizontal centerline (preferred) - 45(degree) below horizontal centerline (alternate) 3. Isometrics shall show the required tap orientations. 7.19.2 TEMPERATURE INSTRUMENT ACCESSIBILITY AND VISIBILITY a. Temperature test wells located less than 15'-0" above high point finish surface shall be accessible from grade or a portable ladder. Those located in a pipe way shall be considered accessible by portable ladder. Those located over 15'-0" above high point of finish surface shall be accessible from a platform or permanent ladder. 145 Exhibit "A" Attachment 1 - Design Criteria b. Temperature indicators shall be visible from grade, ladder or platform. c. Thermocouple and temperature indicators located less than 15'-0" above high point of finish surface shall be accessible from grade or a portable ladder. Those located in a pipe way shall be considered accessible by portable ladder. Those over 15'-0" above high point of finish surface shall be accessible from a platform or permanent ladder. Local pressure indicators shall be visible from grade, permanent ladder or platform. Those located less than 15'-0" above high point of finish surface shall be accessible from grade or a portable ladder. Those located in a pipe way shall be considered accessible by portable ladder. Those over 15'-0" above high point of finish surface shall be accessible from a platform or permanent ladder. 7.20 STRAINERS Stainless steel temporary start-up strainers, 2 inch nominal pipe size and larger shall meet the requirements in the individual Piping Material Specifications. 7.21 VESSELS Vessel design shall conform to ASME Section VIII. Where it will simplify and economize piping systems, nozzle flexibility should be taken into account for pipe stress analysis. Additional nozzle reinforcement should be considered to increase the allowable forces and moments for a particular nozzle. Vessel nozzles in brine service shall be 4" or greater. 7.22 CORROSION ALLOWANCES Corrosion allowances not otherwise specified in the individual Piping Material Specifications shall be specified by the Contractor such that the component service life will meet or exceed the specified project life 7.23 CODES AND STANDARDS As a minimum the Contractor's design shall comply with the current editions, at the Date of Notice to Proceed, of relevant internationally recognized Codes, Standards and Regulations and all applicable Codes, Standards, and Regulations of Imperial County and the State of California. Where conflicts exist between Standards, the more stringent requirements shall prevail. Deviations from relevant Standards shall only be implemented with the written approval of the Owner. Codes and specifications from the following list will be preferred over alternative codes:- Codes & Standards AASHTO American Association of State Highway and Transportation Officials ACI American Concrete Institute AFBMA Antifriction Bearing Manufacturer's Association AGMA American Gear Manufacturer's Association AISC American Institute of Steel Construction ANSI American National Standards Institute API American Petroleum Institute ASHRAE American Society for Heating, Refrigeration and Air Conditioning Engineers ASME American Society of Mechanical Engineers Boiler and Pressure Vessel Codes ASNT American Society for Non-destructive Testing 146 Exhibit "A" Attachment 1 - Design Criteria ASTM American Society for Testing and Materials AWS American Welding Society AWWA American Water Works Association BOCA Building Office Codes Association CTI Cooling Tower Institute DIN Deutsche Institut fur Normung EJMA Expansion Joint Manufacturer's Association H EI Heat Exchanger Institute HI Hydraulic Institute IEC International Electrotechnical Commission IEEE Institute of Electrical and Electronics Engineers IPCEA Insulated Power Cable Engineers Association ISA Instrument Society of America ISO International Organization for Standardization JEC Japanese Electrotechnical Committee JEM Japan Electrical Manufacturers' Association JIS Japanese Industrial Standards NACE National Association for Corrosion Engineers NEC National Electrical Code NEMA National Electrical Manufacturer's Association NESC National Electric Safety Code NFPA National Fire Protection Association OSHA USA Department of Labor Occupational Safety and Health Act SSPC Steel Structures Painting Council TEMA Tubular Exchanger Manufacturer Association UBC Uniform Building Code, 1997 UFC Uniform Fire Code UL Underwriters Laboratories Inc. UPC Uniform Plumbing Code, International Association of Plumbing and Mechanic Officials Specific dates and revisions of Codes, Standards and Regulations shall be identified on issued drawings and specifications. 147 Tie Nos.: 1-500 Assigned by MRF EXHIBIT "A" REV A: 9/2/98 501-599 Assigned by U5 EXECUTABLE COPY ATTACHMENT 2 - INTERTIE DOCUMENT REVISED IF MARKED WITH (*)
------------------------------------------------------------------------------------------------------------------------------------ Tie Intertie Participants Reference Drawings --- ---------------------- ----------------------------------------------- U5 PFD U5 HB/PFD MRF PFD MRF ID Area No. Commodity Receiver Supplier No. ???? Stream No No. ???? Stream No ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -017 L.P. Steam to IX1 (*) MRF EPC U5 EPC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -018 Brine Supply, IX1 MRF EPC U5 EPC 200-10-F55 67 100-10-F05 401 ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -019 Brine Return, IX1 U5 EPC MRF EPC 200-10-F55 50 100-10-F05 404 ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -021 Condensate to IX1 MRF EPC U5 EPC 200-10-F55 52 100-10-F06 463 ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -022 RO Reject Water U5 EPC MRF EPC 200-10-F55 --- 100-10-F06 469 ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -023 Atm Steam (*) MRF EPC U5 EPC --- 63 --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -024 Condensate (*) U5 EPC MRF EPC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -025 Service Water U5 EPC MRF EPC 400-10-F65 46 --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -026 Potable Water MRF EPC U5 EPC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -038 13.8 KV Power MRF EPC U5 EPC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -045 Fiber Optic Cable U5 EPC MRF EPC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -059 Brine from Sampler Instrument U5 EPC MRF EPC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -065 Compressed Air (*) U5 EPC MRF EPC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -071 Fire Water MRF EPC U5 EPC 600-10-F77 --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -076 Drainage out IX1 U5 EPC MRF EPC 200-10-F55 --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 300 -088 Dilute HCl U5 EPC MRF EPC 600-10-F75 71 100-10-F13 704 ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -099 Video Camera Signals U5 EPC MRF EPC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 130 -100 Control Computer Signals Interface CEOC MRF EPC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ TP- 200 -103 Drainage out Injection Pumps MRF EPC U5 EPC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ O- 100 -501 92 kV Power U5 EPC IID --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ O- 100 -502 92 or 13.8 kV Power U5 EPC IID --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 100 -503 13.8 KV Power U5 EPC CEOC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 100 -504 4.16 KV Power U5 EPC CEOC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 100 -505 4.16 KV Power U5 EPC CEOC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 100 -506 4.16 KV Power U5 EPC CEOC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 100 -507 480V Power U5 EPC CEOC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 100 -509 DCS Interface CEOC U5 EPC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 200 520 Brine Pump Relocation U5 EPC CEOC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 200 -521 Brine Supply to U5 U5 EPC CEOC 200-10-F55 10 --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 200 522 Brine Relief CEOC U5 EPC 200-10-F55 --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 200 -526 Brine to Injection CEOC U5 EPC 200-10-F55 50 (/2) --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 200 -527 Brine to Injection CEOC U5 EPC 200-10-F55 50 (/2) --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 300 -530 LPS Tie to U3 CEOC U5 EPC 300-10-F55 62 --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 300 -531 SP Steam U5 EPC CEOC 300-10-F60 --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 300 -532 SP Steam Scrubber Drain U5 EPC CEOC 300-10-F60 4 --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 400 -534 Cooling Tower Blowdown CEOC U5 EPC 400-10-F65 45 --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 600 -535 HCl Tank Vent CEOC U5 EPC 600-10-F75 80 --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 600 -536 HCl Tank Vent CEOC U5 EPC 600-10-F75 81 --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 600 -537 32% HCl U5 EPC CEOC 600-10-F75 72 --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 600 -538 32% HCl U5 EPC CEOC 600-10-F75 73 --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 600 -539 LP Purge Water U5 EPC U5 EPC 600-10-F75 74 --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 600 -540 Dilute HCl, SP CEOC U5 EPC 600-10-F75 79 --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 600 -541 Dilute HCl, HP CEOC U5 EPC 600-10-F75 77 --- --- ------------------------------------------------------------------------------------------------------------------------------------ I- 600 -543 NORMS U5 EPC Other 600-10-F75 86 --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 600 -545 32% HCl Drain (*) CEOC U5 EPC 600-10-F75 --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 600 -546 Dilute HCl Drain CEOC U5 EPC 600-10-F75 --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 600 -547 Fire Water U5 EPC CEOC 600-10-F77 --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ R1- 600 -548 Potable Water U5 EPC CEOC --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ I- 600 -549 Purge Water MU U5 EPC Other --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ I- 600 -551 Cooling Tower Chemicals U5 EPC Other --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ I- 600 -552 Lime (*) U5 EPC Other --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ I- 600 -554 Flocculant (*) U5 EPC Other --- --- --- --- ------------------------------------------------------------------------------------------------------------------------------------ O- 600 -555 Silica (*) Other U5 EPC --- 68 --- --- ------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------- Reference Drawings Capacity Est. Size -------------------------------------- --------------------- ----------- U5 U5 Under Confirm TPs ID P&ID No. One-Line Location Ground Req'd Available w/ MRF EPC ---------------------------------------------------------------------------------------- TP- J-0302 --- M-1A --- See MRF PFD By U5 EPC 12" Line (max) ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- 60 psig (min) By U5 EPC See P& ID ---------------------------------------------------------------------------------------- TP- J-0606 --- M-1A --- 20 psig (min) By U5 EPC See P& ID ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- 20 psig (min) By U5 EPC 4" Line ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- See HB/PFD By U5 EPC 6" Line ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- See HB/PFD By U5 EPC 36" Line ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- See HB/PFD By U5 EPC 4" Line ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- 200 gpm >200 gpm 4" Line ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- 25 gpm 25 gpm 2" Line ---------------------------------------------------------------------------------------- TP- --- EE-1A M-1A --- 3.25 MVA 3.25 MVA --- ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- --- --- --- ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- --- --- 4" Line ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- --- --- 2" Line ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- 95 psi min 2500 GPM --- ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- By MRF By U5 EPC <8" Line ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- See HB/PFD By U5 EPC 6" Line ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- --- --- --- ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- --- --- --- ---------------------------------------------------------------------------------------- TP- --- --- M-1A --- By U5 EPC By U5 EPC 4" Line ---------------------------------------------------------------------------------------- O- --- EE-1A M-1A --- 55 MVA by IID --- ---------------------------------------------------------------------------------------- O- --- EE-1A M-1A --- --- by IID --- ---------------------------------------------------------------------------------------- R1- --- EE-1A M-1A --- 10 MVA >10 MVA --- ---------------------------------------------------------------------------------------- R1- --- EE-1A M-1A --- 1500 kW 1500 kW --- ---------------------------------------------------------------------------------------- R1- --- EE-1A M-1A --- 1500 kW 1500 kW --- ---------------------------------------------------------------------------------------- R1- --- EE-1A M-1A --- 1500 kW 1500 kW --- ---------------------------------------------------------------------------------------- R1- --- EE-1B M-1A --- By U5 EPC 150 kW --- ---------------------------------------------------------------------------------------- R1- --- --- M-1A --- By U5 EPC By U5 EPC --- ---------------------------------------------------------------------------------------- R1- J-1305 --- M-1A --- --- By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- J-1305 --- M-1A --- See HB/PFD By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- --- --- M-1A --- By U5 EPC By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- J-0607 --- M-1A --- By U5 EPC By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- J-0607 --- M-1A --- By U5 EPC By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- J-0301 --- M-1A --- Norm Zero 330,000 max By U5 EPC ---------------------------------------------------------------------------------------- R1- J-0301 --- M-1A --- See HB/PFD < 140 kph By U5 EPC ---------------------------------------------------------------------------------------- R1- J-0301 --- M-1A --- See HB/PFD By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- --- --- M-1A --- See HB/PFD By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- J-1301 --- M-1A --- See HB/PFD By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- J-1301 --- M-1A --- See HB/PFD By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- J-1301 --- M-1A --- See HB/PFD By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- --- --- M-1A --- See HB/PFD By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- --- --- M-1A --- See HB/PFD By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- J-1305 --- M-1A --- See HB/PFD By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- J-1304 --- M-1A --- See HB/PFD By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- I- --- --- By U5 EPC --- See HB/PFD By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- --- --- M-1A --- By U5 EPC By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- --- --- M-1A --- By U5 EPC By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- R1- J-1501 --- M-1A --- 95 psi min 2500 GPM By U5 EPC ---------------------------------------------------------------------------------------- R1- --- --- M-1A --- By U5 EPC 1 gpm By U5 EPC ---------------------------------------------------------------------------------------- I- --- --- By U5 EPC --- By U5 EPC By U5 EPC By U5 EPC ---------------------------------------------------------------------------------------- I- --- --- By U5 EPC --- By CEOC By U5 EPC --- ---------------------------------------------------------------------------------------- I- --- --- By U5 EPC --- By CEOC By U5 EPC --- ---------------------------------------------------------------------------------------- I- --- --- By U5 EPC --- By CEOC By U5 EPC --- ---------------------------------------------------------------------------------------- O- --- --- By U5 EPC --- See HB/PFD By U5 EPC --- ----------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------- Tie Intertie Installation ID Area Shut Down Brief Description of Tie Activities/Responsibilities - U5 EPC ------------------------------------------------------------------------------------------------------- TP- 130 --- Pipe connection to carry LPS Provide and install piping to from U5 to IX1 Battery Limits carry LPS from U5 to IX1 Battery for hookup to IX1 LPS piping system Limits, stub end termination. ------------------------------------------------------------------------------------------------------- TP- 130 --- Pipe from IX transfer pumps to IX1 Provide and install piping to Battery Limits carry brine from U5 to IX1 Battery Limits, flange end termination. ------------------------------------------------------------------------------------------------------- TP- 130 --- Brine transfer from IX Battery Provide and install piping to Limits (BL) to U5 Booster Injection carry brine return from IX1 Battery Pumps Limits to U5 Injection Pumps, flange end termination. ------------------------------------------------------------------------------------------------------- TP- 130 --- Pipe for excess condensate to IX1 Provide and install piping to carry BL when available (tie also condensate from U5 to IX1 Battery provides LP purge water), 0-200 gpm Limits, stub end termination. ------------------------------------------------------------------------------------------------------- TP- 130 --- Transfer from IX1 BL to U5 CT Provide and install piping to carry Blowdown Line to U3, 400-500 gpm RO reject water from IX1 Battery 40 psi min. Limits to U5 Cooling Tower blowdown system, stub end termination. ------------------------------------------------------------------------------------------------------- TP- 130 --- Transfer steam from Primary Provide and install piping to carry Reaction Tank to MRF Heat Exchanger atmospheric pressure steam from U5 Primary Reaction Tank to IX1 Battery Limits, stub end termination. ------------------------------------------------------------------------------------------------------- TP- 130 --- Transfer steam condensate from MRF Provide and install piping to carry Heat Exchanger to Cooling Tower condensate from IX1 Battery Limits to U5 cooling tower basin, stub end termination at BL. ------------------------------------------------------------------------------------------------------- TP- 130 --- Pipe to IX1 BL to draw from 1-step Provide and install piping to carry treated Canal Water. Supplies U5 Service water from IX1 Battery Limits wash water and Cooling Tower makeup, to U5 users including Cooling Tower 0-200 gpm @ hose station pressure. makeup, stub end termination. ------------------------------------------------------------------------------------------------------- TP- 130 --- Pipe to IX1 BL to draw from U5 Provide and install piping to carry potable water system, 25 gpm potable water from U5 to IX1 Battery safety shower or toilet Limits, stub end termination. ------------------------------------------------------------------------------------------------------- TP- 130 --- Feed from U5 Aux Power to IX1 Provide corridors, tray space in PDC; PDC, main power supply for IX1 ductbank & turnups between U5 PDC to Piperack to IX1; space on Piperack to IX1 for conduit and tray to route 13.8 kV feeder cable and control/other cables. Terminate cable at switchgear within PDC. ------------------------------------------------------------------------------------------------------- TP- 130 --- Data Highway from IX1 to U3 Region Pull data highway cable from IX1 1 Control Room terminal through U5 PDC and subsequently to the Region 1 control room at U3. Install duct bank from piperack to U5 PDC. Supply and install conduit to U3 control room. ------------------------------------------------------------------------------------------------------- TP- 130 --- Brine return line from sampler Provide and install piping to carry system in IX1 to U5. Included in brine return from IX1 Battery Limits alternate bid with silica removal to U5 IX Feed Pumps suction, flange system. end termination. ------------------------------------------------------------------------------------------------------- TP- 130 --- Pipe line connection to supply air Provide and install piping to carry to U5 from IX1 compressed air from IX1 Battery Limits to U5, stub end termination. ------------------------------------------------------------------------------------------------------- TP- 130 --- Pipe to IX1 BL to U5 fire loop at Provide and install piping to deliver 2 points for new IX1 loop fire water from U5 fire water loop to IX1 Battery Limits, stub end termination at two locations. ------------------------------------------------------------------------------------------------------- TP- 130 --- Pipe to BL IX1. Transfer storm Provide and install piping to carry drains to U5 storm drain system. plant drains from IX1 Battery Limits Quantity to be determined by MRF to U5 storm drain system, stub end EPC @ 30 psi. termination. ------------------------------------------------------------------------------------------------------- TP- 300 --- Transfer piping from overland Provide and install piping to transfer pipeline termination by MRF at dilute HCl from overland pipeline (by Grade near T-5225. Final connect others) into tankage. Supply and to tank inc. BL block valve, pipe, install isolation valve at intertie, FIR, by U5 EPC. and route pipe from intertie point at grade to dilute acid storage tank supply/install acid % meter to tank ------------------------------------------------------------------------------------------------------- TP- 130 --- Transfer video camera signals Pull video cable from IX1 terminal from IX1 to Region 1 control through U5 PDC and subsequently to the room at U3 Region 1 control room at U3. Install duct bank from piperack to U5 PDC. Supply and install conduit to U3 control room. ------------------------------------------------------------------------------------------------------- TP- 130 --- Data interface between control Coordinate U5 control systems with computers: U5 is Rosemount, MRF EPC and CEOC. IX1 is Foxborough ------------------------------------------------------------------------------------------------------- TP- 200 --- Drain piping for purge water and Provide and install piping to carry drainage from Trench at Pumps to drains from the brine injection pumps MRF sump; nominal 20 gpm purge area to IX1 Battery Limits, stub end water plus storm runoff termination. ------------------------------------------------------------------------------------------------------- O- 100 SD Tie output of Electrical Power Substation equipment supply and from U5 to IID install; non-segregated phase bus supply and install. ------------------------------------------------------------------------------------------------------- O- 100 SD Tie output of Electrical Power Design currently on hold. from U5 to IID. Design currently on hold. ------------------------------------------------------------------------------------------------------- R1- 100 SD Feed from U3 to U5 for startup and Provide all cable, raceway, emergency installation. ------------------------------------------------------------------------------------------------------- R1- 100 SD Feed to relocated Injection Pump. Provide all cable, raceway, Contractor to review latest U3 installation. Relocate pump motors. EW-503 (to be provided by CE, later). ------------------------------------------------------------------------------------------------------- R1- 100 SD Feed to relocated Injection Pump. Provide all cable, raceway, Contractor to review latest U3 installation. Relocate pump motors. EW-503 (to be provided by CE, later). ------------------------------------------------------------------------------------------------------- R1- 100 SD Feed to relocated Injection Pump. Provide all cable, raceway, Contractor to review latest U3 installation. Relocate pump motors. EW-503 (to be provided by CE, later). ------------------------------------------------------------------------------------------------------- R1- 100 --- Feed from Unit 3 MCC-306 for P-5425, Provide all cable, raceway, P-5426. As-built U3 electrical installation. distribution ratings not avail. (EW-504 sht 4 of 4) ------------------------------------------------------------------------------------------------------- R1- 100 --- CR PDC Dual Data Highway between Provide all cable, raceway, U5 PDC and U3 Control Room. installation. ------------------------------------------------------------------------------------------------------- R1- 200 --- Relocate existing brine injection Provide all equipment, materials, labor. pumps P-3211 A/B/C from U3 to U5 ------------------------------------------------------------------------------------------------------- R1- 200 SD Transfer Brine from existing 2 Provide all equipment, materials, labor. Brine Injection Lines into U5 ------------------------------------------------------------------------------------------------------- R1- 200 --- Transfer from T-5203 to U3 Provide all equipment, materials, labor. Settling Basin ------------------------------------------------------------------------------------------------------- R1- 200 SD Transfer brine from relocated main Provide all equipment, materials, labor. injection pumps P-3211A/B/C to existing CEOC pipeline ------------------------------------------------------------------------------------------------------- R1- 200 SD Ditto above, 2 pipelines Provide all equipment, materials, labor. ------------------------------------------------------------------------------------------------------- R1- 300 SD Transfer LPS to U3 from U5 during U5 Provide all equipment, materials, labor. extended outages. Pipe from U5 LP and VLP Separators to U3 ------------------------------------------------------------------------------------------------------- R1- 300 SD Transfer SPS from upstream of U3 Provide all equipment, materials, labor. Scrubber to U5 Scrubber during U5 extended outages. ------------------------------------------------------------------------------------------------------- R1- 300 --- Tie drain from V-5224 to existing LP Provide all equipment, materials, labor. Scrubber via CE installed stub out conn. w/ valve and cap. ------------------------------------------------------------------------------------------------------- R1- 400 --- Transfer U5 blowdown to U3 CT Provide all equipment, materials, labor. blowdown system. Contractor to ensure U3 system hydraulics adequate. ------------------------------------------------------------------------------------------------------- R1- 600 --- Tie Vent from New Tanks to existing Provide all equipment, materials, labor. Tanker Vent Header ------------------------------------------------------------------------------------------------------- R1- 600 --- Tie Vent from New Tanks to existing Provide all equipment, materials, labor. Scrubber Vent Header ------------------------------------------------------------------------------------------------------- R1- 600 --- Tie New Storage Tanks to existing Provide all equipment, materials, labor. Tanker Unloading ------------------------------------------------------------------------------------------------------- R1- 600 --- Tie existing Tanks to New Provide all equipment, materials, labor. ------------------------------------------------------------------------------------------------------- R1- 600 --- Water to Tank Farm for dilution, etc. Provide all equipment, materials, labor. Tie to Unit 3 source ------------------------------------------------------------------------------------------------------- R1- 600 SD Tie acid downstream SP Separators. Provide all equipment, materials, Use existing HCl pipe, fittings, labor; supply/install acid wt % meter. instruments as practical. Replace as needed. ------------------------------------------------------------------------------------------------------- R1- 600 SD Tie acid downstream HP Separators. Provide all equipment, materials, labor. Use existing HCl pipe as practical. Contractor Tie Injection Spool (provided by CE) into existing brine lines with new pipe flanges. ------------------------------------------------------------------------------------------------------- I- 600 --- Add new tanker unloading station Provide all equipment, materials, labor. ------------------------------------------------------------------------------------------------------- R1- 600 --- Gravity Drain from containment pad Provide all equipment, materials, labor of new T-3425C/D to containment pad for drain. of existing T-3425A/B ------------------------------------------------------------------------------------------------------- R1- 600 --- Gravity Drain from containment pad Provide all equipment, materials, labor of new T-5225 to brine pond for drain. ------------------------------------------------------------------------------------------------------- R1- 600 --- Tie to existing U3 fire loop at 2 Provide all equipment, materials, labor points for new U5 loop for tie into existing fire loop ------------------------------------------------------------------------------------------------------- R1- 600 --- Tie to draw from existing U3 Provide system for transferring limited potable water system to Contractor- available potable water to U5 for storage supplied tank for distribution and distribution to safety showers, toilets. ------------------------------------------------------------------------------------------------------- I- 600 --- Tie for receiving outside water to Provide for receiving condensate to tank Condensate tank from haul truck pump. ------------------------------------------------------------------------------------------------------- I- 600 --- Receive, store and deliver water Provide all equipment, materials, labor treatment chemicals supplied by to install, initial supply of chemicals. NALCO for the Cooling Water system. ------------------------------------------------------------------------------------------------------- I- 600 --- Receive dry lime from truck and Provide all equipment, materials, labor transfer to slaking system. to receive dry lime from trucks for pneumatic transfer to slacking. ------------------------------------------------------------------------------------------------------- I- 600 --- Receive dry flocculant from truck and Provide all equipment, materials, labor transfer to mixing/aging system. to receive dry flocculant from trucks for pneumatic transfer to mixing/aging tank. ------------------------------------------------------------------------------------------------------- O- 600 --- Transfer and loadout of silica from Provide all equipment, materials, labor the filter presses for removal by to install a truck loadout system for truck (trucking by others) silica from the filter presses. -------------------------------------------------------------------------------------------------------
---------------------------------------------------- Intertie Installation Activities/ ID Area Responsibilities- Others ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by Minerals Recovery Facility (MRF) EPC ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- TP- 130 Supply power cable; supply conduit and trays outside PDC. Install conduit and tray, and pull cable from PDC termination in IX1 to U5 13.8 kV switchgear. Test feeder cable. All by MRF EPC. ---------------------------------------------------- TP- 130 Supply cable; supply conduit outside PDC. Install conduit from termination in IX1 to U5 duct bank to PDC. Terminate cable at U3 and test. All by MRF EPC. ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- TP- 130 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- TP- 300 MRF EPC is to route overland acid pipe to a termination point near the dilute acid storage tank. All Connection hardware, supplies and labor for final fit-up by MRF EPC. ---------------------------------------------------- TP- 130 Supply cable; supply conduit outside PDC. Install conduit from termination in IX1 to U5 duct bank to PDC. Terminate cable at U3 and test. All by MRF EPC. ---------------------------------------------------- TP- 130 Determine and implement most effective means of interfacing Foxborough system with Rosemount system. ---------------------------------------------------- TP- 200 All Connection hardware, supplies and labor for final fit-up - by MRF EPC ---------------------------------------------------- O- 100 Connection to 92 kV at dead end structure - by IID ---------------------------------------------------- O- 100 Design currently on hold. ---------------------------------------------------- R1- 100 Access to U3 13.8 kV switchgear - by CEOC ---------------------------------------------------- R1- 100 Access to pumps for relocation - by CEOC ---------------------------------------------------- R1- 100 Access to pumps for relocation - by CEOC ---------------------------------------------------- R1- 100 Access to pumps for relocation - by CEOC ---------------------------------------------------- R1- 100 Access to MCC-306 - by CEOC ---------------------------------------------------- R1- 100 --- ---------------------------------------------------- R1- 200 Access to pumps for relocation - by CEOC ---------------------------------------------------- R1- 200 Access - CEOC ---------------------------------------------------- R1- 200 Access - CEOC ---------------------------------------------------- R1- 200 Access - CEOC ---------------------------------------------------- R1- 200 Access - CEOC ---------------------------------------------------- R1- 300 Access - CEOC ---------------------------------------------------- R1- 300 Access - CEOC ---------------------------------------------------- R1- 300 Access - CEOC ---------------------------------------------------- R1- 400 Access - CEOC ---------------------------------------------------- R1- 600 Access - CEOC ---------------------------------------------------- R1- 600 Access - CEOC ---------------------------------------------------- R1- 600 Access - CEOC ---------------------------------------------------- R1- 600 Access - CEOC ---------------------------------------------------- R1- 600 Access - CEOC ---------------------------------------------------- R1- 600 Injection nozzles and mixing spools; access - by CEOC ---------------------------------------------------- R1- 600 Injection nozzles and mixing spools; access - by CEOC ---------------------------------------------------- I- 600 --- ---------------------------------------------------- R1- 600 Access - CEOC ---------------------------------------------------- R1- 600 Access - CEOC ---------------------------------------------------- R1- 600 Access - CEOC ---------------------------------------------------- R1- 600 Access - CEOC ---------------------------------------------------- I- 600 --- ---------------------------------------------------- I- 600 --- ---------------------------------------------------- I- 600 --- ---------------------------------------------------- I- 600 --- ---------------------------------------------------- O- 600 --- ---------------------------------------------------- ID Codes: I=Infeeds; O=Outputs; R1=Region 1; TP=Ties to MRF Notes: 1. Items denoted as "SD" under Shut Down may require shutting down Region 1 Facilities to complete Tie
EXECUTABLE COPY EXHIBIT "A" ATTACHMENT 3 - MAJOR EQUIPMENT LIST SYSTEM EQUIPMENT EQUIPMENT NAME NUMBER -------------------------------------------------------------------------------- MECHANICAL EQUIPMENT LIST Brine Handling P-3210A Brine Injection Booster Pumps (modifications to existing pumps) P-3210B P-3210C V-5212 Low Pressure Steam Separator V-5213 V-5214 Very Low-Pressure Steam Separator V-5215 P-5210A Minerals Recovery Feed Pumps P-5210B P-5211A Brine Injection Booster Pumps (new) P-5211B P-5211C P-3211A Brine Injection Pumps (relocate existing) P-3211B P-3211C T-5201 Atmospheric Flash Tanks T-5202 T-5204 AFT Condensate Tank T-5203 Spent Brine Temporary Service Tank P-5218A Spent Brine Transfer Pumps P-5218B Standard Pres. Steam V-5224 SP Steam Scrubber V-5251 SP SteamDemister Low Pressure Steam V-5226 LP Steam Scrubber Very Low Pres. Steam V-5228 VLP Steam-Scrubber V-5229 Turbine Generator STG-5100 Turbine Generator Main Oil Pump Aux Oil Pump Emergency Oil Pump EO-5100A Oil Coolers EO-5100B Oil Conditioner Eqpt List Page 1 EXECUTABLE COPY SYSTEM EQUIPMENT EQUIPMENT NAME NUMBER -------------------------------------------------------------------------------- GAE-5100- Generator Air Coolers A/B Condensate P-5465A Condensate Pumps P-5465B E-5101 Condenser Purge Water P-5301A SP-Purge Water Pumps P-5301B P-5304A LP-Purge Water Pumps P-5304B T-5308 Purge Water Storage Tank Circulating Water P-5001A Circulating Water Pumps P-5001B CT-5000 Cooling Tower Auxiliary Cooling Water P-5002A Auxiliary Cooling Water Pumps P-5002B Gas Removal J-5401A First Stage Steam Jet Ejectors J-5401B J-5401C E-5401 Intercondenser J-5402A Second Stage Steam Jet Ejectors J-5402B J-5402C E-5402 Aftercondenser HCL P-3425A 32% HCL Transfer Pumps P-3425B P-5425A HCL Standard Pressure Pumps P-5425B P-5426A HCL High Pressure Pumps P-5426B T-3425C 32% HCL Storage Tanks T-3425D T-5225 4% HCL Storage Tank NORMS P-5528A Supply Pumps P-5528B P-5527A Feed Pumps P-5527B Eqpt List Page 2 EXECUTABLE COPY SYSTEM EQUIPMENT EQUIPMENT NAME NUMBER -------------------------------------------------------------------------------- P-5530 A Metering Pumps P-5530B T-5527 Storage Tank T-5530 Surge Tank CT Water Treatment Potable Water T-52XX Potable Water Storage Tank P-52XXA Potable Water Pumps P-52XXB Compressed Air T-52XX Instrument Air Receiver T-52XX Service Air Receiver Cranes and Hoists Turbine Gantry Crane Stationary Screen Hoist Fire Protection Storm Water P-5366A Unit 5 Area Sump Pumps P-5366B Silica Control Primary Reactor Secondary Reactor Primary Clarifier Secondary Clarifier Lime Feed Pump Clarifier Underflow Pump Clarifier Underflow Pump Filter Feed Pump Thickener Underflow Pump Flocculant Injection Pump 1st Reactor Agitator 2nd Reactor Agitator Primary Clarifier Turbine Primary Clarifier Rake Secondary Clarifier Turbine Secondary Clarifier Rake Lime Stroage Tank Agitator Filter Press ELECTRICAL EQUIPMENT LIST PDC consisting of: Eqpt List Page 3 EXECUTABLE COPY SYSTEM EQUIPMENT EQUIPMENT NAME NUMBER -------------------------------------------------------------------------------- 13.8 kV swgr w/6 cbs 4 kV swgr w/3 cbs 4kV Motor Control Center - 01 480 V Motor Control Center - 01 480 V Motor Control Center - 02 480 V Motor Control Center - 03 125V, 800 AH DC Battery System w/200A Charger and DC Switchboard Redundant 40 kVA, 120V AC UPS System Miscellaneous Distribution Transformers and Panels Relay Protection Metering Assembly of DCS I/O and Logic Cabinets Transformer GSU-01-41/54/67 MVA, 13.8-92 kV, OA/FA/FA Transformer XF-001-7.5/8.4 MVA, 13.8-4.16 kV, OA/FA Transformer XF-002 & XF-003-1500/2000 kVA, 13.8-0.48 kV, OA/FA Transformer XF-004-750/1000 kVA, 4.16 kV-0.48kV. OA/FA 3000A, 600V, Non Segregated Phase Bus 92 kV Switchyard Consisting of the Following: 92 kV, 1200A SF6 Circuit Breaker/ Disconnect Switches Miscellaneous Lightning Arresters, Current Transformers, and Voltage Transformers w/ Relaying Relay Protection Metering 1200kW, 4160 V Diesel Generator (existing) Eqpt List Page 4 EXHIBIT "A" ATTACHEMENT 4 - PREFERRED SUPPLIERS INSTRUMENTATION Pressure gauges: Ashcroft. Use 3D gauges on vibrating equipment Actuators: EL-O-Matic Square Head, Automax, Morin, Hi-torque, Bettis For Camflex II valves 6" and under use the standard actuator. For Camflex valves (6" and over) in all brine service and for high pressure drop applications use the double cylinder 70-70 series actuator. For conventional applications use the standard actuator. Pressure regulators--Refer to Control Valves Sight glasses: Jerguson. Solenoid valves: Burkert. Magnetic flow transmitters: Krohne -- for brine service Krohne, Foxboro -- for non brine service Hydraulic actuators: REXA. Electric actuators: Limitorque Transmitters: I / P -Rosemount Pressure and Temperature--Rosemount 3051 series Suspended Solids--Wedgewood Annubars: Dieterich Standard, ONLY AS SUPPLIED through CFM San Diego for special Salton Sea trim requirements Manifolds for transmitters: Anderson Greenwood with block valves by TBV. Tubing fittings and accessories: Swagelok. Pneumatic positioners: PMV DCS: Rosemount, Foxboro,. Rosemount only for Units 1-5, and Foxboro for the Mineral Plants PLC: Modicon. Vibration monitors: Bently Nevada Temperature monitors: Chessel Multiplex., or DCS supplied modules (preferred) Page 1 ELECTRICAL 15 kV switchgear: GE, Square D, Siemens, Powell, Cutler Hammer/Westinghouse and ABB (vacuum breakers). 4160 volt switchgear: GE, Square D, Siemens, Powell, Cutler Hammer/Westinghouse and ABB (vacuum contactors). 480 volt switchgear: GE, Square D, Siemens, Cutler Hammer/Westinghouse and ABB (air breakers), Powell. MCC 480 volt: Cutler Hammer/Westinghouse, GE, Square D, Allen Bradley, Siemens, and ABB (advantage starters) . Motors: Siemens, ABB, Magne Tek, Louis Allis, US Electric Motors, and Westinghouse (cast iron, TEFC, 1800 rpm or less). Distribution panels 480, 280 / 120 volt Cuttler Hammer, GE, Siemens, Square D, and Challenger. 92 kV Substation: ABB, Mitsubishi, Siemens, GE, MS Engineering, and Fleming Electric, Waukesha Electric, Cutler Hammer/Westinghouse. 