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EXHIBIT 10.48
POWER PURCHASE AGREEMENT
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TABLE OF CONTENTS
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Article 1
DEFINITIONS.....................................................................................
2
Article 2 DESCRIPTION OF THE
FACILITY.....................................................................
23
2.1 Summary
Description......................................................................
23
2.2 Site
...................................................................................
23
2.3 Interconnection
Point....................................................................
24
2.4 Design and
Construction of the
Facility..................................................
24
2.5 Technical
Specifications
..............................................................
24
2.6 Contract
Capacity........................................................................
25
2.7
Performance
Requirements.................................................................
28
2.8
Fuels....................................................................................
28
Article 3 OBLIGATION TO
PURCHASE..........................................................................
29
3.1 Term
....................................................................................
29
3.2 Sale and
Purchase of Energy and
Capacity.................................................
29
(A)
Energy...........................................................................
29
(B)
Capacity.........................................................................
30
(C)
Backup and Maintenance
Power.....................................................
31
3.3 Operation
of the
Facility................................................................
31
3.4 Seller's
Required
Approvals..............................................................
33
3.5 Contract
Certification or
Approval.......................................................
34
3.6 Phillips
Steam
Agreement.................................................................
38
Article 4 MILESTONES AND
SCHEDULE.........................................................................
40
4.1 Proposed
Commercial Operation
Dates......................................................
40
4.2 Recourse
for
Delays......................................................................
40
4.3 Proposed
Milestone
Dates.................................................................
41
(A)
EPC Contract
....................................................................
41
(B)
Site Acquisition
................................................................
41
(C)
Financial Closing
...............................................................
44
(D)
Construction
Commitment..........................................................
44
(E)
Set Generating
Equipment.........................................................
44
(F)
Set
HRSGs........................................................................
44
4.4 Certain
Milestone
Matters................................................................
44
(A)
Notification
....................................................................
44
(B)
Milestone Deadline
Dates.........................................................
44
4.5
Construction Schedule and Proposed Contractor Milestone Dates
........................... 44
4.6
Southwestern Rights During
Construction..................................................
45
4.7 Conditions
to Combustion Turbine Commercial Operation Date
.............................. 45
4.8 Conditions
to Cogeneration Commercial Operation
Date..................................... 47
Article 5 PAYMENT AND
BILLINGS............................................................................
49
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5.1 General
Terms and
Conditions.............................................................
49
5.2 Capacity
Payments........................................................................
49
5.3 Fixed
O&M
Payment........................................................................
51
5.4 Energy
Payments..........................................................................
51
5.5 Variable
O&M
Payment.....................................................................
53
5.6 Seller
Charge............................................................................
53
5.7 Start
Payments...........................................................................
53
5.8
Pre-Commercial Operation
Energy..........................................................
53
5.9 Manner of
Payment........................................................................
53
(A)
Payments
........................................................................
53
(B)
Statement
.......................................................................
53
(C)
Late
Charges.....................................................................
54
(D)
Billing
Disputes.................................................................
55
5.10
Pro-rated
Months.........................................................................
55
Article 6 DAMAGES AND SECURITY
FUND.......................................................................
56
6.1
Establishment of Completion Security
Fund................................................ 56
6.2
Damages Prior to
Commercial
Operation....................................................
59
(A) Delay
Damages...................................................................
59
(B) Damages
for Termination Prior to Commercial Operation
.......................... 60
6.3 Damages
for Shortfalls in
Capacity.......................................................
61
(A)......................................................................................
61
(B)......................................................................................
62
(C)......................................................................................
62
(D)
Persistent
Shortfalls............................................................
62
6.4 Damage and
Other Payments from Completion Security Fund and/or by Direct
Billing......... 63
6.5 Additional
Security......................................................................
64
6.6 Equity
Contribution......................................................................
66
6.7
Indebtedness: Restrictions on Refinancing and Additional
Indebtedness.................... 66
Article 7 BUY-OUT AND FACILITY PURCHASE
OPTIONS...........................................................
69
7.1
Termination for Southwestern's Convenience During Initial Term
.......................... 69
(A)
Termination
Payment..............................................................
69
(B)
Information and
Notice...........................................................
70
(C)
Consummation.....................................................................
70
(D)
Transfer and
Release.............................................................
71
7.2 Buyout
Option............................................................................
72
7.3 Right to
Purchase Facility at End of
Term................................................ 74
7.4 First
Right of Refusal: Sale of Seller's
Interest........................................ 74
7.5 Disclaimer
of Liability for Losses and
Damages........................................... 76
Article 8 INTERCONNECTION FACILITIES AND
METERING.........................................................
77
8.1
Interconnection
Facilities...............................................................
77
8.2 Metering
Devices.........................................................................
78
8.3 Adjustment
for Inaccurate
Meters.........................................................
80
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8.4
Communication
Equipment..................................................................
82
8.5 Protective
Systems.......................................................................
82
Article 9 OPERATION AND MAINTENANCE
REQUIREMENTS..........................................................
83
9.1...............................................................................................
83
(A)
General
.........................................................................
83
(B)
Fuel
............................................................................
83
9.2 Operating
Committee and Operating
Procedures.............................................
84
9.3
Maintenance
Schedule.....................................................................
85
9.4 Facility
Operation.......................................................................
86
9.5
Dispatch.................................................................................
86
9.6
Non-Dispatchable Capacity and
Energy.....................................................
87
9.7
Certification of Operation and
Maintenance...............................................
87
9.8 Outage
Reporting.........................................................................
90
Article 10 DEFAULT AND
TERMINATION........................................................................
91
10.1
Notice of
Default........................................................................
91
10.2
Events of Default of
Seller..............................................................
91
10.3
Project Lender Right to Cure Default of
Seller........................................... 94
10.4
Events of Default of
Southwestern........................................................
94
10.5
Termination..............................................................................
96
10.6
Operation by Southwestern Following Event of Default by Seller
.......................... 96
Article 11 FORCE
MAJEURE..................................................................................
101
11.1
Definition of Force
Majeure..............................................................
101
11.2
Applicability of Force
Majeure...........................................................
102
11.3
Limitations on Effect of Force
Majeure...................................................
102
11.4
Fixed Payments Affected by Force
Majeure.................................................
103
11.5
Delivery
Excuse..........................................................................
104
11.6
Steam Host Force Majeure; Steam Delivery
Reduction....................................... 105
Article 12 REPRESENTATIONS AND
WARRANTIES.................................................................
108
12.1
Seller's Representations and
Warranties..................................................
108
12.2
Southwestern Representations and
Warranties..............................................
110
12.3
Information to Financiers, Stockholders, and Governmental
Authorities.................... 112
12.4
Confidentiality..........................................................................
112
Article 13 INSURANCE AND
INDEMNITY........................................................................
114
13.1
Seller's Insurance
Coverages.............................................................
114
13.2
Evidence and Scope of
Insurance..........................................................
114
13.3
Term and Modification of
Insurance.......................................................
115
13.4
indemnification..........................................................................
117
Article 14 REGULATORY JURISDICTION AND
COMPLIANCE.........................................................
120
14.1
Governmental jurisdiction and Regulatory
Compliance...................................... 120
14.2
Provision of
Support.....................................................................
120
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14.3
Regulatory
Disallowance..................................................................
121
14.4
Contest of Regulatory Disallowances
..................................................... 122
14.5
Compliance with
Law......................................................................
123
14.6
Seller's Disclosures
....................................................................
124
Article 15
ASSIGNMENT.....................................................................................
125
15.1..............................................................................................
125
15.2..............................................................................................
126
15.3..............................................................................................
126
15.4..............................................................................................
126
15.5..............................................................................................
126
15.6...
........................................................................................
126
Article 16 CONTRACT
ADMINISTRATION........................................................................
127
16.1
Notices in
Writing.......................................................................
127
16.2
Representative for
Notice................................................................
127
16.3
Notice Address for
Southwestern..........................................................
127
16.4
Notice Address for
Seller................................................................
128
16.5
Authority of
Representatives.............................................................
128
16.6
Operating Records
.......................................................................
128
16.7
Operating Log
...........................................................................
129
16.8
Billing and Payment
Records..............................................................
129
16.9
Financial Reports of
Seller..............................................................
129
16.10
Retention Period
........................................................................
129
16.11
Examination of
Records...................................................................
129
16.12
Dispute
Resolution.......................................................................
130
(A)
.....................................................................................
130
(B)
.....................................................................................
130
(C)
Arbitration......................................................................
130
(1) Notice to
Arbitrate ....................................................
131
(2) Selection
of Arbitrators ...............................................
131
(3) Discovery
..............................................................
131
(4) Hearing
Process ........................................................
132
(5)..............................................................................
133
(6) Decision
...............................................................
133
(7) Venue
..................................................................
133
(8) Governing
Rules for Arbitration.........................................
133
(9) Costs
..................................................................
134
(10)
Scope of Arbitrators'
Authority......................................... 134
Article 17
MISCELLANEOUS..................................................................................
135
17.1
Waiver
..................................................................................
135
17.2
Access to
Facility.......................................................................
135
17.3
Governing Law
...........................................................................
135
17.4
Taxes
...................................................................................
135
17.5
Disclaimer of Third Party Beneficiary
Rights............................................. 137
17.6
Relationship of the
Parties..............................................................
137
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17.7
Survival of
Obligations..................................................................
137
17.8
Severability.............................................................................
138
17.9
Non-Endorsement..........................................................................
138
17.10
Entire Agreement;
Amendments.............................................................
138
17.11
Binding
Effect...........................................................................
139
17.12
Headings.................................................................................
139
17.13
Counterparts.............................................................................
139
17.14 No
Personal
Liability....................................................................
139
17.15
Limitation of
Damages....................................................................
139
Article 18 STEAM HOST
LOSS................................................................................
141
18.1
Loss Of Steam
Host.......................................................................
141
18.2
Steam Host Escrow Accounts During Initial Term
.......................................... 144
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Attachment A
Facility Components and Equipment Listing
Attachment B
Site
Schedule C-1
Establishment of Net Capability
Schedule C-2
SPP Criteria Procedures for Establishing Capability Ratings
Attachment D
Attachment E
Attachment F
Pricing Provisions and Related Schedules
Schedule F-1
Capacity Price
Schedule F-2
Fixed O&M Price
Schedule F-3
Variable O&M Price
Schedule F-4
Guaranteed Heat Rates
Schedule F-5
Start-up Price
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Schedule F-6
Adjusted Non-Firm Energy Cost
Schedule G-1
DELAY DAMAGES
Combustion Turbine Commercial Operation Delay
Schedule G-2
DELAY DAMAGES
Cogeneration Commercial Operation Delay
Attachment H
Operating Procedures
Attachment I
Insurance Coverage
Attachment J
Facility Construction Milestones
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POWER PURCHASE AGREEMENT
THIS AGREEMENT is made as of this 23rd day of May, 1997, by and
between
Borger Energy Associates, L.P. ("Seller"),
a Delaware limited partnership with a
principal place of business at Amarillo,
Texas, and Southwestern Public Service
Company ("Southwestern"), a New Mexico
corporation with headquarters in
Amarillo, Texas (with Southwestern or
Seller sometimes referred to hereinafter
as "Party" and Southwestern and Seller
sometimes referred to collectively as
"Parties"), and is effective as of this
date.
WHEREAS, Seller agrees to construct and will own and operate an
electric generating plant to be located
near Borger, Texas, designed to have a
capacity rating of approximately 216
megawatts, as more fully described in
Section 2.1, identified as "the Facility ";
and
WHEREAS, Seller desires to sell electric energy and capacity to
Southwestern and Southwestern desires to
buy the same from the Seller; and
WHEREAS, Seller has responded to Southwestern's Request for
Proposals
issued September 15, 1995, as amended, by
which Southwestern requested proposals
for supply-side resources and Southwestern
has accepted Seller's offer on the
terms and conditions set forth in this
Agreement;
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NOW THEREFORE, in consideration of the mutual covenants herein
contained, the sufficiency and adequacy of
which are hereby acknowledged, the
Parties agree to the following:
ARTICLE 1
DEFINITIONS
The capitalized terms listed in this Article 1 shall have the
meanings
set forth below whenever such
capitalized terms appear in this Agreement,
whether in the singular or the
plural or in the present or past tense. Terms
not listed in Article 1 shall have
meanings as commonly used in Good Utility
Practice or the English language,
as appropriate.
"AAA" means the American Arbitration Association or any
successor
organization.
"Actual Capacity" shall mean, for any given point in time, the
net
electrical capacity that can be generated
by the Facility and delivered to the
Interconnection Point.
"Adjusted Non-Firm Energy Cost" means Southwestern's hourly
adjusted
average avoided energy cost computed in
accordance with the PUCT regulation
P.U.C. SUBST. R. 23.66(g) in effect on the
date of this Agreement as set forth
in Schedule F-6.
"AEGIS" means Associated Electric and Gas Insurance Services and
all of
its affiliates and subsidiaries authorized
by law to underwrite and provide
insurance and all of their successors.
"Agreement" means this Agreement between Seller and
Southwestern,
including Attachments A to J and their
associated Schedules.
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"Appraisal Procedure" shall mean a procedure whereby two
independent
appraisers, one chosen by Southwestern and
one by Seller, shall mutually agree
upon the determinations then the subject of
appraisal. Southwestern or Seller,
as the case may be, shall deliver a written
notice to the other appointing its
appraiser within fifteen (15) days after
receipt from the other of a written
notice appointing its appraiser. If within
sixty (60) days after appointment of
the two appraisers they are unable to agree
upon the amount in question, a third
independent appraiser shall be chosen
within ten (10) days thereafter by the
mutual consent of such first two appraisers
or, if such first two appraisers
fail to agree upon the appointment of a
third appraiser, such appointment shall
be made by the AAA, and shall be a
disinterested Person qualified in the matter
to be determined. The three appraisers
shall make the determination in
accordance with the rules of the AAA, and
such determination shall be binding
and conclusive on Southwestern and Seller.
Each Party shall pay the costs of its
own appraiser and shall share equally in
the costs, if any, of a third
appraiser.
"Automatic Generation Control," or "AGC," means the automatic
regulation within predetermined limits of
the power output of electric
generators within a prescribed geographic
area in response to changes in system
load, system frequency, tie-line
interchange, or the relation of these to each
other, so as to maintain the scheduled
system frequency or the established
interchange with other geographic areas or
both. This regulation is accomplished
by pulses sent (or successor technology)
through communication links between the
Southwestern System Control Center dispatch
computer and each generator equipped
for such control to change load on the
generator.
"Availability Factor" or "AF " means, for a given period of time,
the
hours during which the Facility was
available for operation divided by the total
hours during such
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given period of time, expressed as a
three-place decimal, as computed in
accordance with the following equation:
AF = [PH - (SIGMA(n) EDH(i) )] /PH
(i)=1
Where:
PH =
The number of hours in
the period of determination
exclusive of the equivalent number of hours for which
the Facility was not available due to Excused Outage.
EDH(1) = The
equivalent derated or outage hours during hour
"i." If during hour "i" no derate or outage occurs,
or if such derate or outage was an Excused Outage,
then for such hour "i, " the EDH is equal to zero.
For other hours, the EDH is computed as follows:
EDH(1) = SD(i)/UAC(i), where:
SD(i)
= The size of the derate below UAC
during
hour "i" to the extent that such derate is
not an Excused Outage. During hours in
which the entire Facility is out of service
for reasons other than an Excused Outage,
SD(i) shall equal UAC(i).
UAC(i) = The
unimpaired Actual Capacity of the
Facility during hour "i" assuming that no
derate or outage of the Facility occurred.
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"Cogeneration Commercial Operation" means that the Facility shall
have
met all of the conditions specified in
Section 4.8.
"Cogeneration Commercial Operation Date" means the first day
the
Facility achieves Cogeneration Commercial
Operation.
"Cogeneration Commercial Operation Deadline Date" means the date
twelve
(12) months after the Proposed Cogeneration
Commercial Operation Date.
"Cogeneration Contract Capacity" means the electrical capacity of
the
Facility, in whole MW, determined by the
most recent Capacity Test, or Capacity
Retest, which Seller shall provide and
Southwestern shall receive during Phase
II in accordance with the terms of this
Agreement.
"Combustion Turbine Commercial Operation" means that the Facility
shall
have met all of the conditions specified in
Section 4.7.
"Combustion Turbine Commercial Operation Date" means the first day
the
Facility achieves Combustion Turbine
Commercial Operation.
"Combustion Turbine Commercial Operation Deadline Date" means the
date
twelve (12) months after the Proposed
Combustion Turbine Commercial Operation
Date.
"Combustion Turbine Contract Capacity" means the electrical
capacity of
the Facility, in whole MW, determined by
the most recent Capacity Test or
Capacity Retest, which Seller shall provide
and Southwestern shall receive
during Phase I in accordance with the terms
of this Agreement.
"Commission(s)" means any of the state or federal regulatory
agencies
having jurisdiction over Southwestern.
"Committed CT Capacity" means the minimum Capacity expected to
be
delivered by Seller during Phase I and is
equal to 192 MW.
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i
=
The summation index for the number of PH
hours in the period of determination.
n
=
The total number of PH hours in the period
of determination.
"Btu" means British thermal unit of heat quantity.
"Buyout Price" shall have the meaning set forth in Section 7.2.
"Capacity" means the amount of net power output of the Facility
that
can be delivered to the Interconnection
Point and measured in whole MW.
"Capacity Payment" means the Payment for Contract Capacity as set
forth
in Section 5.2.
"Capacity Test" means the test performed in accordance with
Section
2.6(C) to determine the Contract Capacity
of the Facility.
"Capacity Retest" means the test performed in accordance with
Section
2.6(D) to redetermine the Contract Capacity
of the Facility.
"Catastrophic Equipment Failure" means a sudden unexpected failure
of
Seller's equipment which (1) substantially
reduces or eliminates the capability
of the Facility to produce Capacity and
Energy, and (2) is beyond the reasonable
control of Seller and could not have been
avoided by appropriate design,
manufacturing, construction, operating, or
maintenance practices, in accordance
with Good Utility Practice. Catastrophic
Equipment Failure does not include
failure of Seller's equipment caused by, or
arising from, a mechanical or
equipment breakdown attributable to wear
and tear normally experienced in power
generation materials and equipment and
their assembly and operation.
"Ceiling Price" shall have the meaning set forth in Section
7.2.
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"Committed Cogeneration Capacity" means the minimum Capacity
expected
to be delivered by Seller during Phase II
and is equal to 216 MW, unless
adjusted pursuant to Section 6.3(D).
"Completion Security Fund" means the fund maintained by the Seller
as
provided for in Section 6.1.
"Construction Finance Closing Date" means the date Seller
achieves
Financial Closing.
"Contract Capacity" means Combustion Turbine Contract Capacity
during
Phase I and Cogeneration Contract Capacity
during Phase II.
"Contract Interest Rate" means a rate of interest per annum
(computed
on the basis of a year of three hundred
sixty-five (365) days) equal to the
lower of (a) the interest rate specified in
18 C.F.R. Section
35.19a(a)(2)(iii)(A) as the same may be
changed from time to time plus one
percent (1 %) per annum or, if no longer
published, another mutually agreed
similar rate, or (b) the maximum rate
permitted by law.
"Contract Year" means each twelve (12) months that begins on the
day
after the Cogeneration Commercial Operation
Date or its anniversary.
"Contractor Milestone Dates" shall have the meaning set forth
in
Section 4.5.
"Correction Period" shall have the meaning set forth in Section
9.7(B).
"Cumulative Extended Term Bonus" shall mean the sum of the amounts
paid
to Seller during each month of the Extended
Term under Sections 5.2(C)(ii) or
5.2(C)(iv)(b) that exceed the Capacity
Payment that otherwise would have been
paid Seller for such month but for the
application of such Sections.
"Cumulative Initial Term Bonus" shall mean the sum of the amounts
paid
to Seller during each month of the Initial
Term under Sections 5.2(C)(ii) or
5.2(C)(iv)(b) that
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exceed the Capacity Payment that otherwise
would have been paid Seller for such
month but for the application of such
Sections.
"Debt Base Case Proforma" shall mean the base case financial
proforma
for the Seller as accepted and used by the
Senior Lender as of the Construction
Finance Closing Date.
"Delivery Excuse" shall have the meaning set forth in Section
11.5.
"Discharge Notice" means the notice provided by Southwestern to
Seller
in accordance with Section 3.5.
"Discharge Notice Date" means the date Southwestern provides
the
Discharge Notice to Seller.
"Dispatch" means the schedule and control by Southwestern, directly
or
indirectly, manually or automatically, of
the generation of the Facility in
order to increase or decrease the
electrical energy delivered from the Facility
to the Interconnection Point, as determined
solely by Southwestern.
"Early Termination Date" shall have the meaning set forth in
Article 7.
"Emergency" means a condition or situation that, in the sole
judgment
of either Southwestern or SPP, affects or
will affect Southwestern's ability, or
the ability of any member of SPP, to
maintain safe, adequate, and continuous
electric service.
"Energy" means the amount of electrical output of the Facility
delivered to the Interconnection Point and
measured in whole MWh.
"Energy Payment" means the Payment for Energy, as set forth in
Section
5.4.
"Environmental Contamination" means the presence of hazardous
wastes,
hazardous substances, hazardous materials,
toxic substances, hazardous air, and
other hazardous pollutants, and toxic
pollutants, as those terms are used in the
Resource
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Conservation 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 Safe
Drinking Water Act, the Oil Pollution and
Hazardous Substances Control Act, and
any other and all other applicable federal,
state, and local laws and
regulations as amended, at such levels or
quantities or location, or of such
form or character, to be in violation of
said federal, state, and local laws
and regulations.
"EPC Contract" means the contract between Seller and the EPC
Contractor
for engineering, procurement, and
construction of the Facility.
"EPC Contractor" means the Person that Seller contracts with
for
engineering, procurement, and construction
of the Facility.
"Estimated Phase II Actual Capacity" means the maximum Capacity
expected to be delivered by Seller during
Phase II and is equal to 239 MW.
"Event of Default" means an event as defined in Article 10 that
confers
a contractual right upon a Party to
terminate the Agreement.
"EWG" means an exempt wholesale generator pursuant to 15 U.S.C.
Section
79z-5a.
"Existing Taxes" shall have the meaning set forth in Section
17.4.
"Excused Outage" means a derate or outage of the Facility caused
by
Force Majeure or Delivery Excuse.
"Extended Term" shall have the meaning set forth in Section
3.1.
"FERC" means the Federal Energy Regulatory Commission.
"Facility" means all of the following the purpose of which is
to
produce and sell electricity: Seller's
equipment, property, buildings,
generators, transformer(s), boiler(s),
breakers, and necessary transmission
lines to connect to the Interconnection
Point,
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protective and associated equipment,
improvements, and other tangible and
intangible assets, property rights, and
contract rights reasonably necessary for
the construction, operation, and
maintenance of the electric generating facility
that is the subject of this Agreement.
"Fair Market Value" of any property as of any date shall mean the
cash
price obtainable in an arm's length sale
between an informed and willing buyer
(under no compulsion to purchase) and an
informed and willing seller (under no
compulsion to sell) of the property in
question, if the Parties are unable to
agree upon a determination of Fair Market
Value, such Fair Market Value shall be
determined in accordance with the Appraisal
Procedure.
"Financial Closing" shall have the meaning set forth in Section
4.3(C).