13.8 kV / 4160 transformers: Westinghouse, GE, Square D, Siemens, North American, Waukesha Electric, Pennsylvania Transformers, Magnetek, GEC Alsthom, and ABB. 13.8 kV / 480 volt transformers: Westinghouse, GE, Square D, Siemens, North American, Waukesha Electric, Pennsylvania Transformers, and ABB.. 480 / 280 / 110 transformers: Westinghouse, GE, Square D, Siemens, North American, Waukesha Electric, Pennsylvania Transformers, and ABB. Protection relays: Basler, Beckwith Electric, ABB, SEL, or General Electric. Outdoor lighting: Appleton ( high pressure sodium ). IJB's, JB: Hoffman. UPS: Solid State Controls Inc., Cyberex, Fuji Custom Power: Cyberex Battery charger: C&D, GNB. Battery stations: C&D (acid calcium), GNB. Auxiliary relay timers: Agastat (low voltage application). Auxiliary relays: Allen Bradley. Selector switches, push button: Allen Bradley. Switches (Temp, pressure, flow): Page 2 SOR Conduit bodies, fittings: Appleton. Cable trays: B Line. Bus Bars: Ulrich, KME America. Buss duct 15 kV: Square D, EPP, Technibus, Calvert, or Unibus. Alarm panels: Panalarm., Ronan Digital fault recorders: General Electric. Digital event recorders: BETA. MECHANICAL Condenser: Alstom Energy Systems (Ecolaire), Balcke-Durr, Graham Manufacturing Heat Exchangers (shell and tube) Ametek, Basco, Ketema, Perfey, Graham, Westland Engineering-714-768-8699 Heat Exchangers (plate and frame) Alfa-Laval, Mueller, Tranter, Vicarb, Graham, Westland Engineeting-714-768-8699 Cooling Tower: Hamon, Balcke-Durr, GEA-TDT, Marley Compressors: Gardner Denver, Ingersoll Rand, Sullair, Atlas Copco Pumps: Goulds, Flowserve Byron Jackson, United, Alstholm, IDP, ITT, Sulzer, David Brown/Union, Weir, Duriron, Vanton. Mechanical Seals: Borg Warner, John Crane, Chesterton, Durmetallic. Couplings: Rexnord, Flexibox, Woods Pumps, Metering: Flowserve, Lewa, Milton Roy, Moyno, Aquacare, Pulsafeeder, LMI Filter press: Pneumapress Filter Corp. Pressure Leaf Filters Ametek Process Equipment, Enviro-Clear, Flowserve, Durco Filter, Carbon Column Calgon, Culligan, Osmonics, Spin-Tek, Eimco Ion Exchange Header/Laterals Glegg, US Filter, Ershigs, EIMCO, Robert Mitchell Mixers, Solvent Extraction Lightning, Outokumpu Fans and Gear Drives: Marley, Amarillo, Hudson Fans Page 3 Safety Valves: Anderson-Greenwood PSV's Expansion Joints:--Metallic Senior Flexionics, Piping Technology, or Pathway Bellows, Wood Pressure Control Expansion Joints: Non-Metallic Garloc EZ-Flow Gantry crane: Zenar Corp., American Crane, Kone-Landel, Harnischfeger or Philadelphia Tramrail. Crane (bridge): ACCO, Wright, Dwight Foot, Harnischfegher, P&H, Kone, Zenar, Provincial Cranes Block Valves: Cameron, Wood Pressure Controls, APP Vetco Gray. These are the API-6D through conduit gate valves with the Salton Sea Trim package specification referred to as FT-2 and FT-6. Control valves: Manoneilan/Camflex, Vanessa Valves, Fisher Controls or Valtek. Ball valves: Watt's, GWC, Cameron, Newco, Velan, Apollo, Kitz, KTM, PBV VALVE TYPE VENDORS C-276 ball valve with PEEK seats, Valve Automation and Control flanged All alloy stem and bonnet bolting API 6-D gate valve FT-6 trim, Cameron Corp. (Alloy 625 body, face, seat-pocket Wood Group Pressure Control, overlay, 316L gate, seat w/ HF-6, APP Vetco-Gray Alloy 625 stem) 316L SS Ball GWC, Watt's, Cameron, Valves, PEEK seats, two piece Velan Newco, Velan, Apollo, Kitz, KTM, PBV API 6-D gate valve FT-2A trim Cameron Corp. (316L gate, seats, HF-6 stellite Wood Group Pressure Control overlay, 17-4 stem) APP Vetco-Gray 316L SS High Perf. Butterfly, eccentric closure, HF-6 on disk Vanessa, Keystone, Atwood and Alloy 625 on body seat, metal seat, Morro, Bray, Cameron, WKM 17-4 pH stem 316L SS Wedge Gate Valve Velan, other high end manufacturers 316L SS Butterfly Valve Vanessa, Keystone, Bray, Grinnell, Valtec Alloy ball valve: Hast B w/ TA ball, stem, Peek Seat--Hot service Nobel Alloy Teflon Lined plug valve Durco-Valve Automation and Controls Camflex II with full upgrade Masoneilan--CFM San Diego only approved source: 760-434-8829 Camflex II with slurry upgrade Masoneilan--CFM San Diego only approved source Camflex II with 316L body & Stellite plug Masoneilan--CFM San Diego only Page 4 approved source Teflon Lined plug valve-V-notch Durco-Valve Automation and 316L SS Globe Valve Controls Velan, other high end manufacturers Rubber lined butterfly valves: Media valve Teflon, lined butterfly valve: Tufline, Amri valve, Durco, (All lined butterfly valves must Grinnell, Bray Valve, Ultraflow, meet standard dimensional face Garlock to face dimensions!!!! (Must be verified on service by service basis) FRP Ball Nil-Cor Valve, FRP Butterfly Valve Alloy pipe, fittings, custom fabrication: Northwest Copperworks, Portland Oregon Alaskan Copper, Seattle WA Madden Fabrication, Portland OR Vortex Clusters: Northwest Copperworks, Portland Oregon Industrial Alloy Fabrication, Forest Grove Oregon Madden Fabrication, Portland Oregon Alaskan Copper, Seattle WA Freeport Welding, Freeport Texas Alloy Spool Welding: Northwest Copperworks, Portland Oregon Industrial Alloy Fabrication, Forest Grove Oregon Madden Fabrication, Portland Oregon Alaskan Copper, Seattle WA Freeport Welding, Freeport Texas J.S. McKinney, Freeport Texas Savage Machine Co. 800-777-7764 Alloy Pipe and Fittings: Northwest Copperworks, Portland Oregon Alaskan Copper, Seattle WA Swepco Tube Sales Custom Alloy -Ez Flow Mach Pipe, Houston Texas Madden Fabrication Flowline-Energy Supply Division 619-697-3533 Kelly Pipe Van Leeuwen Savage Machine Co. 800-777-7764 Corrosion Materails- 800-535-8032 Concrete Lined Pipe: ICO Permian, West Coast Pipe Linings Piping (FRP): Page 5 Bondstrand, Ershigs, Fibercast, Reinforced Plastic Systems, Smith, Prolite FRP Tanks, Pipe and Fittings: Ershigs, Fibercast, Beetle Plastics, Tankinetics, Tfi Internations, Palmer Industrial Products, Prolite, CC&E Field Fabricated Tanks: PSP Industries, Eaton metals, Agitators, Vertical (top-mounted) Chemineer, Ekato, Lightning, Philadelphia Mixer Alloy Clad Vessels: Northwest Copperworks, Industrial Alloy Fabricators, Allied Industries- Houston Tx, ChemFab-Freeport Tx Anodes: George Royston, RSR Corporation, Seafab, Denver Minerals, Dremco, Cromer Casting Machine: Allen Warwick Engineering, Louis Australia, Shepard Cathodes: Dremco, HMD, Denver Minerals Cell Furniture (capblocks, capboards): CTI, Southwestern, Dremco, Denver Minerals Cells, Electrowinning: Ancor, CTI, Delta Corrosion, HBS Equipment Reverse Osmosis Units: Glegg, Osmonics, HW Process Technologies, Spintek, Aquamatch Settlers, FRP: Ershigs, Koch, Mesa Fiberglass, Nemato Composite, QPEC Stripping Machine: Asturiana, Union Miniere, Wenmec, Outokumpu Page 6 EXHIBIT "A" ATTACHMENT 5 - GUARANTEE POINT CONDITIONS Salton Sea Unit 5 will receive Standard Pressure(SP) steam and geothermal brine from Owner's Salton Sea Unit 3. The Guarantee Point Conditions for SP steam delivered to the Unit 5 intertie are as listed in Table 1: TABLE 1 SP STEAM TO UNIT 5 Flow, lb/hr 140,000 Pressure, psia 132.8 Temperature, (Degree)F 364.3 Enthalpy, BTU/lb 1202.5 The Guarantee Point Conditions for brine delivered to the Unit 5 intertie are provided in Table 2: TABLE 1 BRINE TO UNIT 5 Flow, lb/hr 11,613,700 Pressure, psia 132.8 Temperature, (Degree)F 364.3 Enthalpy, BTU/lb 250.1 Total Dissolved Solids, % 26.2 The Project is intended to generate Low Pressure (LP) and Very Low Pressure (VLP) steam from the geothermal brine. The Guarantee Point Conditions for LP and VLP steam that will be produced from the brine is predicted by the CalEnergy Brine PVT Package, Version 2. With the brine conditions specified in Table 2, the calculated flow and conditions of LP and VLP steam that can be produced from the brine are listed in Table 3: TABLE 3 LP AND VLP STEAM PRODUCED FROM UNIT 5 SEPARATORS LP Steam VLP Steam -------- --------- Flow, lb/hr 577,922 510,103 Pressure, psia 57.3 21.3 Temperature 303.7 244.8 Enthalpy, BTU/lb 1185.2 1163.1 The atmospheric Guarantee Point Condition will be a 75 (Degree)F wet bulb temperature. Based upon the Contractor's design, the energy consumed by the Project in producing the Net Electric Energy Production in accordance with Section 1.85 of the Contract includes the listed auxiliary loads that are part of the Work and required to operate the project in Table 4: Page 1 TABLE 4 COMPONENTS AND SYSTEMS COMPRISING AUXILIARY POWER SP Purge Water Pumps Lime Feed Pump LP purge Water Pumps Clarifier Underflow Pumps Circulating Water Pumps Filter Feed Pump Auxiliary Cooling Water Pumps Thickener Underflow Pump Cooling Tower Fans Flocculant Injection Pump Condensate Pumps 1st Reactor Agitator NORMS Metering Pumps 2nd Reactor Agitator Turbine AC Oil Pump Primary Clarifier Turbine Turbine Lube Oil Conditioner Primary Clarifier Rake Turbine Oil Vapor Extractor Secondary Clarifier Turbine Transformer Losses Secondary Clarifier Rake Plant Lighting Lime Storage Tank Agitator Minerals Recovery Brine Feed Pumps Filter Press Page 2 EXHIBIT "A" ATTACHMENT 6 -- LISTING OF REFERENCE TECHNICAL DOCUMENTS The documents listed below are reference documents provided by the Owner. 4.0-1 Geotechnical Report dated April 1998 8.1-3 Owner's Equipment Numbering System 8.6-1 Valve Selection Guidelines 8.7-1 Piping Material Specs 8.7-2 Technical Requirements for Inconel Alloy 625 and Hastelloy Pipe and Fittings 8.7-3 Steam Pipe Shoe Drawing 8.7-4 Steam Wash Nozzle Design Drawing 8.7-5 Arrangement Drawing of the Region I Brine Pumps 8.7-6 V-4210 Level Control Valve Piping Arrangement 8.7-7 Brine Line Meter Run Spool Drawing 8.7-8 Pipe Support Standards 10.2-1 Technical Requirements for Geothermal Steam Turbine generator 10.4-1 Technical Requirements for Scrubber Design and Fabrication 10.4-2 Technical Requirements for Demister Design and Fabrication 10.6-1 Technical Requirements for Gas Removal Equipment 10.12-1 Technical Requirements for Steam Separator Design and Fabrication 10.12-2 Unit 4 Steam Separator Drawings 10.12-3 Existing Brine Injection and Brine Injection Booster Pump Specification and drawings 10.12-4 Unit 3 Atmospheric Flash Tank Drawings 10.12-5 Technical Requirements for Brine Piping 10.12-6 Separator Layout and Brine Piping Drawings 10.21-1 NORMS solution MSDS 10.20-1 Unit 5 Tower Chemical Addition Requirements 10.22-1 Chemical injection device drawings 11.4-1 Specification for Power Transformers 11.7-1 Specification for Power Distribution Centers EXHIBIT "A" ATTACHMENT 7 - VALUE ENGINEERING SUMMARY
ITEM CLASS AREA DESCRIPTION STATUS --------- ------- ------------------- ---------------------------------------------- -------- 24 A Brine System Eliminate Heat Exchangers E5216 Accept --------- ------- ------------------- ---------------------------------------------- -------- 37 A Criteria Review Wet Bulb Design Temperature Decline --------- ------- ------------------- ---------------------------------------------- -------- 39 A Electrical Eliminate New IID T-Line Hold --------- ------- ------------------- ---------------------------------------------- -------- 56 A Brine System 2 x 100% Independent Trains w/2 x 100% Pumps Accept --------- ------- ------------------- ---------------------------------------------- -------- 62 A Site Layout Review Site Layout Accept --------- ------- ------------------- ---------------------------------------------- -------- 63 A Electrical Revise 92 kV Transmission kV Decline --------- ------- ------------------- ---------------------------------------------- -------- 64 A Brine System Revise Brine System Design Accept --------- ------- ------------------- ---------------------------------------------- -------- 66 A Commercial Reduce LDs from 20% to 15% Decline --------- ------- ------------------- ---------------------------------------------- -------- 7 B Site Layout Decrease Distance Between Turbine & Cooling Accept Tower --------- ------- ------------------- ---------------------------------------------- -------- 10 B Site Layout Use Scrap Pipe for Piles Accept --------- ------- ------------------- ---------------------------------------------- -------- 13 B Site Layout Blend CE Onsite Fills with Offsite Fills Decline --------- ------- ------------------- ---------------------------------------------- -------- 15 B Site Layout Optimize Brine Pipe Layout at Clarifiers Accept --------- ------- ------------------- ---------------------------------------------- -------- 16 B Site Layout Eliminate Gantry Crane Decline --------- ------- ------------------- ---------------------------------------------- -------- 19 B Site Layout Move Brine Dump System Tanks Accept --------- ------- ------------------- ---------------------------------------------- -------- 21 B Process Materials Eliminate LP Steam Backfeeds Decline --------- ------- ------------------- ---------------------------------------------- -------- 23 B Process Materials Compare FRP CW Pipe Materials Decline --------- ------- ------------------- ---------------------------------------------- -------- 26 B CW System Evaluate Need for Condenser Isolation Accept --------- ------- ------------------- ---------------------------------------------- -------- 28 B CW System Don't Bury CW Lines Decline --------- ------- ------------------- ---------------------------------------------- -------- 35 B Criteria Use Thinner Cladding on Separators Accept --------- ------- ------------------- ---------------------------------------------- -------- 36 B Criteria Use Welded vs. Seamless Pipe Accept --------- ------- ------------------- ---------------------------------------------- -------- 40 B Electrical U/G vs. A/G Line to V/H Decline --------- ------- ------------------- ---------------------------------------------- -------- 43 B Electrical Impacts on Elec Dist Sys due to Brine Mods Accept --------- ------- ------------------- ---------------------------------------------- -------- 44 B Silica Control Reduce Dia. Of Primary Clarifier Decline --------- ------- ------------------- ---------------------------------------------- -------- 46 B Silica Control Derakane (FRP) Feed Pipes, Reactors & Accept Clarifiers --------- ------- ------------------- ---------------------------------------------- -------- 48 B Silica Control C-276 to 2205 Downstream of First Reactor Decline --------- ------- ------------------- ---------------------------------------------- -------- 49 B Silica Control Lease Lime System Decline --------- ------- ------------------- ---------------------------------------------- -------- 51 B Silica Control Different Filter Press Supplier Decline --------- ------- ------------------- ---------------------------------------------- -------- 52 B Silica Control Optimize Based on Latest Pilot Plant Data Accept --------- ------- ------------------- ---------------------------------------------- -------- 53 B Silica Control Eliminate Valves Between Silica Control Accept Vessels --------- ------- ------------------- ---------------------------------------------- -------- 57 B Brine System Use 2507 Piping in lieu of Inconel Decline --------- ------- ------------------- ---------------------------------------------- -------- 58 B CW System Use Coated Ductile Iron Circulating Water Accept Pumps --------- ------- ------------------- ---------------------------------------------- -------- 60 B Criteria Evaluate Condenser Cleanliness Factor Decline --------- ------- ------------------- ---------------------------------------------- -------- 65 B Commercial Reduce Warranty Period Decline --------- ------- ------------------- ---------------------------------------------- -------- 67 B Silica Control Redesign 1st Stage Reactor Accept --------- ------- ------------------- ---------------------------------------------- -------- 1 C Site Layout Eliminate Berm Decline --------- ------- ------------------- ---------------------------------------------- -------- 2 C Site Layout Reduce Berm Decline --------- ------- ------------------- ---------------------------------------------- -------- 3 C Site Layout Reuse Existing Brine Line Decline --------- ------- ------------------- ---------------------------------------------- -------- 4 C Criteria Substitute Cement Lined Pipe for Inconel Accept --------- ------- ------------------- ---------------------------------------------- -------- 5 C Site Layout Delete Paving - Use Gravel Decline --------- ------- ------------------- ---------------------------------------------- -------- 6 C Site Layout Reduce Road Length Decline --------- ------- ------------------- ---------------------------------------------- --------
EXHIBIT "A" ATTACHMENT 7 - VALUE ENGINEERING SUMMARY
ITEM CLASS AREA DESCRIPTION STATUS --------- ------- ------------------- ---------------------------------------------- -------- 8 C Site Layout Rotate Primary & Secondary Clarifiers Accept --------- ------- ------------------- ---------------------------------------------- -------- 9 C Site Layout Move Region 1 IX to the North Accept --------- ------- ------------------- ---------------------------------------------- -------- 11 C Site Layout Reduce Fenced Area Decline --------- ------- ------------------- ---------------------------------------------- -------- 12 C Site Layout Reorient Separators Accept --------- ------- ------------------- ---------------------------------------------- -------- 14 C Site Layout Reduce Site Area Decline --------- ------- ------------------- ---------------------------------------------- -------- 17 C Site Layout Relocate Substation Hold --------- ------- ------------------- ---------------------------------------------- -------- 18 C Site Layout Optimize Lime Handling Location Accept --------- ------- ------------------- ---------------------------------------------- -------- 20 C Site Layout Move Road Access to Eliminate Pipe Ducts Decline --------- ------- ------------------- ---------------------------------------------- -------- 22 C Process Materials Review Cement Lined Pipe Spec (Wall Accept Thickness) --------- ------- ------------------- ---------------------------------------------- -------- 25 C CW System Simplify Gas Discharge Accept --------- ------- ------------------- ---------------------------------------------- -------- 27 C CW System Reduce Size of CW Lines Accept --------- ------- ------------------- ---------------------------------------------- -------- 29 C CW System Evaluate Trickle Block CT Fill Accept --------- ------- ------------------- ---------------------------------------------- -------- 30 C Steam System Reduce No. of Governor Valves (6 to 4) Decline --------- ------- ------------------- ---------------------------------------------- -------- 32 C Steam System Optimize/Review GRS Accept --------- ------- ------------------- ---------------------------------------------- -------- 34 C Criteria Review Seismic Design Criteria Accept --------- ------- ------------------- ---------------------------------------------- -------- 38 C Condenser Eval Condenser Options re: Const/Install $ Accept --------- ------- ------------------- ---------------------------------------------- -------- 47 C Silica Control Reduce Insulation on Primary Clarifier Decline --------- ------- ------------------- ---------------------------------------------- -------- 50 C Silica Control Pump Material Specs Accept --------- ------- ------------------- ---------------------------------------------- -------- 55 C Silica Control Flocculant Transport System vs. Dumping Bags Accept --------- ------- ------------------- ---------------------------------------------- -------- 59 C SW System Use Coated Ductile Iron Service Water Pumps Accept --------- ------- ------------------- ---------------------------------------------- -------- 61 C Compressed Air Combined Mineral/Power Plant Air Compressors Accept --------- ------- ------------------- ---------------------------------------------- -------- 31 F Steam System Reduce VLP Pressure Decline --------- ------- ------------------- ---------------------------------------------- -------- 33 F Steam System Optimize Sizing/Quality Reqmts on VLP System Decline --------- ------- ------------------- ---------------------------------------------- -------- 41 F Electrical 13.8 kV Line to V/H Decline --------- ------- ------------------- ---------------------------------------------- -------- 42 F Electrical Eliminate Used D/G - Tie into Unit 3 D/G Decline --------- ------- ------------------- ---------------------------------------------- -------- 45 F Silica Control Eliminate Secondary Clarifier Decline --------- ------- ------------------- ---------------------------------------------- -------- 54 F Silica Control LCV Requirements in Vessels Decline --------- ------- ------------------- ---------------------------------------------- --------
EXECUTABLE COPY EXHIBIT "B" DRAWING LIST DRAWING NO. TITLE GENERAL ARRANGEMENTS 08051 - EM - 1A Site Layout MATERIAL & ENERGY BALANCE 08051-J-0110-A (2 Sheets) Acid and NORMS P&ID'S 08051 - EJ - 0101 Fundamental 08051 - EJ - 0108 Guarantee Heat Balance 08051 - EJ - 0109 Materials Diagram 08051 - EJ - 0201 Circulating Water System 08051 - EJ - 0301 SP Steam System 08051 - EJ - 0302 LP Steam System 08051 - EJ - 0303 VLP Steam System 08051 - EJ - 0401 Condensate System 08051 - EJ - 0402 Purge Water System 08051 - EJ - 0501 Gas Removal System 08051 - EJ - 0601 Brine System Low Pressure Separators 08051 - EJ - 0602 Brine System Very Low Pressure Separators 08051 - EJ - 0603 Brine System Atmospheric Flash Tanks 08051 - EJ - 0604 Brine System IX Feedpumps 08051 - EJ - 0605 Brine Service Tank 08051 - EJ - 0606 Brine System Brine Injection Booster Pumps 08051 - EJ - 0607 Brine System Brine Injection Pumps 08051 - EJ - 0901 Auxiliary Cooling Water System 08051 - EJ -1201 Compressed Air System 08051 - EJ -1501 Fire Protection system B-1 EXECUTABLE COPY DRAWING NO. TITLE 08051 - EJ -1301 32% Acid Storage System 08051 - EJ -1302 Dilute Acid Storage System 08051 - EJ -1303 Acid Distribution System 08051 - EJ -1304 HP Separator Acid Injection System 08051 - EJ -1305 SP Separator Acid Injection System 08051 - EJ -1306 NORMS Unloing System 08051 - EJ -1307 NORMS Storage and Distribution System 08051 - EJ -1501 Fire Protection system ONE - LINE DIAGRAMS 08051 - EE - 1A High Voltage and Medium Voltage One - Line Diagram 08051 - EE - 2A 480 V One - Line Diagram - MCC - 01 and Unit 3 ESE 08051 - EE - 2B 480 V One - Line Diagram - MCC - 02 08051 - EE - 2C 480 V One - Line Diagram - MCC - 03 B-2 EXECUTABLE COPY EXHIBIT "C" OWNER ACQUIRED PERMITS 1. Conditional Use Permit - Unit 5 (and modification of existing Region 1 CUP), including CEQA determination, obtained from Imperial County Planning Commission. 2. Authority to Construct - Unit 5 (and modification of existing Region 1 ATC), obtained from Imperial County Air Pollution Control District. 3. Notice of Intent to Comply with General Permit, filed with the State Water Resources Control Board. 4. Under 50 MW Determination - obtained from California Energy Commission. 5. Encroachment permits, to be obtained from Imperial County Public Works Department and the Imperial Irrigation District. 6. Self-Certification and Supplemental Self-Certification of Qualifying Facility Status filed with the Federal Energy Regulatory Commission. 7. Air Permit to Operate - to be obtained from Imperial County Air Pollution Control District after commencement of operation. C-1 EXECUTABLE COPY EXHIBIT "D" PROGRESS PAYMENT SCHEDULE (Part 1) Attachment A hereto sets forth the Progress Payment Schedule. The "Description" column of the Progress Payment Schedule sets forth the separate milestones for which progress payments are payable and the "Amount" columns sets forth the amount payable upon completion of each such milestone. The "Completion Date" and "Remarks" columns are solely for the convenience of the parties and do not have contractual significance. D-1 EXHIBIT "D" PROGRESS PAYMENT SCHEDULE (Part 2) EXPENDITURE SCHEDULE
------------------------------------------------------------------------------------------------- Payment Payment Percent Numbers Due Date ------------------------------------------------------------------------------------------------- Months from Incremental Cumulative NTP ------------------------------------------------------------------------------------------------- No. 1 Sep-980 10.0% 10.0% ------------------------------------------------------------------------------------------------- No. 2 Oct-981 3.1% 13.1% ------------------------------------------------------------------------------------------------- No. 3 Nov-982 1.9% 15.0% ------------------------------------------------------------------------------------------------- No. 4 Dec-983 7.1% 22.1% ------------------------------------------------------------------------------------------------- No. 5 Jan-994 6.4% 28.5% ------------------------------------------------------------------------------------------------- No. 6 Feb-995 7.2% 35.7% ------------------------------------------------------------------------------------------------- No. 7 Mar-996 12.1% 47.8% ------------------------------------------------------------------------------------------------- No. 8 Apr-997 3.6% 51.4% ------------------------------------------------------------------------------------------------- No. 9 May-998 3.2% 54.6% ------------------------------------------------------------------------------------------------- No. 10 Jun-999 6.7% 61.3% ------------------------------------------------------------------------------------------------- No. 11 Jul-9910 7.0% 68.3% ------------------------------------------------------------------------------------------------- No. 12 Aug-9911 6.7% 75.0% ------------------------------------------------------------------------------------------------- No. 13 Sep-9912 6.6% 81.6% ------------------------------------------------------------------------------------------------- No. 14 Oct-9913 5.9% 87.5% ------------------------------------------------------------------------------------------------- No. 15 Nov-9914 5.2% 92.7% ------------------------------------------------------------------------------------------------- No. 16 Dec-9915 3.7% 96.4% ------------------------------------------------------------------------------------------------- No. 17 Jan-0016 2.5% 98.9% ------------------------------------------------------------------------------------------------- No. 18 Feb-0017 0.4% 99.3% ------------------------------------------------------------------------------------------------- No. 19 Mar-0018 0.3% 99.6% ------------------------------------------------------------------------------------------------- No. 20 Apr-0019 0.2% 99.8% ------------------------------------------------------------------------------------------------- No. 21 May-0020 0.2% 100% -------------------------------------------------------------------------------------------------
D-2 EXECUTABLE COPY EXHIBIT "E" CHANGE IN WORK FORM Change Order No.: _____________ Date Issued: _____________________________ Reference: ____________________________________________________________________ Description: __________________________________________________________________ _______________________________________________________________________________ Cost of Change: _______________________________________________________________ _______________________________________________________________________________ Impact on Milestone Schedule and Guaranteed Substantial Completion Date: ____________________ _______________________________________________________________________________ Impact on Critical Path Schedule: _____________________________________________ _______________________________________________________________________________ Impact on Progress Payment Schedule: _________________________________________ _______________________________________________________________________________ Other Impacts on Contract: ___________________________________________________ _______________________________________________________________________________ Revised Contract Amount (Including Change): $________________ Owner Approval: Contractor Approval: By: _____________________ By: __________________ Date: ____________________ Date: ________________ Distribution: Owner Consulting Engineer E-1 EXECUTABLE COPY EXHIBIT "F" FORM OF CONTRACTOR'S INVOICE [Date] Salton Sea Power L.L.C. 302 South 36th Street Suite 400-K Omaha, NE 68131 Attention: Vice President, Construction [Agent for Financing Entities] Gentlemen: Stone & Webster Engineering Corporation, a Massachusetts corporation ("CONTRACTOR"), submits this application for payment ("CERTIFICATE") pursuant to ARTICLE 7 of the Salton Sea Unit 5 Engineering, Procurement, and Construction Contract (the "CONTRACT") between Contractor and Salton Sea Power L.L.C., a Delaware limited liability company ("OWNER") dated as of August ____, 1998 ("CONTRACT"). Unless otherwise defined herein, all capitalized terms used in this Certificate shall have the meanings specified for such terms in the Contract. 1. The undersigned is a duly authorized representative of Contractor, authorized to execute and deliver this Certificate on behalf of Contractor. 2. The following is a summary of the current status of the Contract account: Original Contract Price: $_______ Contract Price to Date: $_______ Amount of Payments that Contractor Has Received to Date: $_______ 3. The information in all material documents and supporting papers prepared or signed by Contractor or any of its officers or employees and submitted to Owner and the Financing Entities' Consulting Engineers and in direct support of this Certificate and in connection with the Work, taken as a whole, is in all material respects, true, correct, and complete. 4. The Work is being performed in accordance with the Contract. 5. That portion of the Work, as particularly set forth in EXHIBIT "A" hereto [EXHIBIT "A" SHALL DESCRIBE THE PROGRESS TO DATE IN COMPARISON TO THE PROGRESS PAYMENT SCHEDULE AND F-1 EXECUTABLE COPY INCLUDE ALL NECESSARY DOCUMENTARY EVIDENCE], was completed during the month of _____________, 19__, entitling Contractor to a Milestone Payment of $_____________. 6. There are no known mechanics' or materialmen's liens outstanding at the date of this Contractor's Invoice, all due and payable bills with respect to the Work have been paid to date or are included in the amount requested in the current application, and, except for such bills not paid but so included, there is no known basis for the filing of any mechanics' or materialmen's liens on the Project or the Work except as described below, and all required releases from all Subcontractors have been obtained so as to cover all amounts requested herein (save amounts owing to Insignificant Contractors) in such form as to constitute an effective release of lien (corresponding to payments received by them) under the laws of the State of California (copies of which are attached hereto and incorporated herein by this reference). Contractor, or a Subcontractor, has actually performed and Contractor has not been paid for the Work covered by this Contractor's Invoice. 7. Attached as EXHIBIT "B" hereto are the certifications, Unconditional Waivers of Liens, and Conditional Waivers of Liens prepared by Contractor and each Subcontractor and Vendor contracting directly with Contractor (other than Insignificant Contractors) in accordance with Sections 7.2, 7.3 and 7.6, as applicable. 8. Work uncertified from the Contractor's Invoice dated _________________, 19__ has been completed (except as set forth in the last sentence of this paragraph), and any disputes concerning less than full certification have been resolved by written agreement among Owner, Contractor, and the Financing Entities' engineer, a copy of which resolution is attached as EXHIBIT "C" hereto, and Contractor is entitled to a payment which includes: 9. Except as set forth in SCHEDULE "1" attached hereto, Contractor is aware of no facts that would constitute the basis for a Change in Work as defined in Section 17.1. SCHEDULE "1" describes each event including events of Force Majeure that provides the basis on which Contractor can claim that the Contract Price should be increased or that any of the Project Deadlines should be extended and with respect to each such event, specifies the amount of such proposed increase in the Contract Price and the duration of each such proposed extension. IN WITNESS WHEREOF, the undersigned has executed this Certificate on the date first above written. By:_________________________________ Project Manager F-2 EXECUTABLE COPY EXHIBIT "G" CRITICAL PATH SCHEDULE REQUIREMENTS The Critical Path Schedule shall be a time-scaled critical path method logic diagram schedule of all design and equipment procurement for the Project and all material Work activities. The Critical Path Schedule shall include allowance for normal delays and difficulties that may be encountered in work of this nature including weather and holidays, etc. The Critical Path Schedule, as a minimum, must show an orderly array of activities in support of all Milestones established in the Milestone Schedule, and shall be sufficiently detailed so that each of the following are included and will be readily apparent: (a) the engineering and detailed design activities necessary to complete design, procurement and construction; (b) materials and equipment purchases and deliveries; (c) subcontractor interfaces and requirements; (d) engineering, procurement and construction; (e) Milestone completion dates; (f) activities as identified in Exhibit A; (g) Contractor, subcontractor, and vendor data cycles, and owner review cycles; and (h) construction testing; start-up and performance testing. The Critical Path Schedule shall include activities related to all significant procurement. The Critical Path Schedule shall identify Contractor's plan of execution for the erection, start-up and testing, and acceptance phases of the Work. The construction/start-up schedule, which shall be provided no later than sixty (60) days after the Notice to Proceed, must be coded in such a way as to provide individual test system progress and schedules in accordance with an agreed upon start-up and testing plan. The Critical Path Schedule shall be consistent with the Existing Plants Access Schedule, EXHIBIT Y and the periods identified therein within which Contractor has access to the Existing Plant Sites for performance of Critical Path Items involving the Existing Plants or the Existing Plant Sites. G-1 EXECUTABLE COPY An electronic version (on Microsoft "Project" or other software compatible with Owner's computer system) of the Critical Path Schedule (and any updates thereto) shall be provided to Owner with the printed copy. G-2 EXECUTABLE COPY EXHIBIT "H" RESERVED H-1 EXECUTABLE COPY EXHIBIT "I" DETERMINATION OF BUY-DOWN AMOUNT A. The Buy-Down Amount to be determined by Owner pursuant to Sections 16.2 and 16.3 of the Contract shall be calculated under the Buy-Down Amount formula set forth in paragraphs B and C of this Exhibit "I" using the results of the most recent Capacity Test or Reliability Test, as the case may be, corrected to the Guarantee Point Conditions. B. The Buy-Down Amount formula with respect to the Net Generation Guarantee is as follows: T = $1,800.00 x (Net Generation Guarantee - Actual Production) Where: 1. "T" = the Buy-Down Amount, in Dollars. 2. "Actual Production" = the Actual Net Electric Energy Production (in kW) measured in accordance with the requirements of EXHIBIT "A" and EXHIBIT "J" during the most recently attempted single run (whether or not completed) of the Capacity Test. Notwithstanding anything to the contrary, "T" shall not be less than zero. C. The Buy-Down Amount formula with respect to the Reliability Guarantee is as follows: T=$1,800.00 x (Reliability Guarantee - Actual Production) Where: 1. "T" = the Buy-Down Amount, in Dollars. 2. "Actual Production" = the Actual Net Electric Energy Production (in kW) measured in accordance with the requirements of EXHIBIT "A" and EXHIBIT "J" during the most recently attempted single run (whether or not completed) of the Reliability Test, as the case may be. Notwithstanding anything to the contrary, "T" shall not be less than zero. I-1 EXECUTABLE COPY EXHIBIT "J" TESTING REQUIRED FOR COMPLETION 1. Mechanical Completion Tests. Contractor shall perform and successfully complete the following tests (each, a "Mechanical Completion Test"). The Mechanical Completion Tests shall include (a) all tests necessary to demonstrate that the Project can safely and reliably operate at its continuous and maximum overload conditions; and (b) all tests as are reasonably necessary, customary or required by Industry Standards to determine that all equipment and systems that comprise a portion of the Project function properly and within the parameters described in the Contract or in the Drawings and Specifications, as applicable. Such tests shall include, without limitation, tests of the following items of equipment and systems: o low voltage switchgear and auxiliary transformers o auxiliary cooling water systems o compressed air system o main cooling water system, including cooling tower o condenser and NCG extraction system o chemical addition systems o medium and high voltage switchgear and electrical protection o main transformers o steam turbine o main generator o brine systems o service water system Such tests shall include, without limitation, the following types of tests: o Radiograph selected piping o Hydrostatic pressure tests per B31.1, NFPA, etc. o Safety valve setting, if not factory set and sealed, and functional test o Balancing and vibration and alignment test of all major rotating equipment o Functional test of all safety devices, and interlocks, excluding safety valves and rupture discs o Functional tests of isolation and regulation valves o Generator short circuit and open circuit tests, if not performed at the factory o Megger tests for power cables at voltages of 480V and higher o Functional tests of controls and interlocks o Operation of alarms, interlocks, and controls o Bolt torque testing of field high voltage electrical connections o Relay settings and amperage o Electrical ground and/or insulation tests for all equipment J-1 EXECUTABLE COPY o Check out of all instrument loops o Operation of safety showers, eye wash stations, and spill containment o Automatic intervention of stand-by equipment where required (HCI pumps, lube oil pumps, etc.) o Load test of overhead and other cranes or lifting devices o Operation of fire detection and alarm systems o Operation of fire fighting equipment (NFPA requirements for systems operation) o Other tests as specified in all applicable Codes and Industry Standards) The Mechanical Completion Tests will be deemed complete for a given piece of Equipment when such piece of Equipment meets the requirements of the test protocols (see Section 7.2 below) and can be operated properly without endangering personnel, causing damage to Equipment and/or the Project or damage to the Interconnections. 2. Performance Tests. Performance Tests shall be coordinated by the Owner with IID's dispatch requirements. Contractor shall perform and successfully complete the following tests (each, a "Performance Test"). 2.1 No Load and Overspeed Trip Tests. The turbine shall be subjected to no load test up to 110% rated speed. As part of this test the turbine overspeed trip system shall also be tested. To pass this test, the Project must remain in a safe condition without incurring any damage and be capable of immediate restart. Additional no load tests include: oil trip test, excitation test and synchronization circuit adjustment test. 2.2 Turbine Trip Test. The Contractor shall be required to demonstrate the Project's ability to withstand a turbine trip from 25% of full load and 100% of full load. The Project shall be loaded to and stabilized at the requisite load and the turbine then manually tripped. To pass the test, the Project shall shut down safely to a stand-by condition following such trip. The turbine trip shall be initiated by either the panel or field located master trip button. 2.3. Part Load Operating Tests. Following initial synchronization, the generating Unit that comprises a portion of the Project shall be load tested at 25% of full load, 50% of full load, 75% of full load and 100% of full load (the "Part Load Operating Test"). At each load condition, the plant shall be stabilized and held at that load for a minimum of four hours, during which time full sets of readings shall be recorded at intervals of 1 hour. 2.4. Load Rejection Tests. Either prior to, or in conjunction with, the Part Load Operating Test described above, the Project shall be load rejection tested by opening the 92 kV circuit breaker at loads of 25% of full load, 50% of full load, 75% of full load, and 100% of full load. The rejection test at 100% of full load shall be conducted at a power factor of 0.90. Contractor shall be required to demonstrate that the Project can remain operational following such a load rejection, supplying unit and station auxiliary loads only. J-2 2.5. The Capacity Test. The Project's ability to satisfy the Net Generation Guarantee, the Outlet Brine Temperature Guarantee and the Outlet Steam Condition Guarantee shall be demonstrated by means of a continuous (subject to Sections 7.1 and 2.6 of this Exhibit J) 24 hour performance test to be carried out at full load (the "Capacity Test"). 2.6. The Reliability Test. The reliable operation of the Project shall be demonstrated during a continuous (subject to Section 7.1 of this Exhibit J) 28 day reliability test (the "Reliability Test"). During the Reliability Test, the Project shall be required to satisfy the Reliability Guarantee, the Outlet Brine Temperature Guaranty and the Outlet Steam Condition Guarantee. If outages or load rejections caused by the Project or the Work (unless caused by equipment listed in Exhibit AA that is provided by Owner and has been properly installed by Contractor) occur during the Reliability Test, the Reliability Test shall be resumed or recommenced at Contractor's option following investigation and rectification of the fault. If the Reliability Test is resumed, the period of time of the outage or load rejection will be included and considered for purposes of assessing whether the Reliability Test has been successfully completed. If the Reliability Test is recommenced, the time of recommencement of the Reliability Test will be after the period of time of the outage or load rejection and the period of time of the outage or load rejection will not be included and considered for purposes of assessing whether the Reliability Test has been successfully completed. 3. Commencement of Tests. The tests in Sections 2.1-2-4 are the "Operating Tests." Contractor shall not commence the Capacity Test until the Operating Tests are successfully completed. The Reliability Test shall be deemed not to be successfully completed unless the Capacity Test has been successfully completed at or prior to the completion of the Reliability Test. 4. Inspection After Completion. Following the Performance Tests, Owner shall thoroughly inspect the Project in the presence of Contractor to determine that no untoward degradation or deterioration of the Project has occurred during its initial operation. This inspection may include internal inspection of the turbine and any other machinery that the Owner may require. 5. Compliance with Applicable Laws. At all times, during all Performance Tests, Contractor shall cause the Project to comply with all Applicable Laws and Applicable Permits, including any applicable limitations on air and water pollutant emissions subject to Section 7.1.4 of Exhibit A. If all or any portion of the Project shall fail to comply with any Applicable Law or any Applicable Permit (including, in either case, any limitations on the Project's production of noise or emissions) during any Performance Test, then the Project shall be deemed to have failed such Performance Test and Contractor shall evaluate and remedy the cause of such failure before Contractor attempts any other Performance Test or re-attempts such Performance Test. 6. General Testing Requirements. The requirements specified in this Section 6 shall apply to the Performance Tests and the Mechanical Completion Tests. 6.1 Testing Procedures. Contractor shall prepare two sets of reasonably detailed procedures for the tests described in this Exhibit J. One shall cover the Mechanical Completion J-3 EXECUTABLE COPY Tests and the other shall cover the Performance Tests. Contractor shall comply with the requirements of ANSI/ASME PTC 6 Sections 3.02 and 3.03 regarding obtaining the agreement of Owner on details of the tests and procedures. 6.2 Correction of Defects. Contractor shall deliver a written notice to Owner promptly after the discovery or occurrence of any Defect that was discovered or that occurred during any test. Contractor shall promptly commence and complete corrective measures to remedy each such Defect (including re-engineering, repairs or replacement of any Defective parts, including removal and reinstallation of all Defective components necessary to the performance of such obligations, at Contractor's sole cost and expense). In the event that Contractor's remedy for any Defect reasonably could adversely affect the Project's ability to successfully complete any other test described herein, which test Contractor shall have already successfully completed, then Contractor shall be deemed not to have successfully completed each such affected test and Contractor shall be required to re-perform and satisfactorily complete each such affected test. 6.3 Test Equipment. Special test equipment or instrumentation used in testing shall be calibrated and designed for its intended use. The cost of special test instrumentation shall be borne by Contractor. Calibration procedures and records shall be submitted to Owner as part of Contractor's written test procedures. 