"Financing Documents" means the loan and credit agreements
(including
the Senior Mortgage), notes, bonds,
indentures, security agreements, lease
financing agreements, interest rate
exchanges, or swap agreements and other
documents relating to the development,
bridge, construction and/or the permanent
financing for the Facility, including any
credit enhancement, credit support,
working capital financing, or refinancing
documents, and any and all amendments,
modifications, or supplements to the
foregoing that may be entered into from
time to time.
"Fixed O&M Payment" means the Payment for the Facility's
fixed
operation and maintenance expenses, as set
forth in Section 5,3.
"Fixed Payment" means the Capacity Payment plus the Fixed O&M
Payment.
"Floor Price" shall have the meaning set forth in Section 7.2.
"Force Majeure" shall have the meaning set forth in Section
11.1.
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<PAGE>
"Fuel Agreements" means the agreements for the delivery or
transportation of fuel to the Facility's
combustion turbines, including without
limitation, the Gas Supply Agreement
between Southwestern Public Service Company
and GPM Gas Corporation dated December 1,
1995, as amended from time to time
with South western's approval pursuant to
Section 9.1(B).
"Fuel Contract Criteria" shall have the meaning set forth in
Section
9.1.
"Fuel Delivery Failure" means any failure of the delivery of fuel
to
the Facility under any Fuel Agreement to
the extent such failure is not caused
by Seller.
"Fuel Management Agreement" means the agreement to be negotiated
under
Section 9.1(B). The Fuel Management
Agreement shall not be considered a Fuel
Agreement.
"Fuel Price" shall have the meaning set forth in Section 5.4.
"GDPIPD" shall mean the Gross Domestic Product Implicit Price
Deflator
published in the National Income and
Product Account by the U.S. Department of
Commerce.
"Good Utility Practice" means any of the practices, methods, and
acts
(including but not limited to the
practices, methods, and acts engaged in or
approved by a significant portion of the
electric utility industry that, at a
particular time, in the exercise of
reasonable judgment in light of the facts
known or that should reasonably have been
known at the time a decision was made,
could have been expected to accomplish the
desired result consistent with good
business practices, reliability, economy,
safety, and expedition.
"Guaranteed Heat Rate" means the heat rates set forth on Schedule
F-4.
"Hazardous Materials" shall have the meaning set forth in
Section
4.3(B).
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<PAGE>
"Initial Term" shall have the meaning set forth in Section 3.1.
"Interconnection Facilities" means all the land, easements,
materials,
equipment, and facilities installed for the
purpose of interconnecting the
Facility and Southwestern's electric system
so as to permit the transfer of
electric energy and capacity in either
direction, including but not limited to
connection, transformation, switching,
metering, relaying, and communication and
safety equipment, and any necessary
additions and reinforcements to
Southwestern's system required for safety
or system security as a direct result
of the interconnection between the Facility
and Southwestern's system.
"Interconnection Point" shall have the meaning set forth in
Section
2.3.
"Issuer" means the financial institution or company that issues
or
maintains the Completion Security Fund in
accordance with Section 6.1(B).
"Junior Debt" means obligations of Seller to any Person, which
obligations are subordinate in priority,
right of payment, and remedies to the
subordinate debt secured by the
Subordinated Mortgage.
"kW" shall mean kilowatt.
"Lender's Possession Right Period" means the period of time
specified
in Section 10.6(B).
"Lloyds Companies" means one or more Lloyds insuring syndicates
which
are participants in good standing in the
London' insurance market, provided that
such insuring syndicate sells policies
providing the type of coverages required
under Article 13 and Attachment I through
an authorized United States agent or
broker in compliance with Texas law.
"Major Maintenance Outage" means an outage resulting from
scheduled
major maintenance, which shall not occur
more frequently than every fifth year.
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<PAGE>
"Metering Device(s)" means all meters, metering equipment, and
data
processing equipment used to measure,
record, or transmit data relating to the
electric energy or capacity of the
Facility.
"Milestone Deadline Date" means the date twelve (12) months after
the
Proposed Milestone Date.
"Minimum Load Level" means 75.3% of Actual Capacity on a per
generating
unit basis during Phase I and the level of
Non-Dispatchable Capacity and Energy
during Phase II.
"Minimum Steam Quantity" shall mean the maximum quantity of steam,
in
pounds per hour, capable of being produced
by the Facility for delivery to
Phillips when Facility combustion turbines
are operated, without the use of
duct-firing, at a one hundred percent
(100%) load level, as established by the
testing for the Cogeneration Commercial
Operation Date.
"MMBtu" means millions of Btus.
"MVAR" means megavolt-ampere reactive.
"MW" means megawatt.
"MWh" means megawatt-hour.
"NERC" means the North American Electric Reliability Council or
any
successor organization.
"Net Electrical Output" means all of the Facility's electric
generating
output (which shall not include any amount
of generating output for the use of
any other party, unless otherwise agreed to
by Southwestern) net of the
Facility's own auxiliary electrical
requirements and any transmission losses
between the Facility and the
Interconnection Point, as measured by meters owned
by Southwestern.
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<PAGE>
"Net Heat Rate" means the Net Electrical Output divided by the
total
fuel consumed to produce the Net Electrical
Output, expressed in MMBtu per MWh.
"Net Pretax Cash Flow" shall mean, for any period, the Project
Revenues
less Project Expenses, with such changes in
the definition of such term for the
purposes of this Agreement as are set
forth, consistent with the definition of
Project Expenses and Project Revenues, in
the Financing Documents for the Senior
Debt, which changes Southwestern shall
approve, such approval not to be
unreasonably withheld.
"NMPUC" means the New Mexico Public Utility Commission.
"Non-Dispatchable Capacity and Energy" means that portion of
the
Facility's Capacity and Energy that is not
subject to scheduling or control by
Southwestern.
"Notice of Arbitration" means the notice given to the other Party
by
the Party submitting a disputed matter to
arbitration.
"Offered Price" shall have the meaning set forth in Section
7.4.
"Off-Peak Hours" means all hours of a calendar day that are not
On-Peak
Hours.
"Off-Peak Month" means any calendar month that is not an On-Peak
Month.
"On-Peak Hours" means the hour ending 0700 through the hour ending
2200
(Central Standard Time or Central Daylight
Time as applicable), Monday through
Saturday. Hours occurring on holidays, as
observed, shall not be considered
On-Peak Hours.
"On-Peak Month" means the calendar months of May, June, July,
August,
and September.
"Operating Committee" means one representative each from
Southwestern
and Seller pursuant to Section 9.2.
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<PAGE>
"Operating Records" means all agreements associated with the
plant,
operating logs, blueprints for
construction, invoices for all equipment in the
plant, operating manuals, all warranties on
equipment, and all documents,
whether in printed or electronic format,
that the Seller uses or maintains for
the operation of the plant.
"Payment" means the transfer of money from Southwestern to the
Seller
under this Agreement.
"Permitted Delay" means the sum of (i) the period of time
Seller's
performance or the performance of Seller's
third-party contractor is delayed by
any events of Force Majeure or Delivery
Excuse, and (ii) the number of days
after September 30, 1997, and before the
Discharge Notice Date, exclusive of the
number of days, if any, for which
Southwestern funds construction of the
Facility after September 30, 1997, pursuant
to the Partial Assignment dated
February 26, 1997, as amended.
"Permitted Encumbrance" means:
(a) liens
specifically permitted or required by, or
created by, any Financing Document for the Senior Debt;
(b) liens with
respect to purchase money or capital lease
obligations to finance Facility assets that are readily
replaceable
personal property with a principal balance not to exceed $5,000,000
in
the aggregate outstanding;
(c) liens on
cash collateral and related investments
held as cash cover with respect to debt covered by item (b)
above;
(d) liens for
taxes which are either not yet due or are
the subject of a good faith contest by the Partnership;
(e) any
exceptions to title which are contained in the
title policy delivered to the Senior Lender on the Construction
Finance
Closing Date;
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<PAGE>
(f) liens in
connection with workmen's compensation,
unemployment insurance, or other social security or pension
obligations;
(g)
mechanic's, workmen's,
material men's, supplier's,
construction or other like liens arising in the ordinary course
of
business or incident to the construction or imposed by law,
operation,
repair or restoration of the Facility (i) in respect of
obligations
which are not yet due or which are the subject of a good faith
contest
or (ii) which are subject in full to bonding arrangements or
fully
insured by the Facility title policy;
(h) deposits or
pledges to secure statutory obligations
or appeals; releases of attachments, stays of execution or
injunctions;
performance bids, contracts (other than for the repayment of
borrowed
money) or leases; or for purposes of like general nature arising in
the
ordinary course of business;
(i) liens
provided pursuant to the Subordinated Mortgage;
and
(j) liens
substantially similar to any of the foregoing
liens (other than in clause (e)), provided that any such lien shall
not
constitute a material adverse effect on the Seller or the
Facility.
"Person" shall mean an individual, partnership, corporation,
business
trust, joint stock company, trust,
unincorporated association, joint venture, or
other entity of whatever nature,
"Phase I" means the period starting with the day after the
Combustion
Turbine Commercial Operation Date and
ending on the Cogeneration Commercial
Operation Date.
"Phase II" means the remaining Term (including, if applicable,
any
Extended Term) commencing the day after the
Cogeneration Commercial Operation
Date.
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<PAGE>
"Phillips Initial Term" shall mean the term of the Phillips
Steam
Agreement exclusive of any extensions or
renewals of such term.
"Phillips Steam Agreement" shall mean the Steam Sales and
Operating
Agreement between Seller and Phillips
Petroleum Company, a draft of which,
dated May 7, 1997, has been provided to
Southwestern, and an executed version of
which is to be provided to Southwestern in
accordance with Section 3.6.
"Project Debt Service" shall mean, for any period, the sum of
all
regularly scheduled payments due any Senior
Lender with respect to the Senior
Debt and any junior lender with respect to
any Junior Debt (including without
limitation, principle, interest, and
interest rate hedging fees) with such
changes in the definition of such term for
the purposes of this Agreement as are
set forth in the Financing Documents for
the Senior Debt or Junior Debt, as
applicable; which changes Southwestern
shall approve, such approval not to be
unreasonably withheld.
"Project Expenses" shall mean, for any period, all payments made
for
the debt interest and debt repayment,
operation or maintenance of the Facility
including, without limitation, (i) payments
for Project Debt Service; (ii)
payments due and payable in connection with
the Facility Site; (iii) expenses of
managing, administering and operating the
Facility (including without limitation
any management fees payable to Seller or
its Affiliates), and of maintaining it
in good repair and operating condition;
(iv) fuel purchase procurement and
transportation costs; (v) direct operating
and maintenance costs of the Facility
associated with the production of
electricity for Southwestern (including
without limitation, all payments due and
payable under the Facility's operations
and maintenance contract); (vi) insurance
costs; (vii) all taxes payable by
Seller (including, without limitation,
sales and excise taxes payable by Seller
with respect to the sale of electric
-17-
<PAGE>
energy and process steam, franchise taxes
payable by Seller but excluding
federal, state and local income taxes
payable by Seller); (viii) costs and fees
incurred in connection with the obtaining
and maintaining in effect any
governmental approval; (ix) legal,
accounting, and other professional fees
incurred in connection with any of the
foregoing items; (x) Facility capital
expenditures made by Seller; (xi) the net
amounts payable (or minus the net
amounts receivable) under any foreign
exchange protection agreements; and (xii)
all amounts paid or contributed to a
reserve account with respect to any of the
foregoing or otherwise required or
permitted by the Financing Documents with the
Senior Lender; and any other payments
reasonably consistent with the above
listing, payable by Seller with a normal
payment priority pursuant to the
Financing Documents for the Senior Debt
greater than or equal to Project Debt
Service for such period, with such changes
in the definition of such term for
the purposes of this Agreement as shall be
set forth in the Financing Documents
for the Senior Debt, which changes
Southwestern shall approve, such approval not
to be unreasonably withheld.
"Project Lender(s)" means the lender(s) providing the initial
construction and/or permanent debt
financing for the Facility, and any fiscal
agents, trustees, or other nominees acting
on their behalf.
"Project Permits" means the authorizations, permits, approvals,
and
other requirements of law with which Seller
must comply pursuant to Section
14.5.
"Project Revenues" shall mean, for any period, the sums of all
revenue
received by the Facility from any
source.
"Proposed Cogeneration Commercial Operation Date" means the date
set
forth in Section 4.1 of this Agreement, as
such date may be revised pursuant to
Section 4.1
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<PAGE>
"Proposed Combustion Turbine Commercial Operation Date" means the
date
set forth in Section 4.1 of this Agreement,
as such date may be revised pursuant
to Section 4.1.
"Proposed
Milestone Date" means, for the milestones set forth in
Section 4.3, the date set forth by which
Seller is required to achieve the
specified milestone in the development of
the Facility, as such date may be
adjusted in accordance with the terms
hereof.
"PUCT" means Public Utility Commission of Texas.
"PUHCA" means the Public Utility Holding Company Act, 15 U.S.C.
Section
79 et seq.
"Qualifying Facility" or "QF" means a facility certified as a
qualifying facility pursuant to Section 210
of the Public Utility Regulatory
Policies Act of 1978, 16 U.S.C.A. Section.
824a-3, and 18 CFR Section 292.207,
and their successor provisions, if any.
"RTU" means Remote Terminal Unit.
"Scheduled Outage" means any planned removal of the Facility
from
service or reduction in the Facility's
Actual Capacity for the purpose of
performing any maintenance or inspection
set forth in the maintenance schedule
in Section 9.3 and provided that the
duration of such outage does not exceed the
limits set forth in Section 9.3.
"Seller" means the owner of the Facility as designated in the
first
paragraph of this Agreement.
"Seller's Backup Metering" means meters maintained by the Seller
that,
in the event of a failure of primary
Metering Devices, may be used to verify
Energy and Capacity produced by the
Facility.
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<PAGE>
"Seller Financing Documents" shall mean those Financing
Documents
executed by the Seller.
"Seller's Interconnection Facilities" means all Interconnection
Facilities on Seller's side of the
Interconnection Point.
"Seller's Minimum Equity Commitment" means the equity
contribution
described in Section 6.6.
"Senior Debt" means the obligations of the Seller to any lender
pursuant to the Financing Documents,
including without limitation, principal of,
premium and interest on indebtedness, fees,
expenses or penalties, amounts due
upon acceleration, prepayment or
restructuring, swap or interest rate hedging
breakage costs and any claims or interest
due with respect to any of the
foregoing, but not any obligations with
respect to the Subordinated Mortgage,
Junior Debt or any portion of Seller's
Minimum Equity Commitment. Whenever used
in this Agreement, "Senior Debt" shall also
mean the debt incurred by any
transferee of Seller's interest in the
Facility for the purpose of acquiring
such interest, to the extent such
replacement debt effectuates a refinancing of
the previously outstanding Senior Debt and
does not violate the restrictions on
refinancing set forth in Section 6.7 of
this Agreement.
"Senior Financing Documents" means Financing Documents executed
by
Senior Lender relating to the provision of
Senior Debt.
"Senior Lender" means, collectively, any lender(s) providing any
Senior
Debt and any successor(s) or assigns
thereto.
"Site" means the real estate upon which the Facility is to be
located,
as set forth in Section 2.2 and Attachment
B.
"Southwestern" means Southwestern Public Service Company.
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<PAGE>
"Southwestern Disconnection" means any disconnection of the
Facility by
Southwestern pursuant to Section 3.3(D),
other than by reason of Section
3.3(D)(6).
"Southwest Power Pool,"' or "SPP," means the regional electric
reliability council (one of the nine
regional councils of NERC) of which
Southwestern is a member.
"Southwestern's Interconnection Facilities" means all
Interconnection
Facilities on Southwestern's side of the
Interconnection Point.
"Start Payment" means the Payment for each instance
Southwestern
requests the facility to start up from a
shut-down state, as set forth in
Section 5.7, provided that such a Start
Payment shall only be payable if such
shut-down state was requested or solely
caused by Southwestern.
"Steam Delivery Reduction" shall have the meaning set forth in
Section
11.6.
"Steam Force Majeure" shall have the meaning set forth in Section
11.6
"Steam Loss Event" means the occurrence and continuation of one or
more
of the events described in Section
18.1.
"Steam Host Escrow Accounts" means the accounts established in
accordance with Section 18.2(A), (B), and
(C).
"Subsequent Steam Host" shall have the meaning set forth in
Section
18.2.
"Subordinated Mortgage" shall have the meaning set forth in
Section
6.5.
"Summer Capacity" shall mean the Actual Capacity of the Facility
as
determined for any day during an On-Peak
Month pursuant to this Agreement and
adjusted to reflect the Summer Temperature
Adjustment.
"Summer Temperature Adjustment" shall mean the adjustment to
reflect
ambient temperature based upon the highest
one percent (1%) of summer
temperatures at the Site
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<PAGE>
as stated in the SPP Procedures for Testing
and Rating of Generating Equipment
as set forth in Schedule C-2.
"System Control Center," or "SCC " means Southwestern's
facility
responsible for centralized dispatch of
generating units within its control area
and control of tie-line power flows.
"Term" means the period defined in Article 3.
"Termination Payment" means the Payment under Section 3.1 or
Section
7.1 made in connection with Southwestern's
termination of this Agreement.
"Transmission Adder" means the increase in Capacity Payments
described
in Section 3.5(C)(4).
"Transmission CCN" shall have the meaning set forth in Section
3.5(C).
"Utility Grade Equipment" means equipment or components that
are
manufactured to a standard of durability
consistent with Good Utility Practice.
"VAR" means volt-ampere reactive.
"Variable O&M Payment" means the Payment for the Facility's
variable
operation and maintenance expenses as set
forth in Section 5.5.
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<PAGE>
ARTICLE 2
DESCRIPTION OF THE FACILITY
2.1 Summary Description. Seller intends to construct, own, operate,
and
maintain an electric generating facility on
a Site located near Borger, Texas,
consisting of two generating units, each
with a heat recovery steam generator
("HRSG"), having a combined installed
electric generating capacity of
approximately 216 MW and consisting of the
equipment and components identified
in Attachment A ("the Facility"). Capacity
and Energy from the Facility will be
made available to Southwestern in two
phases. During Phase I, Capacity and
Energy from the Facility, without the use
of the HRSGs, shall be deliverable to
Southwestern at the Interconnection Point.
During Phase II, the Facility will be
capable of functioning in a cogeneration
status, and Capacity and Energy from
the Facility, including the HRSGs, shall be
deliverable to Southwestern at the
Interconnection Point. To the extent that
an expansion of the Facility involves
the use of equipment or components used to
provide the Capacity and Energy under
this Agreement ("Common Components"), the
use of such Common Components for the
Facility expansion shall be on terms and
conditions which shall not materially
adversely affect the delivery of the
Capacity and Energy to Southwestern under
the terms of this Agreement, as approved by
Southwestern, such approval not to
be unreasonably withheld, or on such other
terms and conditions as provided in
the Subordinated Mortgage.
2.2 Site. The
Facility shall be located at the address set forth
in Schedule B-1.
A Site description is set forth in Schedule B-2.
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<PAGE>
A scaled U.S.G.S. map that identifies the Facility location,
the
location of the thermal user, the location
of the Interconnection Point
identified in Section 2.3, and the location
of the important ancillary
facilities (e.g., transmission line(s),
natural gas pipeline), is attached as
Schedule B-3.
2.3
Interconnection Point. The Interconnection Point shall be
located at the 115 KV bus of each
generating unit's step-up transformer. The
Interconnection Point shall be the point at
which deliveries of Capacity and
Energy under this Agreement are required to
be made and measured.
2.4 Design and
Construction of the Facility. The Facility shall be
constructed according to Good Utility
Practice and in a workmanlike,
professional manner. Seller shall utilize
in all respects Utility Grade
Equipment. Seller's selection of any major
contractors for engineering,
procurement, or construction services shall
be made from a list of permitted
providers of such services to be approved
by Southwestern, which approval shall
not be unreasonably withheld.
2.5 Technical
Specifications. The Facility shall be:
(A) capable of
dispatch by Automatic Generation Control;
(B) capable of
supplying power without harmonic
distortion in excess of that permitted by
IEEE Harmonic Standard 519;
(C) capable of
operating at an eighty-five percent (85%)
lagging power factor at the Contract
Capacity;
(D) equipped
with a generator excitation system with
automatic voltage regulators, which shall
include an over-excitation limiter;
(E) equipped,
as long as the Facility remains
interconnected with Southwestern's system,
with communication circuits from the
Facility to Southwestern's
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<PAGE>
SCC for the purpose of telemetering,
supervisory control/data acquisition, and
voice communications as specified by
Southwestern in accordance with Good
Utility Practice;
(F) equipped
with protective systems for the Facility
designed in accordance with Southwestern's
specifications and Good Utility
Practice as required pursuant to this
Agreement; and
(G) capable of
providing an immediate and sustained
response to abnormal frequency excursions
consistent with Good Utility Practice
for other plants similar to the
Facility.
2.6 Contract
Capacity.
(A) The
Combustion Turbine Contract Capacity is the
Contract Capacity, determined in accordance
with this Section 2.6, that is
available to Southwestern during Phase I.
The Facility will be designed to have
a Combustion Turbine Contract Capacity of
approximately 192 MW (Net).
(B) The
Cogeneration Contract Capacity is the Contract
Capacity, determined in accordance with
this Section 2.6, that is available to
Southwestern during Phase II. The Facility
will be designed to have a
Cogeneration Contract Capacity of
approximately 216 MW (Net).
(C) As part of
the determination of whether the
Combustion Turbine Commercial Operation
Date and the Cogeneration Commercial
Operation Date have been achieved, and at
least once during every Contract Year
thereafter, a capability test shall be
conducted to determine the net capability
of the Facility in accordance with
procedures identified in Attachment C as such
may be modified from time to time by
mutual, written agreement of both Parties
("Capacity Test"). The results of the
Capacity Test shall be adjusted to reflect
ambient temperature based on the highest
one percent
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<PAGE>
(1%) of Summer temperatures at the Site as
stated in the SPP Procedures for
Testing and Rating of Generating Equipment
set forth in Schedule C-2 ("Summer
Temperature Adjustment"). The results of
the Capacity Test, as so adjusted,
shall be the Contract Capacity of the
Facility beginning on the day following
any such Capacity Test and until the next
subsequent Capacity Test or Capacity
Retest permitted pursuant to Section
2.6(D). If, at the time of a scheduled
Capacity Test, the Facility is inoperable,
as a result of Force Majeure or
otherwise, so that no electricity can be
produced, the attempt shall
nevertheless constitute a test, and the
test result shall be 0 MW.