6.4 Operation of Equipment. During testing, all items of equipment that constitute a portion of the Work will be operated within their respective normal operating limits and in a manner consistent with applicable standards for long-term operation. 7. Performance Testing Requirements 7.1 Re-Testing and Test Suspension Procedure. If the test criteria are not met, or problems or deficiencies arise during the conduct of the Performance Tests that require cessation thereof, Contractor will establish the actions to be taken to bring about a successful completion of the Performance Tests. Such actions shall be taken by Contractor and each of the affected Performance Tests shall be reconducted. Contractor reserves the right, prior to Substantial Completion, to repeat any of the Performance Tests. In case one or more of the Performance Tests are repeated, the more favorable of the test results will be utilized to establish the final results for the Performance Tests. Repeating one or more of the Performance Tests does not require repeating any of the other Performance Tests unless they are directly related. Performance Tests may be suspended upon each occurrence of circumstances beyond the control of the Contractor that do not reflect Equipment failure, design, or construction defects (e.g., a problem with the IID grid, Force Majeure the failure of Owner to provide the necessary Production Inputs or accept the Products produced by the Project) and that make the completion of the Performance Tests unfeasible. If the Performance Test period is to be resumed after the period(s) of suspension, the Performance Test period shall include period(s) of Project operation J-4 EXECUTABLE COPY both before and after the period(s) of suspension. The Performance Test may be resumed or recommenced following such a suspension at the Contractor's discretion. If the performance Test is recommenced, the time of re-commencement of the Performance Test will be after the period(s) of suspension and the period(s) of suspension will not be included and considered for purposes of assessing whether the Reliability Test has been successfully completed. 7.2 Test Protocols. 7.2.1 Introduction a) This protocol is to serve as the basis for the more detailed Performance Test Procedures which are to be prepared by Contractor. The written Performance Test Procedures are to contain an introduction Section which is to list the individual tests to be performed and the Guarantee Point Conditions. The Performance Test Procedures shall also contain the definitions used in this Section and other portions of the Agreement, as required. b) Each Performance Test will be observed by Owner and other representatives. Special test equipment or instrumentation used in testing shall be calibrated and designed for its intended use. The cost of special instrumentation shall be borne by Contractor. c) Plant and special instrumentation shall be calibrated before commencement of each Performance Test. Calibration procedure and records shall be submitted to Owner for approval prior to start of testing. d) Completed raw data sheets shall be signed and dated by Owner's Representative and a copy provided to Owner immediately upon completion of each test. e) Data will be considered accurate to a level in accordance with recognized standards. f) During testing all items of Equipment will be operated within their respective normal operating limits and in manner consistent with applicable codes and standards for long-term operation. A Performance Test shall not be deemed to be completed successfully unless the Project is in operable condition at the end of the test. g) Control system must be in the normal automatic mode and be functioning as designed with allowance for manual adjustment. J-5 EXECUTABLE COPY h) For the duration of each Performance Test. Project auxiliary equipment shall be operated as required to maintain current daily inventories of fuel, water and compressed air. Equipment may not be shut down nor operation discontinued so as to reduce station load and increase plant output. i) Contractor shall, if required by Applicable Permits, demonstrate that the Project complies with those Applicable Permits when operated at any reasonable design output. 7.2.2 Test Organization Contractor shall prepare an organization chart of the test staff as well as points of interaction and approval by Owner. 7.2.3 Data Records a) Contractor shall prepare sub-routines for logging of data. The logged test data will serve as the basic test record for each performance test. Local data shall be logged on separate data sheets specific for each test. Specific instrument numbers shall be listed on all data sheets. b) Frequency of data points shall be identified for each specific test. c) Contractor shall prepare data that corrects the test data to the Guarantee Point Conditions. Determination of the test results will be based upon test data that has been appropriately corrected to the Guarantee Point Conditions. 7.2.4 Performance Test Report a) At the completion of the test program for , Contractor shall prepare a unified bound test report summarizing the data collected, calculations clearly demonstrating the method of generating results and the results of each individual Performance Test. The test raw data and lab results shall be included as Appendices to the test report. b) The final test report will be delivered to the Owner as soon as a reasonably practicable after satisfactory completion of each Performance Tests. 7.3 Equipment Failures. The failure of non-essential controls and instrumentation will not preclude initiation of a Performance Test under this Exhibit J or require a Performance J-6 Test interruption if Contractor can reasonably demonstrate that the failure or unavailability of such instrumentation would not require a Project shutdown during normal operation. 7.4 Instrumentation. A list of key instruments to be used during a Performance Test will be specified by Contractor in the Performance Test Procedures. The instruments will be calibrated in accordance with the standards of a recognized national organization such as American Society of Testing and Materials (ASTM), Instrument Society of America (ISA), National Bureau of Standards (NBS), or the Power Test Codes of the American Society of Mechanical Engineers (ASME). Performance Test tolerances equal to maximum combined test uncertainty of 2.0% shall be considered when evaluating the net power test results. 7.5 Data Recording. Data for instruments connected to the central station control system shall be accumulated by the DCS every two (2) minutes. Data for instruments that must be recorded manually shall be recorded every fifteen (15) minutes for the tests of Sections 2.1 through 2.5 of this Exhibit, and every four (4) hours for the Reliability Test. 7.6 Staffing. During the Reliability Test, the Project shall be operated at normal staffing levels using only Owner's operation and maintenance personnel trained by Contractor to operate the Project, with the exception of those additional personnel required solely to supervise, advise, or assist with the gathering of data, sampling, test and instrument calibration, and calculation of performance data. 7.8 Repairs and Alterations. Repair of any part or replacement of any item of equipment the repair or replacement of which materially alters the performance of the Project shall not be permitted during the conduct of the Performance Tests. 8. Correction Curves. 8.1 If the actual Production Inputs and/or wet bulb temperature differs from the Guarantee Point Conditions, the actual Correction Curves prepared by Contractor and approved by Owner shall be used to adjust actual Project performance, as applicable, for the purpose of determining whether the Performance Guarantees have been satisfied. 8.2 Correction curves for changes in process parameters, including but not limited to changes in the wet bulb temperature, steam temperature/wetness, inlet steam pressure, brine temperature and pressure, brine solids, non-condensable gas concentration in the inlet steam, and power factor shall be prepared by Contractor and submitted with the Performance Test Procedures for Owner's review. The following correction curves shall be submitted as a minimum (all for 100% load) o Change in Gross Generation vs. Ambient Wet Bulb Temperature o Change in Gross Generation vs. SP Steam Flow o Change in Gross Generation vs. SP Steam Pressure o Change in Gross Generation vs. SP Steam Moisture o Change in Gross Generation vs. SP Steam NCG Content J-7 EXECUTABLE COPY o Change in Gross Generation vs. LP Steam Flow o Change in Gross Generation vs. LP Steam Pressure o Change in Gross Generation vs. LP Steam Moisture o Change in Gross Generation vs. VLP Steam Flow o Change in Gross Generation vs. VLP Steam Pressure o Change in Gross Generation vs. VLP Steam Moisture o Change in Gross Generation vs. Generator Power Factor J-8 EXECUTABLE COPY EXHIBIT "K" KEY PERSONNEL INDIVIDUAL TITLE Carl Harrell Project Manager Fred McCoy Project Engineer Richard Gast Stone & Webster Construction Manager Peter Dillon Resident Engineer K-1 EXECUTABLE COPY EXHIBIT "L" OWNER PROVIDED LICENSE AND ROYALTY AGREEMENTS Owner represents that it has, or will have when required for the Work, agreements (the "Owner Provided License and Royalty Agreements") with CalEnergy Company, Inc., a Delaware corporation ("CalEnergy"), and Magma Power Company, a Nevada corporation ("Magma"), granting Owner the right to use, and the right to permit Contractor to use, all patents, patent applications, trade secrets, know how and other proprietary information related to the Work that are owned by CalEnergy or Magma. L-1 EXECUTABLE COPY EXHIBIT "M" MILESTONE SCHEDULE MILESTONE DAYS FROM NTP Place Turbine/Generator Purchase Order 15 Complete Initial Site Clearing and Grubbing @ Region 1 IX 135 Turbine/Generator Delivery to Jobsite 450 Start Commissioning Period 520 Energize breaker 52-15 548 Mechanical Completion 590 Capacity Test Completion 610 Substantial Completion 638 Final Completion 698 M-1 EXECUTABLE COPY EXHIBIT "N" FORM OF MONTHLY PROGRESS REPORT Each Progress Report shall be a written statement of project status prepared by Contractor for review by project participants. The following items shall be included in monthly reports to be submitted by Contractor. TABLE OF CONTENTS FOR MONTHLY REPORT 1.0 EXECUTIVE SUMMARY -- (CURRENT MONTH) A synopsis of project status addressing specific aspects of the Project to include construction, engineering, procurement, and start-up. 2.0 SUMMARY OF PROGRESS AND STATUS OF ENGINEERING, PROCUREMENT AND CONSTRUCTION 2.1 Current Month A synopsis of the Project progress completed as of the current month. Reporting format shall be based on completion of Milestones and construction, engineering (organized by discipline), procurement (issuance of purchase orders), shipment of materials and equipment to the Site, training and start-up. 2.2 Next Month The expected progress for the Project in the next thirty days shall be provided in outline form based on construction, engineering, procurement, shipment, training and start-up. 3.0 MEETING STATUS A summary of major meetings for the current month identifying the date and the attendees and including a one or two-sentence summary of anticipated topics of discussion for the next month and schedule for next month meeting date. 4.0 PRIORITIES/ISSUES/CONCERNS Identification and evaluation of problem areas that are anticipated to have a material effect on the working schedule or that may, in the opinion of Contractor, require a modification of EXHIBIT "A" to the Contract. 5.0 SCHEDULE UPDATE N-1 EXECUTABLE COPY Report important items and events, such as dates of arrival of Major equipment components, completion of milestones in Exhibit D (Part 1) and M. The reports shall be presented in a format used by the Contractor and reasonably acceptable to Owner, such as Microsoft "Project." An updated copy of the working schedule shall be attached to the Progress Report with a written analysis of schedule status, including actual versus planned progress, with reference to the Milestone Schedule and Critical Path Schedule. The schedule shall indicate early, late, and actual curves. 6.0 PERMIT STATUS Provide listing of all Contractor Required Permits including current status and the date the permit is to be obtained. 7.0 DRAWING AND PROCUREMENT STATUS Provide the updated engineering drawing list, Engineering and Procurement Schedule, and current status as compared to overall schedule. 8.0 PROJECT FINANCIAL STATUS The section shall include the billing breakdown for the current month, a comparison of the Progress Payment Schedule with the actual progress payments to date, and financial review of the Project to date. 9.0 PROGRESS PHOTOGRAPHS Contractor shall supply color photographs to document progress and to record significant completed elements of work. All photographs shall be dated, captioned and securely fixed to 8 1/2 x 11 sheets of paper; three (3) copies of each photo should be provided. Also provide photographs of fabrication of major equipment and site progress. Photographs should be chosen carefully to illustrate progress. N-2 EXECUTABLE COPY EXHIBIT "O" FORM OF PARENT GUARANTEE AND LEGAL OPINION THIS GUARANTEE ("GUARANTEE"), effective as of [_____________], 1998, by [____________________], a [__________________] corporation ("GUARANTOR"), to and for the benefit of Salton Sea Power L.L.C., a limited liability company organized under the laws of Delaware. ("OWNER"). W I T N E S S E T H: WHEREAS, Owner proposes to develop, own and operate a 49 megawatt (net) geothermal power plant in Imperial Valley, California (the "PROJECT"); and WHEREAS, Owner and [___________________________], a company organized under the laws of [________________] (hereinafter, "CONTRACTOR"), propose to enter into that certain Salton Sea Unit 5 Engineering, Procurement and Construction Agreement dated as of [___________], 1998 (as such agreement may be amended, modified or supplemented from time to time, the "AGREEMENT"); WHEREAS, Contractor is a wholly owned subsidiary of Guarantor; and WHEREAS, SECTION 35.2 of the Agreement requires that this Guarantee be executed and delivered by Guarantor concurrently with the execution of the Agreement; NOW THEREFORE, for valuable consideration and as an inducement to Owner to enter into the Agreement, Guarantor covenants with Owner as follows: 1. Guarantor hereby unconditionally guarantees to Owner the full and timely performance when due and observance when due of all covenants, terms and agreements to be performed and observed by Contractor under the Agreement and all other present or future agreements and instruments between Owner and Contractor in connection with the performance of the Agreement (such obligations of Contractor collectively, the "OBLIGATIONS"). 2. Guarantor covenants to Owner that if at any time Contractor should default in the performance when due and observance when due of, or should commit a breach of, any of the covenants, terms or agreements set forth in the Contract, Guarantor shall, promptly upon written notice by Owner, perform in Contractor's stead, or cause the performance of, such covenants, terms or agreements. 3. It is expressly understood and agreed by Guarantor that to the extent Guarantor's obligations hereunder relate to obligations of Contractor which require performance other than the payment of money, Owner may proceed against Guarantor to effect specific performance thereof (to the extent such relief is available) or for payment of damages (as limited by the Contract) resulting from Contractor's nonperformance. Guarantor hereby covenants and agrees O-1 EXECUTABLE COPY to assume the Agreement and to perform all of the terms and conditions thereunder for the balance of the term thereof should the Agreement be disaffirmed by the Trustee in bankruptcy for Contractor, or at the option of Owner, Guarantor shall, in the event of Contractor's bankruptcy, make and enter into a new Agreement for the balance of the term of the Agreement, which said new Agreement shall be in form and substance identical to the Agreement. 4. All payments by Guarantor to Owner shall be made in the United States in United States Dollars and shall be paid within thirty (30) days after receipt by Guarantor from Owner of written demand for such payment and shall not be the subject of any offset against any amounts which may be owed by Owner to Guarantor for any reason whatsoever. Each and every default or failure by Contractor in making a payment or otherwise discharging or performing any of the covenants, terms or agreements set forth in the Contract shall give rise to a separate liability of Contractor to Owner and a separate cause of action hereunder and a separate suit may be brought hereunder as each liability or cause of action arises. 5. Guarantor agrees to pay all costs, expenses and fees, including all reasonable attorneys' fees, which may be incurred by Owner in successfully enforcing this Guarantee, whether by suit or otherwise. 6. The obligations of Guarantor under this Guarantee shall be irrevocable, absolute and unconditional and shall remain in full force and effect until such time as all the covenants, terms and agreements of any kind or nature whatsoever set forth in the Contract shall have been absolutely and completely discharged and performed; and the obligations of Guarantor shall not be affected, modified or impaired upon the happening from time to time of any event, including without limitation, any one or more of the following (unless based upon performance by Contractor), whether or not with notice to or consent of either the Guarantor or Contractor: (a) the compromise, settlement, release, change, modification or termination of any of the covenants, terms or agreements of Contractor set forth in the Agreement; (b) the waiver by Owner of the payment, performance or observance of any of the covenants, terms or agreements of Contractor set forth in the Agreement; (c) the extension of time for payment of any amounts due or of the time for performance of any of the covenants, terms or agreements of Contractor set forth in the Agreement; (d) the modification or amendment (whether material or otherwise) of any covenants, terms and agreements set forth in the Agreement; (e) the failure, omission, delay or lack on the part of Owner to enforce, ascertain or exercise any right, power or remedy under or pursuant to the terms of the Agreement or this Guarantee; O-2 EXECUTABLE COPY (f) the fact that Guarantor may at any time in the future dispose of all or any part of its interest in Contractor, or otherwise alter its investment in Contractor in any manner; (g) the bankruptcy, insolvency or other similar or dissimilar failure or financial disability of either Contractor or Owner; (h) the addition, substitution or partial or entire release of any guarantor, maker or other party (including Contractor) primarily or secondarily liable or responsible for the performance and observance of any of the covenants, terms or agreements set forth in the Agreement or by any extension, waiver, amendment or thing whatsoever which may release a guarantor (other than performance); (i) the invalidity, nonbinding effect or unenforceability of any covenant, term or agreement set forth herein or in the Agreement (other than with respect solely to such covenant, term or agreement); (j) the addition, substitution, subordination, or partial or entire release of any security for the performance and observancy of any of the covenants, terms or agreements set forth in the Agreement. 7. Guarantor irrevocably and absolutely waives any and all rights of subrogation, contribution, indemnification, reimbursement or similar rights against Contractor with respect to this Guarantee, whether such rights arise under an express or implied contract or by operation of law, it being the intention of Guarantor and Owner that Guarantor shall not be deemed to be a "creditor" (as defined in Section 101 of the U.S. Bankruptcy Code) of Contractor by reason of the existence of this Guarantee in the event that Contractor becomes a debtor in any proceeding under the U.S. Bankruptcy Code. In addition, Guarantor will not exercise any rights which it may acquire by way of subrogation under this Guarantee by any payment made hereunder or otherwise, until all of the liabilities and obligations of Contractor to Owner under the Agreement shall have indefeasibly been paid in full. If any amount shall be paid to Guarantor on account of such subrogation rights at any time when all such liabilities and obligations shall not have been indefeasibly paid in full, such amount shall be held in trust for the benefit of the Owner and shall forthwith be paid to Owner and applied to such liabilities and obligations, whether matured or unmatured. 8. Owner shall have the right, in its sole judgment and discretion, from time to time, to make demand for payment or performance and to proceed against Guarantor for recovery of the total of any and all amounts due, or for the performance of any nonmonetary obligation owed, to Owner pursuant to this Guarantee, or to proceed from time to time against Guarantor for such portion of any and all such amounts, or for the performance of any and all such nonmonetary obligations, as Owner may determine. 9. Except as otherwise specifically provided in this Guarantee, all existing and future indebtedness of Contractor to Guarantor and the right of Guarantor to withdraw any capital invested by Guarantor in Contractor, is hereby subordinated to all Obligations hereby guaranteed. O-3 EXECUTABLE COPY Without the prior written consent of Owner, such subordinated indebtedness shall not be paid or withdrawn in whole or in part, nor shall Guarantor accept any payment of or on account of any such indebtedness or as a withdrawal of capital while this Guarantee is in effect. At Owner's request, Guarantor shall cause Contractor to pay to Owner all or any part of such subordinated indebtedness and any capital which Guarantor is entitled to withdraw. Any such payment by Contractor in violation of this Guarantee shall be received by Guarantor in trust for Owner, and Guarantor shall cause the same to be paid to Owner immediately upon demand by Owner on account of Contractor's Obligations hereby guaranteed. 10. (a) So long as any Obligations are owed to Owner, Guarantor shall not, without the prior written consent of Owner, commence, or join with any other Person in commencing, any bankruptcy, reorganization, or insolvency proceeding against Contractor. The obligations of Guarantor under this Guarantee shall not be altered, limited or affected by any proceeding, voluntary or involuntary, involving the bankruptcy, reorganization, insolvency, receivership, liquidation or arrangement of Contractor, or by any defense which Contractor may have by reason of any order, decree or decision of any court or administrative body resulting from any such proceeding. (b) Guarantor shall file, in any bankruptcy or other proceeding in which the filing of claims is required or permitted by law, all claims which Guarantor may have against Contractor relating to any indebtedness of Contractor to Guarantor, and hereby assigns to Owner all rights of Guarantor thereunder. If Guarantor does not file any such claim, Owner, as attorney-in-fact for Guarantor, is hereby authorized to do so in the name of Guarantor or, in Owner's discretion, to assign the claim to a nominee and to cause proofs of claim to be filed in the name of Owner's nominee. The foregoing power of attorney is coupled with an interest and cannot be revoked. Owner or its nominee shall have the sole right to accept or reject any plan proposed in any such proceeding and to take any other action which a party filing a claim is entitled to take. In all such cases, whether in administration, bankruptcy or otherwise, the person authorized to pay such a claim shall pay the same to Owner, and, to the full extent necessary for that purpose, Guarantor hereby assigns to Owner all of Guarantor's rights to all such payments or distributions to which Guarantor would otherwise be entitled; provided, however, that Guarantor's obligations hereunder shall not be satisfied except to the extent that Owner receives cash by reason of any such payment or distribution. If Owner receives anything hereunder other than cash, the same shall be held as collateral for amounts due under this Guarantee. 11. Guarantor hereby waives and relinquishes all rights and remedies accorded by applicable law to sureties or guarantors and agrees not to assert or take advantage of any such rights or remedies, including without limitation: (a) any right to require Owner to proceed against Contractor or any other person or to proceed against or exhaust any security held by Owner at any time or to pursue any other remedy in Owner's power before proceeding against Guarantor; (b) the defense of the statute of limitations in any action hereunder or in any action for the collection or performance of any obligations hereby guarantied; O-4 EXECUTABLE COPY (c) any defense that may arise by reason of the incapacity, lack of authority, death or disability of any other person or the failure of Owner to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other person; (d) demand, presentment, protest and notice of any kind, including without limitation notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of Contractor, Owner, any creditor of Contractor or Guarantor or on the part of any other person under this or any other instrument in connection with any obligation or evidence of indebtedness held by Owner as collateral or in connection with any Obligations hereby guarantied; (e) any defense based upon an election of remedies by Owner which destroys or otherwise impairs the subrogation rights of Guarantor, the right of Guarantor to proceed against Contractor for reimbursement, or both; (f) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (g) any duty on the part of Owner to disclose to Guarantor any facts the Owner may now or hereafter know about Contractor, regardless of whether Owner has reason to believe that any such facts materially increase the risk beyond that which Guarantor intends to assume, or has reason to believe that such facts re unknown to Guarantor, or has a reasonable opportunity to communicate such facts to Guarantor, since Guarantor acknowledges that Guarantor is fully responsible for being and keeping informed of the financial condition of Contractor and of all circumstances bearing on the risk of non-payment of any Obligations hereby guarantied; (h) any defense arising because of Owner's election, in any proceeding instituted under the Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal Bankruptcy code; and (i) any defense based upon any borrowing or grant of a security interest under Section 364 of the Federal Bankruptcy Code. Without limiting the generality of the foregoing, Guarantor hereby expressly waives any and all benefits which might otherwise be available to Guarantor under California Civil Code Sections 2809, 2810, 2819, 2839, 2845 through 2847, 2849, 2850, 2899 and 3433. 12. This Guarantee shall inure to the benefit of and be binding upon the Parties hereto and their respective successors and assigns, provided, however, that Guarantor may not make an assignment or other transfer of this Guarantee or any interest herein by operation of law or otherwise unless it has obtained the prior written consent of Owner to such assignment or other transfer. O-5 EXECUTABLE COPY 13. All notices to Guarantor required to be served under this Guarantee shall be in writing and shall be served by registered mail and shall be addressed as follows: [_________________________________________] [_________________________________________] [_________________________________________] or at such other address as Guarantor may from time to time designate in writing. 14. This Guarantee shall in all respects be interpreted, and construed and governed by and in accordance with, the internal, substantive laws of the State of California and the United States of America. All agreements, instruments and notices referred to herein or supplementary hereto shall be prepared, furnished in, and governed, and controlled by the English language. Guarantor irrevocably consents to the jurisdiction of the state and federal courts located in San Diego, California, agrees that any action, suit or proceeding by or among Owner and Guarantor may be brought in any court in San Diego, California, and waives any objection which Guarantor may now or hereafter have regarding the choice of forum whether on personal jurisdiction, venue, forum non convenience or on any other ground (except that Guarantor may remove the action to the Federal District Court in the Southern District of California). Guarantor irrevocably consents to the service of process outside of the territorial jurisdiction of such courts by mailing copies thereof by registered or certified United States mail, postage prepaid, to Guarantor's last known address as shown in the records of Owner with the same effect as if Guarantor were a resident of the State of California and had been lawfully served in such state. Nothing in this Guarantee shall affect the right to service of process in any other manner permitted by law. Guarantor further agrees that final judgment against it in any action or proceeding shall be conclusive and may be enforced in any other jurisdiction within or outside the State of California by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and the amount of such judgment. 15. Guarantor represents, covenants and agrees to and with Owner that: (a) the execution and delivery of this Guarantee and its performance have been duly authorized by all necessary corporate action on the part of Guarantor; (b) this Guarantee is the legal, valid and binding obligation of Guarantor, enforceable against it in accordance with its terms, subject to the application of bankruptcy and similar laws and of general equitable principles; (c) the execution, delivery and performance of the Guarantee will not violate any law or any provision of any security issued by the Guarantor or of any agreement, instrument or undertaking to which the Guarantor is a party or by which it or any of its property is bound, and do not require any license, consent or approval of any governmental authority; and O-6 EXECUTABLE COPY (d) except as may be disclosed in writing to Owner, no litigation, investigation or proceeding of or before any arbitrator or governmental authority is pending or, to the undersigned's knowledge, threatened by or against the Guarantor or any of its subsidiaries or against any of such parties' properties or revenues which, if adversely determined, would be reasonably likely to have a material adverse effect on the ability on the Guarantor to perform its obligations hereunder. 16. Guarantor agrees that: (a) It will maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Guarantee and will obtain any that may become necessary in the future. (b) It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Guarantee. (c) (i) Quarterly Financial Statements. Guarantor will deliver to Owner, within sixty (60) days after the close of each of the first three quarterly accounting periods in each fiscal year of Guarantor, the consolidated balance sheets of Guarantor and its consolidated Affiliates as at the end of such quarterly period and the related consolidated statements of income, retained earnings and cash flows for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, in each case setting forth comparative figures for the related periods in the prior fiscal year, all of which shall be certified by the chief financial officer or treasurer of Guarantor, subject to normal year-end audit adjustments. (ii) Annual Financial Statements. Guarantor will deliver to Owner, within one hundred twenty (120) days after the close of each fiscal year of Guarantor, the consolidated and consolidating balance sheets of Guarantor and its consolidated Affiliates as at the end of such fiscal year and the related consolidated and consolidating statements of income, retained earnings and cash flows for such fiscal year, in each case setting forth comparative figures for the preceding fiscal year and certified, in the case of the consolidated financial statements, by independent certified or chartered public accountants of recognized national standing in the United States. (iii) Notice of Default or Litigation. Promptly, and in any event within seven (7) Business Days after the President or Chief Financial Officer of Guarantor obtains knowledge thereof, Guarantor will give to Owner notice of the occurrence of any event or of any litigation or governmental proceeding pending (x) against Guarantor or any of its Affiliates which could affect the business, operations, property, assets, condition (financial or otherwise) or prospects of Guarantor so as to materially and adversely affect the ability of Guarantor to perform its obligations hereunder or (y) with respect to this Guarantee, which event or pending proceeding is likely to materially and O-7 EXECUTABLE COPY adversely affect the business, operations, property, assets, condition (financial or otherwise) or prospects Guarantor and its Affiliates taken as a whole. (iv) Other Information. From time to time, such other information or documents (financial or otherwise) regarding Guarantor as Owner may reasonably request and as may be available to Guarantor without undue cost or effort; provided, however, that Guarantor may impose reasonable confidentiality requirements in connection with the disclosure of such information and documents in the nature of those set forth in ARTICLE 27 of the Agreement. (d) Upon the occurrence of a default by Guarantor (i) in the payment of any principal, interest or other amount due under any agreement involving the borrowing of money or the advance of credit, and the outstanding amount or amounts in default with respect to Guarantor exceeds [____________________] Dollars ($[__________]) in the aggregate; or (ii) in the payment of any amount due under any guarantee of any agreement or obligation of the type and in the amount described in the foregoing clause (but in either case, only if the holder of the obligation concerned exercises its right to accelerate the maturity of the indebtedness evidenced thereby and such indebtedness is not promptly paid or promptly deposited into an escrow account satisfactory to the Owner), Guarantor shall be obligated immediately to provide a performance bond in the amount of [____________________] Dollars ($[__________]) to secure the obligations of Guarantor hereunder or provide such other security for the performance of this Guarantee as shall be acceptable to Owner. [TO BE DETERMINED BASED ON PROPOSED GUARANTOR'S TANGIBLE NET ASSETS.] (e) Guarantor shall not sell, assign, transfer, convey, mortgage, encumber, hypothecate, pledge or otherwise dispose of or grant any interest in Contractor. (f) At all times during the effectiveness of this Guarantee, Guarantor shall maintain Tangible Net Assets (as hereinafter defined) of not less than [____________________] Dollars ($[__________]). [TO BE DETERMINED BASED ON THE PROPOSED GUARANTOR'S TANGIBLE NET ASSETS.] Any failure of Guarantor to maintain Tangible Net Assets of not less than [____________________] Dollars ($[__________]) [To be determined based on the proposed Guarantor's Taxable Net Assets.] shall be deemed a default hereunder whereupon Guarantor shall immediately upon demand by Owner, either (x) pay to Owner [____________________] Dollars ($[__________]) in immediately available funds in full satisfaction of its obligations hereunder, (y) provide to Owner a letter of credit in the stated amount of [____________________] Dollars ($[__________]) from a financial institution satisfactory to Owner and in form and substance satisfactory to Owner, in each case in Owner's sole discretion, to secure the obligations of Guarantor hereunder or (z) provide a performance bond in the amount of [____________________] Dollars ($[__________]) to secure the obligations of Guarantor hereunder. For purposes of this SECTION 16(F), "Tangible Net Assets" means the excess of the total assets of Guarantor (exclusive of all assets that may be classified as intangible assets) determined in accordance with United States Generally Accepted Account Principals ("GAAP") over the total liabilities of Guarantor determined in accordance with GAAP. O-8 EXECUTABLE COPY 17. Termination; Reinstatement of Guarantee. (a) Subject to the provisions of SECTION 17(B), this Guarantee shall terminate upon termination of the Agreement, other than a termination resulting from Contractor's breach of the Agreement. (b) Notwithstanding the provisions of SECTION 17(A), this Guarantee shall be reinstated if at any time following the termination of this Guarantee under SECTION 17(A), any payment by Guarantor or Contractor under this Guarantee or pursuant hereto is rescinded or must otherwise be returned by Owner or other Person upon the insolvency, bankruptcy, reorganization, dissolution or liquidation of Contractor, Guarantor or otherwise, and is so rescinded or returned to the party or parties making such payment, all as though such payment had not been made. Such period of reinstatement shall continue until satisfaction of the conditions contained in, and shall continue to be subject to, the provisions of this ARTICLE 17. 16. Any invalid or unenforceable provisions in this Guarantee shall be deemed severed herefrom, and such whole or partial invalidity shall not affect the enforceability or validity of the balance of this Guarantee. 17. Any capitalized terms used herein and not herein defined shall have the meanings given to them in the Agreement. IN WITNESS WHEREOF, Guarantor has caused this Guarantee to be executed as of the date first above written. [PARENT COMPANY], a [_______________________] By: ______________________________________ Name: ________________________________ Title: _______________________________ O-9 EXECUTABLE COPY FORM OF OPINION OF COUNSEL TO PARENT [_______________________________ _______________________________ _______________________________ _______________________________] Gentlemen: We have acted as counsel for [____________________], a [_______________] corporation (the "COMPANY") in connection with the execution and delivery by the Company of the Guarantee dated as of [______________], 1998 (the "GUARANTEE") made by the Company to and for the benefit of Salton Sea Power L.L.C., a limited liability company organized under the laws of Delaware. This opinion is being rendered to you pursuant to the requirements of SECTION 35.2 of that certain Salton Sea Unit 5 Engineering, Procurement and Construction Agreement dated as of [________________] 19[__] by and between the Owner and [____________________________], a [_______________] corporation and wholly-owned subsidiary of the Company. In this connection, we have examined such documents, records and matters of law as we have deemed necessary for purposes of this opinion. In our examination, we have assumed the accuracy of the information furnished to us, the genuineness of all documents submitted to us as original or certified documents, the conformity to original or certified documents of all copies submitted to us as conformed or photostatic copies, the genuineness of all signatures on all documents and the legal capacity of natural persons. Based on the foregoing, we are of the opinion that: 1. The Company (a) is duly organized, validly existing and in good standing as a corporation under the laws of [____________], (b) has the corporate power and authority to own and operate its property and to conduct its business in the manner in which it does and proposes so to do, and (c) is in compliance with its Certificate of Incorporation and Bylaws and any law, treaty, rule or regulation, or any final and binding determination of an arbitrator or order, judgment, decree or other determination of a court or other governmental authority applicable to or binding upon the Company ("REQUIREMENT OF LAW"). O-10 EXECUTABLE COPY 2. The Company has the corporate power and authority to execute, deliver and perform the Guarantee and has taken all necessary corporate action to authorize the execution, delivery and performance of the Guarantee. The Guarantee has been duly executed and delivered on behalf of the Company and constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity) provided, however, that such equitable principals will not substantially interfere with the practical realization by the Owner of the benefits of the Guarantee. 3. The execution, delivery and performance of the Guarantee will not violate any Requirement of Law or any provision of any security issued by the Company or of any agreement, instrument or undertaking to which the Company is a party or by which it or any of its property is bound, and do not require any license, consent or approval of any governmental authority. 4. No litigation, investigation or proceeding of or before any arbitrator or governmental authority is pending or, to the undersigned's knowledge, threatened by or against the Company or any of its subsidiaries or against any of such parties' properties or revenues which, if adversely determined, would be reasonably likely to have a material adverse effect on the business, operations, property or financial condition of the Company or any of its subsidiaries. Very truly yours, _______________________________________ O-11 EXHIBIT "P" EXECUTABLE COPY PRODUCTION INPUTS The following are the Production inputs. Information on required quantities of each input will be found in the following references: INPUT REFERENCE DOCUMENT ----- ------------------ Brine Exhibit A, Attachment 5 Exhibit B, Drawing 08051-J-0108 A Standard Pressure Steam Exhibit A, Attachment 5 Exhibit B, Drawing 08051-J-0108 A Hydrochloric Acid (2% and 32%) Exhibit B, Drawing 08051-J-0110 A NORMS Exhibit B, Drawing 08051-J-0110 A Lime (95% Active CaO) In quantities requested by Contractor for precipitation of Silica Flocculant In quantities requested by Contractor for precipitation of dissolved solids. Cooling Tower Chemicals As required by Owner for proper water quality control. Firewater Exhibit A, Section 10.13 Compressed Air Exhibit A, Section 10.15 Potable Water Exhibit A, Section 10.14 Service Water Exhibit A, Section 10.14 Electrical feed from In quantities requested by Units 3&4 at 13.8 kV Contractor in order to start up Unit 5 P-1 EXECUTABLE COPY EXHIBIT "Q" SPARE PARTS TO BE PROVIDED BY CONTRACTOR The following Spare Parts are included in the Contract Price: Turbine/Generator Spare Parts One (1) turbine rotor, fully bladed with enclosed metal rotor stand One (1) set of stationary blades Circulating Water Pump One (1) complete, warehouse spare, vertical turbine, circulating water pump with motor. Pump body shall be carbon steel with heavy duty epoxy lining. Q-1 EXECUTABLE COPY EXHIBIT "R" UNIT RATES If a Change Order will be performed at unit rates under Section 17.4.1 or 17.4.2 of the Contract, the following rates shall apply: Stone & Webster will charge the following fixed hourly rates for the time of personnel engaged on such Work. These rates include employee salaries, benefits, overhead, fee, payroll taxes along with estimated allowances for non-local communication, postage, computer and reprographic charges. Rates are firm for Work performed through the December 1999 billing period at which time the rates will be subject to annual adjustment (not to exceed the percentage increase in the Consumer Price Index, all items, from August 1998 to December 1999). The job titles are representative of titles in each of Stone & Webster's classification codes. A complete listing is available upon request.
Classification Billing Code Representative Titles Rate -------------- --------------------- -------- A Senior Manager, Project Manager, Construction Manager, Chief Engineer, Superintendent, Senior $135.00 Engineering Specialist, Sr. Site Manager B Manager, Sr. Lead Engineer/Scientist, Technology Specialist, Senior Project Engineer, Project $113.00 Engineer 2, Chief Estimator C Lead Engineer/Scientist, Asst. Superintendent, Asst. Site Manager, Asst. Manager, Principal $97.00 Engineer/Architect, Lead Task Engineer, Principal Estimating/Project Controls Engineer, Design Supervisor, Engineering Specialist D Supervisor, Sr. Contract Administrator, Senior Engineer/Architect, Principal/Task Scientist, $82.00 Sr. Resident Engineer, Sr. Engineering Assistant E Engineer 2, Sr. Scientist, Sr Lead Designer, Lead Programmer/Analyst, Asst. Supervisor, $75.00 Resident Engineer, Contract Administrator, Sr. Purchasing Agent, Sr. Estimating/Project Controls Engineer F Construction Engineer, Sr. Accountant, Sr. Consultant, Engineer 1, Scientist, Sr. Designer, $70.00 Sr. Administrator, Sr. Analyst, Sr. Inspector, Sr. Specialist, Estimating/Project Controls Engineer 2 G Asst. Sr. Constr. Engineer, Sr. Safety Engr., Sr. Mat'l Controller, LP Nurse, EM Tech., $59.00 Accountant, Sr. Buyer, Programmer/Analyst, Designer, Administrator, Estimating/Project Controls Engineer 1 H Asst. Constr. Engineer, Timekeeper, Buyer, Sr. Drafter, Admin. Assistant, Inspector 1, Sr. $49.00 Technician, Editor Writer, Expediter 2 I Safety Engineer, Party Chief, Paramedic, Drafter, Sr. Technical Assistant, Sr. Aide, $41.00 Technician J Surveyor, Asst. Accountant, Asst. Auditor, Clerk, Jr. Drafter, Aide, Technical Assistant $34.00
R-1 EXECUTABLE COPY Also in accordance with Stone & Webster's usual practice, expenses incurred for the benefit of such Work including travel and living expenses of personnel away from their home office, subcontractor costs (with a 5% administrative handling charge applied), and any other direct costs incurred in connection with the services will be charged. As noted above, non-local communication, postage, computer and reprographic charges are included in the hourly rates and will not be directly billed. In addition to the Rate Table above, all other Work shall be invoiced as follows: An amount equal to Contractor's direct costs resulting from such Change In Work less any savings or costs not incurred due to such delay, plus, for profit and overhead, a fee equal to fifteen percent (15%$) of such costs, if such direct costs (less savings or costs not incurred) are less than or equal to $10,000 or equal to ten percent (10%) of such costs, if such direct costs (less savings or costs not incurred) are greater than $10,000. R-2 EXECUTABLE COPY EXHIBIT "S" WARRANTY PROCEDURES 1. Where Owner determines that an immediate need exists or has agreed in accordance with the terms of the Contract to take corrective action, and upon notifying Contractor as set forth in SECTION 18.7 of the Contract, Owner may undertake corrective action, but Contractor reserves its right to investigate and determine the eligibility of such warranty claims. An "immediate need" is a situation when there is a threat of imminent harm to persons or property or a situation that could imminently adversely impact operating cash flow revenues generated by the Project or the Existing Plants. 2. Where Owner does not take corrective action under paragraph (1) above, Owner shall notify Contractor in accordance with SECTION 18.7 of the Contract and provide documents per paragraph (3) below, together with a written cost estimate of the corrective action required. Within seven (7) days after receipt of said documents and cost estimate, Contractor shall investigate the defect and shall issue written instructions to Owner on the corrective action to be undertaken, or Contractor shall undertake corrective action by its own employees or agents. 3. The following procedures shall be observed in all Contractor warranty claims for the Project in connection with which Owner has independently taken corrective action as identified in paragraph (1) above: (a) A failure report, which shall contain technical and logistical information sufficiently detailed to enable Contractor to assess the damage of the Work and to evaluate appropriate corrective action in the form as agreed to by Owner and Contractor, shall be provided by Owner within a reasonable period of time after the occurrence of any event giving rise to a warranty claim. (b) Warranty claims shall be submitted in accordance with paragraph (e) below, and shall include, as a required minimum, the following documents: (i) applicable failure report; (ii) list of equipment and materials purchased or used in accomplishing the repair, schedule of operations, and subcontractors hours applicable to each claim, and a copy of any internal work orders or purchase orders prepared in connection with each such claim; (iii) Owner's maintenance and repair records with respect to the equipment for which the claim is being made, including the manufacturer/vendor part number and serial number and the identification by part number and serial number of the next major assembly call out (such as, but not limited to, turbine, generator, electrical cabinet); and S-1 EXECUTABLE COPY (iv) copies of invoices received or prepared for costs and expenses claimed. The documentation to be provided pursuant to paragraphs (b) (ii) and (b) (iii) above, shall be in a form reasonably acceptable action during any calendar month shall be submitted to Contractor. (c) All warranty claims pertaining to failure of the equipment for which Owner has independently undertaken corrective action during any calendar month shall be submitted to Contractor on or before the last day of the following calendar month. Claims shall be paid by Contractor on a net 30 day basis. Work performed by Owner under a warranty claim shall be billed on a time and materials basis as further defined below: (d) "Time and Material" in connection with a warranty claim is defined as follows: (i) With respect to "Time," the product of 110% of the normal hourly wage (including fringe benefits, insurance and taxes) Owner pays with respect to its particular employee (not including overhead) multiplied times the number of hours each employee performed the particular. (ii) With respect to "Material," 110% of the actual purchase price paid by Owner or an Affiliate to a third party for the materials incorporated or consumed in connection with the Work; and (iii) With respect to Work performed by a subcontractor (other than an entity which directly or indirectly controls, is controlled by, or is under common control with, Owner, Work done by any such entity being deemed Work done by Owner through its own employees for purposes of this definition), 110% of the actual amount paid by Owner to the subcontractor for such Work. (e) Accounting settlement between Owner and Contractor due to warranty claims shall occur on a quarterly basis. (f) Owner shall maintain adequate records to support all warranty claims and allow a Contract audit of warranty claims upon not less than ten (10) days' notice. S-2 EXECUTABLE COPY EXHIBIT "T" SALES CONTRACTS 1. Transmission Service Agreement, dated April 14, 1998, between Imperial Irrigation District and Salton Sea Power L.L.C.; 2. Plant Connection Agreement, dated April 14, 1998, between Imperial Irrigation District and Salton Sea Power L.L.C.; 3. Construction Agreement, dated April 14, 1998, between Imperial Irrigation District and Salton Sea Power L.L.C.; and 4. Distribution Service Agreement, dated April 14, 1998, between Imperial Irrigation District and CalEnergy Minerals LLC. T-1 EXECUTABLE COPY EXHIBIT "U" FORM OF ASSIGNMENT CLAUSE FOR SUBCONTRACTS Capitalized terms used in this EXHIBIT "U" have the meanings given thereto in the Contract of which this EXHIBIT "U" is attached. [Subcontractor/Vendor] under this [description of subcontract/purchase order] with hereby, in the event of a default by Contractor under, or the expiration or termination of, the Salton Sea Unit 5 Engineering Procurement and Construction Contract, dated August __, 1998, between Salton Sea Power L.L.C and Contractor, consents to the assignment of `s rights and guarantees in this [subcontract/purchase order] by _________________ to [Owner] , its assigns and/or its lenders and their respective assigns and agrees that our warranties and obligations hereunder shall inure to the benefit of such parties, all as if such parties were a party to this [subcontract/purchase order]. U-1 EXECUTABLE COPY EXHIBIT "V-1" CONTRACTOR ACQUIRED INSURANCE Contractor shall maintain or cause to be maintained the following types of insurance subject to the general provisions included in Exhibit "V-3": (1) Insurance Against Accidents to Workmen. Contractor shall maintain employer's liability and, to the extent required by Applicable Law, workers' compensation insurance during the entire time that any persons are employed by them on the Site in connection with the Project. (2) Motor, Marine and Aviation Insurance. Contractor shall at all times keep in force the following additional insurance in as far as they may be applicable: (a) Policies of motor insurance in respect of all mechanically propelled vehicles used on public highways or in any circumstances such as to be liable for compulsory motor insurance in accordance with Applicable Law of California. The limit of liability shall not be less than US$5,000,000 per occurrence. (b) Marine policies in respect of all floating craft and plant or marine platforms, if applicable, covering loss of or to such items and liability arising out of their use to include not only the hull value thereof, but also the cost of removing the same in the event of sinking, whether or not the same is declared a total loss, and including protection and indemnity and third-party liability cover to an amount equal to the hull value and estimated cost of removal in the event of sinking, or US$5,000,000, whichever be the greater. (c) Policies of aircraft insurance in respect of all aircraft owned, hired or chartered for use, if any, and hull and aviation liability shall be arranged. The limit of liability shall not be less than US$5,000,000 per occurrence. (3) All Other Insurance Required by Applicable Law. (4) Insurance providing coverage for Contractor's own equipment being used at the Site and not becoming permanent works of the Site. V-1-1 EXECUTABLE COPY EXHIBIT "V-2" OWNER ACQUIRED INSURANCE SCHEDULE OF MINIMUM INSURANCE REQUIREMENTS Owner shall maintain or cause to be maintained the following types of insurance, subject to the general provisions included in Exhibit "V-3". (1) Ocean Marine Cargo Insurance ("OMC") covering imports of plant, equipment, machinery and materials to the Project site. (a) Cover is to be on the basis of Institute Cargo Clauses (A) plus war plus strike, riot and civil strife, perils and should include a minimum of 60 days of storage on or off the Project site. The 60-day storage provision may be included in the contractors all risks insurance. The sum insured with respect to each shipment shall not be less than the value of all plant, equipment and supplies, plus insurance and freight (CIF), with respect to such shipment. OMC coverage to include all voyages (land, water or air) and attaches from the time of leaving the manufacturers'/suppliers' warehouses (including inland marine), to final Project Site. The OMC policy shall carry a 50/50 hidden damage provision. (b) Deductibles shall not be greater than $50,000 for any one shipment. (c) Owner shall have obtained such OMC coverage on or prior to the date on which the exposure to the risk covered by the OMC coverage arises. The only permissible cancellation is as follows: (i) cancellation on 7 days' notice for war, strikes, civil commotion, (ii) cancellation on 48 hours' notice for strikes, riots, and civil commotion preventing passage to or from the United States, and (iii) cancellation on 10 days' notice for non-payment of premium. The policy may be subject to the Five Powers Clause. (d) Coverage to continue during storage until CAR policy is in force. (e) This coverage required only if applicable. (2) Contractors All Risks ("CAR") insurance covering loss or damage to the Project during the construction, and testing and commissioning periods. (a) The policy will include the interest of all parties concerned and is to be on an "all risk" basis including (subject to the sublimits as described below) earthquake, and V-2-1 EXECUTABLE COPY flood losses. Coverage shall also include testing, extended maintenance cover for the warranty periods, inland transit and on and off-site storage (to the extent storage coverage is not provided under the OMC policy). The CAR policy and/or separate policies shall also include a third-party liability section with a minimum limit of indemnity of $10,000,000 per occurrence and in the aggregate and should include full cross liabilities, including coverage during the twelve (12) month period following Substantial Completion. Sub-limits are permissible as follow: (i) As respect debris removal, inland transit, storage, express freight, air freight and overtime, Owner shall maintain limits of not less than $10,000,000. (ii) As respects earthquake, and flood and storm (e.g., tsunami, typhoon), riot, strike, and civil strife, Owner shall maintain limits of not less than 50% of insurable limits for direct damage, subject to a maximum limit of $70,000,000. (b) Deductibles shall not be greater than $250,000 or 5% of values, whichever is greater, for earthquake, flood, testing, maintenance, subsidence and collapse, and $25,000 for all other losses. (c) Owner shall have obtained such CAR coverage on or prior to the date on which the exposure to the risk covered by the CAR coverage arises. (d) The only permissible cancellation is as follows: (i) for 10 days non-payment of premium. (3) Marine Delay in Start-up ("MDSU") and Delay in Start-Up ("DSU") insurance covering a delay in start-up of the Project as a result of damage and admissible claims under the policy during transit to the Site, at any time during construction, testing and commissioning. (a) The sum insured is based on an indemnity period of twelve (12) months for interest charges (including additional interest in the event of principal rescheduling as a result of an admissible claim under the policy) and continuing fixed expenses (defined as salaries and benefits, routine and major maintenance, outside services, political insurance premiums, and bank and consultants' fees and other fixed continuing charges incurred by the Project). The sum insured will not include any amounts based on lost profits. V-2-2 EXECUTABLE COPY For MDSU, if applicable, the scope of cover follows that of the OMC policy as described in paragraph (1) above. For DSU, the scope of cover follows that of the CAR policy as described in paragraph (2) above. (b) In no event shall the deductible exceed 60 days. (c) If applicable, Owner shall have obtained the (i) MDSU coverage at the same time, in the same manner and to be subject to the same conditions as specified for the OMC insurance, and (ii) the DSU coverage at the same time, in the same manner and to be subject to the same conditions as specified for the CAR insurance. (d) The MDSU coverage may, at Owner's option, be included in the OMC insurance. The DSU coverage may, at Owner's option, be included in the CAR insurance. (e) MDSU required only if applicable. (4) Other Insurance (a) Workers' compensation coverage, including United States workers' compensation, if required by Applicable Law. (b) Employer's liability of not less than US$1,000,000 per occurrence. (c) Automobile liability and physical damage coverage, with respect to owners automobiles at the Site, if any. The limit of insurance shall not be less than US$5,000,000 per accident. (d) Aircraft liability, if any, for all Owner owned, hired or non-owned aircraft used in connection with construction of the Project, to the extent not covered under EXHIBIT "V-1." (e) All insurance required by Applicable Law. The insurance described in this paragraph (4) shall be obtained on or prior to the date on which the exposure to the risk covered thereby arises or as required by Applicable Law. V-2-3 EXECUTABLE COPY EXHIBIT "V-3" GENERAL INSURANCE PROVISIONS (1) All insurance shall be denominated in United States Dollars . (2) All insurance may be carried through the worldwide insurance programs of Owner or Contractor or their respective Affiliates. (3) All insurance required to be maintained in EXHIBITS "V-1" and "V-2" shall be endorsed to the effect that Owner, the Financing Entities, the Contractor, any subcontractors and such other persons as Owner may specify in writing shall be included as named insureds thereon (except that Contractor and subcontractors shall not be named insured on MDSU or DSU policies). Third party liability policies shall provide for a cross liability clause. Vendors, suppliers, material dealers and others who merely transport, pick up, deliver or carry materials, personnel, parts or equipment, or any other items or persons to or from the Site shall not be considered "subcontractors" for purposes of insurance coverage and this paragraph (3). (4) In the event any insurance described herein (including the limits or deductibles thereof), other than insurance required by Applicable Law, shall not be available on commercially reasonable terms in the commercial insurance market for facilities having a similar risk profile, the Parties shall consent to waive the requirement to maintain such insurance to the extent the maintenance thereof is not so available on such terms, but the Parties shall continue to remain obligated to maintain any such insurance up to the level, if any, at which such insurance can be maintained on commercially reasonable terms in the commercial insurance market for facilities with a similar risk profile. (5) Loss payable wording shall be reasonably acceptable to the Financing Entities. (6) Unless specified above, no insurance shall be canceled or reduced with respect to the interest of the Financing Entities without 30 days (10 days nonpayment of premium) prior written notice. In the event of cancellation due to nonpayment of premium, the Financing Entities shall have the right to make payments in order to keep insurance in force. (7) All insurance required to be maintained in accordance with EXHIBITS "V-1," "V-2" and "V-3" shall be placed with financially sound and reputable insurers and with coverage forms acceptable to the Parties and the Financing Entities. V-3-1 EXECUTABLE COPY EXHIBIT "W" SITE DRAWINGS Site Layout, Drawing No. 08051 - EM - 1A, Revision 1. W-1 EXECUTABLE COPY EXHIBIT "X" OWNER'S LAND RIGHTS AGREEMENTS 1. Those documents, agreements, easements and rights of way listed as items 1, 3, 4, 5, 6, 11 and 13 in Schedule B of the Preliminary Report, dated as of February 23, 1998, by Commonwealth Land Title Company, a copy of which report has been provided to Contractor and is incorporated herein by reference; 2. Those documents, agreements, easements and rights of way listed as items 24, 25 and 26 in Schedule B of the ALTA Loan Policy, dated as of October 17, 1992, by Chicago Title Insurance Company, a copy of which report has been provided to Contractor and is incorporated herein by reference; and 3. Those easements and rights of way depicted on those portions of the 1993 ALTA survey prepared by Tesco Technical Engineering & Surveying Co., which were provided to Contractor by letter dated August 3, 1998 from Vincent Signorotti of CalEnergy Company, Inc. to Mr. Fred McCoy of Contractor. X-1 EXECUTABLE COPY EXHIBIT "Y" EXISTING PLANT SCHEDULE OUTAGE ACCESS The following Salton Sea units will be available to Contractor for Work, that will or might reasonably be expected to interfere with or disrupt the operations of any such Existing Plant, only during the entire applicable time periods listed below (except as provided in Note 1 below), unless such time periods are modified based on mutual agreement between Owner and Contractor:
1999 UNIT 1 UNIT 2 UNIT 3 UNIT 4 ------------------------------------------------------------------------------------------------------- Schedule Downtime YEAR 1999 Duration (Days) 0 5 16 16 Starting Date & Time 0 2/20/99 0:00 2/20/99 0:00 2/20/99 0:00 Ending Date & Time 2/24/99 11:59 3/7/99 23:59 3/7/99 23:59 Duration (Days) 11 0 0 Starting Date & Time 2/25/99 23:59 Ending Date & Time 3/7/99 23:59 YEAR 2000 ------------------------------------------------------------------------------------------------------- Duration (Days) 21 21 21 21 ------------------------------------------------------------------------------------------------------- Starting Date & Time 2/12/00 0:00 2/12/00 0:00 2/12/00 0:00 2/12/00 0:00 ------------------------------------------------------------------------------------------------------- Ending Date & Time 3/4/00 11:59 3/4/00 11:59 3/4/00 11:59 3/4/00 11:59 -------------------------------------------------------------------------------------------------------
Note 1: For each of the above outages, the first 24 hours of such period will be used to cool down the brine system and the last 24 hours of such period will be used to heat up such brine system, which activities will take precedence and may limit activities by Contractor. Y-1 EXECUTABLE COPY EXHIBIT "Z" RESERVED Z-1 EXECUTABLE COPY EXHIBIT "AA" OWNER FURNISHED ITEMS Equipment* One (1) Diesel Generator Set, Complete Three (3) Existing Brine Injection Pumps with VFD's Three (3) Existing Brine Booster Pumps (to be modified by Contractor) Two (2) Filter Feed Pumps Seven (7) Acid Mixing Spools Spare/Unused Motor Starters on Unit 3 Emergency Bus 306 Miscellaneous Materials Common backfill material (from land designated by Owner near the Project or the Existing Plants) not to exceed 30,000 cubic yards. Contractor shall be responsible for excavating such material and moving it to the site. No guarantee regarding suitability is intended or implied by Owner. Contractor must verify suitability of material with respect to its intended use. Ten (10") inch diameter used drill casing for use as pipe piles. Contractor agrees to pay Owner for the cost of cleaning such pipe for such use. Documentation Brine PVT Program * See Exhibit A for more specific description. Note: All equipment and material furnished by Owner shall be free of contamination. EXECUTABLE COPY EXHIBIT "AB" Reserved EXHIBIT "AC" Reserved EXECUTABLE COPY EXHIBIT "AD" CALENERGY SAFETY PROGRAM SAFETY Contractor employee's shall adhere to safety requirements of Owner at all times, during the performance of this contract, while on Owner premises (Reference Appendix A). Contractor employees shall attend safety training indoctrination with Owner's Safety Department prior to commencement of work on Owner premises. Contractor shall supply all Contractor employee's with required safety equipment. Contractor and its employee's shall follow all federal, state, and local laws, rules, regulations, or ordinances (collectively, "Applicable Law"). Contractor is responsible to maintain all necessary items for worker communication and CAL OSHA Incident Prevention Program (SB198). In the course of doing business, Owner purchases and generates hazardous materials. During the course of performing contracted activities, Contractor employee's may work directly or indirectly with one of these materials. Specific hazardous materials produced at Owner's facilities are: 1. Geothermal Scale 2. Geothermal Brine 3. Geocrete Once removed, these materials are classified by Owner as California Hazardous Wastes. Attached are copy(ies) of Owner's Material or Information Safety Data Sheet(s) for materials relevant to this Contract activities. In the course of performing contracted activities, Contractor will be responsible for performing contracted activities and protecting Contractor employees against exposures to all hazardous materials as required by applicable regulations, including California Title 8 and Federal 29 CFR. In order of regulatory preference, methods for limiting employee exposure to hazardous materials are: 1. Engineering Controls 2. Administrative Controls 3. Personal Protective Equipment (?PPE?) Contractor will be responsible for designing, implementing, and enforcing any exposure protective controls required during the performance of the contracted activities. Owner has established minimum standards for Owner employee's and Contractor may use this standard as a guide (Reference Appendix B). Owner?s PPE Standard was prepared without specific and detailed knowledge of how Contractor performs the contracted activities. Contractor shall provide additional PPE Standards, in excess of Owner's standard, as Contractor activities may require in order to comply with applicable regulatory exposure standards. Contractor, not Owner, shall be legally and financially liable if Contractor's employees are endangered by exposure to hazardous materials or are otherwise injured while performing contracted activities. Contractor shall indemnify and hold Owner harmless from and against any third party claims or other loss suffered by Owner (including attorneys fees) relating to Contractor activities. AD-1 EXECUTABLE COPY Contract activities covered under Owner's Personal Protective Equipment (PPE) Standard: Activity Hazardous Material Exposure Path -------- ------------------ ------------- Hydroblasting Geothermal Scale Aerosol Inhalation Geothermal Scale Spray Inhale/Ingest Welding Welding Fumes Inhalation Geothermal Scale Fumes Inhalation Sandblasting Blasting Media Inhalation Geothermal Scale Dust Inhalation Scaffold Bldg. Geothermal Scale Dust Inhalation FITNESS FOR DUTY PROGRAM The use, possession, concealment, transportation, promotion or sale of the following items or substances is strictly prohibited from all premises by Owner, Contractor and other invitees: ILLEGAL DRUGS ILLEGAL DRUGS, CONTROLLED SUBSTANCES, LOOK-ALIKE, DESIGNER AND SYNTHETIC DRUGS AND ANY OTHER DRUGS WHICH MAY AFFECT AND EMPLOYEE'S SENSES OR MOTOR FUNCTION. With respect to the substances described in this paragraph A, it shall be a violation of this policy for any employee, or other invitee, to report for duty, come on Owner premises, or work while having a detectable amount of any of these substances in the person's system. ALCOHOLIC BEVERAGES Alcoholic beverages - except as specifically authorized by Owner in advance. With respect to alcohol, it shall be a violation of this policy for any employee or invitee to report for duty, come on the premises of Owner or its affiliates, or work while under the influence of alcohol. FIREARMS, WEAPONS, AND EXPLOSIVES Firearms, weapons, explosives and ammunition - except as specifically authorized by Owner in advance. UNAUTHORIZED ITEMS o Stolen Property o Drug Paraphernalia AD-2 EXECUTABLE COPY ENVIRONMENTAL CLEAN-UP Contractor is responsible for the prompt cleanup of the work area to the reasonable satisfaction of Owner. Contractor's cleanup responsibilities shall include (without limitation): A. Removal of Contractor equipment and supplies. B. Removal of Contractor generated trash. C. Clean up of Contractor generated ?Hazardous Waste? (drums, recycle oil, etc.,) including without limitation, cleanup of ground contamination due to oil spills, tank overflows, or other cleaning activity D. Any other items found that are a result of or related to the Contractor?s activity. "Hazardous Waste? is defined to be any substance, constituent or waste subject to environmental regulation under any applicable federal, state, or local law, rule, regulation, or ordinance (collectively, ?Applicable Law?). Contractor has the responsibility for the cleanup and disposal of Hazardous Waste in accordance with all Applicable Law, and will indemnify and hold Owner harmless for any and all costs or losses suffered by Owner in connection with such Hazardous Waste. Copies of any completed manifest(s) for shipping Hazardous Waste to treatment or disposal facilities shall be given to Owner, as proof of completion. Contractor shall promptly cleanup the area at his expense; and Owner shall retain ten (10) percent of contract amount until (mutually agreed) completion of such cleanup and disposal activities. BARREL REMOVAL Contractor will be responsible for the proper removal/disposal of all Contractor barrels/containers from work site and Owner reserves the right to hold all payments due Contractor until such time that all barrels/containers have been properly removed by mutual agreement. AD-3 EXECUTABLE COPY OUTSIDE CONTRACTOR REQUIREMENTS REQUIREMENTS THAT MUST BE MET BEFORE AN OUTSIDE CONTRACTOR CAN BEGIN WORK. 1. CALL PURCHASING TO VERIFY CERTIFICATE OF INSURANCE (PHONE # (760) 348-4000). IF CONTRACTOR IS NOT ON FILE, CONTRACTOR CAN FAX THE CERTIFICATE OF INSURANCE TO PURCHASING (FAX # (760) 348-2714). FOR OFF-SHIFT OR WEEKENDS, FAX THE CERTIFICATE TO THE FOLLOWING FAX #?S 24 HOURS PER DAY, 7 DAYS A WEEK. VULCAN (760) 348-4042 DEL RANCH (760) 348-4056 ELMORE (760) 348-4071 LEATHERS (760) 348-4086 DRILLING DEPT. (760) 348-4022 UNITS 1,2,3 & 4 (760) 348-4186 2. ISSUE "OUTSIDE CONTRACTOR REGULATIONS" TO CONTRACTOR AND HAVE HIM/HER READ AND SIGN PRIOR TO PERFORMING WORK. 3. SEND SIGNED ?OUTSIDE CONTRACTOR REGULATION? TO SAFETY/TRAINING. IF BUSINESS IS DONE ON WEEKENDS OR OFF SHIFT TIMES SEND DOCUMENT AT THE START OF THE NEXT WORKDAY. SEE ATTACHMENT #1 4. CONTRACTOR WILL BE REQUIRED TO RE-SIGN "OUTSIDE CONTRACTOR REGULATION" WHEN CERTIFICATE OF INSURANCE IS RENEWED. 5. IF THE SUB-CONTRACTOR WILL BE USING CALENERGY OR PARTNERSHIP EQUIPMENT, THEY MUST READ AND SIGN THE SUBCONTRACTOR INDEMNIFICATION AGREEMENT. THE USE OF OUR EQUIPMENT BY VENDORS SHOULD BE THE EXCEPTION, NOT THE RULE. 6. SEND SUB-CONTRACTOR INDEMNIFICATION AGREEMENT TO SAFETY/TRAINING. IF BUSINESS IS DONE ON WEEKEND OR OFF SHIFT TIMES SEND DOCUMENT AT THE START OF THE NEXT WORK WEEK. SEE ATTACHMENT #2 NOTE: NORMALLY NO OUTSIDE CONTRACTOR IS TO BE ALLOWED ON THE PREMISES OF CALENERGY OPERATING COMPANY OR ITS AFFILIATES WITHOUT CERTIFICATE OF INSURANCE. IF CERTIFICATE OF INSURANCE IS NOT OBTAINABLE DUE TO WEEKEND, TIME OF DAY OR HOLIDAY, MANAGEMENT MUST BE CONSULTED BEFORE CONTRACTOR CAN START WORK. AD-4 EXECUTABLE COPY OUTSIDE CONTRACTOR REGULATIONS INDEMNIFICATION AGREEMENT To ____________________, if you and your company are successful bidders at CalEnergy Company, you and your company will be expected to abide by and enforce the "Safety Regulations for Contractors." We are very concerned about the safety and health of all contractor employees. For this reason, successful general contractor will receive an indoctrination in both the general safety rules for the site and any specific rules which are applicable to the plant area in which they will be working. The contracting firm is responsible for assuring that each of their employees on the job has received the safety indoctrination and a plant indoctrination BEFORE beginning work. CalEnergy's safety representative and/or construction inspectors may at times be talking with you and your co-workers about the environment in which they will be working. If you have any questions, at any time, contact our representative. They will be more than willing to answer any questions you have and assist you. The following pages contain the general safety rules required at this site. WORK SAFELY...... James T. Turner General Manager Imperial Valley Operations AD-5 EXECUTABLE COPY OUTSIDE CONTRACTOR REGULATIONS ENTRANCE INTO THE PLANT Each general contractor must provide each subcontractor with a copy of the "Plant Regulations for Contractors". Each general contractor will be issued a set of numbered badges for his employees and subcontractors. New employees will normally be required to attend a site orientation their first morning on the job. Contractors approved to work within the plant shall enter through the Main Gate between _____A.M. and _____A.M.; and exit through the Main Gate between _____P.M. and _____P.M. The general contractor's superintendent shall notify the representative, no later than noon of any working day, of weekend or overtime work so that admittance can be arranged. A parking lot is designated for the use of contractors. For reasons of safety, the general contractor's personnel will be denied admittance to areas not necessary for the performance of the job. Only those persons having a business relationship with the general contractor will be admitted to the job site. The general contractor's superintendent or his representative will come to the Guard Office, register the visitor, and take him to and from the job site. The general contractor's superintendent is responsible for the visitor while in the plant and the visitor must be under contractor supervision escort at all times. When a plant guard office does not exist, the visitor must report to the plant secretary. The plant secretary will notify the general contractor's superintendent of the arrival of any visitors. Only those persons having a business relationship with the general contractor will be admitted to the job site. The general contractor's superintendent or his representative will come to the plant secretary's office. Register the visitor and take him\her to and from the job site. The general contractor's superintendent is responsible for the visitor while in the plant and the visitor must be under contractor supervisor's escort at all times. No firearms, explosives, alcoholic beverages, or unauthorized drug are allowed in the plant. Pictures may not be taken on property except with Plant Superintendent's permission. DEFINITIONS Visitor - a non CalEnergy (Owner) employee entering into the plant for a short period of time and usually unfamiliar with the procedures within the plant. A visitor must be escorted at all times while within the plant by a Owner employee or by a contractor supervisor approved to work within the plant. Contractor Employee - a non Owner employee working for a contractor; usually unescorted by an employee while in the plant. The distinction between a visitor and a contractor is that the contractor employee works for a general contractor or subcontractor and has been granted permission to work within the CalEnergy plant. AD-6 EXECUTABLE COPY SAFETY INDOCTRINATION AND SAFE WORK PERMITS The general contractor is responsible for seeing that each contractor employee on each job has received a safety indoctrination and a plant indoctrination BEFORE beginning work. Any contractor employees added after the job starts shall have the same indoctrination. The indoctrination shall be scheduled with the representative BEFORE putting the new employee on the job. Advance communication to the representative by the contractor concerning the need for additional indoctrination may minimize waiting time while the indoctrination are being scheduled. The indoctrination will normally take minutes and will be presented in English. If non-English speaking contractor employees require indoctrination, the contractor is responsible for supplying a translator. CONTRACTOR SAFETY PROGRAM General contractors shall submit to the representative a proposal of the safety program to be in effect which shall include all subcontractors. "Tail-gate" safety sessions of 15 - 30 minutes duration each week are mandatory for all contractor employees. The contractor's safety meeting schedule shall be given to the representative so that he may also attend the meeting if desired. The assigned construction inspector, plus the plant superintendent, and/or safety manager may be invited to these meetings to answer questions or discuss a specific topic. The weekly safety meeting course sign-up sheet must be completed. The plant superintendent and/or safety supervisor will verify that the meetings have been conducted. SAFETY POLICY All work shall be conducted in accordance with the State of California Construction Safety Orders as covered in the California Administration Code, Title 8, Industrial Relations, and United States Department of Labor Code of Federal Regulations, for Construction and CalEnergy Operating rules, regulations and policy. SAFETY EQUIPMENT AND CLOTHING The general contractor shall be responsible for knowing and enforcing special owner area or job rules requiring special personnel protection. This information is usually given with the job specifications as well as in the safety indoctrination. General contractor shall ensure that each contractor employee equipped with the required and approved personal protective equipment and shall enforce its use. Approved shall mean that the equipment is manufactured in accordance with the appropriate American National Standards Institute (ANSI), or the National Institute for Occupational Safety and Health (NIOSH) standard. ALL CONTRACTOR PERSONNEL SHALL WEAR AN APPROVED HARD HAT AND SAFETY GLASSES AS MINIMUM PERSONAL PROTECTION EQUIPMENT AT ALL TIMES IN AND AROUND THE WORK SITE. HARD HATS SHALL NOT BE ALTERED FOR ANY PURPOSE. NOTE: If Contractor personnel don't have minimum personal protection equipment, it may be supplied by Owner. Such costs will be charged to the contractor. Approved safety glasses are the minimum eye protection requirement on all contractor jobs at all times, with exceptions of offices, control rooms, lunch rooms, cafeterias, or in vehicles with enclosed cabs. AD-7 EXECUTABLE COPY The wearing of contact lenses is prohibited where eye protection is required unless specifically approved in writing by the representative. If contact lenses are approved, chemical goggles shall also be worn as minimum eye protection in required eye protection areas of the plant. AD-8 EXECUTABLE COPY Approved chemical goggles are required for working in or entering certain chemical areas which are posted with signs, or while opening any pipeline regardless of the material contained in the line. All contractor employees working in the vicinity of Brine Steam and chemicals must know where the nearest safety shower and eye bathing facilities are located and how to use these facilities. A face shield must be worn over safety glasses or chemical goggles when chipping, using grinders, buffers, friction cut-off saws, impact chisels, and steam cleaning. A hood with approved tint lens must be worn whenever welding. Safety glasses must be worn in addition to the hood. Each contractor employee is expected to wear personal clothing that is safe and proper for his job. Contractor employees other than office employees shall wear a minimum of a shirt with sleeves and long trousers while on the job. Conventional leather, or equivalent, shoes in good repair are minimum foot wear in plant areas. (CANVAS SHOES, SNEAKERS, SANDALS, HOUSE SHOES, ETC., DO NOT PROVIDE ADEQUATE PROTECTION AND THEREFORE ARE PROHIBITED.) NO BARE FEET OR THONGS ARE ALLOWED IN THE PLANT. Safety shoes are recommended. Where there is a danger of falling more than four feet from one level to another, safety belts or harnesses, with lifelines attached, are to be worn by contractor employees where the use of scaffolds with handrails or ladders is impractical. Ladders shall be used only in cases where the operation to be performed does not require excessive force, the person can face the ladder while doing the job, and the ladder is either held by another person or tied off to prevent falling over. REPORTING EMERGENCIES All emergencies including chemical spills, gas releases, fires, brine spills and medical should be reported to the plant control operator, safety supervisor and plant superintendent. POTENTIAL HAZARDS The general contractor is responsible for ensuring that Contractor Material Safety Data Sheets (MSDS) for all materials the employee will be working with are available at the work site. The general contractor must see to it that all contractor employees read the MSDS Sheets and are aware of all hazards. CalEnergy Operating Company will have MSDS available for all materials contractor is exposed to. GAS OR LIQUID RELEASE If a release occurs which could affect personnel, a contractor verbal notification by a representative or by an announcement over the plant speaker system will be conducted immediately. When notified of a release, all contractor employees must immediately stop what they are doing and shutdown all operating equipment. They should observe the wind direction then proceed to go cross wind and upwind away from the source of the release to an assembly area. Workmen will evacuate all vessels and tanks. The contractor's supervisor is responsible to assure that all contractor personnel are accounted for and are in secure location. Personnel in vehicles on the road should proceed with caution to their evacuation area while being observant for emergency vehicles. They shall then assemble in the designated assembly area and remain there until the all clear is given. The representative will determine if work permits must be reissued prior to start of work. Contractor employees should report any discomfort due to gas inhalation to your supervisor. AD-9 EXECUTABLE COPY NOTE: It is possible that contractor personnel may be the first people to detect a release problem. If plant conditions change and present potential added risks to the job, pull back to a safe area and ask questions to check the plant status. FIRE In the event of notification of a fire, the contractor's supervisor will be responsible for assuring that all contractor employees have evacuated in accordance with the instructions provided in the pre-job safety check. All fires are to be reported immediately regardless of the size. Notify the control operator. Stay on the line until the message is understood and confirmed. Contractors will be expected to furnish fire extinguishers on welding machines. Fire lanes and hydrants shall be kept free at all times. TRANSPORTATION WITHIN THE PLANT The contractor must obey all traffic signs. The maximum speed limit is 15 MPH. The number of people who may ride in a pickup truck is limited to the number of installed and operable seat belt systems in the cab of a standard pickup and two in the cab of a mini pickup plus the number that can be seated on the floor of the pickup bed, or on "built-in" seats. Seat belts in the cab or car must be worn at all times within the plant. HOUSEKEEPING The contractor is charged with the responsibility of maintaining "good housekeeping". The work area should be kept as clean as possible during the course of the job. It is absolutely required that the area be left in a safe condition when leaving for the day. No un-barricaded excavations will be left open; hoses left stretched out; welding rod stubs left scattered, etc. Conditions that can become problems are tripping hazards, pathways blocked, cords or other items left on stairs, ladders not tied off, and material that can fall. MISCELLANEOUS SAFETY RULES Horse-play in any form must not be engaged in by anyone in the plant. Running in the plant is forbidden except in the case of an emergency. All portable containers such as bottles, jugs, or cans must be labeled as to contents. Chemicals - solvent, brine, oils must not be dumped into drains, ponds, or on the ground. Disposal of any material must be done with prior approval of operations supervisor. Contractors must not make inoperative safety devices such as relief valves, deluge valves, electrical and mechanical interlocks, guards, seat belts, etc., except for maintenance and testing with approval of the safety representative. Before working on rotating equipment, electrical services, opening or tying into pipelines, red danger tagging and lockout procedures must be followed. AD-10 EXECUTABLE COPY Red danger tags state that the tagged equipment will not be operated. This means for instance, it is a violation of the standard to try to better close (i.e. operate) a leaking but closed valve. Correct procedure is to contact the person responsible for the tag and get the tag removed prior to any operation. COMPLIANCE OF SAFETY REGULATIONS All contractor employees shall observe all safety rules required in the area. It is the general contractor's responsibility to enforce these rules. The general contractor's responsibility extends to all subcontractors and their work force. Failure of any contractor employee to fully comply with the safety regulations above shall constitute sufficient cause for CalEnergy Operating Company to exclude that contractor employee from the plant site. Upon receipt of notification from CalEnergy Operating Company of such breach of safety regulations and its election to exclude the contractor employee, the general contractor will immediately withdraw the employee from the plant site. FIRST AID The following steps should be taken if accident occurs involving injuries. 1. Survey the scene make sure the area is safe for you to enter. Move victim only if hazards for the victim exist. 2. Check the A,B,C A. AIRWAY - Check to see if it is blocked. B. BREATHING - Use artificial respiration. C. CIRCULATION - Use CPR if necessary. 3. Call E.M.S. (Emergency Medical Service) for help. A. E.M.S. Phone Number 9-911 B. WHAT HAPPENED and how many are hurt, also be prepared to give ages and general health of victim if possible. C. Give E.M.S. location of accident: VULCAN LEATHERS 7001 GENTRY RD. 342 WEST SINCLAIR RD. CALIPATRIA, CA 92233 CALIPATRIA, CA 92233 (760) 348-4030 (760) 348-4080 DEL RANCH CENTRAL SERVICES 7029 GENTRY ROAD 480 WEST SINCLAIR ROAD CALIPATRIA, CA 92233 CALIPATRIA, CA 92233 (760) 348-4055 (760) 348-4000 ELMORE DESERT VALLEY Co. 786 WEST SINCLAIR RD. 3301 WEST HWY 86 CALIPATRIA, CA 92233 BRAWLEY, CA 92227 (760) 348-4070 (760) 339-4010 AD-11 UNITS 1&2 UNITS 3 & 4 6920 LACK RD. 6922 CRUMMER RD. CALIPATRIA, CA 92233 CALIPATRIA, CA 92233 (760) 348-4160 (760) 348-4151 SALTON SEA ADMIN. BLDG. 950 WEST LINDSEY RD. CALIPATRIA, CA 92233 (760) 348-4000 D. Know phone number of nearest phone (see above). Always be the last to hang up. AD-12 EXECUTABLE COPY SAFETY PERMIT FOR WORK REQUIRING SPECIAL PRECAUTIONS ------------------------------------------------------------------------------- Prior to commencing any work, all precautionary measures shall be completed. The Control Operator is responsible for completion and issuance of this permit and indicating all hazards or conditions involved and any protective equipment or measures needed. If the worker(s) have any questions about the safety of the job, the Control Operator should be consulted. The Safety Supervisor may be called for assistance at any time. PINK COPY MUST BE IN POSSESSION AT JOB SITE -------------------------------------------------------------------------------- Job Description Hazardous Conditions Time %0(2) %LEL -------------------------------------------------------------------------------- CALENERGY OPERATING COMPANY SAFETY DEPARTMENT PHONE LIST BOB POTT MOBILE (760) 337-3509 WORK EXT. (760) 348-4276 HOME (WK DAYS) (760) 337-1936 HOME (WK ENDS) (520) 634-4764 JIM SULLIVAN HOME (760) 344-8492 WORK (760) 348-4277 BEEPER (619) 968-2567 SAFETY VAN (760) 337-3623 FRED STEELE HOME (760) 348-9728 WORK (760) 348-4270 BEEPER (619) 968-2562 MOBILE (760) 337-3505 AD-13 EXECUTABLE COPY GEOTHERMAL FILTER CAKE INFORMATION/SAFETY Page 1 of 5 DATA SHEET June 16, 1997 Rev. 3 CalEnergy Operating Company 950 W. Lindsey Rd. Calipatria, CA 92233 Phone: (760)348-4000 1. GEOTHERMAL FILTER CAKE (including mixture containing filter cake such as geothermal concrete). 2. COMPOSITION (Average concentrations) Major Elements Probable Compound (Percent) -------------------------------------------------------------------------------- Silicon (Amorphous) (SiO2+Silicates) 62 Iron (Fe3O4+FeSiO4) 15 Barium (BaSO4+BaCl2) 4 Calcium (CaSO4+CaCO3) 3 Minor Components Probable Compound (PPM) -------------------------------------------------------------------------------- Sodium (NaCl) 6000 Strontium (SrSO4) 6000 Manganese (MnSO4) 3500 Potassium (KCl) 1300 Arsenic (AsS2+FeAs2) 300 Copper (CuS) 250 Zinc (ZnS) 130 Trace Components Probable Compound (PPM) -------------------------------------------------------------------------------- Lead (PbS) 30 Antimony (SbS) 10 Beryllium (BeS) 10 Cobalt (CoS2) 4 Nickel (NiS) 1.5 Chromium (CrS) 1 Silver (AgS) 0.4 Cadmium (CdS) 0.2 Radionuclides Radium 226 RaSO4 200 pCi/g Radon 222 Free Rn 40 pCi/g Lead 210 PbSO4 173 pCi/g Radium 228 RaSO4 160 pCi/g Thorium 228 ThSO4 40 pCi/g 3. CHEMICAL AND PHYSICAL PROPERTIES A. General - Filter cake is generated by a controlled precipitation process and is removed from the spent brine stream by filter press, centrifuge or other separation processes. A representative composition is presented below. Because environmental and industrial hygiene regulations are compound specific, the probable compounds in the filter cake are also presented above. EXECUTABLE COPY GEOTHERMAL FILTER CAKE INFORMATION/SAFETY Page 2 of 5 DATA SHEET June 16, 1997 Rev. 3 B. Appearance - A very fine powder-type material, color is light green, however, the color can range from a light rust color to black. Average particle size is less than 10 microns. DENSITY: Average - 2200 lbs/cubic yard SOLUBILITY IN WATER: Insoluble in water ODOR: None have been noticed 4. FIRE AND EXPOSITION HAZARD DATA No hazard due to fire or explosion expected 5. REACTIVITY DATA STABILITY: Material is stable under ordinary conditions INCOMPATIBILITY: No incompatibilities have been noticed HAZARDOUS DECOMPOSITION PRODUCTS: At very high temperatures the materials may emit sulfur oxide gases and metal fumes. HAZARDOUS POLYMERIZATION: No polymerization will occur 6. EXPOSURE GUIDELINE A review of exposure guidelines for all the components of filter cake was performed. Atmospheric levels should be maintained below the following exposure standards: Arsenic: OSHA PEL: TWA 0.01mg(As)/M3 Beryllium: OSHA PEL: TWA 0.002mg(Cd)/M3 Cadmium: OSHA PEL: TWA 0.2mg(Cd)/M3 OSHA is also proposing new limits for Cadmium (FR, Vol 55, No 25, Feb. 6, 1990, Page 4052) OSHA PEL: TWA 5ug(Cd)/M3 or 1ug(Cd)/M3 Lead: OSHA PEL: TWA 0.05Mg (Pb)/M3 Nickel: OSHA PEL: TWA 1.0Mg(Ni)/M3 (insoluble salts) EXECUTABLE COPY GEOTHERMAL FILTER CAKE INFORMATION/SAFETY Page 3 of 5 DATA SHEET June 16, 1997 Rev. 3 Radium: California Department of Health Services (CDOHS) has set air concentration standards, maximum permissible concentrations (MPC), for Radium (Ra) 226 at 5E-11 uCi/ml of air. A significant daughter product of the RA 226 decay chain is Lead 210 which has a MPC value of 1E-10 uCi/ml of air. In the Ra 228 decay chain the CDOHS has set the MPC for Ra 228 at 4E-11 uCi/ml of air. A significant daughter product of the Ra 228 decay chain is Thorium 228 which has a MPC value of 6E-12 uCi/ml of air. MPC values in the air are based on internal doses due to inhalation. In addition, CDOHS has established external dose limits as follows: Rems per Calendar Quarter ----------------- Whole Body 1.25 Hand, forearms, feet and ankles 18.75 Skin of the whole body 7.5 7. HANDLING PRECAUTIONS AND PROTECTIVE EQUIPMENT These recommended precautions are intended for use during normal operating conditions. Emergency/upset conditions could require additional precautions. (For an explanation of the low, moderate and high potential exposure categories or specific recommendations for your specific operation, contact the Safety Department.) EYE Low - Use Safety glasses Moderate/High - Use chemical goggles SKIN Low - No precautions other than clean body covering clothing Moderate/High - Use boots and gloves INHALATION Low/Moderate/High - Atmospheric levels should be maintained below the exposure guidelines. Use respiratory protection when in filter cake handling operations and areas. Clean or dust clothing, boots and gloves before leaving work area. EXECUTABLE COPY GEOTHERMAL FILTER CAKE INFORMATION/SAFETY Page 4 of 5 DATA SHEET June 16, 1997 Rev. 3 INGESTION Use good personal hygiene. Do not consume or store food and drink in the work area. Wash hands before smoking or eating. Clean body covering clothing, boots, and gloves after handling. VENTILATION Provide general and/or local exhaust ventilation to control airborne levels below the exposure guidelines. PROTECTIVE EQUIPMENT INFORMATION There is no respirator test data available for this material. Data for related materials indicate that the following should be effective types of air-purifying respirators: dusts and radionuclides. 