(D) By notice
given to the other Party within three (3)
business days after a Capacity Test, either
Party may require a retest of the
Capacity Test (a "Capacity Retest") upon
reasonably satisfactory evidence that
the actual capability of the Facility is
materially different than as reflected
by such Capacity Test or Capacity Retest,
provided neither Party may request
more than five (5) such Capacity Retests
during Phase I or in any Contract Year
thereafter. If, for any reason other than
Excused Outage, the Actual Capacity of
the Project adjusted to reflect Summer
Temperature Adjustment shall be less than
eighty percent (80%) of the Contract
Capacity for any continuous six (6) week
period, Southwestern may require a Capacity
Retest. If, at the time of any
scheduled or proposed Capacity Test or
Capacity Retest, the Facility is not
operable, or its output is materially
affected by any condition which can be
remedied by maintenance, repair or
reconstruction, which can be accomplished
before the next scheduled Capacity Test, a
Capacity Retest shall be conducted as
promptly as practicable after Seller
notifies Southwestern that the condition
has been corrected. Capacity Retests in any
Contract Year shall be performed
without peak firing of the Facility so long
as the initial Capacity Test for the
Contract Year did not evidence any material
misperformance of the Facility's
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<PAGE>
peak firing capability. In determining
Contract Capacity from a Capacity Retest
performed without peak firing, the net
capability of the Facility shall be
adjusted to reflect the net capability that
would have resulted if the Facility
had been tested with peak firing. The
results of a Capacity Retest (as also
adjusted in accordance with Section 2.6(C))
shall be the Contract Capacity of
the Facility beginning on the day following
any such Capacity Retest until the
next subsequent Capacity Test or permitted
Capacity Retest.
(E) After the
Cogeneration Commercial Operation Date, the
scheduled date for the annual Capacity Test
shall be set by Southwestern, with
Seller's approval, not to be unreasonably
withheld, so as to occur approximately
one (1) year apart. Seller shall cause each
such annual Capacity Test to be
conducted within fourteen (14) business
days of the date scheduled by
Southwestern. Any Capacity Test or Capacity
Retest shall be made upon no less
than two (2) business days prior notice to
the other Party. The cost of the
initial Capacity Tests in connection with
achieving Combustion Turbine
Commercial Operation and Cogeneration
Commercial Operation and the Capacity Test
in any Contract Year thereafter shall be
borne by the Seller, with the cost of
any Capacity Retest borne by the requesting
Party.
(F)
Notwithstanding any expansion of the Facility by
Seller, in no event shall the Contract
Capacity exceed the approximately 216 MW
that the Facility initially is being
designed to produce, unless Southwestern
consents to a greater Contract Capacity,
such consent not to be unreasonably
withheld. If Southwestern does not consent
to such greater Contract Capacity,
the parties will negotiate such amendments
to this Agreement as are necessary to
reflect the Facility's ability to produce
capacity greater than approximately
216 MW as to which Southwestern is not
obligated to purchase.
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<PAGE>
(G)
Southwestern may Dispatch the Facility up to its
Actual Capacity, even if the Actual
Capacity exceeds the Contract Capacity.
2.7
Performance Requirements. The Seller intends to cause the
Facility's AF on a twelve (12) month
rolling average basis to meet or exceed
0.920 (measured over all hours) and, on the
basis of a five (5) month rolling
average of only the On-Peak Months, to meet
or exceed 0.950 (measured over only
On-Peak Hours). Seller shall use reasonable
efforts to maintain an AF above the
minimum thresholds given in this Section
2.7.
2.8 Fuels. The
primary fuel that shall be burned by the Facility
is natural gas.
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<PAGE>
ARTICLE 3
OBLIGATION TO PURCHASE
3.1 Term. The
term of this Agreement ("Term") shall commence on
the execution of this Agreement and shall
continue for a period of twenty-five
(25) years from the Cogeneration Commercial
Operation Date ("Initial Term")
subject to termination or extension
pursuant to this Agreement. Southwestern
shall have the option to extend the Term of
the Agreement beyond the Initial
Term for ten (10) years ("Extended Term").
Southwestern may so extend the Term
by providing three (3) years notice to
Seller prior to the expiration of the
Initial Term. Thereafter. Southwestern may
terminate the Extended Term by
providing the following notice and, if
applicable, termination payment:
Notice
Termination Payment
4 years Zero
3 years 33.3% of
last Contract Year Capacity Payments
2 years 66.7% of
last Contract Year Capacity Payments
1 year
100.0% of last Contract Year Capacity Payments
Applicable provisions of this Agreement
shall continue in effect after
termination of the Term to the extent
necessary to provide for disconnection of
the Facility from South western's electric
system, final billings and
adjustments related to the period prior to
termination, repayment of any money
due and owing Southwestern, and the
indemnifications specified in Article 13.
3.2 Sale and
Purchase of Energy and Capacity.
(A)
Energy.
(1) Beginning
on the day after the Combustion
Turbine Commercial Operation Date, Seller
shall sell and Southwestern shall buy
the entire Net
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Electrical Output delivered from the
Facility to the Interconnection Point at
the prices set forth in Section 5.4 and
Attachment F and subject to the terms
and conditions of this Agreement,
including, but not limited to, the Dispatch
provisions. Energy Payments shall begin (i)
for Phase I, on the day after the
Combustion Turbine Commercial Operation
Date and (ii) for Phase II, on the day
after the Cogeneration Commercial Operation
Date.
(2)
Southwestern shall buy Energy made available
by Seller from the Facility during testing
prior to the Combustion Turbine
Commercial Operation Date, up to a maximum
monthly capacity factor of ten
percent (10%) applied to a Combustion
Turbine Contract Capacity of 192 MW, or
such greater capacity factor as required
for the testing necessary to cause the
Combustion Turbine Commercial Operation
Date to occur, at the price set forth in
Section 5.8. Notwithstanding Southwestern's
right to direct the Dispatch and
shut down of the Facility during Phase I in
accordance with Section 3.3(B), and
notwithstanding the prices for Energy
during Phase I set forth in Section 5.4,
Southwestern shall buy Energy made
available by Seller from the Facility during
testing for Cogeneration Commercial
Operation up to a maximum monthly capacity
factor of fifty percent (50%) applied to a
Cogeneration Contract Capacity of 216
MW, or such greater capacity factor as
required for the testing necessary to
cause the Cogeneration Commercial Operation
Date to occur, at the price set
forth in Section 5.8.
(B) Capacity.
Seller shall sell and Southwestern shall
buy electric Capacity delivered from the
Facility to the Interconnection Point
in accordance with the payment provisions
set forth in Section 5.2 and
Attachment F and subject to the terms and
conditions of this Agreement. Capacity
Payments shall begin (i) for Phase I, on
the day after the Combustion Turbine
Commercial Operation Date, and (ii) for
Phase II, on the day after the
Cogeneration Commercial Operation Date.
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(C) Backup and
Maintenance Power. This Agreement does not
provide for any electric service by
Southwestern to the Facility. The Seller may
request such service in accordance with the
applicable electric tariffs on file
with and authorized by the regulatory
authorities having jurisdiction.
3.3 Operation
of the Facility.
(A) The
Capacity and Energy sold to Southwestern
hereunder will be of a type known as
three-phase alternating current with a
nominal frequency of sixty (60) hertz and a
nominal voltage of 115 kV measured
phase to phase at the Interconnection
Point. Seller shall cause its deliveries
of Capacity and Energy to be consistent
with Good Utility Practice with respect
to maintenance of frequency and avoidance
of voltage transients.
(B)
Southwestern shall have operating control over the
amount of Capacity and Energy to be
generated by the Facility and may direct the
Dispatch of the Facility in accordance with
the terms of this Agreement, the
Project Permits, Good Utility Practice, and
based on economic, safety, and
reliability considerations. Southwestern
may dispatch the Facility between its
Minimum Load Level and Actual Capacity,
and, during Phase I but not Phase II,
Southwestern shall have the ability to ask
that the Facility be shut down or
started up, whether by voice or
telefacsimile communication from Southwestern's
SCC in accordance with the operating
procedures specified in Attachment H.
(C) The AGC
equipment initially installed will have the
capability to automatically change the load
on the Facility through the use of
pulse output from an RTU (or successor
technology) located at the Facility and
change the VAR output or intake of the
Facility as defined in Section 9.5 of
this Agreement.
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(D)
Southwestern shall have the right, exercisable in
accordance with the requirements of this
Section 3.3, to disconnect the
interconnection of the Facility with
Southwestern's system and discontinue
electric service from the Facility:
(1) during an
Emergency on Southwestern's
system; or
(2) if, in the
reasonable judgment of
Southwestern, such disconnection is
necessary to prevent damage to its equipment
or the equipment of its customers or to
maintain electric service to its
customers; or
(3) if, in the
reasonable judgment of
Southwestern, such disconnection is
required to permit (a) repairs to
Southwestern's system, (b) new
construction, or (c) the connection of other
lines, customers, or producers of capacity
and energy; or
(4) if, in the
reasonable judgment of
Southwestern, such disconnection is
required for equipment maintenance or to
facilitate restoration of line outages;
or
(5) if, in the
reasonable judgment of
Southwestern, such disconnection is
necessary for the operation of
Southwestern's system consistent with Good
Utility Practice; or
(6)
if, in the
reasonable judgment of
Southwestern, such disconnection is
necessary to prevent damage to its equipment
or customer's equipment or injury or danger
to persons as a result of the
Seller's failure to operate the Facility
pursuant to the requirements of this
Agreement.
(E) Seller
shall bear any extraordinary cost incurred by
Southwestern, as a result of any
disconnection or resulting reconnection to the
extent made pursuant to Section 3.3(D)(6).
An extraordinary cost is a cost
directly and reasonably incurred by
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Southwestern that would not have been
incurred by Southwestern absent the
existence of the Facility and such
disconnection.
(F) Subject to
Section 3.3(G), Southwestern's
obligations to accept and purchase Energy
and make Energy Payments shall be
suspended during any period of
disconnection or discontinuance occasioned by the
events in Sections 3.3(D)(1) through (D)(6)
above;
(G)
Southwestern shall (i) use ordinary care to
avoid and minimize interruptions in the
acceptance of Capacity and Energy, (ii)
use ordinary care to coordinate any
interruptions with scheduled outages or
maintenance of the Facility, (iii) keep
Seller fully informed as to the
anticipated duration of each interruption,
and (iv) resume purchase of Capacity
and Energy from Seller as soon as
practicable once the condition resulting in
the interruption has abated sufficiently to
permit such resumption.
3.4 Seller's
Required Approvals.
(A) Seller
shall obtain and maintain: (i) the necessary
approvals to construct and operate the
Facility in accordance with this
Agreement from such regulatory bodies as
required by law; and (ii) subject to
the proviso in Section 18.1(F),
certification of the Facility as a QF. Seller
shall not be deemed in default of this
obligation to the extent Seller is
diligently contesting, in good faith and
through appropriate proceedings, the
interpretation, jurisdiction, or other
order of regulatory authorities.
(B) For so
long as the ownership of Seller would require
Southwestern to obtain approval to make
purchases from Seller as an affiliated
EWG, Seller shall not apply for a
determination that it is an EWG unless: (1)
Seller no longer is a QF or reasonably
determines it will fail to continue to
qualify as a QF; (2) Seller has
provided
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<PAGE>
notice to Southwestern that it intends to
seek such a determination; and (3)
Southwestern has obtained all
determinations and approvals, if any, required in
order for it to purchase electric energy
from Seller as an EWG.
(C) Seller
shall make all reasonable efforts to obtain a
modification to the Facility's air permit
to increase, to the maximum extent
possible, the number of hours during which
power augmentation of the Facility is
permitted.
3.5 Contract
Certification or Approval.
(A)
Notwithstanding anything to the contrary in other
parts of this Agreement, each of
Southwestern's obligations under this Agreement
and each of Seller's obligations under this
Agreement are contingent upon
Southwestern's determination that it has
received the regulatory certifications
and approvals from the PUCT and the NMPUC
which it reasonably believes are
necessary in order for it to undertake its
obligations under this Agreement or
that it does not need such certifications
or approvals that it has not already
obtained in order to undertake its
obligations under this Agreement.
Notwithstanding the immediately proceeding
sentence, Southwestern and Seller
shall undertake in good faith all activity
prior to such Southwestern
determination that such party believes, in
its sole discretion, is necessary to
be undertaken, prior to such determination,
to honor any obligation imposed on
Southwestern or Seller by this Agreement.