8. EMERGENCY TREATMENT AND MEDICAL NOTES EYE Irrigate immediately with water for at least 15 minutes; mechanical effects only SKIN Wash off in flowing water or shower INGESTION Refer to Physician INHALATION Refer to Physician 9. POTENTIAL HEALTH EFFECTS This section includes possible adverse effects which could occur if this material is not handled in the recommended manner. EYE May cause moderate eye irritation SKIN May cause moderate skin irritation INGESTION May cause toxic effects ACUTE INHALATION: Vapors are unlikely due to physical properties. Excessive exposure may cause irritation of the eyes, upper respiratory tract and lungs. EXECUTABLE COPY GEOTHERMAL FILTER CAKE INFORMATION/SAFETY Page 5 of 5 DATA SHEET June 16, 1997 Rev. 3 CHRONIC EFFECTS/CARCINOGENICITY The following components of filter cake are known to The State of California to cause cancer: Arsenic, Cadmium, Beryllium, Nickel, and Radium (decay chain). TERATOGENIC EFFECTS There are some positive animal teratogenic tests for several of the components of filter cake. REPRODUCTIVE EFFECTS Lead is known to the State of California to cause reproductive toxicity. MUTAGENICITY There are some positive mutagenicity tests for several of the components of filter cake. 10. ENVIRONMENTAL AND DISPOSAL INFORMATION ACTION TO TAKE FOR RELEASES: Reclaim all the material which was released. For any filter cake releases refer to CalEnergy Operating Company's Business Plan for local agency notification. If more than 3,300 lbs. of filter cake have been released to the environment, then EPA also has to be notified within 24 hours at 1-800-424-8802 (The National Response Center). DISPOSAL METHOD: Filter cake should not be disposed of, but reclaimed and stored in a safe and proper manner. If filter cake needs to be disposed of, contact CalEnergy Operating Company's Environmental Manager. EXECUTABLE COPY PERSONAL PROTECTIVE EQUIPMENT STANDARD (PPE) These PPE standards are minimum protections only and should not be relied upon as adequate to safeguard the health and safety of Contractor's employees. These PPE standards were prepared without detailed knowledge of how Contractor performs the contracted activities and should be viewed as only a starting point in Contractor's establishment of appropriate protection standards. I. GENERAL A. Open Area Work: Good housekeeping can play an important role in controlling airborne particulates. Use of designated vacuums with the proper filters to control dust, watering roads and wetting (or soil sealing). Filter cake piles can have a dramatic affect on workers nearby. The use of air should never be used to clean up. Designated respirator zones require 10X PEL half face respirators with HEPA filters. B. Confined Space: 1. Cleaning: The confined space shall be cleaned as much as possible before entering (tank washing machine, Butterworth). 2. Ventilation: The confined space shall be ventilated prior to and during the time of work. 3. Entry Rules: Adhere to all Owner confined space entry rules. 4. General Respiratory Protection: Respiratory protection in confined spaces shall be half face 10X PEL HEPA unless hydroblasting, sandblasting, or welding is in progress. When in a confined space, all occupants shall conform to the respiratory requirements of the job that has the highest PEL factor. For example, if hydroblasting and scaffold building is going on concurrently in the same vessel, all personnel shall wear the same respiratory equipment as the hydroblasters (25X HEPA) using supplied breathing air. II. HYDROBLASTING A. Open Area Blasting: Both operator and observer shall wear respiratory protection rated to 25X PEL. Two options meet this standard: 1. Breath easy helmet and turbo pack with HEPA (AEP 3) filters. 2. Full face respirators with HEPA filters (Type H for MSA). B. Confined Space: General ventilation in mandatory. Both operator and observer shall wear respiratory protection rated to 25X PEL. Two options meet this standard: 1. Breath easy helmet with supplied breathing air. 2. Full face respirators with supplied breathing air. III. SANDBLASTING CONFINED SPACE General ventilation is mandatory. Operator shall use supplied air hood of 100X PEL rating. Man watch shall have respiratory protection of at least 25X PEL (breath easy or full face). NOTE: The respiratory protection for the man watch can vary depending on vessel conditions. Consult supervision. IV. WELDING A. General: Consult Material Safety Data Sheet (M.S.D.S.) for rod or wire. Many manufacturers require or recommend respiratory protection. B. Open Area Welding/Cutting on Process Pipe: 1. Position designated fans to blow fumes away from welders breathing zone and use 3M 9970 respirator. 2. Breath easy welding helmet and turbo pack with HEPA (AEP 3) filters. C. Confined Space Welding/Cutting: 1. 3M 9970 respirator, general and local ventilation. One suction vent shall be provided for each welder and positioned as close as possible to source of fumes. These vents shall discharge outside the vessel. 2. General ventilation, breath easy welding helmet and turbo pack with HEPA (AEP 3) filters. V. SCALE Minimum protective clothing and respirator protection is to be worn when working with scale. A. 3m 9970 or MSA Comfo II with Type H filters. B. Uniform or Tyvec(Registered Trademark) suits, gloves, and rubber boots. EXECUTABLE COPY GEOTHERMAL SCALE INFORMATION/SAFETY Page 1 of 4 DATA SHEET June 16, 1997 Rev. 6 CalEnergy Operating Company 950 W. Lindsey Rd. Calipatria, CA 92233 Phone: (760)348-4000 1. GEOTHERMAL SCALE 2. COMPOSITION (Average concentration) Major Elements Probable Compounds (Percent) ------------------------------------------------------------------------- Silicon (Amorphous) (SiO2+Silicates) 50 Iron (Fe3O4+Fe2O3+FeSiO4+Fe+FeCO3) 18 Copper (Cu+CuCl2+CuS) 10 Sodium (NaCl) 5 Calcium (CaSO4+CaCO3) 3 Potassium (KCL) 3 Minor Elements Probable Compounds (PPM) ------------------------------------------------------------------------- Aluminum (Silicate) 10,000 Manganese (MnS+MnSO4) 10,000 Strontium (SrSO4) 10,000 Magnesium (MgCO3) 7,500 Arsenic (As+FeAs2) 30,000 Barium (BaSO4) 5,000 Bismuth (Bi2S3) 1,500 Lead (PbS) 1,000 Antimony (Sb+SbS) 1,000 Trace Elements Probable Compounds (PPM) ------------------------------------------------------------------------- Silver (Ag+AgS) 750 Cadmium (Cd+CdS) 500 Chromium (Cr2(SO4)3) 500 Cobalt (CoS2) 500 Zinc (ZnS) 400 Beryllium (Be) 100 Gold (Au) 2 Radium 226 (RaSO4) 60 pCi/g Radium 228 (RaSO4) 45 pCi/g Other Metals <100 3. CHEMICAL AND PHYSICAL PROPERTIES APPEARANCE: Scale is a very heterogenous substance, composition will vary. Color ranges from light brown to black with greenish areas. DENSITY: Average - 2300 lbs./cubic yard SOLUBILITY IN WATER: Insoluble in water ODOR: None have been noticed EXECUTABLE COPY GEOTHERMAL SCALE INFORMATION/SAFETY Page 2 of 4 DATA SHEET June 16, 1997 Rev. 6 4. FIRE AND EXPLOSION HAZARD DATA No hazard due to fire or explosion expected 5. REACTIVITY DATA STABILITY: Material is stable under ordinary conditions INCOMPATIBILITY: No incompatibilities have been noticed. HAZARDOUS DECOMPOSITION PRODUCTS: At very high temperatures the materials may emit sulfur oxide gases and metal fumes HAZARDOUS POLYMERIZATION: No polymerization will occur. 6. EXPOSURE GUIDELINE A review of exposure guidelines for all the components of scale was performed. Atmospheric levels should be maintained below the following exposure standards: Arsenic: OSHA PEL: TWA 0.01mg(As)/M3 Beryllium: OSHA PEL: TWA 0.002mg(Cd)/M3 Cadmium: OSHA PEL: TWA 0.2mg(Cd)/M3 OSHA is also proposing new limits for Cadmium (FR, Vol 55, No 25, Feb. 6, 1990, Page 4052) OSHA PEL: TWA 5ug(Cd)/M3 or 1ug(Cd)/M3 Lead: OSHA PEL: TWA 0.05MG(Pb)/M3 Radium: California Department of Health Services (CDOHS) has set air concentration standards, maximum permissible concentrations (MPC), for Radium (Ra) 226 at 5E-11 uCi/ml or air. A significant daughter product of the RA 226 decay chain is Lead 210 which has a MPC value of 1E-10 uCi/ml of air. In the Ra 228 decay chain the CDOHS has set the MPC for Ra 228 at 4E-11 uCi/ml of air. A significant daughter product of the Ra 228 decay chain is Thorium 228 which has a MPC value of 6E-12 uCi/ml of air. MPC values in the air are based on internal doses due to inhalation. In addition, CDOHS has established external dose limits as follows: Rems per Calendar Quarter ----------------- Whole Body 1.25 Hand, forearms, feet and ankles 18.75 Skin of the whole body 7.5 EXECUTABLE COPY GEOTHERMAL SCALE INFORMATION/SAFETY Page 3 of 4 DATA SHEET June 16, 1997 Rev. 6 7. HANDLING PRECAUTIONS AND PROTECTIVE EQUIPMENT These recommended precautions are intended for use during normal operating conditions. Emergency/upset conditions could require additional precautions. (For an explanation of the low, moderate and high potential exposure categories or specific recommendations for your specific operation, contact the Safety Department.) EYE Low - Use Safety glasses Moderate/High - Use chemical goggles SKIN Low - No precautions other than clean body covering clothing; Moderate/High - Use boots and gloves INHALATION Low/Moderate/High - Atmospheric levels should be maintained below the exposure guidelines. Use respiratory protection when in scale handling operations and areas. Clean or dust clothing, boots and gloves before leaving work area. INGESTION Use good personal hygiene. Do not consume or store food and drink in the work area. Wash hands before smoking or eating. Clean body covering clothing, boots and gloves after handling. VENTILATION Provide general and/or local exhaust ventilation to control airborne levels below the exposure guidelines. PROTECTIVE EQUIPMENT INFORMATION There is no respirator test data available for this material. Data for related materials indicate that the following should be effective types of air-purifying respirators: dusts and radionuclides. 8. EMERGENCY TREATMENT AND MEDICAL NOTES EYE Irrigate immediately with water for at least 15 minutes. SKIN Wash off in flowing water or shower INGESTION Refer to Physician INHALATION Refer to Physician EXECUTABLE COPY GEOTHERMAL SCALE INFORMATION/SAFETY Page 4 of 4 DATA SHEET June 16, 1997 Rev. 6 9. POTENTIAL HEALTH EFFECTS This section includes possible adverse effects which could occur if this material is not handled in the recommended manner. EYE May cause moderate eye irritation SKIN May cause moderate skin irritation INGESTION May cause toxic effects ACUTE INHALATION: Vapors are unlikely due to physical properties. Excessive exposure may cause irritation of the eyes, upper respiratory tract and lungs. CHRONIC EFFECTS/CARCINOGENICITY The following components of scale are known to the State of California to cause cancer: Arsenic, Cadmium, Beryllium and Radium (decay chain). TERATOGENIC EFFECTS There are some positive animal teratogenic tests for several of the components of scale. REPRODUCTIVE EFFECTS Lead is known to the State of California to cause reproductive toxicity. MUTAGENICITY There are some positive mutagenicity tests for several of the components of scale. 10. ENVIRONMENTAL AND DISPOSAL INFORMATION ACTION TO TAKE FOR RELEASES: Reclaim all the material which was released. For any Scale releases refer to the CalEnergy Operating Co. Business Plan for local agency notification. If more than 200 lbs. of scale (fine particles) have been released to the environment, then EPA also has to be notified within 24 hours at 1-800-424-8802 (The National Response Center). DISPOSAL METHOD: Scale should not be disposed of, but reclaimed and stored in a safe and proper manner. If scale needs to be disposed of, contact CalEnergy Operating Company's Environmental Manager. EXECUTABLE COPY GEOTHERMAL BRINE INFORMATION/SAFETY Page 1 of 4 DATA SHEET June 16, 1997 Rev. 3 CalEnergy Operating Company 950 W. Lindsey Rd Calipatria, CA 92233 Phone: (760) 348-4000 1. GEOTHERMAL BRINE 2. COMPOSITION (Average concentrations for production brines, injection brines may be 10-20 percent higher, balance is water.) Major Elements Probable Compounds (Percent) ----------------------------------------------------------------- Chloride NaCl 13.5 Sodium NaCl 6 Calcium CaCl2 3 Potassium KCl 1.5 Minor Elements Probable Compounds (PPM) ----------------------------------------------------------------- Carbon Dioxide CO2 2000 Iron (Ferrous) FeCl2 1000 Manganese MnCl2 930 Strontium SrCl2 430 Ammonia NH3 420 Lithium LiCl 410 Zinc ZnCl2 370 Boron H3BO3 330 Silicon SiO2 250 Barium BaCl2 130 Trace Elements Probable Compounds (PPM) ------------------------------------------------------------------ Lead PbCl2 100 Rubidium RbCl 100 Magnesium MgCl2 40 Arsenic H3AsO4 15 Cesium CsCl 10 Hydrogen Sulfide H2S 7 Copper CuCl2 5 Methane CH4 3.0 Cadmium CdCl2 1.2 Antimony SbCl3 0.9 Aluminum ALCl3 0.7 Silver AgCl3 0.4 Chromium CrCl2 0.2 Tin SnCl3 0.2 Selenium H2SeO3 0.2 Nickel NiCl3 0.2 Bismuth BiCl2 0.07 Beryllium BeCl2 0.02 Radionuclides Radium 226 --- 0.080 pCi Radon 222 --- 0.810 pCi Lead 210 --- 0.064 pCi Radium 228 --- 0.064 pCi Thorium 228 --- -- EXECUTABLE COPY GEOTHERMAL BRINE INFORMATION/SAFETY Page 2 of 4 DATA SHEET June 16, 1997 Rev. 3 3. CHEMICAL AND PHYSICAL PROPERTIES APPEARANCE: Brine is a light brown liquid with a fine precipitate (refer to the Geothermal Filter Cake Information/Safety Data Sheet for information on the precipitate). Under normal conditions, brine has a temperature of 500` F to 210` F, and will flash steam when released to the atmosphere. Brine is a saline solution, with traces of other substances. Vapors excerpts, in addition to steam, are carbon dioxide which averages 99% of the inert gases released , other trace gases include hydrogen sulfide, ammonia, methane and radon. DENSITY: 10 lbs/gallon ODOR: Hydrogen sulfide/ammonia odor 4. FIRE AND EXPLOSION HAZARD DATA No hazard due to fire or explosion expected. 5. REACTIVITY DATA STABILITY: Material is stable under ordinary conditions. INCOMPATIBILITY: The mixing of brine with cooling tower water in high in nitrites may cause the emissions of nitrogen dioxide. In addition, the contact of brine with zinc metal may cause the emission of arsine. HAZARDOUS DECOMPOSITION PRODUCTS: None expected, under ordinary circumstances. HAZARDOUS POLYMERIZATION: No polymerization will occur. 6. EXPOSURE GUIDELINE A review of exposure guidelines for all the components of brine was performed. Atmospheric levels should be maintained below the following exposure standards: Carbon dioxide: OSHA PEL: TWA 18000mg/M3 STEL 54,000mg/M3 Ammonia: OSHA PEL: TWA 35mg/m3 STEL 27mg/M3 Hydrogen sulfide: OSHA PEL: CL 10 ppm Peak 50 ppm (10 min.) Boric acid: OSHA PEL: TWA 10mg/M3 Arsenic acid: OSHA PEL: TWA 0.01mg/M3 Radon: DOHS limits Radon to 30 pCi/l (quarterly average) EXECUTABLE COPY GEOTHERMAL BRINE INFORMATION/SAFETY Page 3 of 4 DATA SHEET June 16, 1997 Rev. 3 7. HANDLING PRECAUTIONS AND PROTECTIVE EQUIPMENT These recommended precautions are intended for use during normal operating conditions. Emergency/upset conditions could require additional precautions. (For an explanation of the low, moderate ad high potential exposure categories or specific recommendations for your specific operation, contact the Safety Department.) EYE Use faceshield and monogoggles SKIN Use heat protective clothing ( rubber gloves, top/bottom slickers, rubber boots and face shields). INHALATION Low/Moderate/High - Atmospheric levels should be maintained below the exposure guidelines. INGESTION Use good personal hygiene. Do not consume or store food and drink in the work area. Wash hands before smoking or eating. Clean body covering clothing, boots, and gloves after handling. VENTILATION Provide general and/or local exhaust ventilation to control vapor levels below the exposure guidelines. Prior to entry of any vessel, perform a confined space entry procedure. PROTECTIVE EQUIPMENT INFORMATION The heat protective clothing supplied should be an effective type of protection with normal brine temperatures. 8. EMERGENCY TREATMENT AND MEDICAL NOTES EYE Irrigate immediately with water for at least 15 minutes; mechanical effects only. SKIN Wash off in flowing water or shower. INGESTION Refer to Physician INHALATION Refer to Physician EXECUTABLE COPY GEOTHERMAL BRINE INFORMATION/SAFETY Page 4 of 4 DATA SHEET June 16, 1997 Rev. 3 9. POTENTIAL HEALTH EFFECTS This section includes possible adverse effects which could occur if this material is not handled in the recommended manner. When hot brine is being handled, burns will occur if brine comes in contact with the human body. EYE May cause burns or eye irritation. SKIN May cause burns or skin irritation. INGESTION May cause toxic effects. ACUTE INHALATION Excessive exposure may cause irritation of the eyes, upper respiratory tract and lungs. CHRONIC EFFECTS/CARCINOGENICITY The following components of scale are known to the State of California to cause cancer: Arsenic, Cadmium, Beryllium and Radium (decay chain). TERATOGENIC EFFECTS There are some positive animal teratogenic tests for several of the components of brine. REPRODUCTIVE EFFECTS Lead is known to the State of California to cause reproductive toxicity. MUTAGENICITY There are some positive mutagenicity test for several of the components of brine. 10. ENVIRONMENTAL AND DISPOSAL INFORMATION ACTION TO TAKE FOR RELEASES: Reclaim all the material which was released. For any brine releases refer to CalEnergy Operating Company's Business Plan for local agency notification. If more than 8,800 gallons of brine have been released to the environment, then EPA also has to be notified within 24 hours at 1-800-424-8802 (The National Response Center). DISPOSAL METHOD: If brine or brine contaminated soil needs to be disposed of, contact CalEnergy Operating Company's Environmental Manager for instructions. EX-10.44 18 ADMINISTRATIVE SERVICES AGREEMENT THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made as of March 3, 1999, by and between CALENERGY COMPANY, INC., a Delaware corporation ("CalEnergy"), and CE GENERATION, LLC, a Delaware limited liability company ("Owner"). RECITALS -------- A. Owner indirectly owns certain geothermal electric generating facilities located in the Salton Sea Known Geothermal Resource Area ("SSKGRA") in Imperial County, California, certain gas-fired electric generating facilities located in Yuma, Arizona, Big Spring, Texas, North East , Pennsylvania, and Plattsburg, New York, and certain related facilities (referred to collectively herein as the "Facilities") all through non-recourse project companies ("Project Companies") and three (3) holding companies (the "Holding Companies" and collectively with the Project Companies, the "Companies"), namely Magma Power Company, California Energy Development Corporation and Falcon Seaboard Resources, Inc. B. Owner desires to exploit CalEnergy's administrative and management resources, and to that end Owner desires to employ, hire or otherwise retain the administrative and management services of CalEnergy for purposes of administering the functions of its business, as more fully described herein. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements set forth herein, the parties hereto agree as follows: 1. Services. In consideration of the payment by Owner to CalEnergy as provided in Section 3 hereof, CalEnergy agrees to perform during the term of this Agreement those functions as approved in advance by the Board which are normally considered part of the day-to-day administrative and management activities for businesses similar to the businesses undertaken by the Companies (the "Services"). The Services to be provided hereunder may include, without limitation, (i) financial accounting, budgeting and tax services (ii) general legal and financial services, (iii) personnel administration and payroll services, (iv) cash management services, (v) energy marketing, energy production oversight and the determination of output levels; (vi) consulting services with respect to electrical energy production and (vii) assisting Owner in obtaining any franchises, permits, licenses, easements or rights-of-way necessary for continued operation of the Facilities. 2. Subcontracting. Without limiting the obligations of CalEnergy to Owner hereunder, in connection with CalEnergy's providing of the Services contemplated by this Agreement, CalEnergy may subcontract with or otherwise retain the services of other Persons including, but not limited to, Affiliates of CalEnergy (but only at a rate equal to actual costs and expenses of such Affiliate), with the consent of Owner, which consent shall not be 2 unreasonably withheld. For purposes of this Agreement, any Services performed by such Persons shall be deemed to have been performed by CalEnergy. 3. Reimbursement for Services. The following shall be paid: 3.1. In consideration of the provision by CalEnergy to Owner of the Services, within thirty (30) days after Owner has received an invoice from CalEnergy specifying the Services rendered to Owner by CalEnergy and the amount to be paid to CalEnergy for the actual costs and expenses incurred by CalEnergy in rendering the Services. As used in this Section 3.1, "actual costs and expenses incurred by CalEnergy" includes, without limitation, (a) the actual cost to CalEnergy of procuring goods and materials used by CalEnergy in rendering Services, (b) the fully burdened, pro rata cost to CalEnergy of personnel providing labor or services in the course of CalEnergy's provision of Services and (c) the actual cost to CalEnergy of retaining another Person, whether CalEnergy or another Affiliate of CalEnergy or otherwise, in connection with the provision of Services. In the event CalEnergy subcontracts with any Person, including, without limitation, an Affiliate as provided in Section 2 hereof, any payment to CalEnergy under this Section 3.1 on account of the Services so subcontracted shall be made to CalEnergy only to the extent of the amount charged CalEnergy by such Person and shall not include any amounts representing a mark-up by CalEnergy over the amount so charged. 3.2. With respect to any calculation of actual costs and expenses or any allocation of costs contemplated by Section 3.1 hereof, Owner shall be bound by CalEnergy's determination thereof so long as such determination is reached in a manner consistent with GAAP and CalEnergy's existing practices with respect to the Facilities. 4. Term and Termination. 4.1. Unless terminated as provided in Sections 9, 11 or 13 hereof, or as hereinafter provided in this Section 4, this Agreement shall remain in effect until, and shall terminate on the date which is, one (1) year following the date first written above, and shall automatically renew from year to year unless one party hereto notifies the other of its intent to terminate at least 60 days prior to the end of the then expiring term. 4.2. In the event of a material default by either party in the performance of its duties, obligations or undertakings under this Agreement, the other party shall have the right to give written notice to the defaulting party advising such party of the specific default involved and, if within thirty (30) days after such notice the defaulting party shall not have remedied or commenced diligently to remedy the default, the other party shall have the right, in addition to any other rights and remedies it may have, to terminate this Agreement upon ten (10) days' written notice to the defaulting party. 4.3. Notwithstanding any other provision of this Agreement, and in addition to any other right it may have, CalEnergy shall have the right to terminate this Agreement, (a) effective immediately, if, at any time, Owner is adjudged bankrupt or insolvent, or files a petition in bankruptcy or an answer admitting the material facts recited in such a petition filed by 3 another, or is put or decides to go into dissolution or liquidation (other than in connection with a merger, consolidation or amalgamation), or otherwise discontinues business, makes an assignment for the benefit of its creditors or any other general arrangement with its creditors, becomes insolvent or unable to meet its current payments, or has a receiver or other custodian of any kind appointed to administer any substantial amount of its property, or otherwise seeks to take advantage of any bankruptcy or insolvency statute now or hereafter in effect and (b) upon ninety 90 days notice, within twelve (12) months of foreclosure of the Facilities by the Project Lender, and on each anniversary of such foreclosure. 4.4. If this Agreement is terminated prior to the expiration of its terms as provided in Section 4.1 hereof, Owner shall pay CalEnergy all Administration Fees and other amounts due and payable to CalEnergy under Section 3 hereof as of the date the Agreement is effectively terminated. 5. Standard of Care; Sole Remedy. 5.1 CalEnergy agrees to perform the Services with a standard of care equal to that it exercises in the administration of its own separate business activities. CalEnergy does not warrant that the Services will be error free or accomplish a particular result. 5.2 Except in the case of gross negligence or willful misconduct, the sole remedy for a breach of the foregoing standard of care shall be reperformance of the Services. 6. Limitations on Liability. 6.1 Owner agrees that notwithstanding any other provision in this Agreement to the contrary, neither CalEnergy nor its agents, contractors, vendors or their employees, shareholders, officers or directors, shall be liable to Owner for incidental, consequential, punitive or indirect loss or damage, including, but not limited to, cost of reperformance of services by third parties, damage to property or injury to person, loss of profit, loss of use, loss of revenue, loss of opportunity, increased costs, cost of capital, or loss of goodwill. 6.2 Owner agrees that as between the parties in no event shall the liability of CalEnergy hereunder for any breach of this Agreement exceed the total amount payable to CalEnergy under Section 3 hereof for the calendar year prior to the claim giving rise to such liability, or, if the first calendar year has not yet been completed, the first 12 months from the effective date of this Agreement. 7. Indemnification. Except to the extent that such liability, claim, damage, loss or expense is attributable to the gross negligence or willful misconduct of CalEnergy, to the maximum extent permitted by law, Owner (i) shall defend, indemnify and hold CalEnergy and its agents, contractors, vendors and their employees, shareholders, officers or directors 4 harmless from and against any and all liabilities, claims, damages, losses and expenses, including attorneys' fees and costs and expenses of litigation or arbitration, of every kind and nature payable to third parties to the extent they arise out of the course of performance of this Agreement by CalEnergy or from the business of Owner and (ii) shall, upon request of CalEnergy or other indemnified party, defend all suits arising out of or resulting from the performance of this Agreement by CalEnergy or the business of Owner. Without limiting the generality of the foregoing, Owner shall indemnify and hold CalEnergy and its agents and employees harmless from and against any and all liabilities, fines and penalties arising under laws or regulations with regard to protection of the environment or environmental conditions. 8. Survival of Terms. Owner agrees that the limitations on liability, waivers and disclaimers of liability, indemnities, releases from liability, sole remedy provisions and in this Agreement shall survive termination or expiration of this Agreement, and shall apply for the benefit of CalEnergy and its agents, contractors, vendors and their employees, shareholders, officers or directors, whether in contract, equity, tort or otherwise, even in the event of the fault, negligence, including sole negligence, strict liability, or breach of warranty. 9. Non-Waiver of Breach. Either party hereto may specifically waive any breach of this Agreement by the other party, but no such waiver shall be deemed to have been given unless such waiver is in writing, signed by the waiving party and specifically designates the breach waived, nor shall any such waiver constitute a continuing waiver of similar or other breaches. 10. Arbitration. All disputes arising under this Agreement shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the AAA then pertaining, unless the parties mutually agree otherwise. The party desiring such arbitration shall give written notice to that effect to the other party and in such notice shall appoint as an arbitrator a disinterested person of recognized competence in the area at issue. Within fifteen (15) days thereafter, the other party shall, by written notice to the originating party, appoint a second person similarly qualified as the second arbitrator. The arbitrators thus appointed shall appoint a third person similarly qualified as the third arbitrator, and such three arbitrators shall as promptly as possible determine such matter with the parties, each being entitled to present evidence and argument to the arbitrators; provided, however, that: (i) if the second arbitrator shall not have been appointed as aforesaid, the first arbitrator shall determine such matter; and (ii) if the two arbitrators appointed by the party shall be unable to agree upon the appointment of a third arbitrator within fifteen (15) days after the appointment of the second arbitrator, they shall give written notice of such failure to agree to the parties, and, if the parties fail to agree upon the selection of such third arbitrator within fifteen (15) days thereafter, then within ten (10) days thereafter, either of the parties upon written notice to 5 the other party may apply for such appointment to the Federal District Court or District Court in Omaha, Nebraska. The arbitrator or arbitrators shall only interpret and apply the terms and provisions of this Agreement and shall not change any such terms or provisions or deprive either party of any right or remedy expressly or impliedly provided for in this Agreement. The determination of the majority of the arbitrators or the sole arbitrator, as the case may be, shall, to the extent permitted by law, be conclusive upon the parties. The arbitrator or arbitrators shall give written notice to the parties stating their determination, and shall furnish to each a copy of such determination signed by them. In the event of the failure, refusal or inability of any arbitrator to act, a new arbitrator shall be appointed in his stead, which appointment shall be made in the same manner as hereinbefore provided for the appointment of the arbitrator so failing, refusing or unable to act. 11. Attorney Fees. If either party hereto commences litigation or arbitration for the judicial or other interpretation, enforcement, termination, cancellation or rescission hereof, or for damages for the breach hereof, the prevailing party in any such action, trial, arbitration or appeal thereon shall be entitled to its reasonable attorneys' fees and court, arbitration and other costs incurred, to be paid by the losing party as fixed by the court or arbitrator in the same or a separate suit, and whether or not such action is pursued to decision or judgment. 12. Force Majeure. . 12.1. Neither Owner nor CalEnergy shall be liable in damages to the other for any act, omission or circumstance ("Event of Force Majeure") occasioned by or in consequence of any acts of God, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, civil disturbances, explosions, sabotage, the binding order of any court or governmental authority which has been resisted in good faith by all reasonable legal means, Federal, State or local laws, or other event or circumstance not within the control of such party preventing such party from performing its obligations hereunder, whether caused or occasioned by, or happening on account of, the act or omission of one of the parties, not within the control of the party claiming suspension and which by the exercise of due diligence such party is unable to prevent or overcome. 12.2. Such Events of Force Majeure shall not relieve Owner or CalEnergy of liability in the event of either party's concurring negligence or in the event of either party's failure to use due diligence to remedy the situation and to remove the cause in an adequate manner and with all reasonable dispatch, nor shall such Events of Force Majeure relieve either party of liability unless such party shall give notice and full particulars of the same in writing to the other party within ten (10) days of the occurrence relied on. In no event, however, shall an Event of Force Majeure relieve Owner from the obligation of making payments due under this Agreement at the time of such occurrence. The parties agree that should any Event of Force Majeure remain in existence for a period of six (6) months, this Agreement may be terminated by the party not 6 claiming suspension of the Agreement under such Event of Force Majeure upon the giving of written notice by such party to the other; provided, however, that such six (6) month period shall be extended for a reasonable time so long as throughout such six (6) month period the party claiming suspension of this Agreement under the Event of Force Majeure has diligently proceeded to terminate the Event of Force Majeure and continues to do so throughout such extension. 13. Invalid Provision. 13.1. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted; provided, however, that if any of the provisions of Section 1 hereof are held invalid or unenforceable by any court or other relevant authority, Owner and CalEnergy shall hold consultations over a period of ninety (90) days, commencing immediately, in an effort to work out satisfactory terms for continuation of this Agreement. If Owner and CalEnergy do not reach agreement within this period, CalEnergy shall have the right to terminate this Agreement, effective immediately. 13.2. In the event that any provision, term, condition or object of this Agreement may be in conflict with any law, measure, ruling, court judgment (by consent or otherwise), or regulation of the government of the United States of America, and the legal counsel of either party shall advise that in their considered opinion such conflict, or a reasonable possibility of such conflict, exists, then either party may propose to the other appropriate modifications of this Agreement to avoid such conflict. In such case, if an agreement of modification is not reached within ninety (90) days from such proposal, the party making such proposal, after sixty (60) days' written notice to the other party, may terminate the agreement in its entirety as of a date subsequent to such sixty (60) days, and which shall be specified in such notice. 14. Assignment. Subject to Section 2, neither Owner nor CalEnergy shall grant, assign or otherwise convey any of their respective rights or delegate any of their respective obligations under this Agreement without the prior written consent of the other party which consent shall not be unreasonably withheld. 15. Governing Law. The existence, validity, construction, operation and effect of this Agreement shall be determined in accordance with and governed by the laws of the State of New York. This Agreement shall be construed equally as against the parties hereto, and shall not be construed against the party responsible for its drafting. 16. Entire Agreement - Amendments. This Agreement constitutes the entire agreement of the parties and the provisions hereof shall supersede any and all prior agreements or understandings relating to the same subject matter. This Agreement may be amended only by a writing signed by a duly authorized representative of both parties. 17. Communications. All notices, requests, offers and other communications required or permitted to be made under this Agreement shall be in writing and 7 shall be deemed to have been duly given and received, regardless of when and whether received, either: (a) on the day of delivery, if delivered To CalEnergy Company, Inc. at: CalEnergy Company, Inc. 302 South 36th Street, Suite 400 Omaha, Nebraska 68131 Attention: General Counsel Telephone: (402) 341-4500 Facsimile: (402) 345-9318 To Owner at: CE Generation, LLC 302 South 36th Street, Suite 400-K Omaha, Nebraska 68131 Attention: General Counsel Telephone: (402) 231-1641 Facsimile: (402) 231-1658 or at such other address as either party most recently may have designated in writing to the other party for such purpose; or (b) on the day sent, when sent by prepaid telex, telegram, cable or radiogram, and confirmed the same day by prepaid first-class registered airmail, or when sent by facsimile transmission with telephone confirmation of receipt, addressed to CalEnergy or Owner, as the case may be, at their respective addresses aforesaid. 18. Counterparts. This Agreement may be executed in counterparts and any number of counterparts signed in the aggregate by the parties hereto shall constitute a single original instrument. 19. Exhibits. All exhibits and schedules attached hereto are hereby incorporated herein by this reference. 20. Third Party Beneficiaries. The covenants contained herein are made solely for the benefit of the properties, parties and successors and assigns of such parties as specified herein, and shall not be construed as having been intended to benefit any third party not a party to this Agreement. 21. Headings. The headings herein are for reference only and shall not affect the construction of this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their duly authorized officers as of the day and year first above written. CALENERGY COMPANY, INC. a Delaware corporation By: /s/ Steven A. McArthur ---------------------------------- Name: Steven A. McArthur Title: Executive Vice President CE GENERATION, LLC, a Delaware limited liability company By: /s/ Steven A. McArthur ---------------------------------- Name: Steven A. McArthur Title: Executive Vice President i EX-10.45 19 FUEL MANAGEMENT SERVICES AGREEMENT THIS FUEL MANAGEMENT SERVICES AGREEMENT (the "Agreement") is made as of March ___, 1999, by and between EL PASO ENERGY MARKETING COMPANY, a Delaware corporation ("El Paso"), and CE GENERATION, LLC, a Delaware limited liability company ("Owner"). RECITALS -------- A. Owner indirectly owns certain geothermal electric generating facilities located in the Salton Sea Known Geothermal Resource Area ("SSKGRA") in Imperial County, California, certain gas-fired electric generating facilities located in Yuma, Arizona, Big Spring, Texas, North East, Pennsylvania, and Plattsburg, New York, and certain related facilities (referred to collectively herein as the "Facilities") all through non-recourse project companies ("Project Companies") and three (3) holding companies (the "Holding Companies" and collectively with the Project Companies, the "Companies") namely Magma Power Company, California Energy Development Corporation and Falcon Seaboard Resources, Inc. B. Owner desires to exploit El Paso's energy trading, fuels management, natural gas and fuel oil marketing and risk management resources, and to that end Owner desires to employ, hire or otherwise retain the energy trading, fuels management, natural gas and fuel oil marketing and risk management services of El Paso for purposes of administering the functions of its business, as more fully described herein. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements set forth herein, the parties hereto agree as follows: 1. Services. In consideration of the payment by Owner to El Paso as provided in Section 3 hereof, El Paso agrees to perform during the term of this Agreement those functions as approved in advance by the Board which are normally considered part of the day-to-day management, trading, scheduling, dispatching and marketing for businesses similar to the businesses undertaken by the Companies (the "Services") The Services to be provided hereunder may include, without limitation, (i) energy marketing, (ii) the purchase and sale of natural gas, fuel oil and transportation, (iii) scheduling, dispatch and accounting of fuel deliveries, (iv) risk management services, (v) consulting services with respect to fuel supply alternatives and opportunities and (vi) consulting services with respect to other commercial energy optimization opportunities. Such Services shall be further described and defined in Attachments to this Agreement ("Operating Procedures") which will be numbered, dated and signed by representatives from El Paso and Owner. 2. Subcontracting. Without limiting the obligations of El Paso to 1 Owner hereunder, in connection with El Paso's providing of the Services contemplated by this Agreement, El Paso may subcontract with or otherwise retain the services of other Persons including, but not limited to, Affiliates of El Paso (but only at a rate equal to actual costs and expenses of such Affiliate), with the consent of Owner, which consent shall not be unreasonably withheld. For purposes of this Agreement, any Services performed by such Persons shall be deemed to have been performed by El Paso. 3. Reimbursement of Services. The following shall be paid: 3.1 In consideration of the provision by El Paso to Owner of the Services, within thirty (30) days after Owner has received an invoice from El Paso specifying the Services rendered to Owner by El Paso and the amount to be paid to El Paso for the actual costs and expenses incurred by El Paso in rendering the Services. As used in this Section 3.1, "actual costs and expenses incurred by El Paso" includes, without limitation, (a) the actual cost to El Paso of procuring goods and materials used by El Paso in rendering Services, (b) the fully burdened, pro rata cost to El Paso of personnel providing labor or services in the course of El Paso's provision of Services and (c) the actual cost to El Paso of retaining another Person, whether El Paso or another Affiliate of El Paso or otherwise, in connection with the provision of Services. In the event El Paso subcontracts with any Person, including, without limitation, an Affiliate as provided in Section 2 hereof, any payment to El Paso under this Section 3.1 on account of the Services so subcontracted shall be made to El Paso only to the extent of the amount charged El Paso by such person and shall no include any amounts representing a mark-up by El Paso over the amount so charged. 3.2 With respect to any calculation of actual costs and expenses or any allocation of costs contemplated by Section 3.1 hereof, Owner shall be bound by El Paso's determination thereof so long as such determination is reached in a manner consistent with GAAP and El Paso's existing practices with respect to the Facilities. 4. Term and Termination. 4.1 Unless terminated as provided in Sections 9, 11 or 13 hereof, or as hereinafter provided in this Section 4, this Agreement shall remain in effect until, and shall terminate on the date which is, one year following the date first written above, and shall automatically renew from year to year unless one party hereto notifies the other of its intent to terminate at least 60 days prior to the end of the then expiring term. 4.2 In the event of a material default by either party in the performance of its duties, obligations or undertakings under this Agreement, the other party shall have the right to give written notice to the defaulting party advising such party of the specific default involved and, if within thirty (30) days after such notice the defaulting party shall not have remedied or commenced diligently to remedy the default, the other party shall have the right, in addition to any other rights and remedies it may have, to terminate this Agreement upon ten (10) days' written notice to the defaulting party. 4.3. Notwithstanding any other provision of this Agreement, and in 2 addition to any other right it may have, El Paso shall have the right to terminate this Agreement, (a) effective immediately, if, at any time, Owner is adjudged bankrupt or insolvent, or files a petition in bankruptcy or an answer admitting the material facts recited in such a petition filed by another, or is put or decides to go into dissolution or liquidation (other than in connection with a merger, consolidation or amalgamation), or otherwise discontinues business, makes an assignment for the benefit of its creditors or any other general arrangement with its creditors, becomes insolvent or unable to meet its current payments, or has a receiver or other custodian or any kind appointed to administer any substantial amount of its property, or otherwise seeks to take advantage of any bankruptcy or insolvency statue now or hereafter in effect and (b) upon ninety 90 days notice, within twelve (12) months of foreclosure of the Facilities by the Project Lender and on each anniversary of such foreclosure. 4.4. If this Agreement is terminated prior to the expiration of its terms as provided in section 4.1 hereof, Owner shall pay El Paso all Service Fees and other amounts due and payable to El Paso under Section 3 hereof as of the date the Agreement is effectively terminated. 5. Standard of Care; Sole Remedy. 5.1 El Paso agrees to perform the Services with a standard of care equal to that it exercises in the administration of its own separate business activities. El Paso does not warrant that the Services will be error free or accomplish a particular result. 5.2 Except in the case of gross negligence or willful misconduct, the sole remedy for a breach of the foregoing standard of care shall be reperformance of the Services. 6. Limitations on Liability. 6.1 Owner agrees that notwithstanding any other provision in this Agreement to the contrary, neither El Paso nor its agents, contractors, vendors or their employees, shareholder, officers or directors, shall be liable to Owner for incidental, consequential, punitive or indirect loss or damage, including, but not limited to, cost of reperformance of services by third parties, damage to property or injury to person, loss of profit, loss of use, loss of revenue, loss of opportunity, increased costs, cost of capital, or loss of goodwill. 6.2 Owner agrees that as between the parties in no event shall the liability of El Paso hereunder for any breach of this agreement exceed the total amount payable to El Paso under Section 3 hereof for the calendar year prior to the claim giving rise to such liability, or, if the first calendar year has not yet been completed, the first 12 months from the effective date of this Agreement. 3 7. Indemnification. Except to the extent that such liability, claim, damage, loss or expense is attributable to the gross negligence or willful misconduct of El Paso, to the maximum extent permitted by law, Owner (i) shall defend, indemnify and hold El Paso and its agents, contractors, vendors and their employees, shareholders, officers or directors harmless from and against any and all liabilities, claims, damages, losses and expenses, including attorney's fees and costs and expenses of litigation or arbitration, of every kind and nature payable to third parties to the extent they arise out of the course of performance of this Agreement by El Paso or from the business of Owner and (ii) shall, upon request of El Paso or other indemnified party, defend all suits arises out of or resulting from the performance of this Agreement by El Paso or the business of Owner. Without limiting the generality of the foregoing, Owner shall indemnify and hold El Paso and its agents and employees harmless from and against any and all liabilities, fines and penalties arising under laws or regulations with regard to protection of the environment conditions. 8. Survival of Terms. Owner agrees that the limitations on liability, waivers and disclaimers of liability, indemnities, releases from liability, sole remedy provisions and in this Agreement shall survive termination or expiration of this Agreement, and shall apply for the benefit of El Paso and its agents, contractors, vendors and their employees, shareholders, officers or directors, whether in contract, equity, tort or otherwise, even in the event of the fault, negligence, including sole negligence, strict liability, or breach of warranty. 9. Non-Waiver of Breach. Either party hereto may specifically waive any breach of this Agreement by the other party, but no such waiver shall be deemed to have been given unless such waiver is in writing, signed by the waiving party and specifically designates the breach waived, nor shall any such waiver constitute a continuing waiver of similar or other breaches. 10. Arbitration. All disputes arising under this Agreement shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the AAA then pertaining, unless the parties mutually agree otherwise. The party desiring such arbitration shall give written notice to that effect to the other party and in such notice shall appoint as an arbitrator a disinterested person of recognized competence in the area at issue. Within fifteen (15) days thereafter, the other party shall, by written notice to the originating party, appoint a second person similarly qualified as the second arbitrator, and such three arbitrators shall as promptly as possible determine such matter with the parties, each being entitled to present evidence and argument to the arbitrators; provided, however, that: (i) if the second arbitrator shall not have been appointed as aforesaid, the first arbitrator shall determine such matter; and (ii) if the two arbitrators appointed by the party shall be unable to agree upon the appointment of a third arbitrator within fifteen (15) days after the appointment of the second arbitrator, they shall give written notice of such failure 4 to agree to the parties, and, if the parties fail to agree upon the selection of such third arbitrator within fifteen (15) days thereafter, then within ten (10) days thereafter, either of the parties upon written notice to the other party may apply for such appointment to the Federal District Court or District Court in Omaha, Nebraska. The arbitrator or arbitrators shall only interpret and apply the terms and provisions of this Agreement and shall not change any such terms or provisions or deprive either party of any right or remedy expressly or impliedly provided for in this Agreement. The determination of the majority of the arbitrators or the sole arbitrator, as the case may be, shall, to the extent permitted by law, be conclusive upon the parties. The arbitrator or arbitrators shall give written notice to the parties stating their determination, and shall furnish to each a copy of such determination signed by them. In the event of the failure, refusal or inability of any arbitrator to act, a new arbitrator shall be appointed in his stead, which appointment shall be made in the same manner as hereinbefore provided for the appointment of the arbitrator so failing, refusing or unable to act. 11. Attorney Fees. If either party hereto commences litigation or arbitration for the judicial or other interpretation, enforcement, termination, cancellation or rescission hereof, or for damages for the breach hereof, the prevailing party in any such action, trail, arbitration or appeal thereon shall be entitled to its reasonable attorneys' fees and court, arbitration and other costs incurred, to be paid by the losing party as fixed by the court or arbitrator in the same or a separate suit, and whether or not such action is pursued to decision or judgment. 12. Force Majeure. 