In Southwestern's sole discretion,
Southwestern may file this Agreement for
certification or approval with the PUCT
and NMPUC. To the extent such filings are
made, they shall be made promptly
following execution of this Agreement and,
in such event, Southwestern shall use
all reasonable efforts to obtain
certifications or approvals from the PUCT and
NMPUC, as applicable, on or before
September 30, 1997. Seller shall cooperate
with Southwestern in ail such filings and
efforts to obtain such
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<PAGE>
certifications or approvals. Upon
Southwestern's determination that it has
received, in a form satisfactory to
Southwestern, the certifications or
approvals which it believes are necessary
in order for it to undertake its
obligations under this Agreement or that it
does not need certifications or
approvals that it has not already obtained
in order for it to undertake its
obligations under this Agreement,
Southwestern shall notify Seller that the
condition of this Section 3.5 is discharged
("Discharge Notice"). Such notice
may be provided in writing to Seller and
shall be effective on the date of
receipt by Seller ("Discharge Notice
Date"), provided that the Discharge Notice
Date shall be no earlier than three (3)
months after the date of this Agreement
as set forth in the first paragraph of this
Agreement.
(B) If the
Discharge Notice Date has not occurred by
January 1, 1998, then the Parties agree to
use best efforts and negotiate in
good faith to agree upon a mutually
satisfactory, commercially reasonable
amendment to this Agreement which either
would enable Southwestern expeditiously
to obtain certifications or approvals
satisfactory to Southwestern or would make
such certifications or approvals legally
and commercially unnecessary to
Southwestern's performance of this
Agreement. Thereafter, upon Southwestern's
determination that it has received, in a
form satisfactory to Southwestern, the
certifications or approvals which it
believes are necessary in order for it to
undertake its obligations under this
Agreement or that it does not need
certifications or approvals that it has not
already obtained in order for it to
undertake its obligations under this
Agreement, Southwestern shall provide a
Discharge Notice to Seller. After January
1, 1999, either Party may, upon thirty
(30) days notice, terminate this Agreement
without liability, if the Discharge
Notice Date has not occurred.
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<PAGE>
(C) (1)
Within
three (3) months following the
execution of this Agreement, Southwestern
shall file with the PUCT an
application for a certificate of
convenience and necessity for all of
Southwestern's Interconnection Facilities
(the "Transmission CCN"), including
all transmission line additions required
for Southwestern to accept the
Estimated Phase II Actual Capacity at the
Interconnection Point. If the PUCT
fails to approve the Transmission CCN for
Southwestern's Interconnection
Facilities by February 1, 1998, then the
Seller shall take over construction of
Southwestern's Interconnection Facilities
pursuant to this Section 3.5(C).
(2)
Southwestern's Interconnection Facilities
shall be designed and constructed in
accordance with Southwestern's plans and
specifications which shall be consistent
with Southwestern's construction
practices and Good Utility Practice. If
Seller becomes obligated to take over
construction of Southwestern's
Interconnection Facilities pursuant to this
Section 3.5(C), then Southwestern shall
provide such plans and specifications to
Seller promptly after request by Seller.
Notwithstanding the fact that Seller
has taken over such construction,
Southwestern shall continue to exercise due
diligence to obtain the required regulatory
approvals, if any, to complete any
modifications to its existing facilities to
interconnect with Southwestern's
Interconnection Facilities and the required
regulatory approvals to purchase
Southwestern's Interconnection Facilities
from Seller.
(3) If Seller
becomes obligated to take over
construction of Southwestern's
interconnection Facilities pursuant to this
Section 3.5(C), then Southwestern shall
promptly transfer to Seller all right,
title, and interest in such construction,
including assignment of all related
easements, transfer of all related assets,
and assignment of all rights,
contracts, and other such interests at the
actual net book
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<PAGE>
cost. Seller shall operate Southwestern's
interconnection Facilities only as
generator leads unless another mode of
operation is approved by Southwestern or
required by regulatory order. At any time
during or after Seller's construction
of Southwestern's Interconnection
Facilities, Southwestern may require Seller to
sell, or Seller may require Southwestern to
purchase, Southwestern's
Interconnection Facilities at their actual
net book cost, subject to
Southwestern obtaining necessary regulatory
approval for such purchase. Net book
cost shall include, without limitation, any
interest during construction
incurred by a Party and attributable to
Southwestern's Interconnection
Facilities.
(4) If
Southwestern's Interconnection Facilities
are constructed by Seller and Southwestern
shall fail to purchase Southwestern's
Interconnection Facilities on or before the
Combustion Turbine Commercial
Operation Date and/or the Cogeneration
Commercial Operation Date, then
deliveries of Capacity and Energy shall be
made at the points at which
Southwestern's Interconnection Facilities
interconnect with Southwestern's
existing facilities, and Southwestern's
Capacity Payments to Seller shall be
increased as provided in Schedule F-1 (the
"Transmission Adder"). In such event,
the Transmission Adder shall remain in
effect until and unless Southwestern
shall purchase Southwestern's
Interconnection Facilities from Seller pursuant to
Section 3.5(C)(3). Upon such purchase,
deliveries of Capacity and Energy shall
resume at the Interconnection Point
identified in Section 2.3.
(5) The
failure or refusal of the PUCT to issue
the Transmission CCN shall not be deemed by
either Party to constitute cause to
terminate this Agreement unless both
Parties mutually and expressly so agree.
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<PAGE>
3.6 Phillips
Steam Agreement. (A) No later than June 30, 1997,
Seller shall provide to Southwestern an
executed copy of the Phillips Steam
Agreement. The use of the executed version
of the Phillips Steam Agreement for
the purposes of Southwestern's rights and
obligations under Sections 11.6 and
Article 18 of this Agreement is contingent
upon there being no changes in the
Phillips Steam Agreement from the draft
dated May 7, 1997, that has been
provided to Southwestern, which would
materially adversely affect Southwestern's
rights and obligations under this Agreement
(an "Adverse Steam Revision"). If
Southwestern, within twenty (20) days of
receipt of such executed agreement,
reasonably determines that there has been
such a change in the Phillips Steam
Agreement which would constitute an Adverse
Steam Revision, then Seller and
Southwestern shall immediately negotiate in
good faith such amendments to this
Agreement which would cure such adverse
effect. If Seller and Southwestern fail
to agree on such amendments the provisions
of Section 11.6 and Article 18 shall
be applied as if the terms of the Phillips
Steam Agreement as they existed in
the draft dated May 7, 1997, were in effect
and without regard to any Adverse
Steam Revision to which Southwestern has
made timely objection under this
Section 3.6(A).
(B) Seller
shall provide Southwestern with a copy of any proposed
amendments to the Phillips Steam Agreement
(or, if applicable, any proposed
agreement with a Subsequent Steam Host or
proposed amendments thereto) for
Southwestern's review and comment pursuant
to this Section 3.6(B). Within twenty
(20) days after receipt of such copy,
Southwestern shall provide Seller with its
objection to any provision of such
amendment or agreement which would constitute
an Adverse Steam Revision and
Southwestern's proposed change to such provision.
Upon timely receipt of Southwestern's
objection under this Section 3.6(B),
Seller and Southwestern shall
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<PAGE>
negotiate in good faith such amendments to
this Agreement as would cure such
adverse effect. If Southwestern and Seller
fail to reach agreement on such
amendments, the provisions of Section 11.6
and Article 18 shall be applied
without regard to any Adverse Steam
Revision to which Southwestern has made
timely objection under this Section
3.6(B).
(C) Any
amendment or agreement subject to Section 3.6(A) or (B) to
which Southwestern does not timely object,
including any Adverse Steam Revision,
shall be deemed accepted by Southwestern
for the purposes of this Section 3.6,
Section 11.6, and Article 18 of this
Agreement. Southwestern shall not
unreasonably object to an Adverse Steam
Revision in an initial agreement with a
Subsequent Steam Host.
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<PAGE>
ARTICLE 4
MILESTONES AND SCHEDULE
4.1 Proposed
Commercial Operation Dates. Seller shall use every
reasonable effort to cause the Facility to
achieve Combustion Turbine Commercial
Operation by the Proposed Combustion
Turbine Commercial Operation Date. The
Proposed Combustion Turbine Commercial
Operation Date is June 1, 1998, or such
later date as results from any Permitted
Delay. Seller shall use every
reasonable effort to cause the Facility to
achieve Cogeneration Commercial
Operation by the Proposed Cogeneration
Commercial Operation Date. The Proposed
Cogeneration Commercial Operation Date is
December 31, 1998, or such later date
as shall result from a Permitted Delay. If
it is reasonably determined that
either the Combustion Turbine Commercial
Operation Date or Cogeneration
Commercial Operation Date will be delayed
beyond the Proposed Combustion Turbine
Commercial Operation Date or Proposed
Cogeneration Commercial Operation Date, as
applicable, without Seller's use of labor
overtime, every reasonable effort
shall include the use of such labor
overtime as reasonably necessary and
effective to overcome such delay.
4.2 Recourse
for Delays.
(A) If
Combustion Turbine Commercial Operation is not
achieved by the Proposed Combustion Turbine
Commercial Operation Date, as
originally specified or as extended by
Permitted Delay, but is achieved prior to
the date that would constitute an Event of
Default, as defined in Article 10,
Seller shall reimburse Southwestern for
such delay damages as required pursuant
to Section 6.2, or Southwestern shall be
entitled to withdraw and retain such
monies from the Completion Security Fund as
permitted pursuant to Section 6.2.
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<PAGE>
(B) if
Cogeneration Commercial Operation is not achieved
by the Proposed Cogeneration Commercial
Operation Date, as originally specified
or as extended by Permitted Delay, but is
achieved prior to the date that would
constitute an Event of Default as defined
in Article 10, Seller shall pay
Southwestern for such delay damages as
required pursuant to Section 6.2, or
Southwestern shall be entitled to withdraw
and retain such monies from the
Completion Security Fund permitted pursuant
to Section 6.2.
4.3 Proposed
Milestone Dates. Proposed Milestone Dates are as
provided for in the following paragraphs or
such later date as shall result from
any Permitted Delay:
(A) EPC
Contract. No later than five (5) months after the
date of execution of this Agreement, Seller
shall provide Southwestern with an
executed EPC Contract for the Facility.
(B) Site
Acquisition. No later than three (3) months
after the date of execution of this
Agreement, Seller shall: (i) obtain a
leasehold estate for the Site with a term
at least equal to the Initial Term and
the Extended Term; and (ii) provide to
Southwestern evidence of such site
acquisition in such form as Southwestern
may reasonably require.
(1) The Site
shall be reasonably accessible for
the construction and maintenance of
Southwestern's Interconnection Facilities
required by this Agreement.
(2) Prior to
acquisition, Seller shall cause the
Site to be inspected for the attributes
listed below, and shall not acquire the
Site unless it obtains the representation
or the indemnity of the Site owner (in
form and substance reasonably satisfactory
to Southwestern) to the effect that
(a) no Hazardous Materials (as defined
below) have been located in or on the
Site or have been released by previous
occupants
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<PAGE>
into the environment, or discharged,
placed, or disposed of at, on, or under the
Site; (b) no underground storage tanks are
or have been located in or on the
Site; (c) the Site has not been used as a
dump or storage or transfer facility
for waste material of any kind, including,
but not limited to, solid or
hazardous waste; (d) the Site complies
with, and at all times has complied with,
all applicable governmental laws,
regulations, or requirements relating to
environmental or occupational health and
safety matters and Hazardous Materials,
to the extent that noncompliance could
result in a lien on the Site or the
Facility or liability of Seller; and (e)
there are no incinerators or cesspools
on the Site; all waste is discharged into a
government-approved sewage disposal
system; and no Hazardous Materials are
discharged from the Site, directly or
indirectly, into any body of water. The
term "Hazardous Materials" shall mean
any substance, material, water, gas, or
particulate matter that is regulated by
any local governmental authority, any
applicable state, or the United States of
America, as an environmental pollutant or
dangerous to public health, public
welfare, or the natural environment
including, without limitation, protection of
non-human forms of life, land, water,
groundwater, and air, including, but not
limited to, any material or substance that
is (i) defined as "toxic,"
"polluting," "hazardous waste," "hazardous
material," "hazardous substance,"
"extremely hazardous waste," or "restricted
hazardous waste" under any provision
of local, state, or federal law, (ii)
petroleum; (iii) asbestos; (iv)
polychlorinated biphenols; (v) radioactive
material; (vi) designated as a
"hazardous substance" pursuant to the Clean
Water Act, 33 U.S.C. Section 1251 et
seq. (33 U.S.C. Section 1251); (vii)
defined as a "hazardous waste" pursuant to
the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq. (42
U.S.C. Section 6901); (viii) defined as a
"hazardous substance" pursuant to the
Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C.