12.1 Neither Owner nor El Paso shall be liable in damages to the other for any act, omission or circumstance ("Event of Force Majeure") occasioned by or in consequence of any acts of God, act of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms floods, civil disturbances, explosions, sabotage, the binding order of any court or governmental authority which has been resisted in good faith by all reasonable legal means, Federal, State or local laws, or other event or circumstance not within the control of such party preventing such party from performing its obligations hereunder, whether caused or occasioned by, or happening on account of, the act or omission of one of the parties, not within the control of the party claiming suspension and which by the exercise of due diligence such party is unable to prevent or overcome. 12.2 Such Events of Force Majeure shall not relieve Owner or El Paso of liability in the event of either part's concurring negligence or in the event of either party's failure to use due diligence to remedy the situation and to remove the cause in an adequate manner and with all reasonable dispatch, nor shall such Events of Force Majeure relieve either party of liability unless such party shall give notice and full particulars of the same in writing to the other party within ten (10) days of the occurrence 5 relied on. In no event, however, shall an Event of Force Majeure relieve Owner from the obligation of making payments due under this Agreement at the time of such occurrence. The parties agree that should any Event of Force Majeure remain in existence for a period of six (6) months, this Agreement under such Event of Force Majeure upon the giving of written notice by such party to the other; provided, however, that such six (6) month period shall be extended for a reasonable time so long as throughout such six (6) month period the party claming suspension of this Agreement under the Event of Force Majeure has diligently proceeded to terminate the Event of Force Majeure and continues to do so throughout such extension. 13. Invalid Provision. 13.1 The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted; provided, however, that if any of the provisions of Section 1 hereof are held invalid or unenforceable by any court or other relevant authority, Owner and El Paso shall hold consultations over a period of ninety (90) days, commencing immediately, in an effort to work out satisfactory terms for continuation of this Agreement. If Owner and El Paso do not reach agreement within this period, El Paso shall have the right to terminate this Agreement, effective immediately. 13.2 In the event that any provision, term, condition or object of this Agreement may be in conflict with any law, measure, ruling, court judgement (by consent or otherwise), or regulation of the government of the United States of America, and the legal counsel of either party shall advise that in their considered opinion such conflict, or a reasonable possibility of such conflict, exists, then either party may propose to the other appropriate modifications of this Agreement to avoid such conflict. In such case, if an agreement of modification is not reached within ninety (90) days from such proposal, the party making such proposal, after sixty (60) days' written notice to the other party, may terminate the agreement in its entirety as of a date subsequent to such sixty (60) days, and which shall be specified in such notice. 14. Assignment. Subject to Section 2, neither Owner nor El Paso shall grant, assign or otherwise convey any of their respective rights or delegate any of their respective obligations under this Agreement with the prior written consent of the other party which consent shall not be unreasonably withheld. 15. Governing Law. The existence, validity, construction, operation and effect of this Agreement shall be determined in accordance with and governed by the laws of the State of New York. This Agreement shall be construed equally as against the parties hereto, and shall not be construed against he party responsible for its drafting. 16. Entire Agreement - Amendments. This Agreement constitutes the entire agreement of the parties and the provisions hereof shall supersede any and all prior agreements or understandings relating to the same subject matter. This Agreement may be amended only by a writing signed by a duly authorized representative of both parties. 6 17. Communications. All notices, requests, offers and other communications required or permitted to be made under this Agreement shall be in writing and shall be deemed to have been duly given and received, regardless of when and whether received, either: (a) on the day of delivery, if delivered To El Paso Power Services Company at: El Paso Power Services Company 1001 Louisiana St., Suite 2700 Houston, TX 77002 Attention: General Counsel Telephone: (713) 420-4431 Facsimile: (713) 420-4943 To Owner at: CE Generation, LLC 302 South 36th Street, Suite 400-K Omaha, Nebraska 68131 Attention: General Counsel Telephone: (402) 341-1641 Facsimile: (402) 345-1658 or at such other address as either party most recently may have designated in writing to the other party for such purpose; or (b) on the day sent, when sent by prepaid telex, telegram, cable or radiogram, and confirmed the same day by period first-class registered airmail, or when sent by facsimile transmission with telephone confirmation of receipt, addressed to El Paso or Owner, as the case may be, at their respective addresses foresaid. 18. Counterparts. This Agreement may be executed in counterparts and any number of counterparts signed in aggregate by the parties hereto shall constitute a single original instrument. 19. Exhibits. All exhibits and schedules attached hereto are hereby incorporated herein by this reference. 20. Third Party Beneficiaries. The covenants contained herein are made solely for the benefit of the properties, parties and successors and assigns of such parties as specified herein, and shall not be construed as having been intended to benefit any third party not a party to the agreement. 21. Headings. The headings herein are for reference only and shall not affect the construction of this Agreement. 7 IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be signed by their duly authorized officers as of the day and year first above written. EL PASO POWER SERVICES COMPANY A Delaware Corporation By: /s/ Larry Kellerman ----------------------------------------- Name: Larry Kellerman Title: President CE GENERATION, LLC. A Delaware limited liability company By: /s/ Steven A. McArthur ----------------------------------------- Name: Steven A. McArthur Title: Executive Vice President 8 EX-10.46 20 POWER MARKETING SERVICES AGREEMENT THIS POWER MARKETING SERVICES AGREEMENT (the "Agreement") is made as of March , 1999, by and between EL PASO POWER SERVICES COMPANY, a Delaware corporation ("El Paso"), and CE GENERATION, LLC, a Delaware limited liability company ("Owner"). RECITALS A. Owner indirectly owns certain geothermal electric generating facilities located in the Salton Sea Known Geothermal Resource Area ("SSKGRA") in Imperial County, California, certain gas-fired electric generating facilities located in Yuma, Arizona, Big Spring, Texas, North East, Pennsylvania, and Plattsburg, New York, and certain related facilities (referred to collectively herein as the "Facilities") all through non-recourse project companies ("Project Companies") and three (3) holding companies (the "Holding Companies" and collectively with the Project Companies, the "Companies") namely Magma Power Company, California Energy Development Corporation and Falcon Seaboard Resources, Inc. B. Owner desires to exploit El Paso's energy trading, scheduling, dispatch, marketing and risk management resources, and to that end Owner desires to employ, hire or otherwise retain the energy trading, scheduling, dispatch, marketing and risk management services of El Paso for purposes of administering the functions of its business, as more fully described herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements set forth herein, the parties hereto agree as follows: 1. Services. In consideration of the payment by Owner to El Paso as provided in Section 3 hereof, El Paso agrees to perform during the term of this Agreement those functions as approved in advance by the Board which are normally considered part of the day-to-day management, trading, scheduling, dispatching and marketing for businesses similar to the businesses undertaken by the Companies (the "Services") The Services to be provided hereunder may include, without limitation, (i) energy marketing, (ii) the purchase and sale of energy, capacity, transmission and ancillary services, (iii) bulk power scheduling, dispatch and accounting, (iv) risk management services, (v) consulting services with respect to electrical energy production and fuel arbitrage opportunities and (vi) consulting services with respect to other commercial energy optimization opportunities. Such Services shall be further described and defined in Attachments to this Agreement ("Operating Procedures") which will be numbered, dated and signed by representatives from El Paso and Owner. 2. Subcontracting. Without limiting the obligations of El Paso to Owner hereunder, in connection with El Paso's providing of the Services contemplated by this Agreement, El Paso may subcontract with or otherwise retain the services of other 1 Persons including, but not limited to, Affiliates of El Paso (but only at a rate equal to actual costs and expenses of such Affiliate), with the consent of Owner, which consent shall not be unreasonably withheld. For purposes of this Agreement, any Services performed by such Persons shall be deemed to have been performed by El Paso. 3. Reimbursement of Services. The following shall be paid: 3.1 In consideration of the provision by El Paso to Owner of the Services, within thirty (30) days after Owner has received an invoice from El Paso specifying the Services rendered to Owner by El Paso and the amount to be paid to El Paso for the actual costs and expenses incurred by El Paso in rendering the Services. As used in this Section 3.1, "actual cost and expenses incurred by El Paso" includes, without limitation, (a) the actual cost to El Paso of procuring goods and materials used by El Paso in rendering Services, (b) the fully burdened, pro rata cost to El Paso of personnel providing labor or services in the course of El Paso's provision of Services and (c) the actual cost to El Paso of retaining another Person, whether El Paso or another Affiliate of El Paso or otherwise, in connection with the provision of Services. In the event El Paso subcontracts with any Person, including, without limitation, an Affiliate as provided in Section 2 hereof, any payment to El Paso under this Section 3.1 on account of the Services so subcontracted shall be made to El Paso only to the extent of the amount charged El Paso by such person and shall no include any amounts representing a mark-up by El Paso over the amount so charged. 3.2 With respect to any calculation of actual costs and expenses or any allocation of costs contemplated by Section 3.1 hereof, Owner shall be bound by El Paso's determination thereof so long as such determination is reached in a manner consistent with GAAP and El Paso's existing practices with respect to the Facilities. 4. Term and Termination. 4.1 Unless terminated as provided in Section 9, 11 or 13 hereof, or as hereinafter provided in this Section 4, this Agreement shall remain in effect until, and shall terminate on the date which is, one year following the date first written above, and shall automatically renew from year to year unless one part hereto notifies the other of its intent to terminate at least 60 days prior to the end of the then expiring term. 4.2 In the event of a material default by either party in the performance of its duties, obligations or undertakings under this Agreement, the other party shall have the right to give written notice to the defaulting party advising such party of the specific default involved and, if within thirty (30) days after such notice the defaulting party shall not have remedied or commenced diligently to remedy the default, the other party shall have the right, in addition to any other rights and remedies it may have, to terminate this Agreement upon ten (10) days' written notice to the defaulting party. 4.3 Notwithstanding any other provision of this Agreement, and in addition to any other right it may have, El Paso shall have the right to terminate this Agreement, (a) effective immediately, if, at any time, Owner is adjudged bankrupt or 2 insolvent, or files a petition in bankruptcy or an answer admitting the material facts recited in such a petition filed by another, or is put or decides to go into dissolution or liquidation (other than in connection with a merger, consolidation or amalgamation), or otherwise discontinues business, makes an assignment for the benefit of its creditors or any other general arrangement with its creditors, becomes insolvent or unable to meet its current payments, or has a receiver or other custodian or any kind appointed to administer any substantial amount of its property, or otherwise seeks to take advantage of any bankruptcy or insolvency statue now or hereafter in effect and (b) upon ninety 90 days notice, within twelve (12) months of foreclosure of the Facilities by the Project Lender and on each anniversary of such foreclosure. 4.4 If this Agreement is terminated prior to the expiration of its terms as provided in section 4.1 hereof, Owner shall pay El Paso all Service Fees and other amounts due and payable to El Paso under Section 3 hereof as of the date the Agreement is effectively terminated. 5. Standard of Care: Sole Remedy. 5.1 El Paso agrees to perform the Services with a standard of care equal to that it exercises in the administration of its own separate business activities. El Paso does not warrant that the Services will be error free or accomplish a particular result. 5.2 Except in the case of gross negligence or willful misconduct, the sole remedy for a breach of the foregoing standard of care shall be reperformance of the Services. 6. Limitations on Liability. 6.1 Owner agrees that notwithstanding any other provision in this Agreement to the contrary, neither El Paso nor its agents, contractors, vendors or their employees, shareholder, officers or directors, shall be liable to Owner for incidental, consequential, punitive or indirect loss or damage, including, but not limited to, cost of reperformance of services by third parties, damage to property or injury to person, loss of profit, loss of use, loss of revenue, loss of opportunity, increased costs, cost of capital, or loss of goodwill. 6.2 Owner agrees that as between the parties in no event shall the liability of El Paso hereunder for any breach of this agreement exceed the total amount payable to El Paso under Section 3 hereof for the calendar year prior to the claim giving rise to such liability, or, if the first calendar year has not yet been completed, the first 12 months from the effective date of the Agreement. 7. Indemnification. Except to the extent that such liability, claim, damage, loss or expense is attributable to the gross negligence or willful misconduct of El Paso, to 3 the maximum extent permitted by laws, Owner (i) shall defined, indemnify and hold El Paso and its agents, contractors, vendors and their employees, shareholders, officers or diectors harmless from and against any and all liabilities, claims, damages, losses and expenses, including attorney's fees and costs and expenses of litigation or arbitration, of every kind and nature payable to third parties to the extent they arise out of the course of performance of this Agreement by El Paso or from the business of Owner and (ii) shall, upon request of El Paso or other indemnified party, defend all suits arises out of or resulting from the performance of this Agreement by El Paso or the business of Owner. Without limiting the generality of the foregoing, Owner shall indemnify and hold El Paso and its agents and employees harmless from and against any and all liabilities, fines and penalties arising under laws or regulations with regard to protection of the environment conditions. 8. Survival of Terms. Owner agrees that the limitations on liability, waivers and disclaimers of liability, indemnities, release from liability, sole remedy provisions and in this Agreement shall survive termination or expiration of this Agreement, and shall apply for the benefit of El Paso and its agents, contractors, vendors and their employees, shareholders, officers or directors, whether in contract, equity, tort or otherwise, even in the event of the fault, negligence, including sole negligence, strict liability, or breach of warranty. 9. Non-Waiver of Breach. Either party hereto may specifically waive any breach of this Agreement by the other party, but no such waiver shall be deemed to have been given unless such waiver is in writing, signed by the waiving party and specifically designates the breach waived, nor shall any such waiver constitute a continuing waiver of similar or other breaches. 10. Arbitration. All disputes arising under this Agreement shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the AAA then pertaining, unless the parties mutually agree otherwise. The party desiring such arbitration shall give written notice to that effect to the other party and in such notice shall appoint as an arbitrator a disinterested person of recognized competence in the area at issue. Within fifteen (15) days thereafter, the other party shall, by written notice to the originating party, appoint a second person similarly qualified as the second arbitrator, and such three arbitrators shall as promptly as possible determine such matter with the parties, each being entitled to present evidence and argument to the arbitrators; provided, however, that: (i) if the second arbitrator shall not have appointed as aforesaid, the first arbitrator shall determine such matter; and (ii) if the two arbitrators appointed by the party shall be unable to agree upon the appointment of a third arbitrator within fifteen (15) days after the appointment of the second arbitrator, they shall give written notice of such failure to agree to the parties, and, if the parties fail to agree upon the selection of such third arbitrator within fifteen (15) days thereafter, then within ten (10) days 4 thereafter, either of the parties upon written notice to the other party may apply for such appointment to the Federal District Court or District Court in Omaha, Nebraska. The arbitrator or arbitrators shall only interpret and apply terms and provisions of this Agreement and shall not change any such terms or provisions or deprive either party of any right or remedy expressly or impliedly provided for in this Agreement. The determination of the majority of the arbitrators or the sole arbitrator, as the case may be, shall, to the extent permitted by law, be conclusive upon the parties. The arbitrator or arbitrators shall give written notice to the parties stating their determination, and shall furnish to each a copy of such determination signed by them. In the event of the failure, refusal or inability of any arbitrator to act, a new arbitrator shall be appointed in his stead, which appointment shall be made in the same manner as hereinbefore provided for the appointment of the arbitrator so failing, refusing or unable to act. 11. Attorney Fees. If either party hereto commences litigation or arbitration for the judicial or other interpretation, enforcement, termination, cancellation or rescission hereof, or for damages for the breach hereof, the prevailing party in any such action, trail, arbitration or appeal thereon shall be entitled to its reasonable attorneys' fees and court, arbitrator and other costs incurred, to be paid by the losing party as fixed by the court or arbitrator in the same or a separate suit, and whether or not such action is pursued to decision or judgment. 12. Force Majeure 12.1 Neither Owner nor El Paso shall be liable in damage to the other for any act, omission or circumstance ("Event of Force Majeure") occasioned by or in consequence of any acts of God, act of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lighting, earthquakes, fires, storms floods, civil disturbances, explosions, sabotage, the binding order of any court or governmental authority which has been resisted in good faith by all reasonable legal means, Federal, State or local laws, or other event or circumstance not within the control of such party preventing such party from performing its obligations hereunder, whether caused or occasioned by, or happening on account of, the act or omission of one of the parties, not within the control of the party claiming suspension and which by the exercise of due diligence such party is unable to prevent or overcome. 12.2 Such Events of Force Majeure shall not relieve Owner or El Paso of liability in the event of either part's concurring engligence or in the event of either party's failure to use due diligence to remedy the situation and to remove the cause in an adequate manner and with all reasonable dispatch, nor shall such Events of Force Majeure relieve either party of liability unless such party shall give notice and full particulars of the same in writing to the other party within ten (10) days of the occurrence relied on. In no event, however, shall an Event of Force Majeure relieve Owner from the obligation of making payments due under this Agreement at the time of such occurrence. 5 The parties agree that should any Event of Force Majeure remain in existence for a period of six (6) months, this Agreement under such Event of Force Majeure upon the giving of written notice by such party to the other; provided, however, that such six (6) month period shall extended for a reasonable time so long as throughout such six (6) month period the party claiming suspension of this Agreement under the Event of Force Majeure has diligently proceeded to terminate the Event of Force Majeure and continues to do so throughout such extension. 13. Invalid Provision. 13.1 The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions thereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted; provided, however, that if any of the provisions of Section 1 hereof are held invalid or unenforceable by any court or other relevant authority, Owner and El Paso shall hold consultations over a period of ninety (90) days, commencing immediately, in an effort to work out satisfactory terms for continuation of this Agreement. If Owner and El Paso do not reach agreement within this period, El Paso shall have the right to terminate this Agreement, effective immediately. 13.2 In the event that any provision, term, condition or object of this Agreement may be in conflict with any law, measure, ruling, court judgement (by consent or otherwise), or regulation of the government of the United States of America, and the legal counsel of either party shall advise that in their considered opinion such conflict, or a reasonable possibility of such conflict, exists, then either party may propose to the other appropriate modifications of this Agreement to avoid such conflict. In such case, if an agreement of modification is not reached within ninety (90) days from such proposal, the party making such proposal, after sixty (60) days' written notice to the other party, may terminate the agreement in its entirety as of date subsequent to such sixty (60) days, and which shall be specified in such notice. 14. Assignment. Subject to Section 2, neither Owner nor El Paso shall grant, assign or otherwise convey any of their respective rights or delegate any of their respective obligations under this Agreement with the prior written consent of the other party which consent shall not be unreasonably withheld. 15. Governing Law. The existence, validity, construction, operation and effect of this Agreement shall be determined in accordance with and governed by the laws of the State of New York. This Agreement shall be construed equally as against the parties hereto, and shall not be construed against he party responsible for its drafting. 16. Entire Agreement - Amendments. This Agreement constitutes the entire agreement of the parties and the provisions hereof shall supersede any and all prior agreements or understandings relating to the same subject matter. This Agreement may be amended only by a writing signed by a duly authorized representative of both parties. 6 17. Communications. All notices, request, offers and other communications required or permitted to be made under this Agreement shall be in writing and shall be deemed to have been duly given and received, regardless of when and whether received, either:(a) on the day of delivery, if delivered To El Paso Power Services Company at: El Paso Power Services Company 1001 Lousiana St., Suite 2700 Houston, TX 77002 Attention: General Counsel Telephone: (713)420-4431 Facsimile: (713)420-4943 To Owner at: CE Generation, LLC 302 South 36th Street, Suite 400-K Omaha, Nebraska 68131 Attention: General Counsel Telephone: (402)341-1641 Facsimile: (402)345-1658 or at such other address as either party most recently may have designated in writing to other party for such purpose; or (b) on the day sent, when sent by prepaid telex, telegram, cable or radiogram, and confirmed the same day by period first-class registered airmail, or when sent by facsimile transmission with telephone confirmation of receipt, addressed to El Paso or Owner, as the case may be, at their respective addresses foresaid. 18. Counterparts. This Agreement may be executed in counterparts and any number of counterparts signed in aggregate by the parties hereto shall constitute a single original instrument. 19. Exhibits. All exhibits and schedules attached hereto are hereby incorporated herein by this reference. 20. Third Party Beneficiaries. The covenants contained herein are made solely for the benefit of the properties, parties and successors and assigns of such parties as specified herein, and shall not be construed as having been intended to benefit any third party not a party to the agreement. 21. Headings. The headings herein are reference only and shall not affect the construction of this Agreement. 7 IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be signed by their duly authorized officers as of the day year first above written. EL PASO POWER SERVICES COMPANY A Delaware Corporation BY: /s/ Steven A. McArthur --------------------------------- Name: Steven A. McArthur Title: Executive Vice President CE GENERATION, LLC. A Delaware limited liability company BY: /s/ Steven A. McArthur --------------------------------- Name: Steven A. McArthur Title: Executive Vice President 8 EX-10.47 21 EQUITY PURCHASE AGREEMENT EQUITY PURCHASE AGREEMENT This EQUITY PURCHASE AGREEMENT (this "Agreement"), dated as of February 21, 1999, is by and between CalEnergy Company, Inc., a Delaware corporation ("Seller"), and El Paso Power Holding Company, a Delaware corporation ("Buyer"). WHEREAS, Seller has contributed to CE Generation, LLC, a Delaware limited liability company (the "Company"), all of its interests in the entities listed in Section 3.3 of the Seller Disclosure Schedule, representing indirect ownership of all Seller's interests in the Projects listed in such Section 3.3 (the "Project Subsidiaries"): WHEREAS, in consideration of the contribution referred to above, Seller subscribed for and owns all of the issued and outstanding shares of the Company's Class A Interests (the "Class A Interests"), representing 50% of the equity in the Company, and all of the issued and outstanding shares of the Company's Class B Interests (the "Class B Interests" and together with the Class A Interests, the "Interests"), representing the remaining 50% of the equity in the Company; and WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, the Class A Interests, all in accordance with and subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements herein contained, Buyer and Seller hereby agree as follows: ARTICLE I. DEFINITIONS 1.1. Definitions. The terms defined in this "Article I", whenever used herein, shall have the following meanings for all purposes of this Agreement. "Administrative Services Agreement" shall mean that certain Administrative Services Agreement between Seller and the Company pursuant to which Seller will provide certain services to the Company. "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under the Exchange Act. "Affiliated Group" has the meaning specified in section 1504(a) of the Code. "Agreement" shall have the meaning set forth in the preamble hereto. "Agreement Concerning Consideration" shall mean that certain agreement between Buyer and Seller substantially in the form of Exhibit A. "Buyer" shall have the meaning set forth in the preamble hereto. "Buyer Disclosure Schedule" shall have the meaning set forth in Article IV hereof. "Buyer Equity Commitment Agreement" shall mean that certain agreement between Buyer and the Company substantially in the form of Exhibit B to be delivered at Closing committing Buyer to make, or cause to be made, certain funds available for the construction of certain facilities in the Imperial Valley. "Buyer Indemnified Parties" shall have the meaning set forth in Section 9.4(a) hereof. "Buyer Material Adverse Effect" shall have the meaning set forth in Section 4.1 hereof. "Buyer's Transaction Taxes" shall mean all Taxes imposed for Pre-Closing Periods plus one day on the Buyer as a direct result of the transactions contemplated by, or entered into in contemplation of, this Agreement; but shall not include (i) any increase in ad valorem taxes attributable to a re-appraisal of property triggered by the transactions -2- contemplated herein and (ii) any taxes imposed under a retroactive change in law enacted by Congress after the date hereof. Buyer's Transaction Taxes shall not include any other income taxes imposed on Buyer including, but not limited to, taxes on dividends or taxes on interest on any escrow account contemplated herein. "CalEnergy Guaranty" shall mean the guarantee of certain construction financing obligations related to the Zinc Recovery Project by Seller for the benefit of the Company. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "Class A Interests" shall have the meaning set forth in the recitals hereto. "Class B Interests" shall have the meaning set forth in the recitals hereto. "Closing" shall have the meaning set forth in Section 2.3(a) hereof. "Closing Date" shall have the meaning set forth in Section 2.3(a) hereof. "Code" means the Internal Revenue Code of 1986, as amended. "Combined Financial Statements" shall have the meaning set forth in Section 3.6 hereof. "Company" shall have the meaning set forth in the recitals hereto. "Confidentiality Agreement" shall mean the Confidentiality Agreement dated as of January 14, 1999 between El Paso Energy Marketing, Inc. and Seller. "Damages" shall mean any loss, injury, decline in value, liabilities, costs (including costs of investigation) or expenses (including, reasonable attorneys' fees), judgments, fines, penalties, losses, claims, damages and amounts paid in settlement, except to the extent caused by gross negligence, willful misconduct or fraud of an Indemnified Party. -3- "Deductible Amount" shall have the meaning set forth in Section 9.4(c) hereof. "Development Agreement" shall mean that certain agreement between Buyer and Seller and the Company substantially in the form of Exhibit C. "Electric Utility" shall mean any Person that is an "electric utility" or an "electric utility holding company" (or a combination thereof) within the meaning of PURPA, or a Person which would be deemed to be owned in part by any of the foregoing. "Encumbrance" shall mean any lien, encumbrance, security interest, charge, mortgage, option, pledge or restriction on transfer of any nature whatsoever (except, in the case of the Interests, for restrictions relating to applicable securities laws, and except for encumbrances pursuant to the Project Documents, LLC Operating Agreement, IPPCo Debt and Project financing documents, Zinc Project Documents, and any Permits). "Environmental Claim" means any claim, action, demand, order, or written notice by or on behalf of, any Governmental Entity or Person alleging potential liability based on or resulting from the violation of any Environmental Law or environmental permit. "Environmental Laws" shall mean all Federal, state, and local Laws relating to or concerning pollution, the treatment, transportation, removal, storage, discharge or generation of Hazardous Materials or other hazardous or toxic materials or waste, or the protection of human health, the environment or public health and safety. "Environmental Liability" shall mean a Liability arising out of or resulting from (i) the treatment, recycling, reclamation, use, management, Release, generation, processing, handling, storage or disposal of, or contamination by, any Hazardous Materials on or prior to the Closing Date, whether (A) on the premises on which the business of the Company and the Project Subsidiaries has been conducted or (B) off such premises and relating to the operations of such business or any activities by the Company or any Project Subsidiary, or (ii) the noncompliance by any Project Subsidiary or the Company prior to the Closing Date, to the extent such Liability under (i) or (ii) of this definition arises out of or results under any -4- applicable Environmental Law or environmental Permit as in effect on or before the Closing Date. "ERISA" shall have the meaning set forth in Section 3.12(a) hereof. "Escrow Agreement" shall mean the agreement substantially in the form of Exhibit D. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Excluded Assets" shall have the meaning set forth in Section 2.2 hereof. "Excluded Liabilities" shall have the meaning set forth in Section 2.2 hereof. "FERC" shall mean the Federal Energy Regulatory Commission, or any successor agency. "Final Order" shall mean an order by the applicable agency that is no longer subject to a request for rehearing, appeal or similar procedures. "GAAP" shall mean United States generally accepted accounting principles as in effect on the date or for the period with respect to which such principles are applied. "Governmental Entity" shall have the meaning set forth in Section 3.5 hereof. "Good Utility Practice" means with respect to a specific Project those engineering and operating practices, procedures and policies that are used by electric utility and generating companies and are reasonably calculated to result in safe, reliable and efficient operations and the delivery of electric capacity and energy. At a minimum, Good Utility Practice includes conforming to all regulatory mandates and adhering to the guidelines and policies of the North American Electric Reliability Council. Good Utility Practice does not mean that the practices, procedures and policies must necessarily produce the optimum result, so long as the result is in conformance with standards expressed in the first two sentences of this definition. -5- "Hazardous Materials" shall mean any substance, chemical, waste or other material which is or may be listed, defined or otherwise identified as hazardous, toxic or dangerous under any applicable law, as well as any asbestos, polychlorinated biphenyls ("PCBs"), petroleum, petroleum product or by-product, crude oil, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel, geothermal materials and radioactive materials. "Indemnified Party" shall have the meaning set forth in Section 9.4(g) hereof. "Indemnity Agreement" shall mean that certain agreement between Seller, Buyer and the Company in substantially in the form of Exhibit E. "Indemnifying Party" shall have the meaning set forth in Section 9.4(g) hereof. "Insurance Policies" shall have the meaning set forth in Section 3.15 hereof. "Interests" shall have the meaning set forth in the preamble hereto. "IPPCo Debt" shall mean the non-recourse indebtedness of the Company issued prior to the Closing in an aggregate principal amount not to exceed $400 million and on substantially the terms set forth in Exhibit F hereto. "Joinder Agreement" shall mean the agreement by which Buyer agrees to become a Party to the LLC Operating Agreement in substantially the form attached thereto. "Law" means any federal, state or local statute, law, ordinance, regulation, rule, code, order, requirement. "Liability" shall mean any debt, obligation, duty or liability of any nature. "LLC Operating Agreement" shall mean the Limited Liability Company Operating Agreement for the Company, adopted by Seller and the Company and to be joined by the Buyer at Closing in the form attached as Exhibit G. -6- "Material Adverse Effect" shall mean events, facts or circumstances which, alone or in the aggregate, have or could reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), assets, properties, or operations of the Company and the Project Subsidiaries taken as a whole. "Multiemployer Plan" shall have the meaning set forth in Section 3(37) of ERISA. "Multiple Employer Plan" shall mean a plan with two or more contributing sponsors, at least two of which are not under common control, within the meaning of Section 4063 of ERISA. "Permits" shall have the meaning set forth in Section 3.8 hereof. "Person" shall mean any individual, partnership, joint-stock company, joint venture, corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Plans" shall have the meaning, set forth in Section 3.12 hereof. "Power Purchase Agreement" shall mean, with respect to any Project, the agreement pursuant to which such Project provides electricity to one or more persons, each of which is listed in Section 3.8 of the Seller Disclosure Schedule. "Pre-Closing Period" shall mean all Tax periods ending on or before the Closing Date and Taxes relating to all activity through the Closing Date. "Projects" shall mean those projects and facilities commonly known as Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III, Salton Sea Unit IV, Salton Sea Unit V, Vulcan, Hoch (Del Ranch), Elmore, Leathers, CE Turbo, Yuma, PRI, NorCon and Saranac, which are owned by certain Project Subsidiaries. "Project Documents" shall mean those certain documents listed in Section 3.8 of the Seller Disclosure Schedule. -7- "Project Subsidiaries" shall have the meaning set forth in the recitals hereto. "Proprietary Rights" shall have the meaning set forth in Section 3.14 hereof. "Purchase Price" shall have the meaning set forth in Section 2.1 hereof. "PUHCA" shall mean the Public Utility Holding Company Act of 1935, as amended, and the rules and regulations promulgated thereunder. I "PURPA" shall mean the Public Utility Regulatory Policies Act of 1978, as amended, the regulations promulgated by FERC thereunder, and any published, final and non-appealable decision of FERC applying or interpreting such act, rules and regulations. "Qualifying Facility" shall mean a power plant which has qualified as a "small power production facility" or a "cogeneration facility" as such terms are defined in PURPA. "Release" shall have the meaning set forth in CERCLA. "Representative" shall mean, with respect to any Person, each of such Person's directors, officers, employees, representatives and agents, and each of the heirs, executors and assigns of any of them. "Securities Act" shall mean the Securities Act of 1933, as amended. "Seller Indemnified Parties" shall have the meaning set forth in Section 9.4(b) hereof. "Seller" shall have the meaning set forth in the preamble hereto. "Seller Disclosure Schedule" shall have the meaning set forth in Article III hereof. "Single Employer Plan" shall mean a defined benefit pension plan which is subject to Title IV of ERISA and which is not a Multiemployer Plan. -8- "Software" means any source code, object code, machine code, or other instructions of any kind or description which is loaded or to be loaded on any automated system or device of Seller or the Company or used at or in connection with a Project, including by way of illustration but not limitation, operating system, BIOS (basic input/output system), compilers, generators, interpreters, application programs (whether compiled or not, and whether interpreted or not), instructions stored on Programmable, Read Only Memory (PROM) chips, instructions stored on Read Only Memory (ROM) chips, or instructions stored on Erasable, Programmable, Read Only Memory (EPROM) chips. "SSFC" shall mean the Salton Sea Funding Corporation. "Subsidiary" shall mean, with respect to any Person, a corporation, partnership, joint venture, association, limited liability company or other entity of which such Person owns, directly or indirectly, more than 50% of the outstanding voting stock or other ownership interest. "System" means any automated or partially automated application, function or process which utilizes Software and which has an input from or output to some other System, person or report. "Tax" (and, with correlative meaning, "Taxes") means any federal. state, local, or foreign taxes, charges, fees, levies or other assessments, including, without limitation, any net income tax or franchise tax based on net income, any alternative or add-on minimum taxes, any gross income, gross receipts, premium, sales, use, ad valorem, value added, transfer, profits, license, payroll, employment, withholding, excise, severance, stamp, occupation, property, environmental (including taxes under section 59A of the Code), capital stock, social security (or similar), unemployment, disability, registration, estimated, or windfall profit tax, custom duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest credit or charge, penalty (including any penalty for failure to file a Tax Return), addition to tax or additional amount imposed by any Governmental Entity, whether disputed or not. -9- "Tax Indemnity Agreement" shall mean that certain agreement between Seller and the Company substantially in the form of Exhibit H. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Transaction Regulatory Approvals" shall mean all regulatory approvals required to consummate the transactions contemplated hereby, including, without limitation, the Final Order of FERC granting separate recertification to each of the Projects, confirming that each of the Projects will maintain its Qualifying Facility status following the transactions contemplated hereby. "Working Capital payment" shall mean the sum of the Company's (i) unrestricted cash recorded on the Company's audited combined balance sheet as of December 31, 1998, (ii) plus accounts receivable from third parties recorded on the Company's audited combined balance sheet as of December 31, 1998 owed to the Company or the Project Subsidiaries (excluding Saranac and NorCon) as of December 3 1, 1998 which are for activity prior to December 1, 1998 and have been collected prior to Closing (iii) less accounts payable and accrued liabilities owed by the Company or the Project Subsidiaries (excluding Saranac and NorCon to third parties as of December 31, 1998 which relate to activity prior to December 1, 1998 but excluding (a) those accounts payable and accrued liabilities that have related restricted cash balances (but in any event to the extent Yuma, Saranac and PRI have combined accrued liabilities associated with restricted cash balances in excess of the related restricted cash balance, that amount shall be included as a reduction from the Working Capital Payment), (b) deferred revenue and (c) certain purchase accounting reserves to the extent they are not paid by December 30, 1999, but in any event not to exceed $ 1,700,000, (iv) plus 50% of the Saranac project completion account balance not to exceed $600,000, (v) less 50% of any cash distributions (net of cash contributions) from the Company or the Project Subsidiaries to the Seller during the period between January 1, 1999 and the Closing Date related to revenues and expenses earned or accrued after November 30, 199S but specifically not to include the -10- Company's share of the Saranac scrap sale proceeds and the distributions from the IPPCo Debt (vi) less 7.6% of the net sum of the items (i) through (v) above, (vii) plus 38% of 50% of pretax book income of the Company excluding any recognized income related to (iii)(b) above between January 1, 1999 and the Closing Date and (viii) plus the Company's receivables relating to the Del Ranch and Elmore contract energy rate dispute for periods prior to December 1, 1998 which were not collected prior to Closing. It is agreed that all legal and other third party costs incurred in the collection efforts subsequent to December 31, 1998 shall be shared between the Seller and Company based upon the ratio of the disputed receivable paid in the Working Capital Payment to the Seller and that retained by the Company. The Working Capital Payment will be paid to Seller by Buyer and Seller will hold those funds in escrow. All interest earned on the actual escrowed funds will accrue to the Buyer. Escrowed funds will be released from time to time to Seller after Closing at the times and in amounts equal to the cash as it is allowed to be withdrawn from the Company to Buyer. Buyer, or its representatives, shall have reasonable access to the Company's and its Project Subsidiaries' books and records for 90 days subsequent to the Closing Date to verify the computation of the Working Capital Payment. Based on such review, should an adjustment be requested by the Buyer or the Seller, then Buyer and Seller will work together to agree on the adjustment within 30 days. If the difference between Seller's and Buyer's Working Capital Payment calculation is less than or equal to $50,000, Buyer and Seller shall split the difference between the two calculations. If Buyer and Seller cannot agree within $50,000, then they shall submit the issue to an independent audit firm (excluding Deloitte & Touche or PriceWaterhouseCoopers) mutually agreeable to Buyer and Seller, which will be responsible for computing the Working Capital Payment. Buyer or Seller shall submit reasonable agreed upon procedures language to be agreed between Buyer and Seller which will define an aggregate materiality limit for the auditors as $200,000. The conclusion from the audit firm shall be final and if such final auditors calculation shows an adjustment that is material and in favor of Buyer, such funds shall be refunded to Buyer within 30 days, and if such final adjustment results in a refund to the Seller, Buyer shall cause such funds to be paid to Seller, or the Company, within 30 days. Fees paid to the auditing firm shall be shared equally -11- between Buyer and Seller but in no event shall Seller's portion exceed $10,000. In no event will an audit adjustment be made to the Working Capital Payment after June 30, 1999. In no event shall the Working Capital Payment exceed $30,000,000. "Year 2000 Compliant" means that for the Projects and for any of Seller's or the Company's financial accounting, management reporting, telecommunications, environmental, access control or security Systems that will either continue to interface with any Project or on which Buyer or the Projects will have a right of processing, will function without interruption or human intervention with four-digit year processing on all Date Data, including errors or interruptions from functions which may involve Date Data from more than one century or leap years, regardless of the date of processing or date of Date Data (the term "Date Data" shall mean any data, input, or output which includes an indication of date). "Zinc Project Documents" shall mean the Agreements listed on Section I of the Seller Disclosure Schedule. "Zinc Recovery Project" shall mean that certain zinc extraction facility located in Imperial Valley, California, owned by CalEnergy minerals LLC and all future expansions thereof and future minerals extraction or processing facilities developed in the vicinity of the Projects located in Imperial Valley, California. ARTICLE II. SALE OF INTERESTS 2.1. Purchase and Sale of the Interests and Liabilities. Buyer and Seller hereby agree that upon the terms and subject to the satisfaction or waiver, if permissible, of the conditions set forth herein, Seller shall sell, transfer and deliver to Buyer, and Buyer shall purchase from Seller, free and clear of all Encumbrances, the Class A Interests for a purchase price equal to Two Hundred and Twenty Nine Million Six Hundred and Twenty Five Thousand Dollars ($229,625,000) (the "Purchase Price"). The parties hereto acknowledge that the Purchase Price is based on the assumption that the IPPCO Debt shall be $400 million in aggregate principal amount. -12- 2.2. Excluded Assets and Liabilities. Seller's contribution to the Company of the Project Subsidiaries was made after retention by Seller of 100% of the title to Minerals LLC and certain other rights and interests referenced in Section 2.2 of the Seller Disclosure Schedule, and, accordingly, the Class A Interests do not represent or have any right or interest in those assets forming a part of the Zinc Recovery Project (it being expressly acknowledged and agreed that any minerals recovery project at the geothermal Projects in Imperial Valley, including, without limitation, the Zinc Recovery Project does not constitute a Project hereunder) or those certain rights and interests referenced in Section 2.2 of the Seller Disclosure Schedule (the "Excluded Assets"). Seller shall retain, and shall be responsible for paying, performing and discharging when due, and none of Buyer, the Company or the Project Subsidiaries shall assume or have any responsibility for, all Liabilities (including, without limitation, any Liabilities relating to Hazardous Materials or non-compliance with Environmental Laws) relating to the Excluded Assets (the "Excluded Liabilities"). 2.3. Closing: Closing Date. (a) Subject to the satisfaction or waiver, if permissible, of the conditions set forth herein, the closing of the purchase and sale of the Class A Interests and the other transactions contemplated hereby (the "Closing") shall be held at 10:00 a.m. on March 3, 1999 to be effective as of 11:58 P.M., at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York (or at such other time, date or place as the parties may mutually agree, hereinafter referred to as the "Closing Date.") (b) At the Closing, Seller shall deliver the following to Buyer: (i) Membership certificate(s) with appropriate transfer stamps, if any, affixed thereto, representing the Class A Interests with appropriate assignment documents or accompanied by other duly executed instruments of transfer; (ii) The certificates contemplated by Section 8.3 hereof; (iii) The LLC Operating Agreement, duly executed by Seller and the Company; -13- (iv) The Tax Indemnity Agreement; (v) The Indemnity Agreement; (vi) The Development Agreement; (vii) The Administrative Services Agreement; (viii) The Escrow Agreement; (ix) All other documents required to be delivered by Seller on or prior to the Closing Date pursuant to this Agreement. (c) At the Closing, Buyer shall deliver to Seller: (i) The amount of the Purchase Price; (ii) The Working Capital Payment for deposit into the escrow created by the Escrow Agreement; (iii) The certificates contemplated by Section 7.3 hereof; (iv) The Joinder Agreement with respect to the LLC Operating Agreement, duly executed by Buyer; (v) The Agreement Concerning Consideration; (vi) The Buyer Equity Commitment Agreement; (vii) The Indemnity Agreement; (viii) The Power Marketing Services Agreement; (ix) The Fuel Management Services Agreement; (x) The Development Agreement; and -14- (xi) All other documents required to be delivered by Buyer on or prior to the Closing Date pursuant to this Agreement. (d) All payments to be made by Buyer pursuant to this Section 2.3 shall be made by wire transfer of immediately available funds to such bank account or bank accounts designated by Seller. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER Except as set forth in the Disclosure Schedule delivered by Seller to Buyer concurrently with the execution and delivery by Seller of this Agreement (the "Seller Disclosure Schedule"), the parts of which are numbered according to, and are specifically (unless otherwise manifest on the face of the Seller Disclosure Schedule) in respect of, the relevant Section of this Agreement, Seller hereby represents and warrants to Buyer as follows: 3.1. Corporate Organization. Etc. Each of the Company and the Project Subsidiaries is a corporation, limited liability company or partnership, as the case may be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite corporate, company or partnership power and authority to conduct its business as it is now being conducted and to own, lease and operate its property and assets, except where the failure to be so organized, existing and in good standing or to have such power or authority will not, in the aggregate, either (i) have a Material Adverse Effect (ii) impair the ability of Seller to perform its material obligations under this Agreement. Each of the Company and the Project Subsidiaries is qualified or licensed to do business as a foreign corporation, company or partnership, and is in good standing in each jurisdiction in which ownership of property or the conduct of its business requires such qualification or license, except where the failure to be so qualified or licensed will not have a Material Adverse Effect. True and complete copies of the Company's certificate of formation, as presently in effect, have been heretofore delivered to Buyer. -15- 3.2. Capitalization of the Company. (a) The authorized equity capital of the Company consists of the Class A Interests and the Class B Interests. All the Interests are issued and outstanding as of the date of this Agreement. All of the Interests are duly authorized, validly issued, fully paid and non-assessable and free of any preemptive rights in respect thereto. There are no outstanding (i) securities convertible into or exchangeable for the equity capital of the Company, (ii) options, warrants or other rights to purchase or subscribe for equity capital of the Company or (iii) contracts, commitments, agreements, understandings or arrangements of any kind relating to the issuance of any equity capital of the Company, any such convertible or exchangeable securities or any such options, warrants or rights, pursuant to which, in any of the foregoing cases, the Company is subject to or bound. Except for the LLC Operating Agreement, there are no voting trusts, member agreements or other similar instruments restricting or relating to the rights of the holders of Interests to vote, transfer or receive dividends with respect to the Interests. (b) Upon delivery of the Class A Interests against payment of the Purchase Price by Buyer in accordance with Section 2 of this Agreement, valid and marketable title to the Class A Interests, free and clear of any Encumbrance, will pass to Buyer. 3.3. Project Subsidiaries. Section 3.3 of the Seller Disclosure Schedule lists each of the Project Subsidiaries (together with its jurisdiction of organization and the names of the holders of record of the equity interests in each of the Project Subsidiaries and the type of entity). Except as set forth in Section 3.3 of the Seller Disclosure Schedule, all issued and outstanding interests of equity capital of each of the Project Subsidiaries are duly authorized, validly issued, fully paid and nonassessable, and are owned, directly or indirectly, by the Company, free and clear of all Encumbrances and any preemptive rights in respect thereto. Except as set forth in the Project Documents, there are no outstanding (i) securities convertible into or exchangeable for the equity capital of the Project Subsidiaries, (ii) options, warrants or other rights to purchase or subscribe for equity capital of the Project Subsidiaries or (iii) contracts, commitments, agreements, understandings or arrangements of any kind relating to the issuance of any equity capital of the Project Subsidiaries, any such convertible or exchangeable securities or any such options, warrants or rights, pursuant to which, in any of -16- the foregoing cases, the Project Subsidiaries are subject to or bound. Except for the agreements listed in Section 3.3 of the Seller Disclosure Schedule, or as otherwise set forth in the Project Documents, there are no voting trusts, member agreements or other similar instruments restricting or relating to the rights of the holders of equity interests in the Project Subsidiaries to vote, transfer or receive dividends with respect to the equity interests in the Project Subsidiaries. True and complete copies of the certificate of incorporation and by-laws (or other comparable governing documents) of each of the Project Subsidiaries have been heretofore delivered to Buyer. Except for the Project Subsidiaries, there are no other corporations, partnerships, limited liability companies, joint ventures. associations or other entities in which the Company owns, of record or beneficially, any direct or indirect equity or other interest or any right (contingent otherwise) to acquire the same. 3.4. Authority Relative to this Agreement. Seller has all requisite corporate authority and power to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all required corporate action on the part of Seller and no other corporate proceedings on the part of Seller are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Seller and, assuming this Agreement has been duly authorized, executed and delivered by Buyer, this Agreement constitutes a valid and binding agreement of Seller, enforceable against Seller in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally, including the effect of statutory and other laws regarding fraudulent conveyances and preferential transfers and subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity). 3.5. No Conflict or Violation; Consents and Approvals. Neither the execution and delivery of this Agreement by Seller nor the consummation of the transactions contemplated hereby, nor the fulfillment of the terms and compliance with the provisions -17- hereof, by Seller will (a) violate any provision of the certificate of incorporation or by-laws (or other comparable governing documents) of Seller, the Company or any of the Project Subsidiaries, (b) require the consent, waiver or approval of any Federal, state, local or foreign government, or regulatory authority, agency or commission, including courts of competent jurisdiction, domestic or foreign (a "Governmental Entity"), except for (i) consents and approvals to be made and obtained before the Closing and those which have been made and obtained and (ii) such consents and approvals which, if not made or obtained, will not, in the aggregate, have a Material Adverse Effect or impair the ability of Seller to consummate the transactions contemplated by this Agreement, (c) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration or any obligation to repay) under, any of the terms, conditions or provisions of any indenture, mortgage, note, bond, encumbrance, license, government registration, contract, lease, franchise, permit, agreement or other instrument or obligation to which Seller, the Company or any of the Project Subsidiaries is a party or by which Seller, the Company or any of the Project Subsidiaries or any of their respective properties or assets may be bound, except such violations, breaches and defaults which, in the aggregate, will not have a Material Adverse Effect or (d) violate any order, writ, judgment, injunction, decree, statute, ordinance, rule or regulation of any Governmental Entity applicable to Seller, the Company or any of the Project Subsidiaries or by which any of their respective properties or assets may be bound, except such violations which, in the aggregate, will not have a Material Adverse Effect. 3.6. Financial Statements. Seller has previously furnished to Buyer the audited combined financial statements of the Company and the related audited combined financial statements of operations and cash flows of the Company (including any related notes) for the fiscal years ending December 31, 1998 (the "Combined Financial Statements"). The balance sheet included in the Combined Financial Statements, in all material respects, fairly presents the combined financial position of the Company as of its date, and the other related statements included in the Combined Financial Statements, in all material respects, fairly present the -18- combined results of operations of the Company for the periods presented therein, all in conformity with GAAP, applied on a consistent basis. 3.7. Absence of Certain Changes. Since December 31, 1998, the Company and the Project Subsidiaries taken as a whole have not (a) suffered any change in its business, operations or financial position, except such changes which, in the aggregate, are not reasonably likely to have a Material Adverse Effect, (b) conducted its businesses in any material respect not in the ordinary and usual course consistent with past practice or (c) except in the ordinary course of business and consistent with past practice including the IPPCo Debt and except with respect to the Excluded Assets and the Excluded Liabilities, and other transactions contemplated by this Agreement, (i) incurred any indebtedness or issued any debt securities or assumed or guaranteed the obligations of any other Person, (ii) declared, set aside for payment or paid any dividend or other distribution (whether in cash, stock, property or any combination thereof) in respect of the equity of the Company or any of the Project Subsidiaries, or redeemed or otherwise acquired any interests of equity of the Company or any of the Project Subsidiaries, (iii) sold, transferred or otherwise disposed of, any of its material property or assets, (iv) created any material Encumbrance on any of its material property or assets, (v) increased in any manner the rate or terms of compensation of any of their directors, officers or other employees, (vi) paid or agreed to pay any pension, retirement allowance or other employee benefit not required by any existing Plan or other agreement or arrangement to any such director, officer or employee, whether past or present, (vii) entered into or amended any employment, bonus, severance or retirement contract, (viii) made any change in any method of accounting or accounting practice or policy used by the Company and the Project Subsidiaries, except as disclosed in Section 3.7(b)(viii) of the Disclosure Schedule, (ix) issued or sold any capital stock of the Company or any of the Project Subsidiaries, or (x) made any capital expenditure or commitment for any capital expenditure in excess of $25,000 or $250,000 in the aggregate other than pursuant to the 1999 annual budgets. 3.8. Material Contracts. (a) Section 3.8(a) of the Seller Disclosure Schedule lists each of the following material contracts and agreements (including, without limitation, oral and informal arrangements) of the Company and the Project Subsidiaries (such contracts -19- and agreements, together with all contracts, agreements, leases and subleases concerning the management or operation of any real property listed or otherwise disclosed in the Seller Disclosure Schedule to which the Company or any Project Subsidiary is a party, being "Material Contracts"): (i) each material contract, agreement and other arrangement, with the Company or any Project Subsidiary or otherwise related to their respective properties or assets; (ii) all Power Purchase Agreements and all other material agreements relating to the purchase and sale of electricity by the Company or any of the Project Subsidiaries; (iii) all Project Documents; (iv) all material contracts and agreements relating to indebtedness of the Company and any Project Subsidiary; (v) all material contracts and agreements with any Governmental Entity to which the Company or any Project Subsidiary is a party; (vi) all material contracts and agreements that limit the ability of the Company or any Project Subsidiary to compete in any line of business or with any Person or in any geographic area or during any period of time; (vii) all material contracts and agreements between or among the Company or any Project Subsidiary, on the one hand, and Seller or any Affiliate of Seller, on the other hand; and (viii) all other contracts and agreements, whether or not made in the ordinary course of business, which are material to the Company, any Project Subsidiary or the absence of which would have a Material Adverse Effect. -20- (b) Except as disclosed in Section 3.8(b) of the Seller Disclosure Schedule, each Material Contract: (i) is valid and binding on the respective parties thereto and is in full force and effect and, (ii) upon consummation of the transactions contemplated by this Agreement, shall continue in full force and effect without penalty or other adverse consequence. To Seller's knowledge, neither the Company nor any of the Project Subsidiaries is in breach of, or default under, any Material Contract. (c) Except as disclosed in Section 3.8(c) of the Seller Disclosure Schedule, to the knowledge of Seller, no other party is in breach thereof or default under any Material Contract. (d) Except as disclosed in Section 3.8(d) of the Seller Disclosure Schedule or Project Documents, there is no contract, agreement or other arrangement granting any Person any preferential right to purchase, other than in the ordinary course of business consistent with past practice, any of the material properties or assets of the Company or any Project Subsidiary. (e) Except for the Zinc Project Documents and Material Contracts listed on the Seller Disclosure Schedule which were provided to Buyer through Seller's data room in Houston, documents which have otherwise been provided to Buyer upon request, documents and contracts contemplated with respect to the IPPCo Debt, documents referenced in the litigation section of the Seller Disclosure Schedule or documents otherwise reflected in the proforma's delivered to Buyer with respect to the Company, there are no contracts or agreements which would have a Material Adverse Effect. 3.9. Compliance with Law. The business of the Company and its Subsidiaries is not being conducted in violation of any applicable order, writ, judgment, injunction, decree, statute, ordinance, rule or regulation of any Governmental Entity, except such violations which, in the aggregate, will not have a Material Adverse Effect. Neither the Company nor any of the Project Subsidiaries is in default or violation (and no event has occurred which with -21- notice or the lapse of time or both would constitute a default or violation) of any term, condition or provision of (a) its certificate of incorporation or by-laws (or other comparable governing documents) or (b) any order, writ, judgment, injunction, decree, statute, ordinance, rule or regulation of any Governmental Entity applicable to the Company and the Project Subsidiaries, except such defaults and violations which, in the aggregate will not have a Material Adverse Effect. The Company has all governmental permits, licenses and authorizations necessary for the conduct of its and the Project Subsidiaries', businesses as presently conducted (the "Permits") and is in compliance with the terms of the Permits, except for such Permits the absence of which would not have a Material Adverse Effect or any non-compliance with which will not have a Material Adverse Effect. 3.10. Litigation. Except as provided in Section 3.10 of the Seller Disclosure Schedule, as of the date of this Agreement, there is no action, suit or proceeding pending, or, to the knowledge of Seller, threatened, against the Company or the Project Subsidiaries or any properties or rights of the Company or the Project Subsidiaries, before any Governmental Entity which involves a claim other than worker's compensation claims, EEOC claims, or similar employment related claims. 3. 11. Taxes. (a) Except as disclosed in Section 3.11 of the Seller Disclosure Schedule: (i) Each of the Company and the Project Subsidiaries have filed all material Tax Returns that each was required to be filed as of Closing Date, and all such Tax Returns were correct and complete in all material respects. (ii) All Taxes owed by the Company or any of the Project Subsidiaries (whether or not shown on any Tax Return) have been paid. (iii) To the Seller's knowledge, no claim has ever been made by a Governmental Entity in a jurisdiction where the Company or any of the Project Subsidiaries does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. -22- (iv) To the Seller's knowledge, there are no Encumbrances with respect to any of the assets of the Company or any of the Project Subsidiaries or with respect to the stock of the Company that arose in connection with any failure (or alleged failure) to pay any Tax. (v) To the Seller's knowledge, the Company and each of the Project Subsidiaries have withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (vi) None of the Company and the Project Subsidiaries has waived any statute of limitations in respect of any income Taxes or agreed to any extension of time with respect to an income Tax assessment or deficiency for any taxable period. (vii) None of the Company and the Project Subsidiaries currently is the beneficiary of any extension of time within which to File any Tax Return. (viii) Seller is not a "foreign person" for purposes of Section 1445 of the Code. (b) Section 3.11 of the Seller Disclosure Schedule lists the only Tax periods for which the statute of limitations for Taxes are open for the Company or any of the Project Subsidiaries. (c) Except as described in Section 3.11 of the Seller Disclosure Schedule, none of the Company and the Project Subsidiaries: (i) has filed a consent under section 341(f) of the Code concerning collapsible corporations; (ii) has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under section 28OG of the Code; -23- (iii) is a party to any Tax allocation or sharing agreement; and (iv) has been a member of an Affiliated Group filing a consolidated federal income Tax Return (d) Section 3.11 of the Seller Disclosure Schedule lists all federal, state, local, and foreign income Tax Returns filed with respect to any of the Company and the Project Subsidiaries for taxable periods ended on or after December 31, 1997, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. (e) The Sellers have delivered to the Buyer true and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by any of the Company and the Project Subsidiaries for the tax years ended December 31, 1996 and 1997. (f) For federal income tax purposes, the transaction will be treated as a purchase and sale of 50% of California Energy Development Corporation, Magma Power Company and Falcon Seaboard Resources, Inc. Further, the Company will elect (and Buyer and Seller will consent) to be treated as an association for federal income tax purposes pursuant to an election under Reg. 301.7701-3(c) to be effective at the beginning of the day following the Closing Date. For federal income tax purposes, the effect of these transactions will be treated as an asset sale on the Closing Date followed by a contribution, directly or indirectly, by the Buyer and Seller under Code Section 351 to a newly formed corporation, that comes into existence as of the beginning of the day immediately following the Closing Date. Buyer and Seller agree to treat the transaction accordingly, and agree to take all steps (including the execution of all forms) necessary to effectuate this treatment. 3.12. Employee Benefit Plans; ERISA. (a) Section 3.12(a) of the Seller Disclosure Schedule sets forth a complete and correct list of all "employee benefit plans," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained by the Company or any of the Project Subsidiaries or to which the -24- Company or any of the Project Subsidiaries has any obligation or liability, contingent or otherwise; and all bonus or other incentive compensation, deferred compensation, salary continuation, disability, stock award, stock option, stock purchase, severance, parachute or other material employee benefit policies or arrangements which the Company or any of the Project Subsidiaries maintains or to which the Company or any of the Project Subsidiaries has any obligation or liability (contingent or otherwise) (collectively referred to as the "Plans"). (b) None of the Plans is a Multiemployer Plan or a Multiple Employer Plan. Neither the Company nor any of the Project Subsidiaries has any material liability due to a complete or partial withdrawal from a Multiemployer Plan or Multiple Employer Plan or due to the termination or reorganization of a Multiemployer Plan, and no events have occurred and no circumstances exist that could reasonably be expected to result in any such Liability to the Company or any of the Project Subsidiaries. (c) None of the Plans is a Single Employer Plan and none of the Company or any of the Project Subsidiaries has any material Liability under Section 4062 of ERISA to the Pension Benefit Guaranty Corporation ("PBGC") or to a trustee appointed under Section 4042 of ERISA, and no events have occurred and no circumstances exist that could reasonably be expected to result in any such Liability to the Company or any of the Project Subsidiaries. (d) Each Plan that is intended to qualify under Section 401(a) of the Code, and the trust maintained pursuant thereto, has been determined to be so qualified and exempt from taxation under Section 501(a) of the Code, and nothing has occurred with respect to the operation of any such Plan that could reasonably be expected to adversely affect such qualification or tax-exempt status. (e) There has been no violation of ERISA or the Code with respect to the filing of applicable reports, documents or notices regarding the Plans with any governmental authority or the furnishing of required reports, documents or notices to the participants or beneficiaries of the Plans, except for such violations as would not result in a Material Adverse Effect. -25- 3.13. Title to Properties. The Company and the Project Subsidiaries have good and valid title to all of the assets and properties (real and personal) which they own and which are reflected on the Combined Financial Statements (except for assets and properties sold, consumed or otherwise disposed of by them in the ordinary course of business since December 31, 1998), and such assets and properties are owned free and clear of all Encumbrances, except for (i) Encumbrances to secure indebtedness reflected on the Combined Financial Statements or indebtedness incurred in the ordinary course of business and consistent with past practice after the date thereof, (ii) mechanics', materialmens' and other Encumbrances which have arisen in the ordinary course of business, (iii) Encumbrances set forth in the Seller Disclosure Schedule and (iv) Encumbrances which, in the aggregate, are not reasonably likely to impair, in any material respect, the continued use of such asset or property. 3.14. Intellectual Property. (a) Section 3.14 of the Seller Disclosure Schedule sets forth all intellectual property assets that are owned by or licensed to the Company or any Project Subsidiary, or that are otherwise used in connection with the Company's or any Project Subsidiary's business (each individually a "Proprietary Asset"). The Proprietary Assets represent all of the intellectual property necessary to conduct the business of the Company and the Project Subsidiaries as it is currently being conducted. The Company and each of the Project Subsidiaries has taken reasonable measures and precautions necessary to protect the confidentiality and value of each Proprietary Asset identified or required to be identified in Section 3.14 of the Seller Disclosure Schedule. (b) Except as would not have a Material Adverse Effect, to the knowledge of Seller neither the Company nor any Project Subsidiary is infringing or has at any time infringed or received any notice or other communication (in writing or otherwise) of any actual, alleged, possible or potential infringement of any Proprietary Asset owned or used by any other Person. To the knowledge of Seller, no Person is infringing, and no Proprietary Asset owned or used by any other Person infringes or conflicts with, any Proprietary Asset owned or used by the Company or any Project Subsidiary. -26- (c) To the knowledge of Seller, all licenses or sublicenses pursuant to which the Company uses any Proprietary Asset are legal, validly binding, and enforceable and in full force and effect and will continue to be so in the same form as in effect on the date hereof after the consummation of the transactions contemplated by this Agreement; and the consummation of the transactions contemplated by this Agreement will not constitute an event of default under any such license or sublicense. 3.15. Insurance. The Company and the Project Subsidiaries, in the ordinary course of business, maintain policies of fire and casualty, liability and other forms of insurance in such amounts, with such, premiums, deductibles and covering such risks and losses as are reasonable and customary for their business, assets and properties. All material insurance policies (the "Insurance Policies") with respect to the property, assets, operations and business of the Company and the Project Subsidiaries are and, to Seller's knowledge after the Closing will continue to be, in full force and effect and all premiums due and payable thereon have been paid in full, and no notice of cancellation or termination has been received with respect to any such policy which has not been replaced on substantially similar terms prior to the date of such cancellation. There are no pending material claims under the Insurance Policies by the Company as to which the insurers have denied liability. 3.16. Environmental Matters. To the knowledge of Seller, the Company and the Project Subsidiaries are in compliance in all material respects with all Environmental Laws. To the knowledge of Seller, the Company and the Project Subsidiaries have all the necessary permits required under Environmental Laws for the operation of their respective businesses, and are not in violation of any of the terms and conditions of any of such permits. Neither the Company nor any of the Project Subsidiaries has received any notice or other communication (in writing or otherwise) from a governmental agency that alleges that the Company or any of the Project Subsidiaries is not presently in compliance with any Environmental Law. Except as set forth in Section 3.16 of the Seller Disclosure Schedule, neither the Company nor any of the Project Subsidiaries has generated, manufactured, produced, transported, imported, used, treated, refined, processed, handled, stored, discharged, released, or disposed of any Hazardous Materials (whether lawfully or unlawfully) at any of the property occupied or -27- controlled by the Company or any of the Project Subsidiaries on or at any time prior to the Closing Date. To the knowledge of Seller, there are not and have not been any Releases or threatened Releases of any Hazardous Materials at, on, or from any of the real property owned or leased by the Company of any of the Project Subsidiaries. To the knowledge of Seller, there are no circumstances that may prevent or interfere with the Company's or any of the Project Subsidiaries' compliance in all material respects with any Environmental Law. 3.17. Employee and Labor Matters. Except as set forth in Section 3.17 of the Seller Disclosure Schedule, as of the date hereof: (a) Neither the Company nor any of the Project Subsidiaries is a party to any collective bargaining or other labor union contract applicable to persons employed by them; (b) (i) the Company and the Project Subsidiaries are in compliance in all material respects with all applicable laws relating to employment and employment practices, wages, hours, and terms and conditions of employment, (ii) there are no material charges with respect to or relating to the Company or any of the Project Subsidiaries pending before the Equal Employment Opportunity Commission or any state, local or foreign agency responsible for the prevention of unlawful employment practices and (iii) there is no labor dispute, strike or work stoppage against the Company or the Project Subsidiaries, pending or, to the knowledge of Seller, threatened which may interfere with the business activities of the Company or the Project Subsidiaries, except where such non-compliance, charge, dispute, strike or work stoppage would not have a Material Adverse Effect, and (c) neither the Company nor any of the Project Subsidiaries nor their respective employees has committed any unfair labor practices in connection with the operation of the business of the Company and the Project Subsidiaries, and there is no charge or complaint against the Company or the Project Subsidiaries, by the National Labor Relations Board or any comparable state agency pending, to the knowledge of Seller, or threatened in writing, except where such unfair labor practice, charge or complaint would not have a Material Adverse Effect. 3.18. Electric Utility Status. As of the date of this Agreement, Seller is not an Electric Utility. -28- 3.19. OF Status. Each Project that has commenced commercial operation has met at all times since such commencement of operations all of the requirements to hold qualifying facility status under PURPA or has been granted a waiver of such requirements by FERC covering all periods when such requirements were not met. Each Project has been certified by, or to, FERC as a qualifying facility. 3.20. Brokers and Finders. No broker, finder or investment banker (other than Credit Suisse First Boston Corporation and Lehman Brothers Inc. and Seller shall be solely responsible for their fees) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller or the Company or any of their Affiliates. 3.21. Operations. At all times, Seller has caused the Projects to be operated in conformance with Good Utility Practices and will continue to do so through the Closing. 3.22. Year 2000 Representations. As its sole and exclusive representation made herein with respect to Y2K compliance (the "Year 2000 Representation") Seller hereby represents the following: With respect to each Project on the Closing Date, the Company has begun a commercially reasonable process of causing such Project to be substantially Year 2000 Compliant prior to August 31, 1999. In the event that any Project is not, as of the Closing Date, Year 2000 Compliant, then Seller represents that it has dedicated commercially reasonable resources necessary to fully change, test and implement all Software to be Year 2000 Compliant by August 31, 1999, or that it has made the determination, after commercially reasonable investigation, that the failure of any item of Software to be Year 2000 Compliant will not affect any material aspect of any Project's output, safety or environmental component, or the ability to account for revenues from or costs incurred by each such Project. To the extent any other representation made otherwise in this Agreement may be in conflict with the foregoing paragraph, then the preceding Year 2000 Representation shall prevail. -29- ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER Except as set forth in the Disclosure Schedule delivered by Buyer to Seller concurrently with the execution and delivery by Buyer of this Agreement (the "Buyer Disclosure Schedule") the parts of which are numbered according to, and are specifically (unless otherwise manifest on the face of the Buyer Disclosure Schedule) in respect of, the relevant Section of this Agreement, Buyer represents and warrants to Seller as follows: 4.1. Corporate Organization; Etc. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite corporate power and authority to conduct its business as it is now being conducted and to own, lease and operate its property and assets except where the failure to be so organized, existing and in good standing or to have such power or authority would not, in the aggregate, either (i) have a material adverse effect on the business, results of operations, assets or financial condition of Buyer or (ii) impair, hinder or adversely affect the ability of Buyer to perform material obligations under this Agreement or to consummate the transactions contemplated hereby (either of such effects, a "Buyer Material Adverse Effect"). 4.2. Authority Relative to this Agreement. Buyer has all requisite corporate authority and power to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all required corporate or company action on the part of Buyer and no other corporate or company proceedings on the part of Buyer are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Buyer and, assuming this Agreement has been duly authorized, executed and delivered by Seller, this Agreement constitutes a valid and binding, agreement of Buyer, enforceable against Buyer in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally, including the effect of statutory and -30- other laws regarding fraudulent conveyances and preferential transfers and subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity). 4.3. No Conflict or Violation; Consents and Approvals. Neither the execution and delivery of this Agreement by Buyer nor the consummation of the transactions contemplated hereby by Buyer will (a) violate any provision of the certificate of incorporation or by-laws (or other comparable governing documents) of Buyer, (b) require the consent or approval of any Governmental Entity, except for (i) consents and approvals to be made and obtained before the Closing and those which have been made and obtained and (ii) such consents and approvals, which, if not made or obtained, will not, in the aggregate, have a Buyer Material Adverse Effect or (c) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration or any obligation to repay) under, any of the terms, conditions or provisions of any indenture, mortgage, note, bond, encumbrance, license, government registration, contract, lease, franchise, permit, agreement or other instrument or obligation to which Buyer is a party or by which Buyer or any of its properties or assets may be bound, except such violations, breaches and defaults which, in the aggregate, will not have a Buyer Material Adverse Effect or (d) violate any order, writ, judgment, injunction, decree, statute, ordinance, rule or regulation of any Governmental Entity applicable to Buyer or by which any of its properties or assets may be bound, except such violations which, in the aggregate, will not have a Buyer Material Adverse Effect. 4.4. Investment Intent. Buyer is acquiring the Class A Interests for its own account for investment and not with a view towards the resale, transfer or distribution thereof, nor with any present intention of distributing the Class A Interests in violation of the Securities Act, other applicable Federal or state securities laws, and the rules and regulations promulgated thereunder. Buyer understands that the Class A Interests have not been registered under the Securities Act or other applicable Federal or state securities laws, and the rules and regulations promulgated thereunder, by reason of the contemplated sale of the Class A Interests in a transaction exempt from the registration requirements of the Securities Act and state -31- securities laws, and the rules and regulations promulgated thereunder. Buyer represents that it is fully informed as to the applicable limitations upon any distribution or resale of the Class A Interests under the Securities Act and other applicable Federal and state securities laws, and the rules and regulations promulgated thereunder, and Buyer agrees that it will refrain from transferring, distributing or otherwise disposing of the Class A Interests, or any interest therein, in such manner as to violate the registration requirements of the Securities Act or of any applicable Federal or state securities law, and the rules and regulations promulgated thereunder. Buyer is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 4.5. Due Diligence. Buyer has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Company as contemplated by this Agreement, and is able to bear the economic risk of such investment for an indefinite period of time. Buyer has been furnished access to such information and documents as it has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of the Company concerning the Company, the Projects, the terms and conditions of this Agreement and the purchase of the Class A Interests contemplated hereby. 4.6. Available Funds. As of the date of this Agreement, and as of the Closing Date, Buyer has, and will have, sufficient funds available to satisfy the obligation of Buyer to pay the Purchase Price and to pay all fees and expenses of Buyer related to the transaction contemplated hereby without the need to obtain additional financing. 4.7. Electric Utility Status. Buyer is not an Electric Utility. 4.8. Brokers and Finders. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer. -32- ARTICLE V. COVENANTS 5.1. Conduct of the Business Pending the Closing. Except as contemplated by this Agreement, as set forth in the Seller Disclosure Schedule or with the prior written consent of Buyer, during the period from the date of this Agreement to the Closing, Seller will cause the Company to: conduct its businesses and operations according to its ordinary and usual course of business consistent with past practice and will use all reasonable efforts consistent therewith to preserve intact its properties, assets and business organizations, keep available the services of the officers and employees of the Company and the Project Subsidiaries, preserve generally the present relationships with persons having business dealings with the Company or the Project Subsidiaries and maintain satisfactory relationships with customers, suppliers, distributors and others having commercially beneficial business relationships with the Company, in each case in the ordinary course of business consistent with past practice, and Seller shall be permitted to incur the IPPCo Debt and distribute the proceeds thereof directly to Seller or otherwise repay or refund capital advances to the Project Subsidiaries from Seller and distribute the Excluded Assets and assume the Excluded Liabilities. Seller will not, and will not permit the Company or any Project Subsidiary to, take any action with the purpose of causing any of the conditions to Buyer's obligations set forth in Article VIII hereof to not be satisfied. 5.2. Capital Contributions. Buyer shall provide fifty percent (50%) of all equity capital contributions required for the construction of the Projects commonly known as Salton Sea Unit V and CE Turbo payable in accordance with the Buyer Equity Commitment Agreement. 5.3. Restructuring/Development. Seller and Buyer contemplate that after the Closing, Buyer shall develop and propose certain restructuring and marketing plans ("Restructuring Proposals") which the parties shall review and, if agreed, establish target outcomes related to any opportunities. Seller and Buyer agree to cooperate in the proposal -33- and development of power plant repowering, expansion and development opportunities at the Project sites pursuant to the Development Agreement. 5.4. Consents and Approvals. (a) Each of the parties hereto shall use its reasonable best efforts to (i) obtain as promptly as practicable all consents, authorizations, approvals and waivers required in connection with the consummation of the transactions contemplated by this Agreement under any Federal, state, local or foreign law or regulation, (including, without limitation, all of the Transaction Regulatory Approvals), (ii) promptly lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties hereto to consummate the transactions contemplated hereby and (iii) promptly effect all necessary registrations and filings (including, without limitation, filings under the HSR Act, if necessary, and filings with Governmental Entities necessary to obtain all of the Transaction Regulatory Approvals) and submissions of information requested by any Governmental Entity. The parties hereto further covenant and agree, with respect to any threatened or pending preliminary or permanent injunction or other order, decree or ruling or statute, rule, regulation or executive order that would adversely affect the ability of the parties hereto to consummate the transactions contemplated hereby, to respectively use their reasonable best efforts to prevent the entry, enactment or promulgation thereof, as the case may be. (b) Each party hereto shall promptly inform the other of any material communication from the FERC or any other Governmental Entity regarding any of the transactions contemplated hereby. If any party hereto or any Affiliate thereof receives a request for additional information or documentary material from any such Governmental Entity with respect to the transactions contemplated hereby, then such party shall endeavor in good faith to make, or cause to be made, as soon as reasonably practicable and after consultation with the other party, an appropriate response in compliance with such request. Seller and Buyer shall advise each other promptly in respect of any understandings, undertakings or agreements (oral or written) that Seller or Buyer, as the case may be, proposes to make or enter into with the FERC or any other Governmental Entity in connection with the transactions contemplated hereby. -34- 5.5. Filings. Promptly after the execution of this Agreement, each of the parties hereto shall prepare and make or cause to be made any required filings, submissions and notifications under the laws of any domestic or foreign jurisdiction to the extent that such filings are necessary to consummate the transactions contemplated hereby and will use its reasonable best efforts to take all other actions necessary to consummate the transactions contemplated hereby by the Closing Date in a manner consistent with applicable law. Each of the parties hereto will furnish to the other party such necessary information and reasonable assistance as such other party may reasonably request in connection with the foregoing. 5.6. Covenant to Satisfy Conditions. Seller and Buyer will each respectively use all reasonable efforts to ensure that the conditions set forth herein are satisfied, insofar as such matters are within the control of such party. 5.7. Further Assurances. Upon the terms and subject to the conditions herein provided, each of the parties hereto agrees to use its reasonable best efforts to take or cause to be taken all action, to do or cause to be done, and to assist and cooperate with the other party hereto in doing, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including, but not limited to, (a) the satisfaction of the conditions precedent to the obligations of any of the parties hereto, (b) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the performance of the obligations hereunder or thereunder and (c) the execution and delivery of such instruments, and the taking of such other actions as the other party hereto may reasonably require in order to carry out the intent of this Agreement. 5.8. Allocation of Purchase Price. Buyer, Company and the Seller agree that the Purchase Price and the liabilities of the Company will be allocated to the shares held directly by the Company for all purposes (including Tax and financial accounting) as shown on a schedule to be mutually agreed by the Seller and Buyer within 90 days following the Closing Date. Buyer, the Company, the Project Subsidiaries, and the Seller will file all Tax Returns -35- (including amended returns and claims for refund) and information reports in a manner consistent with such allocation. ARTICLE VI. CONDITIONS TO EACH PARTY'S OBLIGATIONS The obligation of each party to effect the transactions contemplated hereby shall be subject to the fulfillment, or written waiver by each of the parties, at or prior to the Closing of each of the following conditions: 6.1. Debt Financing. The Company shall have issued the IPPCo Debt and distributed the entire gross proceeds thereof to Seller consistent with the use of proceeds described in the preliminary offering circular dated as of February 18, 1999 with respect to the IPPCO Debt, provided that the discount to initial purchasers and transaction costs and fees shall be paid directly by the Company on behalf of the Seller and deducted from the proceeds distributed to Seller. 6.2. Regulatory Approvals. All of the Transaction Regulatory Approvals shall have been obtained. 6.3. Consent of Creditors. The consents required under the existing indebtedness of Seller and certain Subsidiaries of Seller necessary to consummate the transactions contemplated hereby shall have been obtained. 6.4. Zinc Project Documents. The Company and the appropriate Project Subsidiaries, as appropriate, and Seller or its affiliate, as appropriate, shall have executed and delivered the Zinc Project Documents. -36- ARTICLE VII. CONDITIONS TO THE SELLER'S OBLIGATIONS The obligations of Seller to effect the transactions contemplated hereby shall be subject to the fulfillment, or written waiver by Seller, at or prior to the Closing, of each of the following conditions: 7.1. Representations and Warranties True. The representations and warranties of Buyer contained herein qualified as to materiality shall be true and correct and those not so qualified shall be true and correct in all material respects as of the date hereof and at and as of the Closing Date as though such representations and warranties were made at and as of such date unless limited by their terms to a prior date. 7.2. Performance. Buyer shall have performed and complied in all material respects with all agreements, obligations, covenants and conditions required by this Agreement to be performed or complied with by Buyer on or prior to the Closing. 7.3. Certificates. Buyer shall have furnished Seller with such certificates to evidence its compliance with the conditions set forth in Sections 7.1 and 7.2 hereof as Seller may reasonably request. 7.4. No Injunction or Proceeding. No statute, rule, regulation, executive order, decree, preliminary or permanent injunction or restraining, order shall have been enacted, entered, promulgated or enforced by any Governmental Entity which prohibits or restricts the consummation of the transactions contemplated hereby. 7.5. Buyer Equity Commitment Agreement. Buyer and Seller shall have executed and delivered to Seller the Buyer Equity Commitment Agreement. -37- ARTICLE VIII. CONDITIONS TO BUYER'S OBLIGATIONS The obligation of Buyer to effect the transactions contemplated hereby shall be subject to the fulfillment, or written waiver by Buyer, at or prior to the Closing of each of the following conditions: 8.1. Representations and Warranties of Seller True. The representations and warranties of Seller contained herein qualified as to materiality shall be true and correct and those not so qualified shall be true and correct in all material respects as of the date hereof and at and as of the Closing Date as though such representations and warranties were made at and as of such date unless limited by their terms to a prior date. 8.2. Performance by Seller. Seller shall have performed and compiled in all material respects with all agreements, obligations, covenants and conditions required by this Agreement to be performed or complied with by Seller on or prior to the Closing. 8.3. Certificates. Seller shall have furnished Buyer with such certificates to evidence its compliance with the conditions set forth in Sections 8.1 and 8.2 hereof as Buyer may reasonably request. 8.4. No injunction or Proceeding. No statute, rule, regulation, executive order, decree, preliminary or permanent injunction or restraining, order shall have been enacted, entered, promulgated or enforced by any Governmental Entity which prohibits or restricts the consummation of the transactions contemplated hereby. 8.5. Materiality of Conditions. Nothing herein shall restrict the ability of Seller to provide a supplemental disclosure schedule pursuant to Section 8.3 hereof that sets forth therein exceptions as to matters, events or conditions that occur or first become discoverable (and could not have previously been known by the exercise of reasonable diligence) to Seller subsequent to the date of this Agreement, and the existence of any exceptions in the supplemental disclosure schedule shall not be deemed a failure to meet the condition set forth in Section 8.3 hereof; provided that the existence of the events described -38- therein, to the extent that such new exceptions would have a Material Adverse Effect, may result in the failure to satisfy the conditions set forth in Section 8.1 or 8.2 hereof. ARTICLE IX. TERMINATION AND ABANDONMENT; INDEMNIFICATION 9.1. Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual consent of Buyer and Seller; (b) by Buyer or Seller if the Closing shall not have occurred on or before May 30, 1999, except that Buyer and Seller shall have the right, in their mutual discretion, to extend the time period in this Section 9.1(b) an additional 45 days; provided that the right to terminate this Agreement pursuant to this Section 9.1(b) shall not be available to a party whose failure to perform any of its obligations under this Agreement results in the failure of the Closing to be consummated by such date; or (c) by Buyer or Seller, if any Governmental Entity shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting any of the transactions contemplated hereby and such order, decree, ruling or other action shall have become final and nonappealable. 9.2. Procedure and Effect of Termination, Termination Fee. In the event of termination of this Agreement pursuant to Section 9.1 hereof, by one party, written notice thereof shall forthwith be given to the other party, and, except as set forth below, this Agreement shall terminate and be void and have no effect and the transactions contemplated hereby shall be abandoned. (a) If this Agreement is terminated as provided herein: (i) all information received by Buyer with respect to the business, operations, assets or financial condition of the Company or the Project Subsidiaries shall remain subject to -39- the Confidentiality Agreement and Buyer shall, and shall cause its agents to, return or destroy such information as provided for therein; and (ii) except as otherwise expressly set forth herein, no party to this Agreement shall have any liability hereunder to any other party, except (i) for any breach by such party of the terms and provisions of this Agreement, and (ii) as provided in the Confidentiality Agreement. (b) If this Agreement is terminated pursuant to Section 9.1 as a result of the non-satisfaction of Sections 7.1 or 7.2 or the Buyer otherwise is unable or unwilling to close and Seller is willing to close, and all of the conditions in Article VI and VIII have been satisfied, on the Closing Date (or the first business day thereafter on which all such conditions have been satisfied), then Buyer shall pay to Seller an amount equal to $15 million in immediately available funds on such date, and provided Buyer has not acted in bad faith, such payment shall be Seller's sole remedy hereunder with respect to Buyer's failure to close. (c) If this Agreement is terminated pursuant to Section 9.1 as a result of the non-satisfaction of Sections 8.1 or 8.2 or the Seller otherwise is unable or unwilling to close and Buyer is willing to close, and all of the conditions in Article VI and VII have been satisfied, on the Closing Date (or the first business day thereafter on which all such conditions have been satisfied), then Seller shall pay to Buyer an amount equal to $15 million in immediately available funds on such date, and provided Seller has not acted in bad faith, such payment shall be Buyer's sole remedy hereunder with respect to Seller's failure to close. 9.3. Survival of Representations, Warranties and Covenants.) (a) The representations and warranties contained in Section 3.2(b) (title to the Class A Interests) shall survive the Closing and remain in full force and effect indefinitely. The representations made in Section 3.11 (Tax Matters) shall be subject to the terms of the Tax Indemnity Agreement. All other representations and warranties contained herein, except as specifically provided for in such representation or warranty, shall survive the Closing and remain in full force and effect until March 3, 2002, at which time they shall terminate. -40- (b) All covenants and agreements contained herein shall survive the Closing and remain in full force and effect until the first anniversary of the Closing Date, at which time they shall terminate except that those covenants and agreements that by their terms are to be performed in whole or in part subsequent to the Closing, shall survive the Closing in accordance with their terms and that claims for indemnification for Environmental Liabilities shall remain in full force and effect for a period of 5 years after the Closing Date; provided that the foregoing shall not be deemed to limit the survival periods set forth in Section 9.3(a) hereof. (c) From and after the Closing, the sole and exclusive remedy for any breach of any representation, warranty, covenant or agreement shall be pursuant to Section 9.4 hereof, except in the case of fraud and except that with respect to matters indemnified for pursuant to the Tax Indemnity Agreement and Indemnity Agreement such agreements shall provide for the sole and exclusive remedy with respect to such matters. Under no circumstances shall Seller be liable to Buyer for consequential, incidental or punitive damages, except to the extent asserted in a third-party claim. 9.4. Indemnification. (a) From and after the Closing, Seller shall indemnify and hold harmless Buyer and its Affiliates and Representatives (collectively, "Buyer Indemnified Parties") from and against any Damages arising from or in connection with (i) any inaccuracy in any representation or the breach of any warranty of Seller under this Agreement, (ii) the failure of Seller to duly perform or observe any term, provision, covenant or agreement to be performed or observed by Seller pursuant to this Agreement, (iii) the Excluded Liabilities, (iv) any Environmental Liabilities (v) any Buyer's Transaction Taxes (which indemnification shall be on a fully grossed-up basis) or (vi)(A) any qualified and non-qualified benefit Plans sponsored by Seller, (B) any ERISA welfare plans sponsored by Seller, (C) all other employment compensation obligations of Seller which shall include without limitation payments with respect to accrued vacation and all severance costs incurred as a result of the consummation of the transactions contemplated by this Agreement, (D) Federal and state payroll tax reporting and payment obligations of Seller, and (E) any of the predecessor benefit plans resulting from Seller's past acquisitions, in each of the cases (vi)(A)-(E), without giving -41- effect to any supplement to the Seller Disclosure Schedule. (b) From and after the Closing, Buyer shall indemnify and hold harmless Seller and its Affiliates and Representatives (collectively, the "Seller Indemnified Parties") from and against any Damages to the extent they are the result of (i) any inaccuracy in any representation or the breach of any warranty of Buyer under this Agreement or (ii) the failure of Buyer to duly perform or observe any term, provision, covenant or agreement to be performed or observed by Buyer pursuant to this Agreement. (c) Notwithstanding anything herein to the contrary, except as set forth in Section 9.4(e) hereof, no indemnification shall be available to Buyer Indemnified Parties under Section 9.4(a) hereof or to Seller Indemnified Parties under Section 9.4(b) hereof unless and until the aggregate amount of Damages that would otherwise be subject to indemnification, exceeds $4,592,500, the "Deductible Amount"), in which case the party entitled to such indemnification shall be entitled to receive only the amounts in excess of the Deductible Amount. For purposes of determining whether such Deductible Amount has been achieved, any amounts subject to indemnification pursuant to this Agreement and the Tax Indemnity Agreement shall be included without duplication. (d) Notwithstanding anything herein to the contrary, except as set forth in Section 9.4(e) hereof, the maximum aggregate liability of Seller to Buyer Indemnified Parties and Company under this Agreement and the Tax Indemnity Agreement taken together shall not exceed $114,812,500; and when taken together with any other liability of Seller pursuant to the Indemnity Agreement the maximum liability of Seller to Buyer Indemnified Parties and the Company shall not exceed $229,625,000. (e) The limitations on indemnifications set forth in Section 9.4(c) and (d) shall not apply to any Damages suffered by Buyer Indemnified Parties arising from or in connection with Seller's breach of Sections 3.2 and 3.20 hereof. (f) Notwithstanding anything herein to the contrary, except as otherwise provided in the Tax Indemnity Agreement and Indemnity Agreement, none of the Buyer -42- Indemnified Parties shall be entitled to indemnification by Seller for any Damages arising from any matter of which Buyer had knowledge at or prior to Closing, by reason of Seller having delivered written notice thereof, in the Seller Disclosure Schedule or supplemental disclosure schedule delivered in accordance with Section 8.5. (g) Any calculation of Damages for purposes of this Section 9.4 shall be (i) net of any insurance recovery made by the Indemnified Party (whether paid directly to such Indemnified Party or assigned by the Indemnifying Party to such Indemnified Party) and (ii) reduced to take account of any net Tax benefit realized by the Indemnified Party arising from the deductibility of any such Damages or Tax. Any indemnification payment hereunder shall Initially be made without regard to this paragraph and shall be reduced to reflect any such net Tax benefit only after the Indemnified Party has actually realized such benefit. For purposes of this Agreement, an Indemnified Party shall be deemed to have "actually realized" a net Tax benefit to the extent that, and at such time as, the amount of Taxes payable by such Indemnified Party is reduced below the amount of Taxes that such Indemnified Party would have been required to pay but for deductibility of such Damages. The amount of any reduction hereunder shall be adjusted to reflect any final determination (which shall include the execution of Form 870-AD or successor form) with respect to the Indemnified Party's liability for Taxes and, if necessary, Seller or Buyer, as the case may be, shall make payments to the other to reflect such adjustment. Any indemnity payment under this Agreement shall be treated as an adjustment to the Purchase Price for Tax purposes, unless a final determination (which shall include the execution of a Form 870-AD or successor form) with respect to the Indemnified Party or any of its Affiliates causes any such payment not to be treated as an adjustment to the Purchase Price for U.S. Federal income Tax purposes. (h) Seller acknowledges and agrees that if there is any breach of any representation, warranty or other agreement by Seller, then Buyer itself without duplication shall be deemed by virtue of its ownership of the Class A Interest, to have incurred Damages, if any, as a result of such breach, and Buyer shall be entitled without duplication to such indemnification as may be available pursuant to the terms of this Section 9.4. -43- (i) No action, claim or setoff for Damages subject to indemnification under this Section 9.4 shall be brought or made with respect to claims for Damages resulting from a breach of any covenant or agreement contained in this Agreement after the date on which such representation, warranty, covenant or agreement shall terminate pursuant to Section 9.3 hereof; provided, however, that any claim made with reasonable specificity by the party hereto or its Affiliates or Representatives seeking, indemnification (the "Indemnified Party") to the party from which indemnification is sought (the "Indemnifying Party") within the time periods set forth above shall survive (and be subject to indemnification) until it is finally and fully resolved. (j) An Indemnified Party shall give notice to an Indemnifying Party within sixty days, after such Indemnified Party has actual knowledge of any claim which would give rise to a claim for Damages; provided, however, that the failure to provide such notice shall not release the Indemnifying Party from any of its obligations under this Article IX except to the extent the Indemnifying Party is materially prejudiced by such failure and shall not relieve the Indemnifying Party from any other obligation or liability that it may have to any Indemnified Party otherwise than under this Article IX, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided that the Indemnified Party may participate in such defense at its own expense (unless the Indemnified Party shall have reasonably concluded, based upon a written opinion of outside counsel, that there is a reasonable likelihood of a conflict of interest between the Indemnifying Party and the Indemnified Party in such action, in which case the fees and expenses of one separate firm of counsel shall be at the expense of the Indemnifying Party). An Indemnifying Party, in the defense of any such claim or litigation shall not, except with the consent of the Indemnified Party (which consent shall not unreasonably be withheld), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a full and unconditional release from all liability in respect to such claim or litigation. An Indemnified Party shall furnish such information regarding itself or the claim in question as such Indemnifying Party may -44- reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (k) Any calculation of Damages for purposes of this Section 9.4 shall be adjusted to account for the Tax benefit or Tax detriment of such Damages and of the Indemnification payment which relates to such Damages, as follows: (i) If, under applicable Tax Law, a given amount of Damages is deductible by the Indemnified Party, then the Indemnification payment relating to such Damages that is otherwise due under this Section 9.4, shall be reduced by an amount equal to the Tax Benefit so that the sum of the Indemnification payment (as so reduced) and the Tax Benefit shall be equal to the Indemnification amount chat would be required to be paid without regard to this Section 9.4(j). For these purposes, the amount of the "Tax Benefit" attributable to Damages relating to a given Indemnification payment shall be equal to the excess (if any) of (I) the amount of Taxes such Party would pay, assuming for the purposes of such computation that such Damages were not deductible, over (II) the amount of Taxes such Party would pay after deducting the indemnifiable portion of such Damages (i.e., the portion of such Damages for which an Indemnification payment would be required without regard to this Section 9.4(j)), but only if and to the extent that, under applicable Tax Law, the Indemnified Party is permitted to deduct the indemnifiable portion of such Damages. (ii) This paragraph 9.4(k)(ii) provides procedural rules applicable to the adjustments provided for in this section 9.4(k). If one party has a dispute with another party or parties as to whether, under this Section 9.4(k), an adjustment is required to be made, the amount of such adjustment, or the timing of such adjustment, the complaining party shall notify the other party(s) of such claim in writing. Such notice must include the particular details which constitute the basis for the dispute. If the dispute is not resolved by the parties within ninety (90) days of the date notice is given, the dispute shall be referred to an accounting firm (tile "Auditor") which is mutually acceptable to the parties for resolution. The Auditor shall issue a written report which sets forth a final decision -45- with respect to the disputed issued. Fees and expenses of the Auditor shall be shared half by the complaining party and half by the parties receiving notice of the claim. If an adjustment required to be paid under this Section 9.4(k) by one party to the other has not been received by the other party within the later of fifteen, (15) days after any determination or any properly delivered notice by one party to the other that payment is due, any unpaid amounts shall bear interest from the prescribed payment date, compounded quarterly at the Applicable Federal Short-Term Rate in effect from time to time while such amount remains unpaid. The "Applicable Federal Short-Term Rate" shall be the rate provided in section 1274(d) of the Code, and the Treasury Regulations and administrative releases thereunder. (iii) Buyer and any Affiliate of Buyer shall not agree to settle any administrative or judicial proceeding claim or action with respect to any item which may be the subject of indemnification for Buyer's Transaction Taxes, without prior written notice to and review by Seller. (iv) For the purposes of this Section 9.4 any reference to "Tax detriment" shall include only a Tax detriment resulting from the inclusion in the Indemnified Party's taxable income of an Indemnification amount for Buyer's Transaction Taxes and shall not include a Tax detriment for any other Indemnification. ARTICLE X. MISCELLANEOUS 10.1. Amendment and Modifications. This Agreement may be amended, modified or supplemented at any time by the parties hereto. This Agreement may be amended only by an instrument in writing duly executed by Seller and Buyer. 10.2. Extension; Waiver. At any time prior to the Closing, the parties hereto entitled to the benefits of the respective term or provision may (i) extend the time for the -46- performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document, certificate or writing delivered pursuant hereto or (iii) waive compliance with any obligation, covenant, agreement or condition contained herein. Any agreement on the part of any party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of the parties entitled to the benefits of such extended or waived term or provision. 10.3. Representations and Warranties: Etc. Buyer hereby acknowledges and agrees that Seller is not making any representation or warranty whatsoever, express or implied, including, without limitation, in respect of the Company, the Project Subsidiaries or their respective assets, liabilities and businesses, except those representations and warranties of Seller explicitly set forth in this Agreement or in the Seller Disclosure Schedule or supplement thereto or in any certificate contemplated hereby and delivered by Seller in connection herewith (notwithstanding the delivery or disclosure to Buyer or its Representatives of any other documents or information). (b) Notwithstanding any other provisions in this Agreement or any Exhibit to the contrary, each of Buyer and Seller agrees that on and after the Closing Date (i) none of the respective officers, directors, partners, employees, Affiliates, Representatives or agents, as the case may be, of Seller (collectively, the "Selling Affiliates"), nor (ii) except as expressly set forth in the indemnification provisions of Section 9.4 hereof, the Tax Indemnity Agreement or Indemnity Agreement, the Seller: shall have any liability or responsibility to any Person, including, without limitation, Buyer or the Company, for (and each of them unconditionally releases the Seller and Selling Affiliates from) any liability or obligation of, or arising out of, or relating to, the Company or Buyer of whatever kind or nature, whether contingent or absolute, whether arising prior to, on or after, and whether determined or indeterminable on, the Closing Date, and whether or not specifically referred to in this Agreement, including without limitation, liabilities and obligations (i) relating to this Agreement and the transactions contemplated hereby, (ii) arising out of or due to any inaccuracy of any representation or warranty or the breach of any covenant, undertaking or other agreement of Seller contained in this Agreement, Seller Disclosure Schedule or in any certificate contemplated hereby and -47- delivered by Seller in connection herewith and (iii) relating to any information (whether written or oral), documents or materials furnished by Seller or any of its Affiliates or any of their respective Representatives, including the Confidential Descriptive Memorandum Sale of an Investment in IPPCo dated January 1999 prepared by Credit Suisse First Boston Corporation and Lehman Brothers Inc. and any information, documents or material made available to Buyer in "data rooms," management presentations or any other form in expectation of the transactions contemplated by this Agreement. 10.4. Entire Agreement; Assignment. This Agreement (including all Exhibits hereto) (a) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreements and understanding both written and oral, among the parties or any of them with respect to the subject matter hereof (other than the Confidentiality Agreement) (b) may not be assigned by a party hereto without the consent of the other party, and (c) shall be binding upon such parties successors and permitted assigns. 10.5. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, each of which shall remain in full force and effect. 10.6. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile or similar writing) and shall be given: (a) if to Seller, to: CalEnergy Company, Inc. 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Attention: President Facsimile: (402) 345-9318 Telephone: (402) 341-4500 with a copy to: Willkie Farr & Gallagher 787 Seventh Avenue -48- New York, New York 10019 Attention: Peter J. Hanlon, Esq. Facsimile: (212) 728-8111 Telephone: (212) 728-8000 (b) if to Buyer, to: El Paso Power Holding Company 350 Indiana Street Suite 300 Golden, CO 80401 Attention: President Facsimile: 303-215-5450 Telephone: 303-278-3400 with a copy to: El Paso Energy 1001 Louisiana Suite 2754B Houston, Texas 77002 Attention: Gregory W. Jones, Esq. Facsimile: 713-420-4943 Telephone: 713-420-4431 King & Spalding 1185 Avenue of the Americas New York, New York 10036 Attention: Stephen M. Wiseman, Esq. Facsimile: 212-556-2222 Telephone: 212-556-2100 or such other address or facsimile number as a party may hereafter specify by like notice to the other party. Each such notice, request or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the facsimile number specified herein and the appropriate confirmation is provided, (ii) if given via United States mail, three days after such notice is deposited in the mail in a postage pre-paid envelope or (iii) if given by any other means, when delivered at the address specified herein. -49- 10.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. Publicity. Except as otherwise required by Law or the listing requirements of any national securities exchange or over-the-counter market, for so long as this Agreement is in effect, none of Seller, Buyer or the Company shall issue or cause the publication of any press release or other public announcement with respect to the transactions contemplated by this Agreement without the express prior written approval of the other parties. 10.9. Jurisdiction: Forum. (a) By the execution and delivery of this Agreement, Buyer submits to the personal jurisdiction of any state or Federal court in the State of New York in any suit or proceeding arising out of or relating to this Agreement. (b) The parties hereto agree that the appropriate and exclusive forum for any disputes between any of the parties hereto arising out of this Agreement or the transactions contemplated hereby shall be in any state or Federal court in the State of New York. The parties hereto further agree that the parties will not bring suit with respect to any disputes arising out of this Agreement or the transactions contemplated hereby in any court or jurisdiction other than the above specified courts; provided, however, that the foregoing shall not limit the rights of the parties to obtain execution of judgment in any other jurisdiction. The parties hereto further agree, to the extent permitted by law, that final and unappealable judgment against a party in any action or proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and amount of such judgment. 10.10. Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. -50- 10.11. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 10.12. Expenses. Whether or not the transactions contemplated by this Agreement are consummated, and except as otherwise expressly set forth herein, all legal and other costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be paid by the party incurring such expenses. The parties agree that none of the costs and expenses of the transactions contemplated by this Agreement through the Closing Date shall be borne by the Company. 10.13. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and, except as expressly set forth in Section 9.4 hereof, nothing in this Agreement, express or implied, is intended by or shall confer upon any other Person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. Any Person who is a beneficiary of Section 9.4 shall be entitled to enforce his rights thereunder: provided, however, that, prior to the Closing, no action to enforce such rights may be commenced by any such Person without the prior written consent of Seller. 10.14. Interpretation. No reference in this Agreement to "reasonable best efforts" or "all reasonable efforts" shall require a Person obligated to use such efforts to incur out-of-pocket expenses or indebtedness or, except as expressly provided herein, to institute litigation or to consent generally to service of process in any jurisdiction where it is not already subject. -51- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. CALENERGY COMPANY, INC. By: /s/ Steven A. McArthur ----------------------------------- Name: Steven A. McArthur Title: Executive Vice President EL PASO POWER HOLDING COMPANY By: /s/ Larry Kellerman ----------------------------------- Name: Larry Kellerman Title: President GUARANTEE El Paso Energy Corporation, the ultimate parent company of Buyer, hereby (i) unconditionally and irrevocably guarantees the performance by Buyer, when due, pursuant to the foregoing Equity Purchase Agreement, LLC Operating Agreement and all agreements attached as Exhibits hereto, (ii) agrees to be bound by the terms thereof, (iii) waives all defenses as a surety including notice, (iv) agrees that its obligations under the guarantee shall not be impaired, diminished or discharged by any extension of time granted by Seller, by any course of dealing between the Seller and the Buyer, by the unenforceability of any provision of the Agreement for any reason whatsoever, or by any event or circumstance which might operate to discharge a guarantor, and (v) covenant to take any and all actions and execute any further documents reasonably requested by Seller to implement and enforce such Equity Purchase Agreement. El Paso Energy Corporation BY: /s/ H. Brent Austin ----------------------------------- Name: H. Brent Austin Title: Executive Vice President EX-10.48 22 EQUITY COMMITMENT AGREEMENT EXHIBIT B EQUITY COMMITMENT AGREEMENT EQUITY COMMITMENT AGREEMENT, dated as of March 3, 1999, among El Paso Power Holding Company, a Delaware corporation ("El Paso") and CalEnergy Company, Inc., a Delaware corporation ("CalEnergy"). RECITALS WHEREAS, an Equity Commitment Agreement ("Initial Commitment Agreement") dated as of October 13, 1998 was entered into among CalEnergy, Salton Sea Brine Processing L.P., a California limited partnership ("SSBP"), Salton Sea Power Generation L.P., a California limited partnership ("SSPG"), Fish Lake Power Company, a Delaware corporation ("Fish Lake"), Salton Sea Power L.L.C., a Delaware limited liability company ("Power LLC" and, collectively with SSBP, SSPG and Fish Lake, the "Salton Sea Guarantors"), Vulcan Power Company, a Nevada corporation ("VPC"), CalEnergy Operating Corporation, a Delaware corporation ("CEOC"), BN Geothermal, Inc., a Nevada corporation ("BN Geothermal"), San Felipe Energy Company, a California corporation ("San Felipe"), Conejo Energy Company, a California corporation ("Conejo"), Niguel Energy Company, a California corporation ("Niguel"), Vulcan/BN Geothermal Power Company, a Nevada general partnership ("Vulcan"), Del Ranch, L.P., a California limited partnership ("Del Ranch"), Elmore, L.P., a California limited partnership ("Elmore"), Leathers, L.P., a California limited partnership ("Leathers"), and CE Turbo LLC, a Delaware limited liability company ("Turbo LLC" and, collectively with VPC, CEOC, BN Geothermal, San Felipe, Conejo, Niguel, Vulcan, Del Ranch, Elmore and Leathers, the "Partnership Guarantors"), Salton Sea Royalty Company, a Delaware corporation (the "Royalty Guarantor" and, collectively with the Salton Sea Guarantors and the Partnership Guarantors, the "Guarantors"), CalEnergy Minerals LLC, a Delaware limited liability company ("Minerals LLC"), Chase Manhattan Bank and Trust Company, National Association, in its capacity as collateral agent (together with its successors and permitted assigns in such capacity, the "Collateral Agent") for the Secured Parties pursuant to the Intercreditor Agreement (as defined in the Indenture referred to below), and Chase Manhattan Bank and Trust Company, National Association, in its capacity as depositary agent (together with its successors and permitted assigns in such capacity, the "Depositary Agent") for the Secured Parties pursuant to the Depositary Agreement (as defined in the Indenture referred to below). 1 WHEREAS, the Funding Corporation was formed for the sole purpose of issuing its bonds, debentures, promissory notes or other evidences of indebtedness under the Trust Indenture dated as of July 21, 1995 (the "Original Indenture") (as amended and supplemented by the First Supplemental Indenture dated as of October 18, 1995, the Second Supplemental Indenture dated as of June 20, 1996 (the "Second Supplemental Indenture"), the Third Supplemental Indenture dated as of July 29, 1996 and the Fourth Supplemental Indenture dated as of October 13, 1998 (the "Fourth Supplemental Indenture"), and the Fifth Supplemental Indenture dated as of February 16, 1999 (the "Fifth Supplemental Indenture"), and as further amended, supplemented or otherwise modified from time to time, the "Indenture"), between the Funding Corporation and Chase Manhattan Bank and Trust Company, National Association, as trustee (the "Trustee"); WHEREAS, the Funding Corporation has issued $285,000,000 of its 7.475% Senior Secured Series F Bonds Due 2018 (the "Series F Securities") pursuant to the Fourth Supplemental Indenture; WHEREAS, the Funding Corporation will use the net proceeds of the Series F Securities to (i) make a loan to the Salton Sea Guarantors pursuant to the Salton Sea Credit Agreement (the "Salton Sea Project Loan") and (ii) make a loan to the Partnership Guarantors pursuant to the Partnership Credit Agreement (the "Partnership Project Loan"); WHEREAS, the Salton Sea Guarantors will use the proceeds of the Salton Sea Project Loan to pay costs associated with the development, construction, start-up and operation and maintenance during start-up of Salton Sea Unit V; WHEREAS, the Partnership Guarantors will use the proceeds of the Partnership Project Loan to pay (i) costs associated with the development, construction, start-up and operation and maintenance during start-up of the Zinc Project and the Region 2/Turbo Project and (ii) costs associated with the making of Permitted Capital Expenditures to the Partnership Projects and the Salton Sea Projects; WHEREAS, as a condition to the Secured Parties entering into the Financing Documents and the purchase by the Holders of the Series F Securities, CalEnergy previously agreed to execute and deliver the Initial Commitment Agreement in favor of the Guarantors and the Collateral Agent; WHEREAS, El Paso is acquiring an indirect 50% interest in certain of 2 the Guarantors pursuant to that Certain Purchase Agreement (the "Purchase Agreement") between El Paso and CalEnergy dated as of February 21, 1999. AGREEMENT NOW THEREFORE, in consideration of CalEnergy entering into the Purchase Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows as follows: Section 1. Definitions. Unless otherwise defined herein, terms defined in the Initial Commitment Agreement (including the defined terms incorporated therein from Depositary Agreement or the Indenture) shall have such defined meanings when used herein. Section 2. Equity Contributions. (a) Salton Sea Unit V Equity Contributions. El Paso shall contribute or cause to be contributed to Power LLC from time to time until Final Completion of Salton Sea Unit V, for the benefit of the Secured Parties, not later than one (1) business day prior to the date specified in the Construction Requisition attached to the Equity Requisition Certificate delivered by Power LLC to CalEnergy with copies redelivered by CalEnergy to El Paso pursuant to the Initial Commitment Agreement, in an amount equal to one half of the amount of such Construction Requisition; provided, however, the aggregate amount of such Equity Contribution together with the amount of all previous Equity Contributions made by El Paso pursuant to this Section 2(a) shall not exceed one-half of the Unit V Construction Amount. (b) Region 2/Turbo Equity Contributions. El Paso shall contribute or cause to be contributed to Turbo LLC, Vulcan or Del Ranch from time to time until Final Completion of the Region 2/Turbo Project, for the benefit of the Secured Parties not later than one (1) business day prior to the date specified in the Construction Requisition attached to the Equity Requisition Certificate delivered by Turbo LLC, Vulcan, Del Ranch, as the case may be, to CalEnergy with copies redelivered by CalEnergy to El Paso pursuant to the Initial Commitment Agreement, in an amount equal to one half of the amount of such Construction Requisition; 3 provided, however, the aggregate amount of such Equity Contribution together with the amount of all previous Equity Contributions made pursuant to this Section 2(b) shall not exceed one-half of the Region 2/Turbo Construction Amount. (c) Capital Expenditure Contributions. El Paso shall contribute or cause to contributed to any Guarantor from time to time, for the benefit of the Secured Parties not later than one (1) business day prior to the date specified in the Capital Expenditure Requisition attached to the Equity Requisition Certificate delivered by such Guarantor to CalEnergy with copies redelivered by CalEnergy to El Paso pursuant to the Initial Commitment Agreement, in an amount equal to one half of the amount of such Construction Requisition; provided, however, the aggregate amount of such Equity Contribution together with the amount of all previous Equity Contributions made by El Paso pursuant to this Section 2(c) shall not exceed one-half of the Capital Expenditure Construction Amount. (d) Additional Equity Amount. El Paso shall contribute or cause to contributed to the Guarantors from time to time, for the benefit of the Secured Parties not later than one (1) business day prior to the date, an Equity Contribution in the amount of any payment of Construction Debt Service; provided, however, that the aggregate amount of such Equity Contribution, together with the amount of all previous Equity Contributions made by El Paso pursuant to this Section 2(d), shall not exceed one-half of the Additional Equity Amount. (e) Contributions. Unless the parties otherwise agree, the Equity Contributions made by El Paso under this Equity Commitment Agreement and the Equity Contributions (as defined in the Initial Commitment Agreement) made by CalEnergy under the Initial Commitment Agreement shall be treated as subordinated loans (to the extent permitted and in accordance with the financing documents to which CE Generation is a party) to CE Generation and to its applicable subsidiaries, it being the intent of the parties that (1) CalEnergy and El Paso will each make half of the payments contemplated by the Initial Commitment Agreement with respect to Equity Contributions for Salton Sea Unit 5, the Region 2/Turbo Project and the Capital Expenditures and the Construction Debt Service applicable to such foregoing projects and (2) that such payments be treated as equity contributions. If CalEnergy has prefunded such Equity Contributions, El Paso agrees that one-half of the Capital Expenditure Structure Amount and Additional Equity Amount shall be released directly to CalEnergy prior to Closing. 3. Transfer of Equity Commitment Obligations. Other than 4 successors to El Paso by merger or otherwise by operation of law, El Paso shall not transfer any portion of its obligations under this Agreement. 4. Obligations Unconditional; Waivers. (a) The obligations of El Paso under Section 2 shall be absolute, unconditional and irrevocable under any and all circumstances, and shall be performed by El Paso regardless of, and to the fullest extent permitted by applicable law: (i) the existence of any indebtedness owing by CalEnergy, the Guarantors or any Affiliate thereof to El Paso or of any setoff, abatement, counterclaim, recoupment, defense or other right or claim which El Paso may have against the Guarantors, any Affiliate thereof or any other Person; (ii) the occurrence of a Bankruptcy Event of the Guarantors, any Affiliate thereof or any other Person or the pendency against the Guarantors, any Affiliate thereof or any other Person of any case, suit or proceeding under the Federal Bankruptcy Code; (iii) the invalidity, irregularity or unenforceability of or any change in or amendment to any Transaction Document; (iv) the institution or absence of any action to enforce any Transaction Document or the waiver or consent by El Paso or any Secured Party with respect to the provisions thereof, the obtaining of any judgment against the Guarantors or any Affiliate thereof, or any action to enforce such judgment, or the inability to recover from the Guarantors or any Affiliate thereof because of any statute of limitations, laches or otherwise; or (v) the failure to complete (except as provided in the definition of Final Completion) or the destruction of any New Project or any Permitted Capital Expenditures or any other circumstance which might otherwise constitute a legal or equitable discharge of or a defense to El Paso's undertakings hereunder; or (vi) any other circumstances whatsoever which might otherwise constitute an excuse for nonperformance of the obligations of El Paso under Section 2, whether similar or dissimilar to any of the circumstances herein specified. 5 (b) The obligation of El Paso to make or cause to be made an Equity Contribution as provided in Section 2 (as such obligation may be reduced pursuant to a transfer made in accordance with Section 3) shall not be affected by (to the fullest extent permitted by applicable law) any abatement, reduction, limitation, impairment, termination, setoff, defense, counterclaim or recoupment whatsoever or any right to any thereof, and shall not be released, discharged or in any way affected by any reorganization, arrangement, compromise or plan affecting the Guarantors or any Affiliate thereof. (c) In respect of the Equity Contributions to be made or caused to be made by El Paso as provided in Section 2, El Paso hereby unconditionally (to the fullest extent permitted by applicable law): (i) waives notice of acceptance hereof, of any action taken or omitted in reliance hereon and of any defaults by the Guarantors or any Affiliate thereof in the payment of any amounts due, diligence, protest, presentment, filing of claims with a court in connection with a Bankruptcy Event of the Guarantors or any Affiliate thereof, any right to require a proceeding first against the Guarantors or any Affiliate thereof or that the Guarantors or any Affiliate thereof be joined in any bankruptcy or similar proceeding, any marshalling of assets of the Guarantors or any Affiliate thereof, the Guarantors' or any Affiliate thereof providing security for the Financing Documents or any notice of default with respect thereto, or any other act or omission or thing or delay to do any other act or thing which might in any manner or to any extent vary the risk of El Paso or which might otherwise operate as a discharge to El Paso; (ii) agrees that this Agreement shall remain in full force and effect without regard to, and shall not be affected or impaired by, any invalidity, irregularity or unenforceability in whole or in part of any of the Transaction Documents; (iii) agrees that no failure or delay on the part of the Guarantors, any Secured Party or any other Person in exercising any right, power or privilege hereunder or under any other Transaction Document and no course of dealing between El Paso on the one hand, and the Guarantors, any Affiliate thereof or any Secured Party, on the other hand, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the 6 exercise of any other right, power or privilege hereunder; (iv) agrees that the rights and remedies herein provided are cumulative and not exclusive of any rights or remedies which the Guarantors, any Affiliate thereof or any Secured Party would otherwise have; and (v) agrees that this Agreement shall be discharged only by complete performance and payment in full of the obligations contained herein and that El Paso shall have no right to withhold or set-off against any payments due for any reason. 5. Representations and Warranties: El Paso hereby represents and warrants that: (a) it is a corporation duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation, and it is duly qualified and authorized to do business and is in good standing as a foreign corporation in each jurisdiction in which it owns or leases real property or in which the nature of its business requires it to be so qualified; (b) it has all necessary power and authority to execute and deliver this Agreement and to perform all of its obligations hereunder, and its execution, delivery and performance of this Agreement have been duly authorized by all necessary action on its part and do not require any approval or consent of any holder (or any trustee for or agent of any holder) of any indebtedness or other obligation of it or any other person or entity, other than approvals or consents which have previously been obtained and which are in full force and effect; (c) it has duly executed and delivered this Agreement and this Agreement constitutes the valid and binding obligation of it enforceable against it in accordance with its terms, except as enforceability may be limited by general equitable principals and applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally; (d) the execution and delivery by it and the performance by it of its obligations hereunder do not (i) conflict with its certificate of incorporation or bylaws, (ii) conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, agreement or other material instrument to which it is a party or by 7 which it or any of its material properties or assets is bound, or (iii) conflict with any applicable Laws, or any order, writ, injunction or decree of any court or Governmental Authority binding on it or its material properties or assets; (e) no Governmental Approvals or other consents or approvals are required in connection with the execution, delivery and performance by it of this Agreement; (f) it is in compliance with all applicable Laws except to the extent that the failure to comply therewith could not materially adversely affect its ability to perform its obligations under this Agreement; and (g) no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best of its knowledge, threatened against it or any of its properties, rights, revenues or assets which could reasonably be expected to materially adversely affect its ability to perform its obligations under this Agreement. 6. Expenses. The Guarantors hereby agree to pay all costs, including reasonable attorneys' fees, incurred with respect to the enforcement of the provisions of this Agreement against El Paso, which enforcement costs, regardless of when incurred, shall be payable on the earlier of (a) the date on which a final judgment shall be obtained against El Paso with respect to this Agreement and any and all appeal periods shall have expired and (b) the date on which El Paso and the Collateral Agent shall have otherwise resolved (including by way of settlement) any dispute with respect to the enforcement of this Agreement against El Paso. 7. Notices. All notices, requests and other communications provided for hereunder shall be in writing and, except as otherwise required by the provisions of this Agreement, shall be sufficiently given and shall be deemed given when delivered or mailed by registered or certified mail, postage prepaid, or sent by overnight delivery, telecopy, telegram or telex, addressed to the parties as follows: CalEnergy: CalEnergy Company, Inc. 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Attention: Chief Financial Officer 8 Telephone: (402) 341-4500 Fax: (402) 231-1678 and a copy to: Willkie Farr & Gallagher 787 Seventh Avenue New York, New York 10022 Attention: Peter J. Hanlon, Esq. Telephone: 212-728-8000 Fax: 212-728-8111 El Paso: El Paso Power Holding Company 350 Indiana Street Suite 300 Golden, CO 80401 Attention: President Telephone: (303) 215-5450 Fax: (303) 278-3400 and a copy to: El Paso Energy Corp. 1001 Louisiana Houston, TX 77002 Attention: Gregory W. Jones, Esq. Telephone: (713) 420-4431 Fax: (713) 420-4943 and a copy to: King & Spalding 1185 Avenue of the Americas New York, New York 10036 Attention: Stephen M. Wiseman, Esq. Telephone: (212) 556-2100 Fax: (212) 556-2222 9 8. Amendments. No waiver, amendment, modification or termination of any provision of this Agreement, or consent to any departure by El Paso therefrom, shall in any event be effective without the prior written consent of CalEnergy. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 9. Successors and Assigns. This Agreement shall be binding upon El Paso and its successors and permitted assigns and shall inure to the benefit of CalEnergy and its respective successors and assigns. Other than successors to El Paso by merger or otherwise by operation of law, El Paso may not assign or otherwise transfer any of its rights or obligations under this Agreement without the written consent of CalEnergy. 10. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 11. Headings Descriptive. The headings of the several Sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 12. Severability. In case any provision contained in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 13. Governing Law. This Agreement shall be governed by the laws of the State of New York of the United States of America and shall for all purposes be governed by and construed in accordance with the laws of such state without regard to the conflict of law rules thereof other than Section 5-1401 of the New York General Obligations Law. 14. Consent to Jurisdiction. Any legal action or proceeding by or against El Paso with respect to or arising out of this Agreement may be brought in or removed to the courts of the State of New York, in and for the County of New York, or of the United States of America for the 10 Southern District of New York. By execution and delivery of this Agreement, El Paso accepts, for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts for legal proceedings arising out of or in connection with this Agreement and irrevocably consents to the appointment of CT Corporation System, with offices on the date hereof at 1633 Broadway, New York, New York 10019, as its agent to receive service of process in New York, New York. If for any reason such agent shall cease to be available to act as such, El Paso agrees to appoint a new agent satisfactory to CalEnergy on the terms and for the purposes of this provision. Nothing herein shall affect the right to serve process in any other manner permitted by law or any right to bring legal action or proceedings in any other competent jurisdiction. El Paso hereby waives any right to stay or dismiss any action or proceeding under or in connection with this Agreement or any other Transaction Document brought before the foregoing courts on the basis of forum non-conveniens or improper venue. 15. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE OTHER PARTIES HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE COLLATERAL AGENT TO ENTER INTO THIS AGREEMENT. 16. Entire Agreement. This Agreement, together with any other agreement executed in connection herewith, is intended by the parties as a final expression of their agreement as to the matters covered hereby and is intended as a complete and exclusive statement of the terms and conditions thereof. 17. Third Party Beneficiaries. Nothing herein contained shall confer any right upon any Person other than the parties hereto. 18. Limitation of Liability. Notwithstanding anything else in this Agreement, El Paso's liability in respect of this Agreement is limited to $25.85 million. Neither El Paso nor any shareholder, officer, employee, controlling Person, executive, director, agent or Affiliate of El Paso (hereinafter referred to as "operatives") shall be liable for payments or other obligations due by CalEnergy, the 11 Funding Corporation or any of the Guarantors under the Securities, the Indenture, the Guarantees or the other Financing Documents and, except for the obligations of El Paso under this Agreement, the obligations of El Paso and its operatives under this Agreement and the other Financing Documents shall be limited to the extent of each party's right, title and interest in, to and under any collateral pledged by El Paso or such operatives under this Agreement or the other Financing Documents. 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first written above. --------------------------------------- ---------------------------------------- EL PASO POWER HOLDING COMPANY CALENERGY COMPANY, INC. By: /s/ Larry Kellerman By: /s/ Steven A. McArthur ------------------------------ ------------------------------ Name: Larry Kellerman Name: Steven A. McArthur Title: President Title: Executive Vice President --------------------------------------- ---------------------------------------- --------------------------------------- ---------------------------------------- By signing below, the entities set forth below agree that Equity Contributions made by El Paso pursuant to this Agreement shall each constitute an Equity Contribution (as defined in the Initial Commitment Agreement) that CalEnergy has caused to be contributed in fulfillment of its obligations pursuant to the Initial Commitment Agreement. Subject to the foregoing, CalEnergy agrees that (i) this Agreement does not relieve CalEnergy of any of its obligations under the Initial Commitment Agreement to the extent El Paso breaches its obligations hereunder and (ii) CalEnergy remains responsible under the Initial Commitment Agreement to the extent that El Paso breaches its obligations hereunder or fails to make any Equity Contributions required hereunder. SALTON SEA POWER GENERATION L.P. SALTON SEA POWER L.L.C. By: SALTON SEA POWER COMPANY, By: CE SALTON SEA INC., As its general partner as its manager By: /s/ Steven A. McArthur By: /s/ Steven A. McArthur ---------------------------------- ---------------------------------- Name: Steven A. McArthur Name: Steven A. McArthur Title: Executive Vice President Title: Executive Vice President SALTON SEA BRINE PROCESSING L.P. VULCAN POWER COMPANY By: SALTON SEA POWER COMPANY, By: /s/ Steven A. McArthur as its general partner ---------------------------------- Name: Steven A. McArthur Title: Executive Vice President By: /s/ Steven A. McArthur ---------------------------------- Name: Steven A. McArthur Title: Executive Vice President FISH LAKE POWER LLC CALENERGY OPERATING CORPORATION By: /s/ Steven A. McArthur By: /s/ Steven A. McArthur ---------------------------------- ---------------------------------- Name: Steven A. McArthur Name: Steven A. McArthur Title: Executive Vice President Title: Executive Vice President VPC GEOTHERMAL LLC By: /s/ Steven A. McArthur ---------------------------------- Name: Steven A. McArthur Title: Executive Vice President VULCAN/BN GEOTHERMAL POWER COMPANY SAN FELIPE ENERGY COMPANY By: VULCAN POWER COMPANY, By: /s/ Steven A. McArthur as its general partner ---------------------------------- Name: Steven A. McArthur Title: Executive Vice President By: /s/ Steven A. McArthur ---------------------------------- Name: Steven A. McArthur Title: Executive Vice President LEATHERS, L.P. CONEJO ENERGY COMPANY By: /s/ Steven A. McArthur By: /s/ Steven A. McArthur ---------------------------------- ---------------------------------- Name: Steven A. McArthur Name: Steven A. McArthur Title: Executive Vice President Title: Executive Vice President DEL RANCH, L.P. ELMORE, L.P. By: CALENERGY OPERATION CORPORATION, By: CALENERGY OPERATION CORPORATION, as its general partner as its general partner By: /s/ Steven A. McArthur By: /s/ Steven A. McArthur ---------------------------------- ---------------------------------- Name: Steven A. McArthur Name: Steven A. McArthur Title: Executive Vice President Title: Executive Vice President NIGUEL ENERGY COMPANY By: /s/ Steven A. McArthur ---------------------------------- Name: Steven A. McArthur Title: Executive Vice President CE TURBO LLC By: MAGMA POWER COMPANY as its manager By: /s/ Steven A. McArthur ---------------------------------- Name: Steven A. McArthur Title: Executive Vice President SALTON SEA ROYALTY LLC By: /s/ Steven A. McArthur ---------------------------------- Name: Steven A. McArthur Title: Executive Vice President EX-23.2 23 INDEPENDENT AUDITORS CONSENT EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 1 to Registration Statement No. 333- 89521 of CE Generation, LLC of our report dated January 28, 1999 (February 22, 1999 as to the first paragraph in Note 1 and March 3, 1999 as to Note 15), appearing in the Prospectus, which is part of this Registration Statement and to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Omaha, Nebraska November 29, 1999 EX-23.7 24 CONSENT OF C.C. PACE CONSULTING L.L.C. EXHIBIT 23.7 [Letterhead of C.C. Pace Consulting, L.L.C.] November 29, 1999 CE Generation, LLC 302 South 36th Street, Suite 400 Omaha, Nebraska 68131 This letter is furnished relating to the exchange of $400,000,000 principal amount of unregistered 7.416% Senior Secured Bonds Due December 15, 2018 (the "Old Securities") for $400,000,000 principal amount of registered 7.416% Senior Secured Bonds Due December 15, 2018 (the "New Securities"). We consent to the references to us in (1) the "CE Generation Consolidated Proforma Analysis" by Fluor Daniel, Inc., which is attached as Appendix A to the Prospectus included in the Registration Statement being filed by CE Generation, LLC in respect of the New Securities (the "Prospectus"), and (2) the "Independent Engineer's Report--CE Generation LLC Natural Gas Projects," by R.W. Beck, Inc., which is attached as Appendix B to the Prospectus. C.C. PACE CONSULTING L.L.C. By: /s/ Daniel E. White ---------------------------- Name: Daniel E. White Title: Senior Vice President