Section 9601 et sea. (42 U.S.C. Section
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<PAGE>
9601); (ix) defined as a "chemical
substance" under the Toxic Substances Control
Act, 15 U.S.C Section 2601 et seq. (15
U.S.C Section 2601); or (x) defined as a
pesticide under the Federal Insecticide,
Fungicide, and Rodenticide Act, 7
U.S.C. Section 136 et seq. (7 U.S.C.
Section 136). The term "all applicable
governmental laws" in this Section
4.3(B)(2) shall include all statutes
specifically described in the foregoing
sentence and all federal, state, and
local environmental health and safety
statutes, ordinances, codes, rules,
regulations, orders, and decrees
regulating, relating to, or imposing
liability or standards concerning or in
connection with Hazardous Materials.
(3) Seller
shall provide Southwestern evidence
reasonably satisfactory to Southwestern of:
(a) the characteristics of lessor's
title to the Site; (b) that the title is
unencumbered by easements, attachments,
or liens other than Permitted Encumbrances;
(c) that the lessor has duly
authorized the execution, delivery, and
performance of the lease; (d) that
lessor's performance of the lease is not
subject to the occurrence or
nonoccurrence of any event or contingency
other than force majeure, milestones,
and Seller's defaults; (e) that the lease
conveys ail rights, title, and
interests in the Site necessary for Seller
to perform the terms and conditions
of this Agreement including, without
limitation, ancillary services (such as raw
water) and easements of proper duration and
scope; (f) that the Seller has duly
authorized the execution, delivery, and
performance of the lease; (g) Seller's
performance of the lease is not subject to
the occurrence or nonoccurrence of
any event or contingency other than force
majeure, milestones, and lessor
defaults; and (h) that the lease allows
assignment of Seller's rights thereunder
to Southwestern in the event Southwestern
exercises its rights to purchase or
operate the Facility, notwithstanding any
defaults by lessee under the lease,
provided that Southwestern cure any such
lessee defaults.
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<PAGE>
(C) Financial
Closing. No later than three (3) months
after the Discharge Notice Date, Seller
shall provide Southwestern with an
executed loan agreement or bond indenture
for the Senior Debt sufficient to
cover the estimated cost to complete the
construction of the Facility
("Financial Closing").
(D)
Construction Commitment. No later than one (1) month
after Financial Closing, Seller shall issue
a notice to proceed under the EPC
Contract.
(E) Set
Generating Equipment. No later than three (3)
months after Financial Closing, Seller
shall provide Southwestern with a
certification that the Facility generating
equipment has been set.
(F) Set HRSGs.
No later than ten (10) months after
Financial Closing, Seller shall provide
Southwestern certification that the
Facility HRSGs have been set.
4.4 Certain
Milestone Matters.
(A)
Notification. Seller shall notify Southwestern
monthly of the status of achieving each
milestone set forth in Section 4.3.
(B) Milestone
Deadline Dates. The Milestone Deadline Date
for each milestone in Section 4.3 shall be
twelve (12) months after the Proposed
Milestone Date.
4.5
Construction Schedule and Proposed Contractor Milestone Dates.
Not less than thirty (30) days prior to
starting construction of the Facility,
Seller shall submit for Southwestern's
review its construction schedule, which
shall set forth proposed dates for the EPC
Contractor's achievement of certain
levels of progress in completing the
Facility (the "Contractor Milestone
Dates"). The Contractor Milestone Dates
shall be included in this Agreement as
Attachment J and shall be adjustable for
events of Force Majeure and Delivery
Excuse. Seller shall also submit to
Southwestern its projected start-up and test
schedules for the Facility thirty (30) days
prior to start-up and testing dates
for the Facility
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for Phase I and Phase II, respectively.
Once construction of the Facility
commences, Seller shall submit to
Southwestern progress reports in a form
reasonably satisfactory to Southwestern on
the first day of every month until
the Facility commences Cogeneration
Commercial Operation. These progress reports
shall notify Southwestern of any changes in
the Contractor Milestone Dates and
the construction or start-up and testing
schedule for the Facility resulting
from Force Majeure or Delivery Excuse.
4.6
Southwestern's Rights During Construction. Southwestern shall
have the right to monitor the construction,
start-up, and testing of the
Facility. Seller shall allow physical
inspections of the Facility and all
documents related to construction,
start-up, and testing as may be reasonably
requested by Southwestern during and after
completion of construction for the
exercise of Southwestern's review rights
hereunder. Southwestern's technical
review and inspection of the Facility shall
not be construed as endorsing the
design thereof or as any warranty of the
safety, durability, or reliability of
the Facility.
4.7 Conditions
to Combustion Turbine Commercial Operation Date.
The occurrence of the Combustion Turbine
Commercial Operation Date shall be no
earlier than May 1, 1998, and is contingent
upon Seller providing evidence
reasonably acceptable to Southwestern of
the satisfaction or occurrence of all
of the following conditions:
(A) completion
of successful acceptance testing of the
Facility (excluding the HRSCs) has occurred
as required pursuant to the Seller
Financing Documents;
(B) the
Facility (excluding the HRSGs) has demonstrated
the reliability of any communications
systems and equipment for communications
with Southwestern's
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<PAGE>
SCC required to be provided by Seller
pursuant to this Agreement not less than
thirty (30) days prior to the Combustion
Turbine Commercial Operation Date;
(C) the
Facility (excluding the HRSGs) has generated
electricity continuously for a period of
two (2) consecutive hours synchronized
to the Southwestern system at a level equal
to at least 173 MW and successfully
completed five (5) consecutive startups and
shutdowns;
(D) an
independent engineer's certification has been
obtained stating that (1) the Facility
(excluding the HRSGs) has been completed
in all material respects (excepting, e.g.,
punch list items that do not
materially adversely affect the ability of
the Facility (excluding the HRSGs)
to operate in Phase I as intended
hereunder) in accordance with Good Utility
Practice, and (2) the Facility (excluding
the HRSGs) has been designed and
constructed in accordance with Good Utility
Practice and if operated and
maintained in accordance with Good Utility
Practice can reasonably be expected
to have a useful life at least equal to the
Initial Term and the Extended Term;
(E) the
Facility is certified as a QF (which
certification may be satisfied by Seller's
filing of a notification of
self-certification with the FERC);
(F) security
arrangements meeting the requirements of
Section 6.5 have been established;
(G)
certificates of insurance coverages or insurance
policies required by Article 13 have been
obtained;
(H) an opinion
of Seller's counsel has been rendered that
all permits, licenses, approvals, and other
governmental authorizations required
for the construction and operation of the
Facility (excluding the HRSGs) in
accordance with this Agreement have been
obtained; and
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(I) the
electrical interconnection of the Facility
(excluding the HRSGs) to the Southwestern
system has been completed in
accordance with Good Utility Practice.
4.8 Conditions
to Cogeneration Commercial Operation Date. The
occurrence of the Cogeneration Commercial
Operation Date is contingent upon
Seller providing evidence reasonably
acceptable to Southwestern of the
satisfaction or occurrence of all of the
following conditions:
(A) completion
of successful acceptance testing of the
Facility has occurred pursuant to the
requirements of the Seller Financing
Documents;
(B) the
Facility has demonstrated the reliability of the
Facility's communications systems and
equipment for communications with
Southwestern's SCC required to be provided
by Seller pursuant to this Agreement
not less than thirty (30) days prior to the
Cogeneration Commercial Operation
Date;
(C) the
Facility has generated electricity continuously
for a period of twenty-four (24)
consecutive hours synchronized to the
Southwestern system at a level equal to at
least 194 MW;
(D) an
independent engineer's certification has been
obtained stating that the Facility has been
completed in all material respects
(excepting, e.g., punch list items that do
not materially adversely affect the
ability of the Facility to operate in Phase
II as intended hereunder) in
accordance with Good Utility Practice, and
the Facility has been designed and
constructed in accordance with Good Utility
Practice and if operated and
maintained in accordance with Good Utility
Practice can reasonably be expected
to have a useful life at least equal to the
Initial Term and the Extended Term;
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(E) the
Facility is certified as a QF (which
certification may be satisfied by Seller's
filing of a notification of
self-certification with the FERC);
(F) security
arrangements meeting the requirements of
Section 6.5 have been established;
(G)
certificates of insurance coverages or insurance
policies required by Article 13 have been
obtained;
(H) an opinion
of Seller's counsel has been rendered that
all permits, licenses, approvals, and other
governmental authorizations required
for the construction and operation of the
Facility in accordance with this
Agreement have been obtained; and
(I) the
electrical interconnection of the Facility to the
Southwestern system has been completed in
accordance with Good Utility Practice.
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ARTICLE 5
PAYMENT AND BILLINGS
5.1 General
Terms and Conditions. Subject to the other terms and
conditions of this Agreement, payment for
purchases by Southwestern from Seller
under this Agreement shall consist of the
sums of (i) a Capacity Payment, (ii) a
Fixed O&M Payment, (iii) an Energy
Payment, (iv) a Variable O&M Payment, and (v)
Start Payments (when applicable), less a
Seller Charge, all as defined below and
further specified in Attachment F.
5.2 Capacity
Payments.
(A) During
Phase I, Southwestern shall accept, purchase,
and pay for the Contract Capacity, as
determined pursuant to Section 2.6(C) or,
if applicable, Section 2.6(D), at the rate
specified in Schedule F-1.
(B) During
Phase II, Southwestern shall accept, purchase,
and pay for the Contract Capacity as
determined pursuant to Section 2.6(C) or,
if applicable, Section 2.6(D), at the rate
specified in Schedule F-1, subject to
the adjustment described in Section
5.2(C).
(C) Starting
in the second Contract Year, each monthly
Capacity Payment from Southwestern to
Seller will be adjusted for AF as follows:
(i) If a) the
twelve (.12) month rolling average
AF is less than or equal to 0.920 but
greater than 0.600 and the months over
which the twelve (12) month rolling average
AF is computed do not contain a
Major Maintenance Outage, or b) the twelve
(12) month rolling average AF is less
than or equal to 0.900 but greater than
0.600 and the months over which the
twelve (12) month rolling average AF
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is computed contain a Major Maintenance
Outage, then the Capacity Payment will
be multiplied by a factor expressed as a
three place decimal equal to:
9AF-0.280
---------
8
(ii)
If the twelve (12) month rolling average AF
is greater than 0.960, then the Capacity
Payment will be multiplied by a factor
expressed as a three place decimal equal
to:
AF + 0.040
(iii) If
a) the twelve (12) month rolling average
AF is less than or equal to 0.960 but
greater than 0.920 and the months over
which the twelve (12) month rolling average
AF is computed do not contain a
Major Maintenance Outage, or b) the twelve
(12) month rolling average AF is less
than or equal to 0.960 but greater than
0.900 and the months over which the
twelve (12) month rolling average AF is
computed contain a Major Maintenance
Outage, then the Capacity Payment will be
multiplied by a factor equal to:
1.000
(iv)
Notwithstanding the twelve (12) month
rolling average AF calculated in (i)
through (iii), above,
(a) If the
five (5) month rolling
average AF calculated for the On-Peak Hours
of the On-Peak Months is less than
or equal to 0.950 but greater than 0.600,
then the Capacity Payment will be
multiplied by a factor expressed as a three
place decimal equal to:
8AF-0.600
---------
7
if such factor is less than the factor
calculated in (i), (ii), and (iii),
above.
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<PAGE>
(b) If the
five (5) month rolling
average AF calculated for the On-Peak Hours
of the On-Peak Months is greater
than 0.970, then the Capacity Payment will
be multiplied by a factor equal to:
AF + 0.030
if such factor is less than the factor
calculated in (i), (ii), and (iii),
above.
(c) If the
five (5) month rolling
average AF calculated for the On-Peak Hours
of the On-Peak Months is less than
or equal to 0.970 but greater than 0.950,
then the Capacity Payment will be
multiplied by a factor equal to:
1.000
if such factor is less than the factor
calculated in (i), (ii), and (iii),
above.
(d) For
purposes of this Section
5.2(C)(iv), the "five (5) month rolling
average AF" refers to the average of the
monthly AF calculated for the On-Peak Hours
of each of the last five (5) On-Peak
Months.
(v) In all
events, no Capacity Payment will be
made for those months in which either a)
the twelve (12) month rolling average
AF is less than or equal to 0.600 or b) the
five (5) month rolling average AF
calculated for the On-Peak Hours of the
On-Peak Months is less than or equal to
0.600.
5.3 Fixed
O&M Payment. During Phase II only, a Fixed O&M Payment
will be made at the price set forth in
Schedule F-2 applied to the Contract
Capacity as determined pursuant to Section
2.6(C) or, if applicable, Section
2.6(D).
5.4 Energy
Payments.
(A) Energy
Payments will be made at a rate computed for
each hour in accordance with the following
formula:
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Hourly Energy Payments = (Fuel Price) x (Guaranteed Heat Rate)
x (Hourly Energy)
Where:
Fuel Price =
The price for fuel in the hour under the
Fuel Agreements, expressed in dollars per
MMBtu. The Fuel Price shall encompass all
actual costs for delivered fuel, including
without limitation, fixed fuel
transportation cost, variable fuel
transportation cost, variable fuel cost,
reservation charges and taxes under the Fuel
Agreements. Fixed charges under the Fuel
Agreements shall be allocated to the Fuel
Price in such a manner as to accomplish
complete recovery of all fixed charges in
the month through the Energy Payment for the
month.
Guaranteed Heat Rate = The Heat Rates
specified on Schedule F-4.
Hourly Energy =
The Energy delivered in the hour to the
Interconnection Point
The Energy Payment for a month is the sum
of all Hourly Energy Payments
calculated for such month.
(B)
Southwestern shall use a standard sixty (60) minute
clock hour interval, as measured by its
metering equipment, as the basic billing
increment for the purpose of calculating
the Energy Payment due to Seller.
(C) Energy
delivered shall be determined by Southwestern
based on data collected by the billing
meters and associated equipment detailed
in Article 8.
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<PAGE>
5.5 Variable
O&M Payment. During Phase II only, a variable O&M
Payment will be made at the price set forth
in Schedule F-3 applied to the
Energy delivered to the Interconnection
Point.
5.6 Seller
Charge. For each calendar month, commencing with the
Discharge Notice Date, Southwestern shall
assess a charge of $320.00 as
reimbursement for expenses not otherwise
expressly provided for in this
Agreement. This amount shall be adjusted
annually by the rate of change over
such annual period in the GDPIPD.
5.7 Start
Payments. Seller will be paid for Start Payments in
accordance with Schedule F-5 provided that
such Start Payments shall only be
payable if the shut-down state was
requested or solely caused by Southwestern.
5.8
Pre-Commercial Operation Energy. If pursuant to Section 3.2(A)
Southwestern buys Energy from the Seller
during testing prior to the Combustion
Turbine Commercial Operation Date or during
testing prior to the Cogeneration
Commercial Operation Date, then
Southwestern shall pay Seller for such Energy at
a rate per MWh that shall be equal to the
Adjusted Non-Firm Energy Cost set out
in Schedule F-6 calculated for the period
during which such Energy was provided.
5.9 Manner of Payment.
(A) Payments.
All Payments shall be made monthly, as
described in this Article 5. Remittances
shall be made by check or by Electronic
Funds Transfer, or wire transfer, as
specified in writing by the Party to whom
payment is due at least thirty (30) days
prior to the effective date of such
instruction.
(B) Statement.
Southwestern shall prepare a statement
showing purchases by Southwestern from the
Facility and associated payments, and
any charges to Seller, including any
damages or other payments due from Seller
to Southwestern
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<PAGE>
under the terms of this Agreement, and
shall provide the statement to Seller
within ten (10) calendar days of the end of
the month.
(1) The
statement will show the MWh of Energy
metered at Southwestern's meters at the
Facility, the Combustion Turbine
Contract Capacity or Cogeneration Contract
Capacity, as applicable, the
adjustment factor in accordance with
Section 5.2(C), damages for Capacity
Shortfalls in accordance with Section 6.3,
the monthly Seller charge assessed by
Southwestern, the total amount due and,
upon request, any other published data
reasonably pertinent to the calculation of
the payments as set forth in Section
5.
(2) If either
Party has not paid the amount due
the other Party by the applicable late
payment charge date set forth in Section
5.9(C), then the Party to which such
overdue amount is due, at its option, may
exercise the right of offset and deduct the
sums owed by the other Party from
payments remaining due to such Party. If
Southwestern elects to apply any
amounts owed against the Seller as provided
herein, then Southwestern's
statement shall additionally contain an
itemization of the amounts owed by
Seller to Southwestern that are and are not
applied. Any amount shown on such
statement which is payable and actually
paid from a Security Fund as provided in
Article 6, shall be indicated as so paid on
such statement.
(C) Late
Charges. Any amounts due Seller or Southwestern,
as the case may be, shall be due and
payable within fifteen (15) days after
receipt of the statement setting forth such
amount. If the amount due is not
paid by the due date, a late payment charge
shall be applied to the unpaid
balance and shall be added to the next
billing. Such late payment charge shall
be calculated based on the Contract
Interest Rate.
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<PAGE>
(D) Billing Disputes. Both Southwestern and Seller, may
dispute bills in good faith and place the
disputed amount in an escrow account
until the disputes are resolved pursuant to
Section 16.12 hereof. Any interest
earned on the amount in escrow shall be
allocated to the Parties in proportion
with the settlement of the disputed amount.
Notwithstanding said escrow
procedure, either Party may, at any time,
offset against any and all amounts
that may be due and owed to such Party
under this Agreement including all
damages and other payments that such Party
asserts in good faith are owed by the
other Party to such Party pursuant to this
Agreement and are past due. Upon any
such offset, any obligation of the paying
Party to maintain an escrow account
with respect to the amounts offset shall be
excused. In the event that any
amount offset by a Party against any
amounts due and owing to the other Party
under this Agreement is later determined
not to be owed by such Party to the
offsetting Party, the offsetting Party
shall then pay over such amount to the
other Party, with interest from the date of
offset calculated pursuant to
Section 5.9(C).
5.10
Pro-rated Months.
If (a) the commencement of service in Phase I or Phase II
occurs on a day other than the first day of
a month, or (b) the termination of
service in Phase I or Phase II occurs on a
day other than the last day of a
month, then any monthly-calculated payment
shall be pro-rated for such month to
reflect that the service was provided for
only the applicable part of the month.
If the Contract Capacity determined under
Section 2.6 changes in a month, then
any monthly-calculated payment shall be
calculated for such month to reflect
that a different Contract Capacity was in
effect for the affected days of such
month.
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<PAGE>
ARTICLE 6
DAMAGES AND SECURITY FUND
6.1
Establishment of Completion Security Fund.
(A) Seller
agrees to establish, fund, and maintain the
Completion Security Fund pursuant to this
Section 6.1, which shall be available
at Southwestern's discretion pursuant to
Section 6.2 to pay any amount due to
Southwestern pursuant to this
Agreement:
(1) The
Completion Security Fund shall be in
force beginning thirty (30) days after the
Discharge Notice Date and shall
remain in force until the earlier of the
Cogeneration Commercial Operation Date
is achieved or the date Southwestern shall
be entitled to draw and retain all
amounts in the Completion Security Fund as
permitted pursuant to this Agreement.
The amount of security that must be
maintained in the Completion Security Fund
shall be:
(a) $400,000
as of thirty (30) days
after the Discharge Notice Date;
(b) $8,250,000
as of Financial Closing;
and
(c) $5,800,000
as of the day after the
Combustion
Turbine Commercial Operation Date.
(2) As
additional security for the performance
of Seller's obligations hereunder, Seller
shall cause the Financing Documents to
include provisions for a debt service
reserve fund to be funded to an amount
equal to at least three (3) months worth of
debt service payments and a working
capital reserve or line of credit in an
amount at least equal to one (1) month
of Seller's projected operating expenses
and a maintenance reserve fund with
periodic contributions designed to provide
for the funding of the expected cost
of the Facility's next scheduled major
maintenance. Seller shall be
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<PAGE>
deemed in compliance with this Section to
the extent such funds are established
and maintained satisfactory to the Senior
Lenders.
(B) The
Completion Security Fund shall be maintained at
Seller's expense, shall be originated by or
deposited in a financial institution
or company ("Issuer") reasonably acceptable
to Southwestern, and shall be in the
form of any combination of the
following:
(1) an
irrevocable standby letter of credit or a
performance bond in form and substance
reasonably acceptable to Southwestern and
consistent with this Agreement, including a
provision for thirty (30) days
advance notice to Southwestern of any
expiration of the security so as to allow
Southwestern the right to exercise its
rights under said security to draw the
full amount thereof as provided in Section
6.1(D); or
(2) United
States currency, deposited with
Issuer, either: (i) in an account under
which Southwestern is designated as
beneficiary with authority to draft from
the account of the Issuer or otherwise
access the security; or (ii) held by Issuer
as trustee with instructions to pay
claims made by Southwestern against such
security in accordance with this
Agreement, such instructions to be in a
form reasonably satisfactory to
Southwestern. Security provided in this
form shall include a requirement for
immediate notice to Southwestern from
Issuer and Seller in the event that the
sums held as security in the account or
trust do not at any time meet the
minimum security requirements as set forth
in this Article 6; or
(3) a
guarantee, in form and substance
reasonably satisfactory to Southwestern,
from an entity with a bond or senior
debt rating of investment grade as
determined by at least two (2) rating
agencies, one of which must be either
Standard & Poor's or Moody's (or if either
one or both are not available, ratings from
alternate rating
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<PAGE>
sources selected by Southwestern). In
addition, the entity providing such
guarantee cannot be on credit watch or show
a negative ratings trend that
reasonably indicates that any such downward
adjustment would cause such bond or
debt rating to fall below investment
grade.
(C)
Southwestern will re-evaluate on an annual basis the
value of all non-cash security posted by
Seller. If the rating (as measured by
either Standard & Poor's or Moody's, or
if neither is available, a rating from
an alternate rating source selected by
Southwestern) of the entity guaranteeing
the security falls below investment grade,
or if such entity is placed on credit
watch by a rating agency with a reasonable
indication that the next downward
rating adjustment for such entity would
cause its rating to fall below
investment grade, Seller shall be required
to convert the security provided by
the guarantee to such substitute security
as shall meet the requirements
therefor under Section 6.1(B) within thirty
(30) days after notice from
Southwestern of such rating action.
(D) if
security in the form of an irrevocable direct pay
l
